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The Clearing House Association L.L.C., the American Bankers Association (ABA), the Securities Industry & Financial Markets Association (SIFMA), the Financial Services Roundtable (FSR), the Institute of International Bankers (IIB), the Structured Finance Industry Group (SFIG), and the International Association of Credit Portfolio Managers (collectively, the "Associations") yesterday evening (31 January) filed a comment letter with the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation on the proposed rules regarding the liquidity coverage ratio (LCR).
"The Clearing House strongly supports US implementation of the LCR as an important step in strengthening the resiliency of banks and the stability of the financial system," said David Wagner, executive managing director and head of finance affairs at The Clearing House. "We are concerned, however, that certain aspects of the U.S. agencies' proposal diverge from the standards established by the Basel Committee in ways that generally are not warranted, and so encourage the agencies to revisit the proposal to improve the accuracy and suitability of the LCR as a measure of actual liquidity risk."
"We have concerns that such a divergence from the Basel LCR could impact market liquidity as well as firms with cross-border operations, which is why we support an internationally consistent LCR," said Kenneth E. Bentsen, Jr., president and CEO of SIFMA. "We also seek more flexibility in what can be held in liquidity pools to buffer the effects of the US proposed rule."
"We hope regulators will consider the concerns outlined in the comment letter regarding US divergence from the Basel LCR, including the proposed accelerated US implementation schedule," said Rich Foster, vice president & senior counsel for regulatory and legal affairs of the Financial Services Roundtable.
"We have real concerns that the proposed rules do not adequately recognize the central role securitization plays in providing financing to businesses and consumers in the real economy," said Richard Johns, executive director of SFIG. "We feel the constructive comments we have provided today will allow the Agencies to better account for the important role of the securitization industry without undermining the primary goal of improving overall liquidity standards."
The Associations believe that the Basel LCR provides a balanced approach to capturing liquidity risk and they raise concerns that the US proposal will impact the ability of US financial institutions to serve important customer markets. In addition, only under unique circumstances should the US diverge from the Basel LCR and impose a shorter implementation schedule.
The Associations state that the effects of divergence could be exacerbated due to new regulations on capital, leverage, and other prudential standards, as well as by the implementation of the wide-spread reforms in the Dodd-Frank Act.
The Associations reiterate their support for an internationally consistent LCR and the comment letter identifies areas in which the proposed rule differs from the Basel LCR to the point of raising concerns, is not warranted by country-specific circumstances, and fails to account for the specific aspects of the US banking system.
The full text of the comment letter can be found here.
SIFMA also issued a comment letter on the impact of LCR on municipal securities found here.
SIFMA and SFIG issued on comment letter on the impact of LCR on securitization found here.
