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From Banking and Finance Law Daily, November 20, 2018

FDIC seeks comments on capital and liquidity thresholds

By John M. Pachkowski, J.D.

At its Nov. 20, 2018, open meeting, the Federal Deposit Insurance Corporation’s Board of Directors approved a notice of proposed rulemaking that would establish a revised framework for large U.S. banking organizations and their subsidiary depository institutions—banking organizations—for determining application of the regulatory capital rule, the liquidity coverage ratio (LCR) rule, and the proposed net stable funding ratio (NSFR) rule based on a banking organization’s risk profile. Comments on the proposed rulemaking are due by Jan. 22, 2019.

One board member, Martin J. Gruenberg, voted "no" on the proposed rulemaking.

The Federal Reserve Board has previously approved the proposed rulemaking (see Banking and Finance Law Daily, Oct. 31, 2018). In most likelihood, with the Comptroller of the Currency sitting on the FDIC’s board, the Office of the Comptroller of the Currency will approve the proposed rulemaking as well.

Proposed rule. The proposed rulemaking would more closely align the regulatory requirements that apply to large banking organizations with their risk profiles and would place banking organizations, with total assets of more than $100 billion into one of four categories. These four categories are based on based on size, cross jurisdictional activity, weighted short-term wholesale funding, off-balance sheet exposure, and nonbank assets.

Thoughtful approach. During the meeting, FDIC Chairman Jelena McWilliams called the proposed rulemaking a "thoughtful approach to tailoring the application of prudential standards within the banking industry" and "is something that we should continue to explore for banks of all sizes and risk profiles." She further noted, "The cumulative expected decrease in capital among banks with total consolidated assets above $100 billion is less than 1 percent."

"Unnecessarily weaken" protection. In voting "no" on the proposed rulemaking, Gruenberg noted that "[a] consequence of the revised framework would be to reduce significantly the liquidity requirements for banking organizations with assets between $100 billion and $700 billion." He added, "this would, in my view, unnecessarily weaken a central post-crisis prudential protection for the financial system and place the Deposit Insurance Fund at greater risk."

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