Today, May 5, 2020, the federal banking agencies released an interim final rule to neutralize the effect of participating in the Paycheck Protection Program Liquidity Facility (“PPPLF”) and Money Market Liquidity Facility (“MMLF”) on a banking organization’s Liquidity Coverage Ratio (“LCR”).
Absent relief, a banking organization’s repayments of advances of PPPLF and MMLF loans would be treated as LCR outflows, and receipt of payments on underlying PPPLF and MMLF collateral would be treated as LCR inflows. Different outflow and inflow rates assigned to each leg of the transaction, as well as maturity mismatch add-ons, could have the effect of reducing the banking organization’s LCR. The interim final rule addresses this issue by excluding from a banking organization’s LCR calculation any outflow and inflow amounts related to the PPPLF, MMLF, and assets securing funding from such facilities. The relief does not apply to the extent the banking organization or a consolidated subsidiary issued the securities, debt obligations, or other instruments serving as collateral.
The interim final rule will be published in the Federal Register on May 6, 2020, and the agencies will accept comments on the interim final rule through June 5, 2020.