9120 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Part 50 

[Docket ID OCC–2014–0029] 

RIN 1557–AD97 

FEDERAL RESERVE SYSTEM 

12 CFR Part 249 

[Regulation WW; Docket No. R–1537] 

RIN 7100–AE 51 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Part 329 

RIN 3064–AE 44 

Net Stable Funding Ratio: Liquidity 

Risk Measurement Standards and 

Disclosure Requirements 

AGENCY: Office of the Comptroller of the 

Currency, Department of the Treasury; 

Board of Governors of the Federal 

Reserve System; and Federal Deposit 

Insurance Corporation. 

ACTION: Final rule. 

SUMMARY: The Office of the Comptroller 

of the Currency (OCC), the Board of 

Governors of the Federal Reserve 

System (Board), and the Federal Deposit 

Insurance Corporation (FDIC) 

(collectively, the agencies) are adopting 

a final rule that implements a stable 

funding requirement, known as the net 

stable funding ratio (NSFR), for certain 

large banking organizations. The final 

rule establishes a quantitative metric, 

the NSFR, to measure the stability of the 

funding profile of certain large banking 

organizations and requires these 

banking organizations to maintain 

minimum amounts of stable funding to 

support their assets, commitments, and 

derivatives exposures over a one-year 

time horizon. The NSFR is designed to 

reduce the likelihood that disruptions to 

a banking organization’s regular sources 

of funding will compromise its liquidity 

position, promote effective liquidity risk 

management, and support the ability of 

banking organizations to provide 

financial intermediation to businesses 

and households across a range of market 

conditions. The NSFR supports 

financial stability by requiring banking 

organizations to fund their activities 

with stable sources of funding on an 

ongoing basis, reducing the possibility 

that funding shocks would substantially 

increase distress at individual banking 

organizations. The final rule applies to 

certain large U.S. depository institution 

holding companies, depository 

institutions, and U.S. intermediate 

holding companies of foreign banking 

organizations, each with total 

consolidated assets of $100 billion or 

more, together with certain depository 

institution subsidiaries (together, 

covered companies). Under the final 

rule, the NSFR requirement increases in 

stringency based on risk-based measures 

of the top-tier covered company. U.S. 

depository institution holding 

companies and U.S. intermediate 

holding companies subject to the final 

rule are required to publicly disclose 

their NSFR and certain components of 

their NSFR every second and fourth 

calendar quarter for each of the two 

immediately preceding calendar 

quarters. The final rule also amends 

certain definitions in the agencies’ 

liquidity coverage ratio rule that are also 

applicable to the NSFR. 

DATES: Effective Date: July 1, 2021. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Christopher McBride, Director, 

James Weinberger, Technical Expert, or 

Ang Middleton, Bank Examiner (Risk 

Specialist), (202) 649–6360, Treasury & 

Market Risk Policy; Dave Toxie, Capital 

Markets Lead Expert, (202) 649–6833; 

Patrick T. Tierney, Assistant Director, 

Henry Barkhausen, Counsel, or Daniel 

Perez, Counsel, Chief Counsel’s Office, 

(202) 649–5490; for persons who are 

deaf or hard of hearing, TTY, (202) 649– 

5597; Office of the Comptroller of the 

Currency, 400 7th Street SW, 

Washington, DC 20219. 

Board: Juan Climent, Assistant 

Director, (202) 872–7526, Kathryn 

Ballintine, Manager, (202) 452–2555, J. 

Kevin Littler, Lead Financial Institution 

Policy Analyst, (202) 475–6677, Michael 

Ofori-Kuragu, Senior Financial 

Institution Policy Analyst II, (202) 475– 

6623 or Christopher Powell, Senior 

Financial Institution Policy Analyst II, 

(202) 452–3442, Division of Supervision 

and Regulation; Benjamin W. 

McDonough, Associate General Counsel, 

(202) 452–2036, Steve Bowne, Senior 

Counsel, (202) 452–3900, Jason Shafer, 

Senior Counsel, (202) 728–5811, Laura 

Bain, Counsel, (202) 736–5546, or 

Jeffery Zhang, Attorney, (202) 736–1968, 

Legal Division, Board of Governors of 

the Federal Reserve System, 20th and C 

Streets NW, Washington, DC 20551. For 

the hearing impaired only, 

Telecommunication Device for the Deaf 

(TDD), (202) 263–4869. 

FDIC: Bobby R. Bean, Associate 

Director, bbean@fdic.gov; Brian Cox, 

Chief, Capital Markets Strategies 

Section, brcox@fdic.gov; Eric Schatten, 

Senior Policy Analyst, eschatten@

fdic.gov; Andrew Carayiannis, Senior 

Policy Analyst, acarayiannis@fdic.gov; 

Kyle McCormick, Capital Markets Policy 

Analyst, kmccormick@fdic.gov; Capital 

Markets Branch, Division of Risk 

Management Supervision, (202) 898– 

6888; Gregory S. Feder, Counsel, 

gfeder@fdic.gov, Andrew B. Williams, II, 

Counsel, and williams@fdic.gov, or 

Suzanne J. Dawley, Counsel, sudawley@

fdic.gov, Supervision, Legislation & 

Enforcement Branch, Legal Division, 

Federal Deposit Insurance Corporation, 

550 17th Street NW, Washington, DC 

20429. For the hearing impaired only, 

Telecommunication Device for the Deaf 

(TDD), (800) 925–4618. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

II. Background 

III. Overview of the Proposed Rule and 

Proposed Scope of Application 

A. The Proposed Stable Funding 

Requirement 

B. Revised Scope of Application 

IV. Summary of Comments and Overview of 

Significant Changes to the Proposals 

V. The Final Rule’s Purpose, Design, Scope 

of Application, and Minimum 

Requirements 

A. Purpose of the Final Rule 

B. Comments on the Need for the NSFR 

Requirement 

C. The NSFR’s Conceptual Framework, 

Design, and Calibration 

1. Use of an Aggregate Balance Sheet 

Measure and Weightings 

2. Use of a Simplified and Standardized 

Point-in-Time Metric 

3. Use of a Time Horizon 

4. Stress Perspectives and Using Elements 

From the LCR Rule 

5. Analytical Basis of Factor Calibrations 

and Supervisory Considerations 

D. Adjusting Calibration for the U.S. 

Implementation of the NSFR 

E. NSFR Scope and Minimum Requirement 

Under the Final Rule—Full and Reduced 

NSFR 

1. Proposed Minimum Requirement and 

the Tailoring Final Rule 

2. Applicability of the Final Rule to U.S. 

Intermediate Holding Companies and 

Use of the Risk-Based Indicators 

3. NSFR Minimum Requirements Under 

the Final Rule: Applicability and 

Calibration 

4. Applicability to Depository Institution 

Subsidiaries 

VI. Definitions 

A. Revisions to Existing Definitions 

1. Revised Definitions for Which the 

Agencies Received no Comments 

2. Revised Definitions for Which the 

Agencies Received Comments 

3. Other Definitions and Requirements for 

Which the Agencies Received Comments 

4. Other Definitions and Requirements for 

Which the Agencies Did Not Receive 

Comments 

B. New Definitions 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9121 

1See ‘‘Net Stable Funding Ratio: Liquidity Risk 

Measurement Standards and Disclosure 

Requirements,’’ 81 FR 35124 (June 1, 2016). 

2See Proposed Changes to Applicability 

Thresholds for Regulatory Capital and Liquidity 

Requirements, 83 FR 66024 (December 21, 2018) 

(domestic tailoring proposal); Changes to 

Applicability Thresholds for Regulatory Capital 

Requirements for Certain U.S. Subsidiaries of 

Foreign Banking Organizations and Application of 

Liquidity Requirements to Foreign Banking 

Organizations, Certain U.S. Depository Institution 

Holding Companies, and Certain Depository 

Institution Subsidiaries, 84 FR 24296 (May 24, 

2019) (FBO tailoring proposal). The agencies 

indicated that comments regarding the NSFR 

proposed rule would be addressed in the context of 

a final rule to adopt a NSFR requirement for large 

U.S. banking organizations and foreign banking 

organizations. 

3See further discussion of balance sheet funding 

in section V.C below. 

4See Senior Supervisors Group, Risk 

Management Lessons from the Global Banking 

Crisis of 2008, (October 21, 2009), available at 

https://www.newyorkfed.org/medialibrary/media/ 

newsevents/news/banking/2009/SSG_report.pdf. 

1. New Definitions for Which the Agencies 

Received no Comments 

2. New Definitions for Which the Agencies 

Received Comments 

VII. NSFR Requirement Under the Final Rule 

A. Rules of Construction 

1. Balance-Sheet Values 

2. Netting of Certain Transactions 

3. Treatment of Securities Received in an 

Asset Exchange by a Securities Lender 

B. Determining Maturity 

C. Available Stable Funding 

1. Calculation of the ASF Amount 

2. Characteristics for Assignment of ASF 

Factors 

3. Categories of ASF Factors 

D. Required Stable Funding 

1. Calculation of the RSF Amount 

2. Characteristics for Assignment of RSF 

Factors 

3. Categories of RSF Factors for 

Unencumbered Assets and Commitments 

4. Treatment of Rehypothecated OffBalance Sheet Assets 

E. Derivative Transactions 

1. Scope of Derivatives Transactions 

Subject to §ll.107 of the Final Rule 

2. Current Net Value Component 

3. Initial Margin Received by a Covered 

Company 

4. Customer Cleared Derivative 

Transactions 

5. Initial Margin Component 

6. Future Value Component 

7. Comments on the Effect on Capital 

Markets and Commercial End Users 

8. Derivatives RSF Amount Calculation 

9. Derivatives RSF Amount Numerical 

Example 

F. NSFR Consolidation Limitations 

G. Treatment of Certain Facilities 

H. Interdependent Assets and Liabilities 

VIII. Net Stable Funding Ratio Shortfall 

IX. Disclosure Requirements 

A. NSFR Public Disclosure Requirements 

B. Quantitative Disclosure Requirements 

1. Disclosure of ASF Components 

2. Disclosure of RSF Components 

C. Qualitative Disclosure Requirements 

D. Frequency and Timing of Disclosure 

X. Impact Assessment 

A. Impact on Funding 

B. Costs and Benefits of an RSF Factor for 

Level 1 HQLA, Both Held Outright and 

as Collateral for Short-Term Lending 

Transactions 

C. Response to Comments 

XI. Effective Dates and Transitions 

A. Effective Dates 

B. Transitions 

1. Initial Transitions for Banking 

Organizations That Become Subject to 

NSFR Rule After the Effective Date 

2. Transitions for Changes to an NSFR 

Requirement 

3. Reservation of Authority To Extend 

Transitions 

4. Cessation of Applicability 

XII. Administrative Law Matters 

A. Congressional Review Act 

B. Plain Language 

C. Regulatory Flexibility Act 

D. Riegle Community Development and 

Regulatory Improvement Act of 1994 

E. Paperwork Reduction Act 

F. OCC Unfunded Mandates Reform Act of 

1995 Determination 

I. Introduction 

The Office of the Comptroller of the 

Currency (OCC), the Board of Governors 

of the Federal Reserve System (Board), 

and the Federal Deposit Insurance 

Corporation (FDIC) (collectively, the 

agencies) are adopting in final form the 

agencies’ 2016 proposal to implement a 

net stable funding ratio (NSFR) 

requirement (the proposed rule), with 

certain adjustments.1 The agencies also 

are finalizing two proposals released 

subsequent to issuance of the proposed 

rule to revise the criteria for 

determining the scope of application of 

the NSFR requirement (tailoring 

proposals).2 The Board will issue a 

separate proposal for notice and 

comment to amend its information 

collection under its Complex Institution 

Liquidity Monitoring Report (FR 2052a) 

to collect information and data related 

to the requirements of the final rule. 

The final rule establishes a 

quantitative metric, the NSFR, to 

measure the stability of the funding 

profile of large U.S. banking 

organizations, U.S. intermediate holding 

companies of foreign banking 

organizations, and their depository 

institution subsidiaries with $10 billion 

or more in total consolidated assets. The 

final rule also requires these banking 

organizations to maintain minimum 

amounts of stable funding to support 

their assets, commitments, and 

derivatives exposures.3 By requiring 

banking organizations to maintain a 

stable funding profile, the final rule 

reduces liquidity risk in the financial 

sector and provides for a safer and more 

resilient financial system. 

Sections II and III of this 

Supplementary Information section 

provide background on the agencies’ 

proposed rule and the tailoring 

proposals (together, the proposals). 

Section IV provides an overview of 

comments received on the proposals 

and significant changes to the proposals 

under this final rule. Section V 

describes the final rule’s purpose, 

design, scope of application, and 

minimum requirements. The discussion 

of the final rule in sections VI through 

IX describes amendments to certain 

applicable definitions, the calculation of 

the NSFR, requirements imposed on a 

banking organization that fails to meet 

its minimum NSFR requirement, and 

the public disclosure requirements for 

U.S. depository institution holding 

companies and U.S. intermediate 

holding companies subject to the final 

rule. Sections X through XII describe the 

agencies’ impact assessment, the 

effective date and transitions under the 

final rule, and certain administrative 

matters. 

II. Background 

The 2007–2009 financial crisis 

revealed significant weaknesses in 

banking organizations’ liquidity risk 

management and liquidity positions, 

including how banking organizations 

managed their liabilities to fund their 

assets in light of the risks inherent in 

their on-balance sheet assets and offbalance sheet commitments.4 The 2007– 

2009 financial crisis also revealed an 

overreliance on short-term, less-stable 

funding, and demonstrated the 

vulnerability of large and 

internationally active banking 

organizations to funding shocks. For 

example, weaknesses in funding 

management at many banking 

organizations made them vulnerable to 

contractions in funding supply, and 

they had difficulties renewing shortterm funding that they had used to 

support longer term or illiquid assets. 

As access to funding became limited 

and asset prices fell, many banking 

organizations faced an increased 

possibility of default and failure. To 

stabilize the global financial markets, 

governments and central banks around 

the world provided significant levels of 

support to these institutions in the form 

of liquidity facilities and capital 

injections. 

In response to the 2007–2009 

financial crisis, the Basel Committee on 

Banking Supervision (BCBS) established 

two international liquidity standards. In 

January 2013, the BCBS established a 

short-term liquidity metric, the liquidity 

coverage ratio (LCR), to mitigate the 

risks arising when banking 

organizations face significantly 

increased net cash outflows in a period 


khammond on DSKJM1Z7X2PROD with RULES2
9122 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

5See ‘‘Basel III: The Liquidity Coverage Ratio and 

liquidity risk monitoring tools’’ at https://

www.bis.org/publ/bcbs238.htm. 

6See ‘‘Basel III: the net stable funding ratio’’ at 

https://www.bis.org/bcbs/publ/d295.htm. The BCBS 

relatedly published the net stable funding ratio 

disclosure standards published by the BCBS in June 

2015. See ‘‘Basel III: the net stable funding ratio’’ 

(October 2014), available at http://www.bis.org/ 

bcbs/publ/d295.pdf; ‘‘Net Stable Funding Ratio 

disclosure standards’’ (June 2015), available at 

http://www.bis.org/bcbs/publ/d324.pdf. 

7 12 CFR part 50 (OCC); 12 CFR part 249 (Board); 

12 CFR part 329 (FDIC). See also ‘‘Liquidity 

Coverage Ratio: Liquidity Risk Measurement 

Standards,’’ 79 FR 61440 (October 10, 2014). 

8 12 U.S.C. 5365. 

9See 12 CFR part 252. See also ‘‘Enhanced 

Prudential Standards for Bank Holding Companies 

and Foreign Banking Organizations,’’ 79 FR 17240 

(March 27, 2014). The Economic Growth, 

Regulatory Relief, and Consumer Protection Act, 

which became law on May 24, 2018, subsequently 

raised the asset thresholds for applicability of 

enhanced prudential standards under section 165 of 

the Dodd-Frank Act. See Public Law 115–174, 132 

Stat. 1296 (2018). The Board amended the scope of 

application of these requirements in October 2019. 

See 84 FR 59032, (November 1, 2019). 

10 During the same period, the Board 

implemented requirements designed to enhance the 

capital positions and loss-absorbing capabilities for 

global systemically important banking organizations 

(GSIBs), which can also have the effect of 

improving the funding profiles of these firms. The 

Board adopted a risk-based capital surcharge for 

GSIBs in the United States that is calculated based 

on a bank holding company’s risk profile, including 

its reliance on short-term wholesale funding (the 

GSIB capital surcharge rule). See 12 CFR 217 

subpart H. The Board also adopted a total lossabsorbing capacity (TLAC) requirement and a longterm debt requirement (LTD) requirement (the 

TLAC/LTD rule) for U.S. GSIBs and the U.S. 

operations of certain foreign GSIBs, which requires 

these firms and operations to have sufficient 

amounts of equity and eligible long-term debt to 

improve their ability to absorb significant losses 

and withstand financial stress and to improve their 

resolvability in the event of failure or material 

distress. See 12 CFR 252 subparts G and P. 

11See ‘‘Net Stable Funding Ratio: Liquidity Risk 

Measurement Standards and Disclosure 

Requirements,’’ 81 FR 35124 (June 1, 2016). 

12The BCBS developed the Basel NSFR standard 

as a longer-term balance sheet funding metric to 

complement the Basel LCR standard’s short-term 

liquidity stress metric. In developing the Basel 

NSFR standard, the agencies and their international 

counterparts in the BCBS considered a number of 

possible funding metrics. For example, the BCBS 

considered the traditional ‘‘cash capital’’ measure, 

which compares the amount of a firm’s long-term 

and stable sources of funding to the amount of the 

firm’s illiquid assets. The BCBS found that this cash 

capital measure failed to account for material 

funding risks, such as those related to off-balance 

sheet commitments and certain on-balance sheet 

short-term funding and lending mismatches. The 

Basel NSFR standard incorporates consideration of 

these and other funding risks, as does this final 

rule. 

13For certain depository institution holding 

companies with $50 billion or more, but less than 

$250 billion, in total consolidated assets and less 

than $10 billion in on-balance sheet foreign 

exposure, the Board separately proposed a modified 

NSFR requirement. 

14Under the Board’s proposed modified NSFR 

requirement, a depository institution holding 

company subject to a modified NSFR would have 

been required to maintain an NSFR of 1.0 but 

would have calculated such ratio using a lower 

minimum RSF amount in the denominator of the 

ratio, equivalent to 70 percent of the holding 

company’s RSF amount as calculated under the 

agencies’ proposed rule. 

15Subsequent to the issuance of the proposed 

rule, certain foreign banking organizations with 

substantial operations in the United States were 

required to form or designate U.S. intermediate 

holding companies. The scope of application under 

the proposed rule would have included certain U.S. 

of stress (Basel LCR standard).5 As a 

complement to the LCR, the BCBS in 

October 2014 established the net stable 

funding ratio standard (Basel NSFR 

standard) to mitigate the risks presented 

by banking organizations supporting 

their assets with insufficiently stable 

funding; the Basel NSFR standard 

requires banking organizations to 

maintain a stable funding profile over a 

longer, one-year time horizon.6 The 

agencies have been, and remain, 

actively involved in the BCBS’ 

international efforts, including the 

continued development and monitoring 

of the BCBS’s framework for liquidity. 

Following the 2007–2009 financial 

crisis, the agencies implemented several 

requirements designed to improve the 

largest and most complex banking 

organizations’ liquidity positions and 

liquidity risk management practices. In 

2014, the agencies adopted the LCR rule 

to improve the banking sector’s 

resiliency to a short-term liquidity stress 

by requiring large U.S. banking 

organizations to hold a minimum 

amount of unencumbered high-quality 

liquid assets (HQLA) that can be readily 

converted into cash to meet projected 

net cash outflows over a prospective 30 

calendar-day stress period.7 In addition, 

pursuant to section 165 of the DoddFrank Wall Street Reform and Consumer 

Protection Act 8 (Dodd-Frank Act) and 

in consultation with the OCC and FDIC, 

the Board adopted the enhanced 

prudential standards rule, which 

established general risk management, 

liquidity risk management, and stress 

testing requirements for certain bank 

holding companies and foreign banking 

organizations.9 These reforms in the 

post-crisis regulatory framework did not 

include a requirement that directly 

addresses the relationship between a 

banking organization’s funding profile 

and its composition of assets and offbalance commitments.10

III. Overview of the Proposed Rule and 

Proposed Scope of Application 

A. The Proposed Stable Funding 

Requirement 

In June 2016, the agencies invited 

comment on a proposal to implement a 

net stable funding requirement for the 

U.S. banking organizations that were 

subject to the LCR rule at that time.11

The proposed rule was generally 

consistent with the Basel NSFR 

standard, with adjustments to reflect the 

characteristics of U.S. banking 

organizations, markets, and other U.S. 

specific considerations.12

The proposed rule would have 

required a banking organization to 

maintain an amount of available stable 

funding (ASF) equal to or greater than 

the banking organization’s projected 

minimum funding needs, or required 

stable funding (RSF), over a one-year 

time horizon.13 A banking 

organization’s NSFR would have been 

expressed as the ratio of its ASF amount 

to its RSF amount, with a banking 

organization required to maintain a 

minimum NSFR of 1.0.14

Under the proposed rule, a banking 

organization’s ASF amount would have 

been calculated as the sum of the 

carrying values of the banking 

organization’s liabilities and regulatory 

capital, each multiplied by a 

standardized weighting (ASF factor) 

ranging from zero to 100 percent to 

reflect the relative stability of such 

liabilities and capital over a one-year 

time horizon. Similarly, a banking 

organization’s minimum RSF amount 

would have been calculated as (1) the 

sum of the carrying values of its assets, 

each multiplied by a standardized 

weighting (RSF factor) ranging from zero 

to 100 percent to reflect the relative 

need for funding over a one-year time 

horizon based on the liquidity 

characteristics of the asset, plus (2) RSF 

amounts based on the banking 

organization’s committed facilities and 

derivative exposures. The proposed rule 

also would have included public 

disclosure requirements for depository 

institution holding companies subject to 

the proposed rule. 

B. Revised Scope of Application 

The proposed rule would have 

applied to: (1) Bank holding companies, 

savings and loan holding companies 

without significant commercial or 

insurance operations, and depository 

institutions that, in each case, have $250 

billion or more in total consolidated 

assets or $10 billion or more in onbalance sheet foreign exposure; and (2) 

depository institutions with $10 billion 

or more in total consolidated assets that 

are consolidated subsidiaries of such 

bank holding companies and savings 

and loan holding companies. In 

addition, the Board proposed a modified 

NSFR requirement that would have 

applied to certain depository institution 

holding companies with total 

consolidated assets of $50 billion or 

more.15


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9123 

bank holding company subsidiaries of foreign 

banking organizations. 

16Public Law 115–174, 132 Stat. 1296 (2018). 

17The tailoring proposals also would have 

removed the LCR rule’s modified LCR requirement 

that at the time applied to certain depository 

institution holding companies with total 

consolidated assets of $50 billion or more. 

18 84 FR 59230 (November 1, 2019). In a change 

from the tailoring proposals, the tailoring final rule 

applied LCR requirements to a U.S. intermediate 

holding company of a foreign banking organization 

on the basis of risk-based indicators measured for 

the U.S intermediate holding company and not the 

foreign banking organization’s combined U.S. 

operations. 

19A ‘‘top-tier banking organization’’ means the 

top-tier bank holding company, U.S. intermediate 

holding company, savings and loan holding 

company, or depository institution domiciled in the 

United States. 

20The tailoring final rule noted that comments 

regarding the NSFR proposal would be addressed 

in the context of any final rule to adopt a NSFR 

requirement for large U.S. banking organizations 

and U.S. intermediate holding companies. 84 FR at 

59235. 

21Summaries of these meetings are available on 

the agencies’ public websites. See https://

www.regulations.gov/docket?D=OCC-2014-0029 

(OCC), https://www.federalreserve.gov/apps/foia/ 

ViewComments.aspx?doc_id=R%2D1537&doc_

ver=1 (Board), and https://www.fdic.gov/ 

regulations/laws/federal/2016/2016-net_stablefunding-ratio-3064-ae44.html (FDIC). 

22The European Union (EU) implementation of 

the NSFR requirement, effective 2021, includes 

targeted adjustments from the Basel NSFR standard 

in order to reflect EU specificities generally 

consistent with the EU implementation of the Basel 

LCR standard. The EU’s NSFR requirements also 

include targeted adjustments to support sovereign 

bond markets. See Regulation (EU) 2019/876 of the 

European Parliament and the Council, May 20, 

2019, available at https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A32019R0876 (EU 

NSFR rule). 

23The agencies received a number of comments 

that were not specifically responsive to the 

proposed rule but more generally requested that the 

agencies assess the combined costs of post-crisis 

regulations on the availability of credit and the 

economy. 

Subsequent to the proposed rule, the 

agencies published the tailoring 

proposals to modify the application of 

the LCR rule and the proposed rule 

consistent with considerations and 

factors set forth under section 165 of the 

Dodd-Frank Act, as amended by the 

Economic Growth, Regulatory Relief, 

and Consumer Protection Act 

(EGRRCPA).16 As part of the tailoring 

proposals, the agencies proposed to 

establish four risk-based categories for 

determining applicability of 

requirements under the LCR rule and 

the proposed rule. The requirements 

would have increased in stringency 

based on measures of size, crossjurisdictional activity, weighted shortterm wholesale funding, nonbank assets, 

and off-balance sheet exposures (riskbased indicators). In addition, the 

tailoring proposals would have removed 

the Board’s proposed modified NSFR 

requirement for certain depository 

institution holding companies.17

In October 2019, the agencies adopted 

a final rule (tailoring final rule) that 

amended the scope of application of the 

LCR rule so that it applies to certain 

U.S. banking organizations and U.S. 

intermediate holding companies of 

foreign banking organizations, each with 

$100 billion or more in total 

consolidated assets, together with 

certain of their depository institution 

subsidiaries.18 The tailoring final rule 

applies LCR requirements on the basis 

of the four risk-based categories 

determined by the risk profile of the 

top-tier banking organization, including 

a depository institution that is not a 

subsidiary of a depository institution 

holding company.19 The effective date 

of the revisions to the LCR rule’s scope 

was December 31, 2019.20

IV. Summary of Comments and 

Overview of Significant Changes to the 

Proposals 

The agencies received approximately 

30 comments on the proposed rule, as 

well as approximately 20 comments 

related to the NSFR rule in response to 

the tailoring proposals. Commenters 

included U.S. and foreign banking 

organizations, trade groups, public 

interest groups, and other interested 

parties. Agency staff also met with some 

commenters at their request to discuss 

their comments on the proposed rule 

and the tailoring proposals.21 Although 

many commenters supported the goal of 

improving funding stability, many 

commenters expressed concern 

regarding the overall proposal and 

criticized specific aspects of the 

proposed rule. 

A number of commenters argued that 

the proposed rule was unnecessary 

because it would target risks already 

addressed by existing regulations, such 

as the LCR rule. Other commenters 

expressed concern regarding the design 

and calibration of the proposed rule. 

These commenters requested 

clarification on the conceptual 

underpinnings of the NSFR, requested 

additional quantitative support for the 

proposed ASF and RSF factors, and 

argued that the proposed rule did not 

satisfy Administrative Procedure Act 

(APA) requirements because it provided 

insufficient support for its design and 

calibration. Some commenters criticized 

the proposed rule as not being 

appropriately tailored for 

implementation in the United States 

and argued that the proposed rule was 

more stringent than the Basel NSFR 

standard such that it could disadvantage 

U.S. banking organizations relative to 

their foreign competitors. Relatedly, 

certain commenters requested that the 

agencies conform the final rule to the 

European Union’s implementation of 

the Basel NSFR standard (EU NSFR 

rule) in order to minimize potential 

adverse effects on U.S. banking 

organizations.22

Some commenters expressed concern 

that the proposed rule could result in 

increased costs to banking organizations 

and the financial system that would 

exceed the proposed rule’s benefits.23

Specifically, some commenters argued 

that the proposed rule could increase 

funding and compliance costs, which 

could cause banking organizations to 

withdraw from or reduce the scale of 

certain business activities with low 

margins, including certain capital 

markets-related activities. According to 

the commenters, this could have the 

effect of tightening credit and increasing 

borrowing costs for households and 

businesses in the United States. 

Commenters also argued that the 

funding and compliance costs of the 

proposed rule could increase financial 

stability risk by shifting certain financial 

intermediation activities from the 

banking sector to less regulated 

‘‘shadow banking’’ channels. 

Commenters also expressed concern 

that the proposed rule could have procyclical effects, for example, by 

incentivizing banking organizations to 

restrict lending to improve their NSFRs 

during periods of stress. 

Additionally, many commenters 

requested changes to specific elements 

of the proposed rule. For example, 

commenters recommended the agencies 

assign higher ASF factors for certain 

liabilities, such as certain types of 

deposits, and lower RSF factors for 

certain categories of assets and 

committed facilities. Some commenters 

recommended changes to the proposed 

rule’s treatment of derivatives, 

particularly the treatment of variation 

margin and the treatment of potential 

valuation changes in a derivatives 

portfolio. In addition, a number of 

commenters requested that the agencies 

modify the proposed rule to assign zero 

percent RSF and ASF factors to certain 

assets and liabilities commenters 

viewed as interdependent such that the 

specific, identifiable assets are funded 

by the specific, identifiable liabilities of 

an equal or similar tenor and, therefore, 

present little or minimal funding risk. 

Finally, some commenters requested 

that the agencies delay implementation 

of the NSFR requirement to allow 

banking organizations additional time to 

build internal reporting systems and 

comply with disclosure requirements. 


khammond on DSKJM1Z7X2PROD with RULES2
9124 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

24 12 CFR 3.10(c)(4) (OCC); 12 CFR 217.10(c)(4) 

(Board); 12 CFR 324.10(c)(4) (FDIC). In addition, the 

final rule includes a new provision to exclude 

assets received by a covered company as variation 

margin under derivative transactions from the 

treatment of rehypothecated assets that are offbalance sheet assets in accordance with U.S. 

generally accepted accounting principles (GAAP). 

25To conduct financial intermediation, banking 

organizations obtain resources that are currently 

surplus to the needs of certain parts of the economy 

(funds providers) and lend them to other parts of 

the economy that currently need those resources 

(users of funds). Funds providers generally prefer 

to supply their resources on a short-term basis with 

easy access to their funds (liquid resources); for 

example, household savings. Users of funds often 

need these resources on a long-term basis and in 

ways that make such resources difficult to convert 

to cash (illiquid resources); for example, building 

factories or capital for business growth. Maturity 

and liquidity transformation refers to the process of 

bridging the competing needs of funds providers 

and users of funds. 

26ASF factors are described in section VII.C, RSF 

factors are described in section VII.D, and the 

derivatives RSF amount is described in section 

VII.E of this Supplementary Information section. 

27Commenters provided examples, including the 

LCR rule; the Board’s enhanced prudential 

standards rule; the TLAC/LTD rule; the GSIB 

capital surcharge rule (which includes a measure of 

weighted short-term wholesale funding), SLR rule, 

and other capital requirements; single counterparty 

credit limits; mandatory clearing requirements and 

margin requirements for non-cleared swaps and 

non-cleared security-based swaps; and Board and 

FDIC supervisory guidance relating to liquidity in 

connection with resolution planning. 

The agencies received a number of 

comments requesting the agencies 

reconsider the proposed rule’s scope of 

application. Specifically, many 

commenters argued that the proposed 

thresholds for application were arbitrary 

and insufficiently risk-sensitive and 

requested the agencies further tailor the 

scope of the proposed rule. The agencies 

also received a number of comments on 

the appropriateness of the revised scope 

of application in the tailoring proposals. 

As discussed throughout this 

Supplementary Information section, the 

final rule retains the general design for 

the NSFR calculation and calibrates 

minimum requirements to the risk 

profiles of banking organizations in a 

manner consistent with the tailoring 

final rule. However, the final rule 

includes a number of modifications, 

including: 

• The final rule assigns a zero percent 

RSF factor to unencumbered level 1 

liquid asset securities and certain shortterm secured lending transactions 

backed by level 1 liquid asset securities 

(see section VII.D of this Supplementary 

Information section). 

• The final rule provides more 

favorable treatment for certain affiliate 

sweep deposits and non-deposit retail 

funding (see section VII.C of this 

Supplementary Information section). 

• The final rule permits cash 

variation margin to be eligible to offset 

a covered company’s current exposures 

under its derivatives transactions even if 

it does not meet all of the criteria in the 

agencies’ supplementary leverage ratio 

rule (SLR rule).24 In addition, variation 

margin received in the form of 

rehypothecatable level 1 liquid asset 

securities also would be eligible to offset 

a covered company’s current exposures 

(see section VII.E of this Supplementary 

Information section). 

• The final rule reduces the amount 

of a covered company’s gross 

derivatives liabilities that will be 

assigned a 100 percent RSF factor (see 

section VII.E of this Supplementary 

Information section). 

V. The Final Rule’s Purpose, Design, 

Scope of Application, and Minimum 

Requirements 

A. Purpose of the Final Rule 

The NSFR is designed to address risks 

that are inherent in the business of 

banking. Banking organizations perform 

maturity and liquidity transformation,25

which is an important financial 

intermediation process that contributes 

to efficient resource allocation and 

credit creation. To conduct maturity and 

liquidity transformation and meet the 

long-term credit needs of businesses and 

households, banking organizations also 

must address the short-term liquidity 

preferences of funds providers. These 

transformation activities create a certain 

inherent level of risk to banking 

organizations, the U.S. financial system, 

and the broader economy caused by 

banking organizations’ potential 

overreliance on unstable funding 

sources relative to the composition of 

their balance sheets. Such overreliance 

could potentially result in the failure of 

banking organizations, disruptions to 

asset prices, and reduction in the 

provision of credit to households and 

businesses. 

A banking organization may mitigate 

these risks by having funding sources 

that are appropriately stable over time. 

Because short-term funding generally 

tends to be less expensive than longerterm funding, banking organizations 

have incentives to fund their longerterm or less-liquid assets with less 

stable, shorter-term liabilities. While 

this approach may benefit short-term 

earnings, it may lead to imbalances 

between how a banking organization 

chooses to fund its assets and the 

funding it may need to maintain the 

assets over time, as well as increases in 

liquidity and funding risk arising from 

potential customer and counterparty 

runs and a more interconnected 

financial sector. In turn, this creates a 

funding risk for banking organizations, 

the financial system, and the broader 

economy. The final rule requires large 

banking organizations to avoid 

excessively funding long-term and lessliquid assets with short-term or lessreliable funding and thus reduces the 

likelihood that disruptions in a banking 

organization’s regular funding sources 

would compromise its funding stability 

and liquidity position. 

The final rule establishes a minimum 

NSFR requirement that is applicable on 

a consolidated basis to certain top-tier 

banking organizations with total 

consolidated assets of $100 billion or 

more, together with certain depository 

institution subsidiaries (together, 

covered companies). Consistent with the 

proposed rule, the final rule requires a 

covered company to calculate an NSFR 

based on the ratio of its ASF amount to 

its RSF amount and maintain an NSFR 

equal to or greater than 1.0 on an 

ongoing basis.26 In addition, the final 

rule, like the proposed rule, includes 

public disclosure requirements for U.S. 

depository institution holding 

companies and U.S. intermediate 

holding companies of foreign banking 

organizations that are subject to the final 

rule. 

B. Comments on the Need for the NSFR 

Requirement 

Banking organizations have improved 

their liquidity risk management 

practices and liquidity positions since 

the 2007–2009 financial crisis, 

including by holding larger liquidity 

buffers, avoiding excessive reliance on 

very short-term unstable wholesale 

funding sources, and improving their 

internal controls and governance 

structures surrounding liquidity risk 

management. The NSFR requirement 

aims to preserve these improvements 

and help position covered companies to 

act as resilient financial intermediaries 

through potential future periods of 

instability. The agencies received a 

number of comments arguing that the 

proposed rule is unnecessary because 

other elements of the agencies’ 

regulatory framework already 

sufficiently address liquidity and 

funding risk at covered companies.27

Some commenters also argued that the 

agencies should not apply an NSFR 

requirement because many covered 

companies have improved their current 

funding profiles relative to the period 

leading up to the 2007–2009 financial 

crisis. By contrast, one commenter 

supported the proposed rule, asserting 

that it would be an important 

complement to the LCR rule because it 

would address funding stability and 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9125 

28Cash flow projections, liquidity stress testing, 

and liquidity buffer requirements for certain 

covered holding companies under the Board’s 

enhanced prudential standards rule complement 

the LCR rule by addressing cash flow risks with 

additional firm-specific granularity and across 

additional time horizons, including a one-year 

planning horizon. These requirements do not 

directly address balance sheet funding risks. 

29See 12 CFR 252.35 and 12 CFR 252.157. 

30The final rule reflects that regulatory capital 

elements and long-term debt required under the 

agencies’ regulatory capital rule, the Board’s GSIB 

capital surcharge rule, and the TLAC/LTD rule 

provide stable funding by virtue of the long-term or 

perpetual tenor of such regulatory capital elements 

and long-term debt. The Board’s GSIB capital 

surcharge rule and the tailoring final rule include 

a measure of historic funding composition, 

weighted short-term wholesale funding, but this 

measure does not measure or directly address 

funding risk. The weighted short-term wholesale 

funding measure is based on a banking 

organization’s average use of short-term funding 

sources over the prior year but does not reflect a 

banking organization’s assets or the banking 

organization’s use of longer-term funding sources. 

31Public disclosure requirements are not required 

for non-standardized measurements of liquidity risk 

required under the Board’s enhanced prudential 

standards rule. 

32Certain commenters also expressed concerns 

about the descriptions by the BCBS of the Basel 

NSFR standard between 2009 and 2014 and the 

opportunities to comment on certain elements of 

the international standard. Commenters argued that 

the agencies should remove elements of the 

proposed rule or re-open the comment period 

because, in these commenters’ view, the public was 

unable to comment on the inclusion of certain 

elements in the Basel NSFR standard. 

33See supra note 12. 

maturity mismatch more broadly and 

over a longer time horizon. 

The final rule is intended to 

complement and reinforce other 

elements of the agencies’ regulatory 

framework that strengthen financial 

sector resiliency by addressing risks that 

are not directly addressed by the 

agencies’ other regulatory measures. For 

example, the NSFR rule provides an 

important complement to the LCR rule, 

which addresses the risk of increased 

net cash outflows over a 30-calendar 

day period of stress by requiring 

banking organizations to hold HQLA 

that can be readily converted to cash. 

While addressing short-term cash-flow 

related risks is a core component of a 

banking organization’s liquidity risk 

management, a banking organization 

could comply with the LCR requirement 

and still fund its long-term or illiquid 

assets and commitments with short-term 

liabilities not sufficiently stable to 

preserve these assets over an extended 

period.28 The final rule further 

complements the LCR rule by mitigating 

the risk of a banking organization 

concentrating funding just outside the 

LCR’s 30-day window. The final rule 

also complements requirements related 

to firm-specific measures of funding risk 

under the Board’s enhanced prudential 

standards rule by providing a 

standardized measure of the stability of 

a banking organization’s funding profile, 

which would promote greater 

comparability of funding structures 

across banking organizations and 

improve transparency and market 

discipline through public disclosure 

requirements.29 With respect to the 

other rules and guidance commenters 

cited as sufficiently addressing liquidity 

and funding risk, these elements of the 

agencies’ regulatory framework do not 

directly address balance sheet funding 

risks for covered companies on a goingconcern basis. 30

Reliance on less-stable sources of 

funding may require a banking 

organization to repay or replace its 

funding more often and make it more 

exposed to sudden funding market 

disruptions. Potential loss of funding 

can restrict a banking organization’s 

ability to support its assets and 

commitments over the long term, 

generating both safety and soundness 

and financial stability risks. The final 

rule is designed to mitigate such risks 

by directly increasing the funding 

resilience of subject banking 

organizations. The final rule mitigates 

risks to U.S. financial stability by 

improving the capacity of banking 

organizations to continue to support 

their assets and lending activities across 

a range of market conditions. A covered 

company that sufficiently aligns the 

stability of its funding sources with its 

funding needs based on the liquidity 

characteristics of its assets and 

commitments is better positioned to 

avoid asset fire sales and continue to 

function as a financial intermediary in 

the event of funding or asset market 

disruptions. As a result, a covered 

company will be better positioned to 

continue to operate and lend, which 

promotes more stable and consistent 

levels of financial intermediation in the 

U.S. economy across economic and 

market conditions. 

As a standardized metric, the NSFR 

also promotes greater comparability 

across covered companies and foreign 

banks subject to substantially similar 

requirements in other jurisdictions and 

facilitates supervisory assessments of 

vulnerability. Through public disclosure 

requirements, the NSFR rule also 

promotes greater market discipline 

through enhanced transparency.31 In 

these ways, a standardized long-term 

funding measure, such as the NSFR, is 

intended to work in tandem with 

internal models-based measures to 

provide a more robust and complete 

framework to monitor and manage 

funding and liquidity risks of covered 

companies. 

C. The NSFR’s Conceptual Framework, 

Design, and Calibration 

A number of commenters questioned 

the conceptual framework and design of 

the proposed rule, as well as its overall 

analytical basis and the calibrations of 

specific components. In particular, 

commenters argued that the agencies 

did not provide sufficient justification 

or data analysis to support the proposed 

calibration of the NSFR rule’s relevant 

factors. Some commenters questioned 

whether the calibrations in the proposed 

rule reflected a one-year period of stress 

or whether the calibration was intended 

to reflect different ‘‘business-as-usual’’ 

conditions.32 A number of commenters 

also argued that if the proposed rule was 

not calibrated based on the same stress 

assumptions as the LCR rule, the 

proposed rule should not incorporate 

elements and definitions from the LCR 

rule. Some commenters also requested 

that the agencies reconsider elements of 

the proposed rule that they believed to 

be more conservative than the LCR rule. 

In addition, several commenters argued 

that the proposed rule was focused on 

commercial banking and was therefore 

not sensitive enough to the different 

business models of covered companies, 

such as custody banks and banking 

organizations significantly involved in 

capital markets. Another commenter 

stated that the NSFR is a static measure 

and does not take into account actions 

a firm may take in the future to address 

funding risk. As addressed in sections 

VII.C and VII.D of this Supplementary 

Information section, the agencies also 

received a number of comments on the 

proposed values of ASF factors and RSF 

factors where the commenter’s concern 

was predicated on the design of the 

NSFR. For example, commenters 

described the value of certain ASF 

factors as conservative based on the 

assumption that the values represented 

cash-flow amounts and commenters 

therefore made direct comparison to 

factors used in the LCR rule. In light of 

these comments, the agencies are 

clarifying in this Supplementary 

Information section the conceptual basis 

for the NSFR design under the final 

rule. 

1. Use of an Aggregate Balance Sheet 

Measure and Weightings 

The NSFR’s conceptual design builds 

on commonly used assessments of 

balance sheet funding.33 The NSFR is a 

standardized measure of a banking 

organization’s funding relative to its 

assets and commitments. Consistent 

with the Basel NSFR standard, the final 


khammond on DSKJM1Z7X2PROD with RULES2
9126 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

34For example, the final rule takes into account 

policy considerations such as externalities 

associated with an unstable funding structure that 

can affect the safety and soundness of other banking 

organizations and U.S. financial stability and an 

interest in maintaining financial intermediation of 

covered companies across economic and market 

conditions. 

35For example, supervisors and industry analysts 

compare compositions of assets and liabilities 

though the use of a loans-to-deposits ratio or by 

defining a measure of ‘‘noncore’’ funding 

dependency. 

36As described in section V.E.3 of this 

Supplementary Information section, the final rule 

applies an adjustment factor to the denominator of 

the ratio to reflect the risk profile of a covered 

company. 

37See sections VII.C, VII.D and VII.E of this 

Supplementary Information section. 

rule conceptually draws on supervisory 

and industry-developed funding risk 

management measures, with 

modifications to account for material 

funding risks and policy 

considerations.34 Supervisors and 

industry stakeholders such as credit 

rating agencies and equity analysts 

routinely assess the funding profiles of 

banking organizations through 

comparisons of the compositions of the 

banking organization’s assets and 

liabilities.35 The NSFR’s design as a 

ratio of weighted liabilities and 

regulatory capital to weighted assets and 

commitments is consistent with these 

approaches. Using a ratio measure is 

appropriate for measuring and 

addressing funding risks because it 

provides a holistic assessment of a 

banking organization’s funding profile 

based on the aggregate composition of 

the banking organization’s balance sheet 

and commitments rather than on 

individual assets or liabilities. 

The final rule takes into account the 

differing risk characteristics of a covered 

company’s various assets, liabilities, 

and certain off-balance sheet 

commitments and applies different 

weightings (ASF and RSF factors) to 

reflect these risk characteristics. Under 

the final rule, ASF and RSF factors are 

used to determine the numerator and 

denominator of the NSFR and reflect, 

respectively, the stability of funding, 

and the need for assets and 

commitments to be supported by such 

funding over a range of market 

conditions, each as assessed under the 

final rule. As described in sections VII.C 

and VII.D of this Supplementary 

Information section, the final rule uses 

broad categories of liabilities and assets 

to assess relative stability and funding 

needs, respectively. These weightings 

make the NSFR assessment risk 

sensitive by differentiating between 

types of assets and types of liabilities. 

While the NSFR is a simplified and 

standardized metric, meeting the NSFR 

minimum requirement of 1.0 provides 

evidence that a covered company has, in 

aggregate, a sufficient amount of stable 

liabilities and regulatory capital to 

support over a one-year time horizon its 

aggregate assets and commitments based 

on the liquidity characteristics of such 

aggregate assets and commitments.36

Given the size, complexity, scope of 

activities, and interconnectedness of 

covered companies, a covered company 

with an NSFR of less than 1.0 may face 

an increased likelihood of liquidity 

stress or of having to dispose of illiquid 

assets, and may be less well positioned 

to maintain its level of financial 

intermediation over various market 

conditions. 

Commenters expressed concerns that 

application of RSF factors to specific 

assets has the effect of imposing a 

requirement on covered companies to 

issue additional long-dated liabilities to 

fund such assets. The final rule does not 

prescribe the method by which a 

covered company must meet its 

minimum requirement. Under the final 

rule, the NSFR requirement reflects the 

aggregate balance sheet of a covered 

company, and the final rule does not 

apply separate minimum funding 

requirements to individual assets, legal 

entities, or business lines represented 

on the balance sheet. For example, a 

covered company that has an NSFR of 

1.0 and increases its holding of certain 

long-dated assets is not required to issue 

additional long-dated liabilities under 

the final rule but, rather, has discretion 

on how to continue to meet its 

minimum requirement, including by 

changing its overall asset composition. 

2. Use of a Simplified and Standardized 

Point-in-Time Metric 

Many commenters expressed 

concerns or suggestions that related to 

the level of granularity in the NSFR’s 

conceptual design or that the NSFR was 

a point-in-time measure. For example, 

commenters suggested the NSFR 

include additional RSF and ASF factors 

tailored to specific products and 

activities.37 Commenters similarly 

expressed concerns about the number of 

residual maturity categories used in the 

NSFR. A number of commenters 

criticized the design of the NSFR as a 

static metric arguing that the 

measurement of the funding risk of a 

covered company’s aggregate balance 

sheet should consider actions that 

banking organizations may undertake in 

the future. 

In response to these concerns, the 

agencies note that a broad comparison 

of the stability of a covered company’s 

funding relative to the liquidity 

characteristics of its assets achieves the 

final rule’s funding risk-mitigation 

objectives. To limit the burden on 

covered companies and to maximize the 

comparability of the metric between 

each covered company and other 

international banking organizations, the 

NSFR is designed as a simplified metric 

that uses a small number of categories 

of assets, exposures, liabilities, 

counterparty types, and residual 

maturity buckets to achieve its 

objective. While the balance sheets of 

large banking organizations reflect a 

complex variety of transactions and 

business activities, additional 

granularity could be burdensome to 

covered companies relative to the goals 

of the NSFR requirement. The NSFR 

was designed holistically and 

introducing additional granularity could 

require recalibration of certain other 

elements. For example, the 

incorporation of additional RSF factors 

may require other RSF factors to be 

adjusted upward, as they currently 

reflect an aggregate view of the level of 

stable funding required for the entire set 

of assets or off-balance sheet 

commitments in a given category. 

Additionally, to the extent possible, the 

metric utilizes the carrying values of 

assets and liabilities on a covered 

company’s balance sheet under U.S. 

Generally Accepted Accounting 

Principles (GAAP) and limits the need 

for additional valuations. 

In response to comments that the 

NSFR is not sensitive to the different 

business models of covered companies, 

the agencies note that the NSFR is 

designed to allow comparison across 

covered companies and other 

international firms, and to minimize 

differences in how liquidity 

characteristics of liabilities and assets 

are evaluated by covered companies. As 

a standardized metric, the final rule is 

constructed to ensure a sufficient 

amount of stable funding across all 

covered companies, regardless of their 

business models. The NSFR generally 

does not differentiate by a banking 

organization’s business model, its lines 

of business, or the purpose for which 

individual assets or liabilities are held 

on its balance sheet. For example, the 

NSFR treats securities held on a covered 

company’s balance sheet based on the 

securities’ credit risk and market 

characteristics regardless of whether 

such securities are held as long-term 

investments, as hedging instruments, or 

as market making inventory. While the 

composition of banking organizations’ 

balance sheets varies based on business 

models and the services provided to 

customers, the NSFR is not focused on 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9127 

38As noted above, the point-in-time NSFR 

complements forward-looking assessments of risk, 

such as a covered company’s internal liquidity 

stress testing practices. 

39As described below, calculation date means 

any date on which a covered company calculates 

its NSFR. See section VI.A.1 of this Supplementary 

Information section. 

40See sections VII.C and VII.D of this 

Supplementary Information section. 

41The LCR rule compares cash-generating 

resources (i.e., the HQLA amount) to cash needs 

(total net cash outflows) in a 30-day stress. The final 

rule compares sources of stable funding (ASF 

amount) to the need for stable funding (RSF 

amount), each calibrated over a 12-month horizon 

and across a range of market conditions. 

42For example, the definitions of ‘‘general 

obligation,’’ ‘‘affiliate,’’ and ‘‘company’’ do not 

incorporate an assumption of stress. 

43For example, the final rule applies the same 

ASF factor to certain forms of funding from a 

financial sector entity that mature in six months or 

less, regardless of whether such funding is in the 

form of a secured funding transaction or unsecured 

wholesale funding, whereas the LCR rule generally 

treats these categories of funding separately for 

purposes of determining applicable outflow 

amounts. See 12 CFR 50.32(h) and (j) (OCC); 12 CFR 

249.32(h) and (j) (Board); 12 CFR 329.32(h) and (j) 

(FDIC). 

any particular business model (for 

example, commercial banking), as 

suggested by commenters. 

Like most prudential requirements, 

the NSFR is a measure of a covered 

company’s condition at a point in time 

and by design does not consider the 

broad variety of actions that 

management may take in the future. As 

a general principle, the agencies do not 

speculate about future transactions, 

contingencies, or potential managerial 

remediation steps that the covered 

company may take.38

3. Use of a Time Horizon 

Certain commenters questioned the 

NSFR’s design in respect to its time 

horizon. While the NSFR measures a 

banking organization’s balance sheet 

and commitments at a point in time, the 

assessment of adequate funding 

considers the stability of, and the need 

for, funding with reference to a general 

one-year time horizon and a range of 

market conditions. The measurement 

incorporates contractual maturities but 

generally does not reflect expectations 

about the year following the calculation 

date.39 Rather, consistent with the Basel 

NSFR standard, the NSFR calibrations 

seek to reflect resilient credit 

intermediation to the real economy and 

general behaviors by banking 

organizations and their counterparties. 

The use of a time horizon for the 

assessment of funding imbalances is 

appropriate because the residual 

maturities of liabilities and assets of a 

covered company at the calculation date 

are, among other characteristics, 

indicative of the liabilities’ stability and 

the assets’ need for funding, 

respectively. For example, liabilities 

that are due to mature in the short term 

will generally provide less stability to a 

banking organization’s balance sheet 

than longer-term liabilities. Similarly, 

certain short-dated assets maturing in 

less than one year should require a 

smaller portion of funding to be 

maintained over a one-year time horizon 

because banking organizations may 

allow such assets to mature without 

replacing them. The choice of a one-year 

time horizon is also consistent with 

traditional accounting and supervisory 

measures of short-term and long-term 

financial instruments and exposures. 

4. Stress Perspectives and Using 

Elements From the LCR Rule 

A number of commenters requested 

clarification on the extent to which the 

NSFR calibrations incorporated stress 

assumptions. Consistent with the 

complementary designs of the Basel 

LCR and NSFR standards, the final rule 

is designed differently from, and to be 

complementary to, the LCR rule. Unlike 

the LCR, which compares immediately 

available sources of cash to potential 

stressed cash outflows over a 30- 

calendar day period, the NSFR is not a 

cash-flow coverage metric, and ASF and 

RSF amounts are not cash-flow 

amounts. While ASF factors take into 

account the characteristics of liabilities 

that influence relative funding stability 

across a range of market conditions, the 

values of ASF factors do not represent 

liability outflow rates. Similarly, while 

RSF factors take into account the 

liquidity characteristics of assets that 

generally influence their need for 

funding over a one-year horizon, the 

values of RSF factors do not reflect the 

monetization value of assets. In 

response to comments that the values of 

factors used in the LCR rule imply that 

ASF or RSF factors were incorrectly 

calibrated, it is important to note that 

comparisons of the values of ASF or 

RSF factors under the final rule to the 

values of outflow and inflow rates used 

in the LCR rule are not indicative of the 

relative conservatism of the 

requirements under both rules.40

Further, the final rule is not designed 

to function as a one-year liquidity stress 

test, and therefore its ASF and RSF 

factors are not assigned based on, or 

intended to directly translate to, 

assumed cash inflows and outflows over 

a one-year period of stress. Rather, the 

final rule is intended to serve as a 

balance-sheet metric, and ASF and RSF 

factors reflect, respectively, the relative 

stability of funding and the need for 

funding based on the liquidity 

characteristics of assets and 

commitments, each across a range of 

economic and financial conditions.41

Funding and liquidity characteristics of 

liabilities and assets under stress 

conditions are therefore relevant to, but 

not determinative of, ASF and RSF 

factors. As a result, ASF and RSF factor 

calibrations take into account potential 

effects of stress on the stability of 

funding and liquidity characteristics of 

assets and commitments, but are not 

calibrated to require a covered company 

to retain a buffer against a stress period 

of one year, as discussed in sections 

VII.C and VII.D of this Supplementary 

Information section. 

Although the NSFR generally is not 

calibrated to the stress assumptions of 

the LCR rule, it nevertheless shares 

certain common elements and 

definitions with the complementary 

LCR where such consistency is helpful. 

The alignment of the final rule with the 

structure and design of the LCR rule, 

where appropriate, aims to improve 

efficiency and limit compliance costs to 

covered companies by allowing them 

more efficiently to implement the two 

requirements. In response to 

commenters’ concerns that sharing 

definitions and elements with the LCR 

rule inappropriately incorporates stress 

assumptions into the NSFR 

requirement, the agencies note that 

many shared elements and defined 

terms are independent of stress 

assumptions.42 Moreover, to the extent 

that the final rule incorporates 

definitions of the LCR rule, their usage 

in the final rule generally reflects 

assumptions that are specific to the final 

rule.43 Finally, while the final rule is 

not calibrated based on a one-year 

stress, some considerations of 

conservatism are still relevant. For 

example, as discussed in section VII.B 

of this Supplementary Information 

section, the final rule generally applies 

the same assumptions for determining 

maturity as the LCR rule because 

conservative assumptions regarding the 

maturity of funding relative to the 

duration of asset holdings are 

appropriate for assessing the risks 

presented by mismatches in balance 

sheet funding. 

5. Analytical Basis of Factor 

Calibrations and Supervisory 

Considerations 

Several commenters argued that the 

agencies did not sufficiently rely on 

empirical analysis to inform various 

portions of the proposed rule. Other 

commenters argued that the agencies 


khammond on DSKJM1Z7X2PROD with RULES2
9128 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

44Supervisory experience is informed in part 

through confidential data obtained through the FR 

2052a report. 

45See sections VII.C and VII.D of this 

Supplementary Information section. 

46See section VII of this Supplementary 

Information section. 

47Notable divergences in the final rule from the 

Basel NSFR standard include the treatment of level 

1 liquid asset securities, certain short-term secured 

lending transactions backed by level 1 liquid assets, 

variation margin in derivatives transactions, and 

non-deposit retail funding. 

48See section III.B of this Supplementary 

Information section. In the tailoring proposals, the 

proposed scope of application for the NSFR was the 

same as that proposed for the LCR rule. 

49As noted above, the tailoring proposals would 

have removed the Board’s modified LCR and 

modified NSFR requirement because the reduced 

LCR and reduced NSFR would be better designed 

for assessing liquidity and funding risks for banking 

organizations in Categories III and IV. 

did not sufficiently disclose the 

quantitative data and analyses on which 

the agencies relied. 

As explained in detail in sections 

VII.C and VII.D of this Supplementary 

Information section, the liabilities 

within an ASF factor category generally 

exhibit similar levels of funding 

stability and the assets within an RSF 

factor category generally exhibit similar 

liquidity characteristics. In addition, 

there is a sufficient number of ASF 

factor and RSF factor categories in the 

final rule to differentiate among the 

funding risks presented by the assets, 

commitments, and liabilities covered by 

the NSFR. The ASF and RSF factors as 

calibrated for these categories of 

liabilities and assets, and as applied 

under the Basel NSFR standard to 

similar categorizations, are generally 

appropriate for U.S. implementation.44

However, as discussed below, the final 

rule departs from the Basel NSFR 

standard where doing so would support 

important domestic policy objectives. 

The agencies regularly review their 

regulatory framework, including 

liquidity requirements, to ensure it is 

functioning as intended and will 

continue to assess the NSFR’s 

calibration under the final rule. A more 

specific discussion of the agencies’ 

analysis is provided in sections VII.C 

and VII.D of this Supplementary 

Information section, which discuss the 

comments received on the calibration of 

ASF and RSF factors. 

Consistent with the proposed rule and 

as noted above, certain ASF and RSF 

factor assignments in the final rule take 

into account policy considerations 

relating to the safety and soundness of 

covered companies and U.S. financial 

stability.45 For example, the assignment 

of a zero percent ASF factor to 

wholesale funding from financial sector 

entities that matures within six months 

generally reflects supervisory concerns 

related to the financial stability risks 

related to overreliance on this source of 

funding by large interconnected banking 

organizations. In calibrating the factors, 

the agencies also considered behavioral 

and operational factors that can affect 

funding stability or asset liquidity, such 

as reputational incentives that could 

cause a covered company to maintain 

lending to certain counterparties.46

In response to commenters’ assertion 

that the agencies failed to disclose 

quantitative data and analyses used to 

support the proposed rule, the agencies 

note that they disclosed in the proposed 

rule material that was available and 

reliable. In the instances in which the 

agencies cited data in support of the 

proposed rule, the agencies identified 

that data, acknowledged the 

shortcomings of the available data, and 

invited input from the public. In 

developing the final rule, the agencies 

have considered the comments received. 

D. Adjusting Calibration for the U.S. 

Implementation of the NSFR 

As noted above, the final rule is based 

on the general framework of the Basel 

NSFR standard. Some commenters 

argued that the agencies should not 

adopt the proposed rule, or should 

modify certain elements of the proposed 

rule, because the Basel NSFR standard 

is an internationally negotiated standard 

that was not properly tailored to reflect 

U.S. financial, legal, and market 

conditions. By contrast, a number of 

commenters argued that the final rule 

should be more consistent with the 

Basel NSFR standard, particularly with 

respect to elements that would be more 

stringent under the proposed rule than 

the Basel NSFR standard. 

In developing the proposed and final 

rules, the agencies considered the Basel 

NSFR standard as well as financial, 

legal, market, and other considerations 

specific to the United States. Basing the 

final rule on the general framework of 

the Basel NSFR standard helps promote 

competitive equity with respect to 

covered companies and other large, 

internationally active banking 

organizations in other jurisdictions, 

facilitate regulatory consistency across 

jurisdictions, and ensure a minimum 

level of resiliency across the global 

financial system. Where appropriate, the 

final rule differs from the Basel NSFR 

standard to reflect specific 

characteristics of U.S. markets, practices 

of U.S. banking organizations and 

domestic policy objectives.47

E. NSFR Scope and Minimum 

Requirement Under the Final Rule—Full 

and Reduced NSFR 

1. Proposed Minimum Requirement and 

the Tailoring Final Rule 

In the tailoring proposals, the 

agencies re-proposed the scope of 

application of the NSFR proposed rule. 

The tailoring proposals would have 

established four categories of 

requirements—Category I, II, III, and 

IV—that would have been used to tailor 

the application of the NSFR requirement 

based on the risk profile of a top-tier 

banking organization as measured by 

the risk-based indicators.48 Covered 

companies subject to Category I and II 

requirements would have been subject 

to the full requirements of the proposed 

rule (full NSFR). Under Category III or 

Category IV, however, covered 

companies would have been subject to 

further tailored NSFR requirements 

based on the top-tier banking 

organization’s level of weighted shortterm wholesale funding. Specifically, a 

covered company that meets the criteria 

for Category III with $75 billion or more 

in average weighted short-term 

wholesale funding would have been 

subject to the full NSFR requirement. By 

contrast, banking organizations in 

Category III with less than $75 billion in 

average weighted short-term wholesale 

funding, or in Category IV with $50 

billion or more in average weighted 

short-term wholesale funding, would 

have been required to comply with a 

reduced NSFR (reduced NSFR) 

requirement, calibrated at a level 

equivalent to between 85 and 70 percent 

of the full NSFR requirement.49 Banking 

organizations in Category IV with less 

than $50 billion in weighted short-term 

wholesale funding would not have been 

subject to an NSFR requirement. In 

addition, a depository institution 

subsidiary of a covered company 

meeting the criteria of Category I, II, or 

III would have been required to comply 

with the NSFR requirement to which its 

parent covered company was subject if 

the depository institution subsidiary’s 

total consolidated assets were $10 

billion or greater. Depository institution 

subsidiaries with less than $10 billion 

in total consolidated assets, as well as 

depository institution subsidiaries of 

covered companies meeting the criteria 

of Category IV, would not have been 

required to comply with an NSFR 

requirement. 

The tailoring final rule adopted these 

categories, with certain changes, for 

purposes of the LCR rule and the 

agencies’ capital rule. Under the 

tailoring final rule, Category I 

requirements apply to U.S. global 

systemically important banks (GSIBs) 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9129 

50See supra note 19. 

51The tailoring proposals also sought comment 

on whether standardized liquidity requirements, 

such as the LCR and NSFR, should apply to the U.S. 

branches and agencies of a foreign banking 

organization to complement the internal liquidity 

stress testing standards that currently apply to these 

entities. As described in the tailoring final rule, the 

Board continues to consider whether to develop 

and propose for implementation a standardized 

liquidity requirement with respect to the U.S. 

branches and agencies of foreign banking 

organizations. See 84 FR at 59257. Any such 

requirement would be subject to notice and 

comment as part of a separate rulemaking process. 

52The consolidated risks posed by U.S. banking 

organizations to the U.S. financial system also 

include risks derived from foreign-based branches 

and subsidiaries. 

53See supra note 18. 

and any of their depository institution 

subsidiaries with $10 billion or more in 

consolidated assets. Category II 

requirements apply to top-tier banking 

organizations,50 other than U.S. GSIBs, 

with $700 billion or more in 

consolidated assets or $75 billion or 

more in average cross-jurisdictional 

activity, and to their depository 

institution subsidiaries with $10 billion 

or more in consolidated assets. Category 

III requirements apply to top-tier 

banking organizations that have $250 

billion or more in consolidated assets, 

or that have $100 billion or more in 

consolidated assets and also have $75 

billion or more in (1) average nonbank 

assets, (2) average weighted short-term 

wholesale funding, or (3) average offbalance sheet exposure, that are not 

subject to Category I or II requirements. 

Category III requirements also apply to 

depository institution subsidiaries of 

these top-tier banking organizations, 

each with $10 billion or more in 

consolidated assets. Category IV 

requirements apply to top-tier 

depository institution holding 

companies or U.S. intermediate holding 

companies that in each case have $100 

billion or more in consolidated assets 

and $50 billion or more in average 

weighted short-term wholesale funding 

that are not subject to Category I, II or 

III requirements. 

Under the tailoring final rule, covered 

companies in Category I and II, or in 

Category III with $75 billion or more in 

average weighted short-term wholesale 

funding are subject to the full 

requirements of the LCR rule. All other 

covered companies in Category III and 

covered companies in Category IV with 

$50 billion or more in average weighted 

short-term wholesale funding are 

subject to a reduced LCR requirement 

calibrated at 85 percent and 70 percent, 

respectively. The calibration approaches 

outlined in the tailoring proposals and 

tailoring final rule were designed to 

better align the regulatory requirements 

of banking organizations with their risk 

profiles, taking into account their size 

and complexity, as well as their 

potential impact on systemic risk. 

The final rule adopts the risk-based 

category approach used in the tailoring 

final rule for purposes of applying the 

NSFR. The application of the NSFR 

requirements to specific entities based 

on their tailoring category is discussed 

further below. 

2. Applicability of the Final Rule to U.S. 

Intermediate Holding Companies and 

Use of the Risk-Based Indicators 

The tailoring proposals would have 

applied liquidity requirements to 

foreign banking organizations based on 

the risk profile of their combined U.S. 

operations. Specifically, the proposed 

NSFR requirements would have applied 

to a foreign banking organization based 

on the combined risk profile of its U.S. 

intermediate holding company and any 

U.S. branches or agencies, as measured 

by the risk-based indicators.51

Most commenters argued that the 

NSFR requirement should apply 

directly to a U.S. intermediate holding 

company of a foreign banking 

organization based on the U.S. 

intermediate holding company’s risk 

profile. Some commenters further 

asserted that no NSFR requirement 

should be imposed on U.S. intermediate 

holding companies in view of the 

application of the NSFR under home 

country standards to the top-tier foreign 

parent. These commenters argued that 

the application of an NSFR requirement 

to U.S. intermediate holding companies 

is inconsistent with the principles of 

national treatment and equality of 

competitive opportunity because midtier U.S. bank holding companies of a 

similar size and risk profile would not 

be subject to an NSFR requirement but 

rather would be reflected in the NSFR 

applied at the top-tier consolidated U.S. 

parent. Other commenters argued that 

the liquidity requirements that apply to 

foreign banking organizations’ U.S. 

operations, such as internal liquidity 

stress testing and liquidity risk 

management standards, and total lossabsorbing capacity (TLAC) instruments 

issued by U.S. intermediate holding 

companies make the application of the 

NSFR rule unnecessary for such 

companies. In addition, some 

commenters argued that U.S. 

intermediate holding companies should 

not be subject to the NSFR rule until 

after the agencies have conducted an 

impact analysis. By contrast, other 

commenters supported the proposed 

application of an NSFR requirement to 

a U.S. intermediate holding company 

based on the risk profile of the 

combined U.S. operations of the foreign 

banking organization. 

A U.S. intermediate holding company 

poses risks in the United States similar 

to domestic banking organizations of a 

similar size and risk profile, even if the 

parent foreign banking organization is 

subject to an NSFR requirement in its 

home jurisdiction. The LCR rule, the 

Board’s enhanced prudential standards 

rule, and the final rule apply to 

applicable U.S. banking organizations 

on a global consolidated basis and 

incorporate certain liquidity risks posed 

by mid-tier holding companies and their 

subsidiaries.52 For this reason, such 

requirements do not apply directly to 

mid-tier holding companies on a 

standalone basis. Consistent with the 

LCR rule and the Board’s enhanced 

prudential standards rule, the final rule 

applies to a U.S. intermediate holding 

company of a foreign banking 

organization because of the risks it 

presents to the U.S. financial system on 

a consolidated basis. However, the final 

rule does not apply liquidity or funding 

requirements to a subsidiary holding 

company of a U.S. intermediate holding 

company of a foreign banking 

organization. Further, for the reasons 

described in section V.A of this 

Supplementary Information section, the 

NSFR requirement is a complement to 

the LCR rule and other regulatory 

requirements for banking organizations 

that can present material risks to the 

U.S. financial system. In light of these 

concerns, the agencies are applying an 

NSFR requirement to U.S. intermediate 

holding companies. 

In addition, consistent with the scope 

of application of the LCR rule, the final 

rule applies the NSFR requirement to a 

U.S. intermediate holding company 

based on the risk profile of the U.S. 

intermediate holding company, rather 

than on the combined U.S. operations of 

the foreign banking organization.53

Specifically, the final rule applies a full 

NSFR or reduced NSFR requirement to 

a U.S. intermediate holding company 

under the risk-based categories based on 

measures of the U.S. intermediate 

holding company’s risk-based 

indicators. This approach helps to 

enhance the efficiency of NSFR 

requirements relative to the proposal, 

because stable funding requirements 

that apply to a U.S. intermediate 

holding company are based on the U.S. 


khammond on DSKJM1Z7X2PROD with RULES2
9130 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

54Under the final rule, a banking organization 

applies the appropriate adjustment factor to its 

calculated RSF amount (required stable funding 

adjustment percentage), by multiplying its RSF 

amount by its required stable funding adjustment 

percentage. Banking organizations subject to the full 

NSFR requirement apply a 100 percent required 

stable funding adjustment percentage. Banking 

organizations subject to a reduced NSFR 

requirement apply an 85 or 70 percent required 

stable funding adjustment percentage. 

intermediate holding company’s risk 

profile. 

3. NSFR Minimum Requirements Under 

the Final Rule: Applicability and 

Calibration 

A number of commenters argued that 

the re-proposed scope of applicability of 

the NSFR requirement was too stringent. 

Some commenters argued that smaller 

regional banking organizations should 

not be subject to the NSFR rule and that 

NSFR requirements for Category IV 

banking organizations should be 

eliminated. By contrast, other 

commenters argued that the tailoring 

proposals would tailor NSFR 

requirements in a way that would 

weaken the safety and soundness of 

large banking organizations and increase 

risks to U.S. financial stability. Some 

commenters argued that full NSFR 

requirements should apply to all 

covered companies until after the final 

rule has been effective for a sufficiently 

long period of time for the agencies to 

evaluate its efficacy. Other commenters 

advocated for further tailoring of the 

NSFR requirements. 

For the reasons discussed below, the 

final rule generally retains the NSFR 

requirements described under the 

tailoring proposals. The final rule 

adopts a reduced NSFR requirement 

calibrated to 85 percent of the full NSFR 

requirement for Category III banking 

organizations with less than $75 billion 

in weighted short-term wholesale 

funding, and to 70 percent of the full 

NSFR requirement for Category IV 

banking organizations with $50 billion 

or more in weighted short-term 

wholesale funding.54 Consistent with 

the tailoring proposals, depository 

institution subsidiaries with less than 

$10 billion in total consolidated assets 

would not be subject to an NSFR 

requirement. Moreover, no NSFR 

requirement applies at the subsidiary 

depository institution-level under 

Category IV. 

a) NSFR Requirements Under Category 

I 

Consistent with the scope of 

application of the LCR rule, the tailoring 

proposals would have applied full 

NSFR requirements to covered 

companies that meet the criteria for 

Category I. The agencies did not receive 

comments on the application of the 

NSFR requirement under Category I and 

are finalizing this aspect as proposed. 

b) NSFR Requirements Under Category 

II 

The tailoring proposals would have 

applied the full NSFR requirement to 

covered companies that meet the criteria 

for Category II. Some commenters 

argued that Category II should include 

a reduced NSFR requirement to reflect 

the lower risk profile of Category II 

banking organizations relative to those 

in Category I. Specifically, these 

commenters argued certain banking 

organizations in Category II present 

relatively lower stable funding risks 

than Category I banking organizations 

due to such banking organizations’ 

concentration in custody activities and 

use of operational deposits. 

Similar to U.S. GSIBs and their large 

depository institution subsidiaries, 

banking organizations that meet the 

criteria for Category II provide material 

levels of financial intermediation within 

the United States or internationally, and 

the NSFR helps to ensure that such 

banking organizations have appropriate 

funding to be in a position to sustain the 

necessary intermediation activities over 

a range of conditions. Additionally, the 

failure or distress of banking 

organizations that meet the criteria for 

Category II could impose significant 

costs on the U.S. financial system and 

economy. For example, any very large or 

global banking organization, including 

one that has a significant custody 

business, that is subject to asset fire 

sales resulting from funding disruptions 

is likely to transmit distress on a 

broader scale because of the greater 

volume of assets it may sell and the 

number of its counterparties across 

multiple jurisdictions. Similarly, a 

banking organization with significant 

international activity is more exposed to 

the risk of ring-fencing of funding 

resources by one or more jurisdictions. 

Ring-fencing may hamper the movement 

of funding, regardless of the level of 

custody business. More generally, the 

overall size of a banking organization’s 

operations, material transactions in 

foreign jurisdictions, and the use of 

overseas funding sources add 

complexity to the management of the 

banking organization’s funding profile. 

For these reasons, the agencies are 

adopting the proposal to apply the full 

NSFR requirement to Category II 

banking organizations. 

c) NSFR Requirements Under Category 

III 

As described above, the tailoring 

proposals would have differentiated 

NSFR requirements in Category III based 

on whether the level of average 

weighted short-term wholesale funding 

of a banking organization was at least 

$75 billion and sought comment on the 

calibration of the reduced NSFR 

requirement. 

Some commenters argued that 

Category III banking organizations with 

less than $75 billion in average 

weighted short-term wholesale funding 

should not be subject to a reduced NSFR 

requirement. By contrast, many 

commenters expressed support for a 

reduced NSFR requirement under 

Category III, and generally 

recommended that such requirement be 

calibrated to 70 percent of the full NSFR 

requirement, consistent with the 

calibration of the Board’s previously 

proposed modified NSFR requirement. 

In addition, several of these commenters 

argued that the reduced NSFR 

requirement should apply only to 

holding companies. 

To improve the calibration of a 

banking organization’s minimum ASF 

amount relative to its funding profile 

and its potential risk to U.S. financial 

stability, the final rule differentiates 

between banking organizations based on 

their category and their reliance on 

short-term wholesale funding. As 

discussed in the tailoring final rule, 

ongoing reliance on short-term, 

wholesale funding can make a banking 

organization more vulnerable to safety 

and soundness and financial stability 

risks. Accordingly, under the final rule, 

a banking organization subject to 

Category III standards with average 

weighted short-term wholesale funding 

of $75 billion or more is subject to the 

full NSFR requirement. 

A banking organization subject to 

Category III standards with average 

weighted short-term wholesale funding 

of less than $75 billion is subject to a 

reduced NSFR requirement calibrated at 

85 percent of the full NSFR 

requirement. An 85 percent calibration 

is appropriate for these banking 

organizations because they are less 

likely to contribute to a systemic event 

relative to similarly sized banking 

organizations that have a greater 

reliance on short-term wholesale 

funding and therefore, are more 

complex, and whose distress or failure 

is more likely to have greater systemic 

impact. 

As a general matter, the alignment of 

the reduced NSFR with the Board’s 

initially proposed modified NSFR 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9131 

55The Board’s initially proposed modified NSFR 

applied to depository holding companies with 

between $50 billion and less than $250 billion in 

total assets whereas the tailoring proposal would 

have applied Category III requirements to banking 

organizations that either have $250 billion or more 

in total assets or have $100 billion or more in total 

assets as well as heightened levels of off-balance 

sheet exposure, nonbank assets, or weighted shortterm wholesale funding. 

56 12 CFR part 50 (OCC); 12 CFR part 249 (Board); 

12 CFR part 329 (FDIC). 

would not be appropriate because each 

of these requirements was designed to 

address different risk profiles. The 

Board designed the modified NSFR for 

smaller U.S. holding companies with 

less complex business models and more 

limited potential impact on U.S. 

financial stability compared to banking 

organizations that would be subject to 

the reduced NSFR requirement.55

d) NSFR Requirements Under Category 

IV 

Under the tailoring proposals, a 

Category IV banking organization with 

average weighted short-term wholesale 

funding of $50 billion or more would 

have been required to comply with a 

reduced NSFR requirement of between 

70 and 85 percent. However, the 

reduced NSFR requirement under 

Category IV would not have applied to 

standalone depository institutions or at 

the level of a subsidiary depository 

institution. 

Some commenters argued that all 

banking organizations subject to 

Category IV should be subject to an 

NSFR requirement and that the 

requirement could be further modified 

or simplified for these organizations, as 

appropriate. In contrast, other 

commenters argued for the removal of 

any NSFR requirement for all banking 

organizations subject to Category IV. 

For a banking organization with total 

consolidated assets of at least $100 

billion and less than $250 billion, 

average weighted short-term wholesale 

funding of $50 billion or more 

demonstrates a material reliance on 

short-term, generally uninsured funding 

from more sophisticated counterparties, 

which can make a banking organization 

more vulnerable to large-scale funding 

runs, generating both safety and 

soundness and financial stability risks. 

Accordingly, such a banking 

organization is relatively more 

vulnerable to the funding stability risks 

addressed by the reduced NSFR 

requirement relative to similarly sized 

banking organizations that rely more 

heavily on stable funding such as retail 

deposits and have traditional balance 

sheet structures. The application of the 

NSFR requirement, albeit at a reduced 

level, is therefore appropriate for these 

banking organizations given their lower 

potential impact on systemic risk. 

The final rule calibrates the minimum 

reduced NSFR requirement under 

Category IV at a level equivalent to 70 

percent of the minimum level required 

under Category I and II. The difference 

between the 85 percent reduced NSFR 

calibration in Category III and the 

reduced 70 percent LCR calibration in 

Category IV reflects the differences in 

risk profiles of banking organizations 

subject to each respective requirement. 

The 70 percent calibration recognizes 

that these banking organizations are less 

complex and smaller than other banking 

organizations subject to more stringent 

requirements under the final rule and 

would likely have more modest 

systemic impact than larger, more 

complex banking organizations if they 

experienced funding disruptions. 

Banking organizations that are not 

subject to Category I, II or III 

requirements and that have average 

weighted short-term wholesale funding 

of less than $50 billion are not subject 

to an NSFR requirement under the final 

rule. Depository institution subsidiaries 

of banking organizations subject to 

Category IV requirements are not subject 

to an NSFR requirement. 

4. Applicability to Depository 

Institution Subsidiaries 

As described above, the tailoring 

proposals would have applied the same 

NSFR requirement to top-tier banking 

organizations subject to Category I, II, or 

III standards and to their subsidiary 

depository institutions with $10 billion 

or more in total consolidated assets. 

Although a number of commenters 

generally supported the application of 

consistent requirements for U.S. 

depository institutions holding 

companies and their depository 

institution subsidiaries, many 

commenters requested that the agencies 

eliminate the application of the NSFR 

requirement to depository institutions 

that are consolidated subsidiaries of 

covered companies. These commenters 

stated that the NSFR rule should 

recognize that the holding company 

structure in the United States allows for 

banking organizations to manage 

liquidity across the broader corporate 

group and provides firms with 

flexibility regarding where liquidity is 

held within the corporate structure. 

These commenters also argued that an 

NSFR requirement for a consolidated 

depository institution is unnecessary in 

view of the supervisory monitoring and 

prudential limits applicable to the 

depository institution’s funding 

structure, as well as the source of 

strength requirements that obligate the 

parent to remediate any funding 

deficiencies at a subsidiary depository 

institution. Alternatively, these 

commenters suggested that the agencies 

should rely on their supervisory 

authority to ensure stable funding for 

depository institutions. The commenters 

also requested that, if the agencies apply 

the NSFR requirement to depository 

institutions, an exemption should apply 

to depository institutions that comprise 

85 percent or more of the assets of the 

consolidated organization. Commenters 

supporting such an approach stated that 

the costs of separately applying an 

NSFR at the subsidiary depository 

institution-level would outweigh any 

benefits. 

The proposed treatment would have 

aligned with the agencies’ longstanding 

policy of applying similar standards to 

holding companies and their depository 

institution subsidiaries. Large 

depository institution subsidiaries play 

a significant role in a banking 

organization’s funding structure, and in 

the operation of the payments system. 

Such entities should have sufficient 

amounts of stable funding to meet their 

funding needs rather than be overly 

reliant on their parents or affiliates. In 

addition, these large subsidiaries 

generally have access to deposit 

insurance coverage and, as a result, 

application of standardized funding 

requirements would help to reduce the 

potential for losses to the FDIC’s deposit 

insurance fund. Accordingly, the final 

rule maintains the application of an 

NSFR requirement to covered 

depository institution subsidiaries as 

proposed. 

VI. Definitions 

The proposed rule would have shared 

definitions with the LCR rule and would 

have been codified in the same part of 

the Code of Federal Regulations as the 

LCR rule for each of the agencies.56 The 

proposed rule also would have revised 

certain of the existing definitions under 

the LCR rule and adopted new 

definitions for purposes of both the LCR 

and NSFR rules. The agencies received 

a number of comments regarding the 

proposed definitions. 

One commenter argued that certain of 

the LCR rule’s definitions are flawed 

and should not be used for purposes of 

the NSFR rule because they are the 

result of an internationally negotiated 

standard that was not properly 

calibrated to reflect U.S. market 

conditions or U.S. banking 

organizations’ practices. As discussed in 

section V.C of this Supplementary 

Information section, to the extent that 

the final rule incorporates definitions 


khammond on DSKJM1Z7X2PROD with RULES2
9132 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

57See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 

12 CFR 324.2 (FDIC). 

58See §ll.21 of the LCR rule. Certain secured 

funding transactions other than collateralized 

deposits are used in calculating adjusted liquid 

asset amounts for determining the adjusted excess 

HQLA amount under the LCR rule. 

also used in the LCR rule, their usage in 

the final rule generally reflects 

assumptions specific to the final rule. 

The agencies also note that these 

common definitions include defined 

terms that are not included in the Basel 

LCR standard, but are specific to U.S. 

markets and banking organizations. For 

example, the definitions for certain 

types of brokered deposits and 

collateralized deposits are not included 

in the Basel LCR standard or the Basel 

NSFR standard. In addition, the final 

rule has tailored certain definitions, 

such as the definition of ‘‘operational 

deposit,’’ for the U.S. market. The use of 

common definitions across the 

regulatory framework, as appropriate, 

helps to minimize compliance costs, 

facilitate comparability across banking 

organizations, and reduce regulatory 

burden. Comments regarding specific 

defined terms are discussed below. For 

ease of convenience, the following 

discussion refers to §ll.3 of the LCR 

rule, even though the definitions found 

in §ll.3 will apply to both the LCR 

rule and final rule. 

A. Revisions to Existing Definitions 

The proposed rule would have 

amended the following definitions that 

were included in §ll.3 of the LCR 

rule: ‘‘calculation date,’’ ‘‘collateralized 

deposits,’’ ‘‘committed,’’ ‘‘covered 

nonbank company,’’ ‘‘operational 

deposit,’’ ‘‘secured funding 

transaction,’’ ‘‘secured lending 

transaction,’’ and ‘‘unsecured wholesale 

funding.’’ 

1. Revised Definitions for Which the 

Agencies Received no Comments 

The proposed rule would have 

amended the existing definition of 

‘‘calculation date,’’ ‘‘committed,’’ and 

‘‘covered nonbank company’’ in §ll.3 

of the LCR rule. The agencies received 

no comments on the changes to these 

definitions and are adopting these 

revised definitions as proposed. 

Calculation date. The final rule 

amends to the definition of ‘‘calculation 

date’’ in § ll.3 of the LCR rule to 

include any date on which a covered 

company calculates its NSFR for 

purposes of § ll.100 of the final rule. 

Committed. The definition of 

‘‘committed’’ in § ll.3 of the LCR rule 

provides the criteria under which a 

credit facility or liquidity facility is 

considered committed for purposes of 

the LCR rule. To more clearly reflect the 

intended meaning of ‘‘committed,’’ the 

final rule, consistent with the proposed 

rule, amends the definition to state that 

a credit or liquidity facility is 

committed if it is not unconditionally 

cancelable under the terms of the 

facility. Consistent with the agencies’ 

risk-based capital rule, the final rule 

defines ‘‘unconditionally cancelable’’ to 

mean that a covered company may 

refuse to extend credit under the facility 

at any time, including without cause (to 

the extent permitted under applicable 

law).57 For example, a credit or liquidity 

facility that permits a covered company 

to refuse to extend credit only upon the 

occurrence of a specified event (such as 

a material adverse change) would not be 

considered unconditionally cancelable, 

and therefore the facility would be 

considered ‘‘committed’’ under the final 

rule. Conversely, a credit or liquidity 

facility that the covered company may 

cancel without cause would be 

considered unconditionally cancelable 

because the covered company may 

refuse to extend credit under the facility 

at any time, and therefore the facility 

would not be considered ‘‘committed.’’ 

For example, credit card lines that are 

cancelable without cause (to the extent 

permitted under applicable law), as is 

generally the case, are not considered 

committed under the amendment to the 

definition. 

Covered nonbank company. 

Consistent with the proposed rule, the 

final rule revises the definition of 

‘‘covered nonbank company’’ to clarify 

that if the Board requires a company 

designated by the Financial Stability 

Oversight Council (FSOC) for Board 

supervision to comply with the LCR 

rule or the final rule, it will do so 

through a rulemaking that is separate 

from the LCR rule and the final rule or 

by issuing an order. 

2. Revised Definitions for Which the 

Agencies Received Comments 

The agencies received comments on 

the following proposed amendments to 

existing definitions that are included in 

§ ll.3 of the LCR rule: ‘‘collateralized 

deposit,’’ ‘‘operational deposit,’’ 

‘‘secured funding transaction,’’ ‘‘secured 

lending transaction,’’ and ‘‘unsecured 

wholesale funding.’’ 

Collateralized Deposit. The proposed 

rule would have amended the definition 

of ‘‘collateralized deposit’’ to include 

those deposits of a fiduciary account 

collateralized as required under state 

law, as applicable to state member and 

nonmember banks and state savings 

associations. In addition, the proposed 

rule would have amended the definition 

to include those deposits of a fiduciary 

account held at a covered company for 

which a depository institution affiliate 

of the covered company is a fiduciary 

and that the covered company has opted 

to collateralize pursuant to 12 CFR 

9.10(c) (for national banks) or 12 CFR 

150.310 (for federal savings 

associations). 

The agencies received two comments 

regarding the definition of 

‘‘collateralized deposit.’’ One 

commenter supported the proposed 

amendment to include fiduciary 

deposits collateralized as required 

under state law, as applicable to state 

member banks, state nonmember banks, 

and state savings associations. The other 

commenter requested that the agencies 

revise the definition to include secured 

sweep repurchase arrangements, which 

the commenter described as 

arrangements that allow a customer’s 

balances to be temporarily ‘‘swept’’ out 

of a deposit account and into a secured 

non-deposit funding arrangement with 

the covered company. The commenter 

argued that secured sweep repurchase 

arrangements are distinct from other 

secured funding transactions, including 

wholesale funding offered by a brokerdealer, because they are typically tied to 

operational accounts and involve an 

automated sweep of corporate client 

funds into a secured sweep repurchase 

account, thus posing, in the 

commenter’s view, less liquidity risk. 

The commenter argued that secured 

sweep repurchase arrangements are 

similar to secured deposit funding 

because the arrangements are offered as 

part of a broader business relationship 

between a covered company and a 

customer and, therefore, should not be 

subject to the unwind provisions in 

§ ll.21 of the LCR rule. 

The final rule adopts the amended 

definition of ‘‘collateralized deposit’’ as 

proposed with an adjustment to 

expressly include deposits of a fiduciary 

account collateralized pursuant to state 

law requirements for which a covered 

company’s depository institution 

affiliate is a fiduciary. The agencies 

defined ‘‘collateralized deposit’’ to 

identify a narrow set of secured funding 

transactions that should not be subject 

to the unwind provision in the LCR rule 

for a covered company when 

determining its HQLA amount.58 The 

agencies excluded such deposits from 

the unwind provision based on their 

unique characteristics, including, 

among other things, that such deposits 

‘‘are required to be collateralized under 

applicable law’’ and that ‘‘the banking 

relationship associated with 

collateralized deposit can be different in 

nature from shorter-term repurchase and 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9133 

59 79 FR at 61473. 

60See §ll.4(b)(6) of the LCR rule; 79 FR at 

61501. This section provides that operational 

deposits do not include deposits that are provided 

in connection with the covered company’s 

provision of prime brokerage services, which 

include operational services provided to a nonregulated fund. Section ll.3 of the LCR rule 

defines a ‘‘non-regulated fund’’ as any hedge fund 

or private equity fund whose investment adviser is 

required to file SEC Form PF (Reporting Form for 

Investment Advisers to Private Funds and Certain 

Commodity Pool Operators and Commodity 

Trading Advisors), other than a small business 

investment company as defined in section 102 of 

the Small Business Investment Act of 1958 (15 

U.S.C. 661 et seq.). 

61See 79 FR at 61498. 

62See §ll.4(b)(5) of the LCR rule. 

63See 79 FR at 61497–502. 

reverse repurchase agreements.’’ 59 The 

revised definition includes deposits of a 

fiduciary account collateralized 

pursuant to state law requirements or at 

the covered company’s discretion 

pursuant to 12 CFR 9.10(c) (for national 

banks) or 12 CFR 150.310 (for federal 

savings associations) in order to provide 

consistent treatment to deposits that are 

subject to collateralization requirements 

or have been collateralized. 

Additionally, temporary secured sweep 

repurchase arrangements, including 

those offered part of a broader business 

relationship, that will mature in 30 

calendar days or less of an LCR 

calculation date may affect a covered 

company’s excess HQLA amount similar 

to other wholesale secured funding 

transactions conducted by a brokerdealer and do not qualify for the 

treatment afforded to collateralized 

deposits. 

Operational Deposit. The proposed 

rule would have amended the definition 

of ‘‘operational deposit’’ to include both 

deposits received by the covered 

company in connection with 

operational services provided by the 

covered company and deposits placed 

by the covered company in connection 

with operational services received by 

the covered company. The proposed 

rule also would have amended this 

definition to clarify that only deposits 

can qualify. Further, because 

operational deposits are limited to 

accounts that facilitate short-term 

transactional cash flows associated with 

operational services, operational 

deposits also should only have shortterm maturities, falling within the 

proposed rule’s less-than-six-month 

maturity category and generally within 

the LCR rule’s 30-calendar-day period. 

Further, because operational deposits 

are limited to accounts that facilitate 

short-term transactional cash flows 

associated with operational services, 

operational deposits also should only 

have short-term maturities, falling 

within the proposed rule’s less-than-sixmonth maturity category and generally 

within the LCR rule’s 30-calendar-day 

period. Notwithstanding the proposed 

revisions to this definition, the 

treatment of operational deposits under 

§§ ll.32 and ll.33 of the LCR rule 

would have remained the same. 

The agencies received a number of 

comments regarding the proposed 

definition of ‘‘operational deposit.’’ 

Some commenters requested removal of 

the limitation that operational deposits 

cannot be provided by non-regulated 

funds. These commenters argued that a 

deposit placed at a covered company by 

a non-regulated fund for the provision 

of operational services would have 

similar liquidity risks as a deposit 

placed by a regulated fund for the same 

operational purposes.60 One commenter 

argued that the exclusion of deposits 

placed by a non-regulated fund lacks a 

clear policy rationale and is unduly 

strict towards the custody bank business 

model. The commenter also argued that 

this exclusion is more stringent than the 

treatment of operational deposits in the 

Basel LCR standard. The commenter 

expressed concern that retaining this 

exclusion could undermine the current 

trend among non-regulated funds of 

separating the safekeeping and 

administration of their investment 

assets from their trading and financing 

activities. A commenter also asserted 

this exclusion is unnecessary because 

the risk associated with operational 

deposits from non-regulated funds is 

addressed sufficiently by the exclusion 

of deposits provided in connection with 

a covered company’s provision of prime 

brokerage services. 

One commenter argued that the 

definition of ‘‘operational deposit’’ 

should not be limited to deposits. The 

commenter suggested instead that the 

definition should be revised to include 

non-deposit unsecured wholesale 

funding that matures within the LCR 

rule’s 30-day time horizon, in order to 

include arrangements that allow an 

operational customer’s balances to be 

temporarily swept out of a deposit 

account into non-deposit products until 

such time as the funds are needed to 

meet operational demands. The 

commenter argued that excluding such 

arrangements from the definition of 

‘‘operational deposit’’ could 

underrepresent the amount of a covered 

company’s funding that is associated 

with the provision of operational 

services over the LCR rule’s 30-day time 

horizon. 

Operational deposit are deposits 

necessary for the covered company to 

provide operational services, as that 

term is defined in §ll.3 of the LCR 

rule, to the wholesale customer or 

counterparty providing the deposit.61

Among other things, the definition 

requires compliance with certain 

operational requirements of § ll.4 of 

the LCR rule in order for a deposit to be 

recognized as an operational deposit 

(operational requirements). 

The exclusion of deposits provided by 

non-regulated funds is appropriate 

because, in general, non-regulated funds 

tend to be sophisticated and are more 

likely than many other types of 

counterparties to engage in higher-risk 

trading strategies involving leverage, 

which may result in higher cash needs 

due to collateral calls and less stable 

deposit balances during certain market 

conditions. In comparison to nonfinancial wholesale counterparties or 

regulated financial sector entities, it is 

also more likely that operational 

activities at a non-regulated fund would 

be impacted by the performance of the 

fund’s investment or trading activity 

that relies upon prime brokerage 

services, and thus it would be more 

difficult to separate its deposit balances 

that are necessary to maintain 

operational activities from its balances 

that support trading and investment 

activities that rely on prime brokerage 

services (even if these services are 

provided by different entities of a 

covered company). As a result, deposits 

from non-regulated funds may present 

heightened funding risk relative to 

deposits from other counterparties. 

In addition, operational deposit 

balances swept out of a deposit account 

and into non-deposit products will not 

be eligible to be considered ‘‘operational 

deposits’’. The LCR rule provides that in 

order to be recognized as an operational 

deposit, any excess amount not linked 

to operational services must be 

excluded.62

As the preamble to the LCR rule 

noted, operational deposits are assigned 

a lower outflow rate under the LCR rule 

compared to other short-term wholesale 

funding due to the perceived stability 

arising from the relationship between a 

covered company and a depositor, the 

necessity of the deposit for the 

provision of operational services, and 

the switching costs associated with 

moving such deposits.63 In contrast, 

excess funds, including funds that are 

swept into non-deposit products until 

funds are needed to meet operational 

demands, are not necessary for the 

provision of operational services and 

therefore do not exhibit these 


khammond on DSKJM1Z7X2PROD with RULES2
9134 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

64See 79 FR at 61500. 65See §ll.4(b)(4) of the LCR rule. 66As noted in §ll.3 of the LCR rule and the 

proposed rule, the definition of ‘‘secured funding 

transaction’’ also includes repurchase agreements 

and securities lending transactions, and the 

definition of ‘‘secured lending transaction’’ also 

includes reverse repurchase agreements and 

securities borrowing transactions, as these 

transactions result in the equivalent of a lien, 

securing the cash leg of the transaction, that gives 

the asset borrower priority over the asset in the 

event the covered company or the counterparty, as 

applicable, enters into receivership, bankruptcy, 

insolvency, liquidation, resolution, or similar 

proceeding. 

67The LCR rule for similar reasons does not 

include gold bullion as a level 1 liquid asset. See 

79 FR at 61456. 

68See 79 FR at 61513. 

69See 79 FR at 61512. 

characteristics.64 Furthermore, the LCR 

rule excludes from operational deposits 

those deposits held in an account that 

is designed to incentivize customers to 

maintain excess funds in the account 

through increased revenue, reduction in 

fees, or other economic incentives.65

Because the sweep arrangements 

described by the commenter are 

typically used to increase returns on 

deposits, the continued exclusion of 

these sweep arrangements from the 

definition of ‘‘operational deposit’’ is 

consistent with this treatment. 

For these reasons, the final rule 

adopts the amended definition of 

‘‘operational deposits’’ as proposed. 

Secured Funding Transaction and 

Secured Lending Transaction. The 

proposed rule would have revised the 

definitions of ‘‘secured funding 

transaction’’ and ‘‘secured lending 

transaction’’ to clarify that (i) the 

transactions must be secured by a lien 

on securities or loans, rather than 

secured by a lien on other assets; (ii) the 

definitions include only transactions 

with wholesale customers or 

counterparties, and (iii) securities 

issued or owned by a covered company 

do not constitute secured funding or 

lending transactions.66

One commenter recommended 

amending the definitions of ‘‘secured 

funding transaction’’ and ‘‘secured 

lending transaction’’ by replacing 

‘‘securities’’ with ‘‘financial assets’’ in 

order to broaden the forms of collateral 

that may be used in transactions that 

meet the definitions. Specifically, the 

commenter argued that short-term debt, 

commercial paper, gold, and certain 

other assets should be permitted forms 

of collateral because they effectively 

reduce the risk associated with secured 

transactions. The same commenter also 

requested that the definition of ‘‘secured 

lending transaction’’ be expanded to 

include certain transactions with retail 

customers, and, in particular, openmaturity loans to retail customers 

collateralized by customer securities, 

such as a margin loan. The commenter 

asserted that a securities-based loan to 

a retail counterparty has similar 

characteristics to an open-maturity 

reverse repurchase agreement with a 

wholesale counterparty, including that 

the transaction is fully secured by the 

borrower’s collateral, the lender has a 

legal right and operational ability to 

close out the loan upon default by the 

counterparty and sell the collateral to 

offset the lender’s credit exposure, and 

the maturity of the loan extends each 

day that a notice of termination is not 

provided. 

Under the LCR rule, the cash flows 

associated with secured funding and 

secured lending transactions take into 

account the relative liquidity of the cash 

and marketable collateral that will be 

exchanged at the maturity of the 

transaction and recognize that collateral 

in the form of HQLA securities tends to 

be the most liquid. By contrast, 

collateral that is not generally traded in 

liquid markets, including property, 

plant, and equipment, may provide 

limited liquidity value, particularly 

relative to the LCR rule’s time horizon. 

While collateral that is not in the form 

of securities or loans may serve to 

mitigate credit risk, in the agencies’ 

experience, the cash flows on lending 

secured by such collateral, including the 

likelihood of renewing the lending at 

maturity, depend to a greater degree on 

the characteristics of the counterparty 

rather than the collateral, thus making 

the liquidity risk associated with such 

arrangements more akin to that of 

unsecured lending. Accordingly, such 

lending transactions should not 

necessarily receive a 100 percent inflow 

rate under the LCR rule; rather, the 

inflow rate should depend on the 

characteristics of the borrower, which 

more accurately reflect the likelihood 

that a covered company will be able to 

realize inflows from or roll over some or 

all of the loan during a period of 

significant stress. In contrast to their 

contributions to total net cash outflows 

under the LCR rule, the contributions of 

secured loan assets and secured funding 

liabilities to the funding risk of a 

covered company’s aggregate balance 

sheet generally depend on their 

maturities and counterparty 

characteristics and the final rule 

generally treats secured and unsecured 

wholesale transactions similarly. 

In addition, while there is no defined 

term ‘‘securities’’ in the LCR rule, the 

agencies are clarifying that a funding 

transaction that is not a security, is 

conducted with a wholesale customer or 

counterparty, and is secured under 

applicable law by a lien on third-party 

short-term debt or commercial paper 

provided by a covered company would 

qualify as a secured funding transaction. 

Similarly, a lending transaction that is 

not a security, is conducted with a 

wholesale customer or counterparty, 

and is secured under applicable law by 

a lien on third-party short-term debt or 

commercial paper provided by the 

wholesale customer or counterparty 

would qualify as a secured lending 

transaction. However, secured funding 

and lending transactions where the 

collateral is in the form of gold or other 

commodities would not meet the 

definition of a secured funding 

transaction or secured lending 

transaction. These assets exhibit an 

increased volatility in market value and 

there are logistical factors associated 

with holding and liquidating these 

assets as compared to loans and 

securities.67

The final rule adopts the amended 

definitions of ‘‘secured funding 

transaction’’ and ‘‘secured lending 

transaction’’ as proposed. Under the 

final rule, the definitions of ‘‘secured 

funding transaction’’ and ‘‘secured 

lending transaction’’ include only 

transactions with wholesale customers 

or counterparties. Secured lending 

transactions do not include secured 

lending to a retail customer or 

counterparty, such as a retail margin 

loan. For purposes of the LCR rule 

generally, secured lending transactions 

categorize certain lending to a wholesale 

customer or counterparty where the 

expectation is that the transaction may 

mature in the near term with the 

covered company receiving cash from 

the counterparty and being required to 

return collateral to the counterparty.68

In contrast, the treatment of retail 

exposures generally reflects the 

agencies’ expectation that a covered 

company will need to maintain a 

portion of retail lending even during 

stress, regardless of collateralization.69

As noted above, RSF factors assigned to 

unencumbered loans to retail and 

wholesale customers and counterparties 

under the final rule reflect their 

maturity and counterparty, rather than 

collateralization, and the RSF factors 

assigned to secured retail lending are 

the same as for secured lending to nonfinancial sector wholesale 

counterparties. As a result, the final 

rule, like the proposed rule, categorizes 

secured lending to a retail customer or 

counterparty separately from secured 

lending transactions with wholesale 

customers or counterparties for 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9135 

70See section VII.D of this Supplementary 

Information section. 

71 In addition to the unique treatment of asset 

exchanges in §ll.102(c) of the final rule, asset 

exchanges are also subject to special treatment 

pursuant to §ll.106(d). These treatments are 

discussed further in section VII.D.4 of this 

Supplementary Information section. 

72A credit facility does not include a legally 

binding written agreement to extend funds at a 

future date to a counterparty made for the purpose 

of refinancing the debt of the counterparty when it 

is unable to obtain a primary or anticipated source 

of funding, which is included in the definition of 

‘‘liquidity facility.’’ 

73A liquidity facility excludes facilities that are 

established solely for the purpose of general 

working capital, such as revolving credit facilities 

for general corporate or working capital purposes. 

74The undrawn amount of the facility would be 

determined under §ll.32(e)(2) of the LCR rule 

and §ll.106(a)(2) of the final rule. 

purposes of assigning RSF factors under 

the NSFR requirement.70

Finally, under the final rule securities 

issued or owned by a covered company 

do not constitute secured funding or 

lending transactions. For example, 

asset-backed securities issued by a 

special purpose entity that a covered 

company consolidates on its balance 

sheet are not secured funding 

transactions. Similarly, securities 

owned by a covered company where 

contractual payments to the covered 

company are collateralized are not 

secured lending transactions. 

Unsecured wholesale funding. The 

proposed rule would have amended the 

definition of ‘‘unsecured wholesale 

funding’’ to mean a liability or general 

obligation of a covered company to a 

wholesale customer or counterparty that 

is not a secured funding transaction. 

The agencies received one comment 

regarding this proposed definition. The 

commenter asserted that, although 

‘‘asset exchange’’ is separately defined 

in the LCR rule, an asset exchange could 

nonetheless fall under the definition of 

‘‘unsecured wholesale funding’’ because 

it could be viewed as a liability or 

general obligation that is not a secured 

funding transaction if entered into with 

a wholesale customer or counterparty. 

The final rule adopts the amended 

definition of ‘‘unsecured wholesale 

funding’’ as proposed with an 

adjustment to expressly exclude asset 

exchanges. Under the final rule, secured 

funding with a wholesale counterparty 

that does not meet the revised definition 

of ‘‘secured funding transaction’’ 

generally meets the definition of 

‘‘unsecured wholesale funding.’’ 

However, consistent with the agencies’ 

intent to provide a special framework 

for asset exchanges, the definitions of 

‘‘unsecured wholesale funding’’ and 

‘‘unsecured wholesale lending’’ in the 

final rule have been revised to exclude 

asset exchanges.71

3. Other Definitions and Requirements 

for Which the Agencies Received 

Comments 

Given that the definitions in the LCR 

rule would apply to the final rule, the 

proposed rule also requested comment 

as to whether any other existing 

definitions or terms should be amended. 

The agencies received several comments 

requesting revisions and clarifications to 

other definitions in the LCR rule that 

the agencies did not propose to amend. 

Credit and liquidity facility. One 

commenter requested that the agencies 

provide examples of a lending 

commitment that would qualify as a 

‘‘credit facility’’ or ‘‘liquidity facility’’ 

under the rules. Section ll.3 of the 

LCR rule defines ‘‘credit facility’’ to 

mean a legally binding agreement to 

extend funds if requested at a future 

date, including a general working 

capital facility such as a revolving credit 

facility for general corporate or working 

capital purposes.72 Other examples of 

credit facilities may include a letter of 

credit, home equity line of credit, or any 

other legally binding agreement to 

extend funds if requested at a future 

date that is not included in the 

definition of ‘‘liquidity facility.’’ 

Section ll.3 of the LCR rule defines 

‘‘liquidity facility’’ to mean a legally 

binding written agreement to extend 

funds at a future date to a counterparty 

that is made for the purpose of 

refinancing the debt of the counterparty 

when it is unable to obtain a primary or 

anticipated source of funding. The 

definition of ‘‘liquidity facility’’ further 

clarifies that it includes an agreement to 

provide liquidity support to assetbacked commercial paper by lending to, 

or purchasing assets from, any structure, 

program, or conduit in the event that 

funds are required to repay maturing 

asset-backed commercial paper.73 Other 

examples of liquidity facilities include 

agreements related to non-asset backed 

commercial paper programs, secured 

financing transactions, securities 

investment vehicles, and conduits that, 

in each case, meet the requirements of 

the liquidity facility definition in 

§ ll.3 of the LCR rule. The LCR rule 

requires a facility that has 

characteristics of both credit and 

liquidity facilities to be classified as a 

liquidity facility. 

In addition, a commenter asked the 

agencies to clarify the treatment of (1) 

commercial paper backstop facilities 

where the customer has no commercial 

paper currently outstanding and (2) 

facilities that are expected to be 

cancelled without funding, such as an 

unfunded bridge lending facility in 

connection with a capital markets 

issuance. A commercial paper backstop 

facility may meet the definition of a 

liquidity facility because the purpose of 

the facility is to provide liquidity 

support in the future, if needed, 

regardless of whether the customer 

currently has any commercial paper 

outstanding or not. The determination 

of whether such a facility is 

‘‘committed’’ likewise would not be 

impacted by the fact that the customer 

has no amount of commercial paper 

outstanding, but would depend on 

whether it was ‘‘unconditionally 

cancelable’’ as described above.74 With 

respect to an unfunded bridge lending 

facility in connection with a capital 

markets issuance, the facility may be 

considered a credit facility if its sole 

purpose is to provide working capital to 

the issuer prior to the capital markets 

issuance. If, however, the unfunded 

bridge lending facility’s purpose at least 

partially includes providing funds in 

the event that the issuer cannot 

otherwise refinance its outstanding 

liabilities prior to the capital market 

issuance, then the facility would likely 

meet the definition of a liquidity 

facility. Whether a facility meets the 

definition of a credit or liquidity facility 

at a calculation date is not influenced by 

expectations regarding its future 

cancellation. In addition, the 

determination of whether such a facility 

is ‘‘committed’’ at a calculation date 

depends on whether it was 

‘‘unconditionally cancelable,’’ and 

would not be impacted by the 

likelihood of its cancellation. 

Retail customer or counterparty. 

Section ll.3 of the LCR rule defines 

‘‘retail customer or counterparty’’ to 

include a living or testamentary trust 

that: (i) Is solely for the benefit of 

natural persons; (ii) does not have a 

corporate trustee; and (iii) terminates 

within 21 years and 10 months after the 

death of grantors or beneficiaries of the 

trust living on the effective date of the 

trust or within 25 years, if applicable 

under state law. One commenter 

suggested changing the definition of 

‘‘retail customer or counterparty’’ to 

account for certain trusts, such as 

common trust arrangements with 

corporate trustees that the commenter 

viewed as akin to a natural person. The 

commenter suggested that a natural 

person’s direct or indirect power to 

control a trust’s investment is a better 

measure for assessing whether a trust 

should be treated for purposes of the 

LCR and NSFR rule as a retail customer 

or counterparty. The commenter 

suggested that a natural person’s direct 


khammond on DSKJM1Z7X2PROD with RULES2
9136 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

75Subsequent to the proposal, the agencies issued 

in October 2017 frequently asked questions related 

to the LCR rule, including discussion of corporate 

trustees. See https://www.federalreserve.gov/ 

supervisionreg/topics/liquidity-coverage-ratiofaqs.htm. 

or indirect power to control a trust’s 

investment is a better measure for 

assessing whether a trust should be 

treated for purposes of the LCR and 

NSFR rules as a retail customer or 

counterparty. 

The agencies expect that, as a class, 

living and testamentary trusts with 

corporate trustees are more likely to 

exhibit behavioral traits and 

sophistication comparable to those of a 

wholesale rather than retail customer or 

counterparty, even if a natural person 

has indirect authority over the trustee or 

complementary power to direct the 

trust’s investment activity.75 For 

example, despite the authority of a 

natural person to direct the trustee’s 

investment, a corporate trustee would 

be more likely to act for the trust in the 

manner of a financial counterparty. The 

final rule does not include any change 

to the definition of ‘‘retail customer or 

counterparty.’’ 

Liquid and readily-marketable. Under 

the LCR rule, certain assets must be 

liquid and readily-marketable in order 

to be included as HQLA by a covered 

company. This requirement is intended 

to ensure that assets included as HQLA 

exhibit a level of liquidity that would 

allow a covered company to convert 

them into cash during times of stress in 

order to meet its obligations when other 

sources of liquidity may be reduced or 

unavailable. Under the LCR rule, an 

asset is liquid and readily-marketable if 

it is traded in an active secondary 

market with more than two committed 

market makers, a large number of 

committed non-market maker 

participants on both the buying and 

selling sides of transactions, timely and 

observable market prices, and a high 

trading volume. 

The agencies received several 

comments and requests for clarification 

on this definition. Several commenters 

suggested that the liquid and readilymarketable criteria are unduly difficult 

to satisfy. One commenter stated that 

banking organizations have had 

difficulty collecting the data necessary 

to demonstrate that securities meet 

these criteria, and that the cost of 

collecting data for certain securities that 

are widely accepted as being liquid and 

readily-marketable outweighs the 

benefits. Several commenters requested 

additional clarification concerning what 

is required by each of the elements of 

the liquid and readily-marketable 

standard. For example, commenters 

requested clarification for how to 

determine that a market maker is 

‘‘committed,’’ that there is a ‘‘large’’ 

number of market participants, and that 

the trading volume for a security is 

‘‘high.’’ Commenters expressed concern 

that relatively new types of securities 

and securities that are preferred by 

investors utilizing a ‘‘buy and hold’’ 

strategy, including securities of the 

highest credit quality that have strong 

demand at primary issuance, may not 

meet the criteria. Commenters also 

expressed concern that there appears to 

be no widely accepted or 

straightforward method for assessing 

these criteria. 

Commenters also provided alternative 

methods to establish that a security is 

liquid and readily-marketable. Several 

commenters suggested that certain asset 

classes should be presumed to be liquid 

and readily-marketable without further 

analysis if they meet certain criteria. For 

example, commenters suggested that 

certain securities should be presumed to 

be liquid and readily-marketable, 

including (i) securities backed by the 

full faith and credit of the United States, 

including agency securities, (ii) debt 

issues of foreign sovereigns that meet 

certain risk weight and other criteria, 

and (iii) U.S. equities included in the 

Russell 1000 index. These commenters 

also suggested that securities presumed 

to be liquid and readily-marketable 

could be assessed annually or more 

frequently to ensure that they are liquid 

and readily-marketable. Another 

commenter suggested that a security 

should be deemed liquid and readilymarketable if a firm can demonstrate 

that the 30-day trading volume for the 

security exceeds the firm’s holdings of 

that security, or that there has been a 

purchase in the market for each offer to 

sell the security. One commenter 

suggested that securities should be 

considered liquid and readilymarketable if other securities issued by 

the same issuer or guaranteed by the 

same credit protection provider have 

already been deemed liquid and readilymarketable. 

The LCR rule’s definition of ‘‘liquid 

and readily-marketable’’ is intended to 

complement other restrictions on the 

assets that can potentially be included 

in HQLA. Within the universe of 

possible HQLA, the criteria in the 

definition are not overly prescriptive 

given the divergence of trading 

frequency and practices. Suggestions to 

more narrowly define these criteria 

would be difficult to apply because of 

the different market structures for 

different asset classes. In response to 

commenters’ requests for clarification, 

this Supplementary Information section 

describes the agencies’ general 

expectations regarding how assets may 

satisfy the definition’s criteria. 

The agencies do not expect covered 

companies to conduct the liquid and 

readily-marketable analysis on a daily 

basis. However, the agencies expect that 

covered companies monitor the 

securities included as HQLA and 

conduct the analysis periodically, 

especially following a change in market 

conditions. Covered companies should 

be able to demonstrate that they have an 

appropriate process to regularly review 

that each security meets the liquid and 

readily-marketable requirements and 

that they do in fact perform this 

analysis. 

The LCR rule defines ‘‘liquid and 

readily-marketable’’ to mean that a 

given security is traded in an active 

secondary market that satisfies four 

conditions. The first condition is that 

the active secondary market must have 

more than two committed market 

makers. The presence of committed 

market makers is an important 

characteristic of liquid securities 

markets, to ensure that trades within the 

market will be fulfilled on an ongoing 

basis. A covered company generally 

may treat a market maker as committed 

if the market maker has a history of 

trading the security in a substantial 

volume, particularly during times of 

stress. As with the other criteria 

necessary for a security to be liquid and 

readily-marketable, once the covered 

company makes an initial determination 

that a security has more than two 

committed market makers, a periodic 

review is adequate to confirm the 

continued presence of committed 

market makers. The second condition is 

that the active secondary market must 

have a large number of non-market 

maker participants acting as buyers and 

sellers of the security. The agencies 

generally will consider a security to 

satisfy this requirement if the majority 

of the trading volume for the security 

involves non-market maker participants. 

It also may be possible to satisfy this 

requirement for securities traded in 

secondary markets where most trades 

are between market makers if there are 

a large number of non-market maker 

participants. The third condition is that 

the active secondary market must have 

timely and observable market prices. 

The agencies generally expect that 

securities that trade regularly and at 

prices that are quoted daily can be 

considered to meet this requirement. 

The fourth condition is that the active 

secondary market must have a high 

trading volume. The analysis should 

take into account the depth of the 

market across a range of time periods. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9137 

76The FDIC separately published a proposal in 

February 2020 to modernize its brokered deposit 

regulations, which would establish a new 

framework for analyzing whether deposits placed 

through deposit placement arrangements qualify as 

brokered deposits (FDIC brokered deposit proposal). 

Unsafe and Unsound Banking Practices: Brokered 

Deposits Restrictions, 85 FR 7453 (February 10, 

2020). In addition, in 2019 the FDIC published a 

final rule amending its brokered deposit regulations 

to conform with changes to section 29 of the 

Federal Deposit Insurance Act (FDI Act) made by 

section 202 of EGRRCPA related to reciprocal 

deposits. See Limited Exception for a Capped 

Amount of Reciprocal Deposits From Treatment as 

Brokered Deposits, 84 FR 1346, 1349 (February 4, 

2019), technical amendment at 84 FR 15095 (April 

15, 2019). 

77 In 2019, the FDIC published a final rule 

implementing section 202 of the Economic Growth, 

Regulatory Relief, and Consumer Protection Act, 

Public Law 115–174, 132 Stat. 1296–1368 (2018), 

codified at 12 U.S.C. 1831f. 84 FR 1346 (February. 

4, 2019). Section 202 amends section 29 of the FDI 

Act to except a capped amount of reciprocal 

deposits from treatment as brokered deposits for 

certain insured depository institutions. 

Additionally, a third party whose primary purpose 

is not the placement of funds with depository 

institutions is not a deposit broker, meaning 

deposits placed or facilitated by such a person are 

not brokered deposits. 

78See 12 CFR 3.2 (OCC); 12 CFR 217.2 (Board); 

12 CFR 324.2 (FDIC). 

Operational Requirements for HQLA. 

One commenter suggested that the 

agencies eliminate the operational 

requirement that firms periodically 

monetize a sample of their HQLA held 

as eligible HQLA through an outright 

sale or pursuant to a repurchase (LCR 

monetization requirement). The 

commenter argued that if a security 

already satisfies the agencies’ liquid and 

readily-marketable standard, then it is 

unnecessary to also sell the security to 

demonstrate its liquidity to determine 

that it is eligible HQLA. The commenter 

also suggested that the agencies accept 

proof that a security has been used to 

secure a loan from a Federal Home Loan 

Bank (FHLB) to satisfy the LCR 

monetization requirement. The LCR rule 

has separate definitions for ‘‘Highquality liquid assets’’ and ‘‘Eligible 

HQLA’’ for distinct purposes under the 

LCR rule. The agencies are retaining the 

LCR monetization requirement in order 

to ensure a covered company’s 

continued access to funds providers and 

the effectiveness of its processes for 

monetization. While satisfaction of the 

liquid and readily-marketable criteria 

indicates that a covered company 

should be able to monetize a security, 

actual monetization confirms the 

security’s marketability and confirms 

that the covered company maintains 

adequate processes for monetizing the 

security. 

3. Other Definitions and Requirements 

for Which the Agencies Did Not Receive 

Comments 

As noted above in section VI.A.3 of 

this Supplementary Information section, 

the proposed rule also requested 

comment as to whether any other 

existing definitions or terms in § ll.3 

of the LCR rule should be amended. 

Although the agencies did not receive 

specific requests to change the 

definition of ‘‘brokered deposit,’’ several 

commenters expressed concern that the 

FDIC’s interpretation of ‘‘brokered 

deposit’’ is overly broad. The final rule 

amends certain of the definitions related 

to brokered deposits in §ll.3 to 

improve clarity and consistency with 

the FDIC’s brokered deposit 

framework.76

Section ll.3 previously defined a 

brokered deposit to mean any deposit 

held at the covered company that is 

obtained, directly or indirectly, from or 

through the mediation or assistance of a 

deposit broker as that term is defined in 

section 29 of the Federal Deposit 

Insurance Act (12 U.S.C. 1831f(g)) (FDI 

Act) and includes a reciprocal brokered 

deposit and a brokered sweep deposit. 

The final rule amends this definition by 

adding a reference to the FDIC’s 

regulations and eliminating the 

reference to reciprocal brokered 

deposits and brokered sweep deposits 

because not all reciprocal and sweep 

deposits are brokered deposits under 

section 29 of FDI Act and the FDIC’s 

implementing regulations.77

For this reason, the final rule also 

renames ‘‘brokered sweep deposit’’ to 

‘‘sweep deposit’’ and ‘‘reciprocal 

brokered deposit’’ to ‘‘brokered 

reciprocal deposit’’ wherever these 

terms appear. These clarifications are 

important in light of ongoing FDIC 

efforts to update the classification of 

brokered deposits. Under the final rule, 

the term ‘‘sweep deposit’’ includes 

deposits that are brokered deposits as 

well as deposits that are not brokered 

deposits. The term ‘‘reciprocal brokered 

deposits’’ only includes deposits that 

are classified as brokered deposits. 

Pursuant to section 553(b)(B) of the 

APA, general notice and the opportunity 

for public comment are not required 

with respect to a rulemaking when an 

‘‘agency for good cause finds (and 

incorporates the finding and a brief 

statement of reasons therefore in the 

rules issued) that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest.’’ The changes to these 

definitions are only intended to clarify 

the scope of the definitions, not 

substantively alter the definitions or 

changes the applicable outflow or 

inflow amounts in the LCR rule. 

Because these changes are technical in 

nature and merely improve the clarity of 

these definitions in the LCR and NSFR 

rules, the agencies have determined that 

it is unnecessary to provide notice or 

the opportunity to comment prior to 

adopting these changes to these 

definitions related to brokered deposits. 

B. New Definitions 

The proposed rule would have added 

several new definitions: ‘‘carrying 

value,’’ ‘‘encumbered,’’ ‘‘NSFR 

regulatory capital element,’’ ‘‘NSFR 

liability,’’ and ‘‘QMNA netting set,’’ and 

‘‘unsecured wholesale lending.’’ 

1. New Definitions for Which the 

Agencies Received no Comments 

The agencies received no comments 

on the proposed definitions of ‘‘carrying 

value,’’ ‘‘encumbered,’’ ‘‘NSFR 

regulatory capital element,’’ ‘‘NSFR 

liability,’’ and ‘‘QMNA netting set,’’ and 

the final rule adopts these definitions as 

proposed. 

The final rule defines ‘‘carrying 

value’’ to mean the value on a covered 

company’s balance sheet of an asset, 

NSFR regulatory capital element, or 

NSFR liability, as determined in 

accordance with GAAP. The final rule 

includes this definition because RSF 

and ASF factors generally are applied to 

the carrying value of a covered 

company’s assets, NSFR regulatory 

capital elements, and NSFR liabilities. 

By relying on values based on GAAP, 

the final rule aims to ensure consistency 

in the application of the NSFR 

requirement across covered companies 

and limit operational compliance costs 

because covered companies already 

prepare financial reports in accordance 

with GAAP. This definition is 

consistent with the definition used in 

the agencies’ regulatory capital rules.78

The final rule’s definition of 

‘‘encumbered’’ uses the criteria for an 

‘‘unencumbered’’ asset found in 

§ ll.22(b) of the LCR rule. The 

definition does not include any 

substantive changes to the concept of 

encumbrance included in the LCR rule. 

The final rule uses this definition in 

place of the criteria enumerated in 

§ ll.22(b) of the LCR rule. The 

addition of this definition is necessary 

to apply the concept of encumbrance in 

§§ ll.106(c) and (d) of the final rule, 

which are discussed in sections VII.D of 

this Supplementary Information section. 

Additionally, the final rule defines 

‘‘NSFR regulatory capital element’’ to 

mean any capital element included in a 

covered company’s common equity tier 

1 capital, additional tier 1 capital, and 

tier 2 capital, as those terms are defined 


khammond on DSKJM1Z7X2PROD with RULES2
9138 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

79See 12 CFR part 3 (OCC); 12 CFR part 217 

(Board); 12 CFR part 324 (FDIC). 

80Tier 2 capital instruments that have a 

remaining maturity of less than one year are not 

included in regulatory capital. See 12 CFR 

3.20(d)(1)(iv) (OCC); 12 CFR 217.20(d)(1)(iv) 

(Board); 12 CFR 324.20(d)(1)(iv) (FDIC); see also 12 

CFR 3.300 (OCC); 12 CFR 217.300 (Board); 12 CFR 

324.300 (FDIC). 

81The definition of ‘‘NSFR regulatory capital 

element’’ includes allowances for loan and lease 

losses (ALLL) to the same extent as under the riskbased capital rule. See 12 CFR 3.20(d)(3) (OCC); 12 

CFR 217.20(d)(3) (Board); 12 CFR 324.20(d)(3) 

(FDIC). 

82Each QMNA netting set must meet each of the 

conditions specified in the definition of ‘‘qualifying 

master netting agreement’’ under §ll.3 of the 

LCR rule and the operational requirements under 

§ll.4(a) of the LCR rule. 

83A QMNA may identify a single QMNA netting 

set (for which the agreement creates a single net 

payment obligation and for which collection and 

posting of margin applies on an aggregate net basis) 

or it may establish multiple QMNA netting sets, 

each of which would be separate from and 

exclusive of any other QMNA netting set or 

derivative transaction covered by the QMNA. 

84Under the LCR rule, a covered company should 

continue to look to §ll.33(f) for the appropriate 

methodology for determining inflows with respect 

to asset exchanges. 

85For example, commenters requested the 

exclusion of securitizations that are ‘‘traditional 

securitizations’’ under the agencies’ regulatory 

capital rules and meet the operational requirements 

of risk transfer under those rules, or certain assetbacked commercial paper (ABCP) conduits. 

in the agencies’ risk-based capital rule, 

prior to the application of capital 

adjustments or deductions set forth in 

the agencies’ risk-based capital rule.79

This definition excludes any debt or 

equity instrument that does not meet the 

criteria for additional tier 1 or tier 2 

capital instruments in §ll.22 of the 

agencies’ risk-based capital rule or that 

is being phased out of tier 1 or tier 2 

capital pursuant to subpart G of the 

agencies’ risk-based capital rule.80 The 

term ‘‘NSFR regulatory capital element’’ 

includes both equity and liabilities 

under GAAP that meet the requirements 

of the definition. This definition of 

‘‘NSFR regulatory capital element’’ 

generally aligns with the definition of 

regulatory capital in the agencies’ riskbased capital rule, but does not include 

capital deductions and adjustments.81

As a result, the final rule requires assets 

that are capital deductions (such as 

goodwill) to be included in the 

determination of required stable 

funding, as discussed in section VII.D of 

this Supplementary Information section. 

Further, the final rule defines ‘‘NSFR 

liability’’ to mean any liability or equity 

reported on a covered company’s 

balance sheet that is not an ‘‘NSFR 

regulatory capital element.’’ The term 

‘‘NSFR liability’’ primarily refers to 

balance sheet liabilities but may include 

equity because some equity may not 

qualify as an ‘‘NSFR regulatory capital 

element.’’ The definitions of ‘‘NSFR 

liability’’ and ‘‘NSFR regulatory capital 

element,’’ taken together, should cover 

the entirety of the liability and equity 

side of a covered company’s balance 

sheet. 

Finally, the final rule defines ‘‘QMNA 

netting set’’ to refer to a group of 

derivative transactions with a single 

counterparty that is subject to a 

qualifying master netting agreement 

(QMNA),82 and is netted under the 

QMNA.83 QMNA netting sets include, 

in addition to non-cleared derivative 

transactions, a group of cleared 

derivative transactions (that is, a group 

of derivative transactions that have been 

entered into with, or accepted by, a 

central counterparty (CCP)) if the 

applicable governing rules for the group 

of cleared derivative transactions meet 

the definition of a QMNA. The term 

‘‘QMNA netting set’’ is used in the 

calculation of a covered company’s 

stable funding requirement attributable 

to its derivative transactions, as 

discussed in section VII.E of this 

Supplementary Information section. 

2. New Definitions for Which the 

Agencies Received Comments 

Unsecured wholesale lending. The 

proposed rule would have added a 

definition of ‘‘unsecured wholesale 

lending’’ to mean a liability or general 

obligation of a wholesale customer or 

counterparty to the covered company 

that is not a secured lending transaction. 

Similar to the comment received 

regarding the revised definition of 

‘‘unsecured wholesale funding,’’ a 

commenter noted that an asset exchange 

could be viewed as a liability or general 

obligation that is not a secured lending 

transaction if entered into with a 

wholesale customer and treated as 

unsecured wholesale lending under the 

LCR and NSFR rules. For the reasons 

discussed above in respect to the 

definition of ‘‘unsecured wholesale 

funding,’’ the agencies are revising the 

definition of ‘‘unsecured wholesale 

lending’’ to exclude asset exchanges.84

The final rule otherwise adopts the 

definition of ‘‘unsecured wholesale 

lending’’ as proposed. 

VII. NSFR Requirement Under the 

Final Rule 

A. Rules of Construction 

The proposed rule would have 

included rules of construction in 

§ ll.102 relating to how items 

recorded on a covered company’s 

balance sheet would be reflected in the 

covered company’s ASF and RSF 

amounts. 

1. Balance-Sheet Values 

As noted above, a covered company 

generally would have determined its 

ASF and RSF amounts based on the 

carrying values of its on-balance sheet 

assets, NSFR regulatory capital 

elements, and NSFR liabilities as 

determined under GAAP. For offbalance sheet assets, the proposed rule 

would have included a rule of 

construction in § ll.102(a) specifying 

that, unless otherwise provided, a 

transaction or exposure that is not 

recorded on the balance sheet of a 

covered company would not be assigned 

an ASF or RSF factor and, conversely, 

a transaction or exposure that is 

recorded on the balance sheet of the 

covered company would be assigned an 

ASF or RSF factor. While the proposed 

rule generally would have relied on 

balance sheet carrying values, it would 

have provided a separate treatment for 

derivative transactions and the undrawn 

amount of commitments. The proposed 

rule also would have included 

adjustments to account for certain 

rehypothecated off-balance sheet assets. 

The agencies received several 

comments regarding the treatment of 

securitization exposures. Two 

commenters requested that all or certain 

securitization exposures that are 

included on a covered company’s 

balance sheet pursuant to GAAP be 

excluded from a covered company’s 

NSFR.85 The commenters argued that 

the assets and liabilities of the 

securitization vehicle are not owned or 

owed, respectively, by the covered 

company or that the securitization 

vehicle normally has no legal obligation 

to make payments when the cash flow 

from the assets underlying the 

securitization is insufficient. As an 

alternative to this exclusion, one of the 

commenters suggested that the assets 

collateralizing the securitization should 

be assigned an RSF factor to match the 

ASF factor assigned to the securities 

issued. This commenter also argued that 

where the covered company provides a 

liquidity facility to support an assetbacked commercial paper (ABCP) 

conduit, the NSFR rule should treat the 

ABCP conduit as a third-party 

securitization and assign a 5 percent 

RSF factor to the committed liquidity 

facility. 

During the 2007–2009 financial crisis, 

a number of banking organizations 

provided funding support for 

securitization exposures, even if the 

banking organization did not include 

the exposures on its balance sheet. In 

response to these events, changes were 

made to GAAP that now require firms 

to include certain securitization 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9139 

86For example, GAAP may require consolidation 

where a covered company retains a controlling 

financial interest in the securitization structure. 87See 12 CFR 41(a)(1) (OCC); 12 CFR 217.41(a)(1) 

(Board); 12 CFR 324.41(a)(1) (FDIC). 

88 12 CFR 3.10(c)(4)(ii)(E)(1) through (3) (OCC); 12 

CFR 217.10(c)(4)(ii)(E)(1) through (3) (Board); 12 

CFR 324.10(c)(4)(ii)(E)(1) through (3) (FDIC). 

89Section ll.106(d) of the proposed rule would 

have addressed certain assets received by a covered 

company in an asset exchange and not included on 

the covered company’s balance sheet, as well as 

certain other off-balance sheet assets 

rehypothecated by a covered company. Comments 

regarding that provision are discussed in section 

VII.D.4 of this Supplementary Information section. 

exposures on their balance sheets.86

GAAP’s requirements for including 

securitization exposures on a firm’s 

balance sheet are based, in part, on 

whether the firm exercises control of 

those exposures. As discussed in section 

V.C of this Supplementary Information 

section, the NSFR is designed to assess 

the consolidated balance sheet of a 

covered company and using GAAP both 

promotes consistency in the application 

of the NSFR across covered companies 

and limits operational costs associated 

with compliance. In addition, if a 

covered company meets the 

requirements under GAAP for including 

securitization exposures on-balance 

sheet, it may be exposed to funding 

obligations generated by those 

exposures. Therefore, it is appropriate to 

require stable funding for securitization 

exposures that are reflected on-balance 

sheet in accordance with GAAP. 

In response to the request of one 

commenter that the rule not assign RSF 

factors to assets of an on-balance sheet 

securitization that meets (1) the 

definition of ‘‘traditional securitization’’ 

under the agencies’ regulatory capital 

rules and (2) the operational 

requirements of risk transfer under 

those rules, the agencies note that the 

operational requirements include the 

requirement that the exposures are not 

reported on the firm’s consolidated 

balance sheet under GAAP.87 As a 

result, the commenter’s requested 

treatment would not result in the 

exclusion of any on-balance sheet 

securitizations from a covered 

company’s NSFR. Regardless of the 

accounting treatment of particular 

securitization transactions, all 

securitizations carry liquidity risks, 

including unexpected funding needs. 

Covered companies may experience 

reputational pressure to support 

securitization transactions that they are 

associated with. The final rule 

accordingly does not include the 

commenter’s requested exclusion. 

2. Netting of Certain Transactions 

The proposed rule would have 

included a rule of construction in 

§ ll.102(b) that describes the 

treatment of receivables and payables 

that are associated with secured funding 

transactions, secured lending 

transactions, and asset exchanges with 

the same counterparty that the covered 

company has netted against each other. 

The agencies did not receive any 

comments regarding these netting 

criteria and are finalizing these netting 

criteria as proposed. 

For purposes of determining the 

carrying value of these transactions, 

GAAP permits a covered company, 

when the relevant accounting criteria 

are met, to offset the gross value of 

receivables due from a counterparty 

under secured lending transactions by 

the amount of payments due to the same 

counterparty under secured funding 

transactions (GAAP offset treatment). 

The final rule requires a covered 

company to satisfy these GAAP 

accounting criteria and the criteria 

applied in § ll.102(b) before it can 

treat the applicable receivables and 

payables on a net basis for the purposes 

of the NSFR requirement. 

Section ll.102(b) of the final rule 

applies the same netting criteria 

specified in the agencies’ SLR rule.88

These criteria require, first, that the 

offsetting transactions have the same 

explicit final settlement date under their 

governing agreements. Second, the 

criteria require that the right to offset 

the amount owed to the counterparty 

with the amount owed by the 

counterparty is legally enforceable in 

the normal course of business and in the 

event of receivership, insolvency, 

liquidation, or similar proceeding. 

Third, the criteria require that under the 

governing agreements the counterparties 

intended to settle net, settle 

simultaneously, or settle according to a 

process that is the functional equivalent 

of net settlement (that is, the cash flows 

of the transactions are equivalent, in 

effect, to a single net amount on the 

settlement date), where the transactions 

are settled through the same settlement 

system, the settlement arrangements are 

supported by cash or intraday credit 

facilities intended to ensure that 

settlement of the transactions will occur 

by the end of the business day, and the 

settlement of the underlying securities 

does not interfere with the net cash 

settlement. 

3. Treatment of Securities Received in 

an Asset Exchange by a Securities 

Lender 

The proposed rule would have 

included a rule of construction in 

§ ll.102(c) specifying that when a 

covered company, acting as a securities 

lender, receives a security in an asset 

exchange, includes the value of the 

security on its balance sheet, and has 

not rehypothecated the security 

received, the covered company is not 

required to assign an RSF factor to the 

security it has received and is not 

permitted to assign an ASF factor to any 

liability to return the security. 

The agencies received two comments 

relating to this section of the proposed 

rule. One commenter asserted that 

§ ll.102(c), together with 

§ ll.106(d),89 of the proposed rule 

would be inconsistent with the Basel 

NSFR standard by assigning RSF factors 

to assets not included on the balance 

sheet of a covered company under 

GAAP. In response to the comment, the 

agencies note that §ll.102(c) of the 

proposed rule, would not have applied 

to assets excluded from a covered 

company’s balance sheet under GAAP; 

it would have applied only to the 

carrying value of assets received in an 

asset exchange that the covered 

company includes on its balance sheet. 

The other commenter argued that the 

proposed rule should apply a different 

treatment for asset exchanges more 

generally because, according to the 

commenter, the proposed rule did not 

sufficiently recognize the funding value 

of assets received in an asset exchange. 

In particular, this commenter argued 

that the rule should assign an ASF 

factor to the value of the asset received 

in an asset exchange, based on the type 

of asset and the remaining maturity of 

the asset exchange. The commenter 

asserted that such treatment would also 

better align with the LCR rule, which 

under certain circumstances allows a 

covered company to include in its 

HQLA amount an asset received in an 

asset exchange and may take into 

account both the assets received and 

provided for purposes of assigning 

inflow or outflow rates. The commenter 

further argued that the proposed rule’s 

treatment of asset exchanges would 

incentivize covered companies to 

rehypothecate assets received in an 

asset exchange, which the commenter 

argued would increase systemic risk. 

The NSFR assesses the adequacy of a 

covered company’s funding stability 

based on the covered company’s balance 

sheet at a point in time. A covered 

company, acting as a securities lender, 

retains the security on its balance sheet. 

Since the covered company is the owner 

of the provided security, it is 

appropriate for the covered company to 

retain stable funding for that security, 

even in cases where the liquidity 

characteristics of the asset that the 


khammond on DSKJM1Z7X2PROD with RULES2
9140 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

90 12 CFR 3.10(c)(4)(ii)(A) (OCC); 12 CFR 

217.10(c)(4)(ii)(A) (Board); 12 CFR 

324.10(c)(4)(ii)(A) (FDIC). 

91 If the assets received by the securities lender 

have been rehypothecated but remain on the 

covered company’s balance sheet, these collateral 

securities would have been assigned an RSF factor 

under §ll.106(c) to reflect their encumbrance. 

For the treatment of rehypothecated off-balance 

sheet assets, see section VII.D.4 of this 

Supplementary Information section. 

92The commenter’s discussion referred to 

contractual provisions whereby an originating 

banking organization or servicer has the option to 

exercise a ‘‘clean-up’’ call by repurchasing the 

remaining securitization exposures once the 

amount of the underlying asset exposures or 

outstanding securitization exposures falls below a 

specified amount. 

covered company provides are less 

favorable relative to the asset it receives 

in the asset exchange. Unlike the LCR, 

the NSFR is not a cash flow coverage 

metric and, where the asset received has 

not been rehypothecated, the 

availability of the received asset as a 

source of liquidity is not considered in 

the design of the NSFR, even in cases 

where the received asset is recorded on 

a covered company’s balance sheet. 

The final rule adopts the proposed 

treatment for securities received in an 

asset exchange by a covered company 

acting as a securities lender. This 

provision is intended to neutralize 

differences across accounting 

frameworks and maintain consistency 

across covered companies, and is 

consistent with the treatment of 

security-for-security transactions under 

the SLR rule.90 Because the final rule 

does not require stable funding for the 

securities received, it does not treat the 

covered company’s obligation to return 

these securities as stable funding and 

does not permit a covered company to 

assign an ASF factor to this obligation. 

If, however, the covered company, 

acting as the securities lender, sells or 

rehypothecates the securities received, 

the final rule requires the covered 

company to assign the appropriate RSF 

factor or factors under §ll.106 to the 

proceeds of the sale or, in the case of a 

pledge or rehypothecation, to the 

securities themselves if such securities 

remain on the covered company’s 

balance sheet.91 Similarly, the covered 

company must assign a corresponding 

ASF factor to the NSFR liability 

associated with the asset exchange, for 

example, with an obligation to return 

the security received. 

B. Determining Maturity 

The proposed rule would have 

assigned ASF and RSF factors to a 

covered company’s NSFR liabilities and 

assets based in part on the maturity of 

each NSFR liability or asset. Section 

ll.101 of the proposed rule would 

have incorporated the maturity 

assumptions in §§ ll.31(a)(1) and (2) 

of the LCR rule to determine the 

maturities of a covered company’s NSFR 

liabilities and assets. For example, the 

proposed rule would require a covered 

company to apply the earliest possible 

maturity date to an NSFR liability 

(which would be assigned an ASF 

factor) and the latest possible maturity 

date to an asset (which would be 

assigned an RSF factor), taking into 

account any notice periods or options 

that may modify the maturity date. 

A commenter argued that the 

proposed rule’s maturity assumptions 

provide a less risk-sensitive approach 

than the Basel NSFR standard, stating 

that the Basel NSFR standard does not 

require the assumption that a liability 

matures according to its earliest possible 

maturity date, but provides supervisors 

with discretion regarding assumptions 

about the exercise of certain options 

based on reputational factors and 

market expectations. Another 

commenter posited that the NSFR rule 

should not assume that a covered 

company would exercise a ‘‘clean-up’’ 

call option with respect to a 

securitization at the earliest possible 

date.92 Instead, the commenter argued 

that the NSFR rule should require a 

covered company to identify the 

securitizations that are likely to have a 

clean-up call option maturing over the 

next year and to reasonably evaluate 

whether the covered company intends 

to exercise that option. 

The final rule incorporates the 

maturity assumptions of the LCR rule as 

proposed. The final rule requires a 

covered company to identify the 

maturity date of its NSFR liabilities and 

assets in a conservative manner by 

applying the earliest possible maturity 

date to an NSFR liability and the latest 

possible maturity date to an asset. The 

final rule generally also requires a 

covered company to take a conservative 

approach when determining maturity 

with respect to any notice periods and 

with respect to any options, either 

explicit or embedded, that may modify 

maturity dates. For example, a covered 

company is required to treat an option 

to reduce the maturity of an NSFR 

liability or an option to extend the 

maturity of an asset as if it will be 

exercised on the earliest possible date. 

The final rule treats an NSFR liability 

that has an ‘‘open’’ maturity (i.e., the 

NSFR liability has no maturity date 

under §ll.101 and may be closed out 

on demand) as maturing on the day after 

the calculation date. For example, an 

‘‘open’’ repurchase transaction or a 

demand deposit placed at a covered 

company is treated as maturing on the 

day after the calculation date. To ensure 

consistent use of terms in the final rule 

and LCR rule and to avoid ambiguity 

between perpetual instruments and 

transactions (i.e., the instrument or 

transaction has no contractual maturity 

date and may not be closed out on 

demand) and open maturity instruments 

and transactions, the final rule amends 

§ ll.31 of the LCR rule to use the term 

‘‘open’’ instead of using the phrase ‘‘has 

no maturity date.’’ This change has no 

substantive impact on the LCR rule. The 

final rule treats a perpetual NSFR 

liability (such as perpetual securities 

issued by a covered company) as 

maturing one year or more after the 

calculation date. 

The final rule treats each principal 

amount due under a transaction, such as 

separate principal payments due under 

an amortizing loan, as a separate 

transaction for which the covered 

company would be required to identify 

the date on which the payment is 

contractually due and apply the 

appropriate ASF or RSF factor based on 

that maturity date. This treatment 

ensures that a covered company’s ASF 

and RSF amounts reflect the timing of 

the contractual maturities of a covered 

company’s liabilities and assets, rather 

than treating the full principal amount 

as though it were due on one date (such 

as the last contractual principal 

payment date). For example, if funding 

provided by a counterparty to a covered 

company requires two contractual 

principal repayments, the first due less 

than six months from the calculation 

date and the second due one year or 

more from the calculation date, only the 

principal amount that is due one year or 

more from the calculation date is 

assigned a 100 percent ASF factor, 

which is the factor assigned to liabilities 

that have a maturity of one year or more 

from the calculation date. The liability 

for the contractual principal repayment 

due within six months represents a less 

stable source of funding and is therefore 

assigned a lower ASF factor. 

For deferred tax liabilities that have 

no maturity date, the maturity date 

under the final rule is the first calendar 

day after the date on which the deferred 

tax liability could be realized. 

Because the maturity assumptions in 

§ ll.101 of the final rule apply only to 

NSFR liabilities and assets, the final 

rule does not apply the LCR rule’s 

maturity assumptions to a covered 

company’s NSFR regulatory capital 

elements. Unlike NSFR liabilities, 

which have varying maturities, NSFR 

regulatory capital elements are longerterm by definition, and as such, the 

proposed rule would have assigned a 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9141 

93ASF factors would have been assigned to NSFR 

regulatory capital elements and NSFR liabilities 

under §ll.104, except for NSFR liabilities 

relating to derivatives. As discussed in section VII.E 

of this Supplementary Information section, certain 

NSFR liabilities relating to derivative transactions 

would not have been considered stable funding for 

purposes of a covered company’s NSFR calculation 

and would have been assigned a zero percent ASF 

factor under §ll.107(c) of the proposed rule. 

94See section VII.F of this Supplementary 

Information section. 

95 12 U.S.C. 371c and 12 U.S.C. 371c–1. 

96 12 CFR part 223. 

97 12 U.S.C. 1815(e). 

100 percent ASF factor to all NSFR 

regulatory capital elements. 

The final rule’s incorporation of the 

above maturity assumptions provides 

for consistent determination of 

maturities across covered companies, 

which improves comparability and 

standardization of the NSFR. In 

addition, these assumptions reflect an 

appropriate degree of conservatism 

regarding the timing of when an asset or 

NSFR liability will mature, which helps 

to support a covered company’s funding 

resiliency across a range of economic 

and financial conditions. This approach 

is also consistent with a provision in the 

Basel NSFR standard that one 

commenter argued would be more risksensitive. This standard provides that 

for funding with options exercisable at 

the discretion of a firm subject to a 

jurisdiction’s NSFR requirement, 

national supervisors should take into 

account reputational factors that may 

pressure a firm not to exercise the 

option. Given the possibility and 

variability of reputational 

considerations with respect to many 

forms of funding, in addition to the 

considerations discussed above, the 

final rule incorporates the LCR rule 

maturity assumptions as proposed. 

With respect to the treatment of 

securitization clean-up call options, 

these options are generally features of 

securitizations with terms greater than 

one year and are generally exercisable 

near the end of the term. Instead of 

providing for firm specific evaluations 

of the likelihood of exercising a cleanup call option as commenters suggested, 

the final rule employs standardized 

assumptions to all firms to facilitate 

comparability across firms. The 

maturity assumptions of the LCR rule 

and final rule, however, do not require 

all clean-up call options to be exercised 

at the earliest possible date. Section 

ll.31(a)(1)(iii)(A) of the LCR rule, 

applicable to the NSFR through 

§ ll.101 of the final rule, provides that 

a covered company must treat an option 

to reduce the maturity of an obligation 

as though it will be exercised at the 

earliest possible date, except where the 

original maturity of the obligation is 

greater than one year and the option 

does not go into effect for a period of 

180 days following the issuance of the 

instrument. If that condition is met, 

then the maturity of the obligation will 

be the original maturity date at issuance 

under both the LCR rule and the final 

rule. 

C. Available Stable Funding 

1. Calculation of the ASF Amount 

Section ll.103 of the proposed rule 

would have established the 

requirements for a covered company to 

calculate its ASF amount, which would 

have equaled the sum of the carrying 

values of the covered company’s NSFR 

regulatory capital elements and NSFR 

liabilities, each multiplied by an ASF 

factor assigned in §ll.104 or 

§ ll.107(c).93

In the proposed rule, ASF factors 

would have been assigned based on the 

relative stability of each category of 

NSFR regulatory capital element or 

NSFR liability relative to the NSFR’s 

one-year time horizon. In addition, 

§ ll.108 of the proposed rule would 

have provided that a covered company 

may include in its ASF amount the ASF 

of a consolidated subsidiary only to the 

extent that the funding of the subsidiary 

supports the RSF amount of the 

subsidiary or is readily available to 

support RSF amounts of the covered 

company outside the consolidated 

subsidiary.94 The agencies received no 

comments on the calculation of the ASF 

amount and are adopting such 

calculation as proposed. 

Comments regarding the proposed 

assignment of ASF factors and specific 

contractual and funding-related features 

of a number of NSFR regulatory capital 

elements and NSFR liabilities are 

described below. 

2. Characteristics for Assignment of ASF 

Factors 

For the purpose of assigning ASF 

factors, the proposed rule would have 

categorized NSFR regulatory capital 

elements and NSFR liabilities into five 

broad categories based on their tenor, 

the type of funding, and the type of 

funding counterparty. The proposed 

rule would have applied the same ASF 

factor in each category to reflect the 

relative stability of a covered company’s 

NSFR regulatory capital elements and 

NSFR liabilities over a one-year time 

horizon. ASF factors would have been 

scaled from zero to 100 percent, with a 

zero percent weighting representing the 

lowest relative stability and a 100 

percent weighting representing the 

highest relative stability. 

For operational simplicity, the 

proposed rule would have grouped 

NSFR regulatory capital elements and 

NSFR liabilities into one of four 

maturity categories: One year or more, 

less than one year, six months or more 

but less than one year, and less than six 

months (ASF maturity categories). One 

commenter expressed concern that the 

ASF maturity categories are arbitrary 

and may lead a covered company to 

unnecessarily adjust its funding profile 

to align with the ASF maturity 

categories rather than its actual funding 

needs. This commenter recommended 

that the ASF factor framework provide 

more granular maturity categories (e.g., 

monthly residual maturity categories), 

which would be more risk-sensitive. 

The agencies did not receive general 

comments on the proposed approach to 

differentiate ASF factors based on 

different funding types and 

counterparties, although some 

comments were received on the 

proposed categories of ASF and are 

discussed below. However, some 

commenters suggested that, for purposes 

of measuring the stand-alone NSFR of a 

covered company that is a depository 

institution subsidiary of another 

covered company, ASF factors should 

be higher or subject to a floor where the 

counterparty providing the funding is 

an affiliated insured depository 

institution. For example, one 

commenter suggested that the ASF 

factor for funding provided by an 

affiliated depository institution should 

be no less than 95 percent, particularly 

where the affiliated depository 

institution has an ASF amount in excess 

of its RSF amount when measured on a 

stand-alone basis. These commenters 

argued that a higher ASF factor would 

be appropriate because funding 

provided by an affiliated depository 

institution is more stable than funding 

from non-affiliated sources. These 

commenters also asserted that special 

treatment for funding transactions 

between affiliated insured depository 

institutions in the final rule would be 

consistent with the treatment of 

affiliates in the U.S. bank regulatory 

framework, such as the treatment of 

affiliates in sections 23A and 23B of the 

Federal Reserve Act,95 the Board’s 

Regulation W,96 and cross-guarantee 

liability provisions in the FDI Act.97

Commenters also suggested that special 

treatment could be limited to 

institutions that would qualify for the 


khammond on DSKJM1Z7X2PROD with RULES2
9142 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

98 12 CFR 223.41(b). 

99For example, the Board’s GSIB capital 

surcharge rule includes generally similar categories 

for the maturities of average wholesale funding, 

including short-term wholesale funding, with 

remaining maturities of one year or more and six 

months or more but less than one year. 

100The agencies note that adoption of the final 

rule does not preclude covered companies from 

using other metrics to manage funding risks and 

conduct internal stress testing over various time 

horizons that may include, among other things, 

more granular maturity categories. 

101For example, another deposit account, a loan, 

bill payment services, or any similar service or 

product provided to the depositor. 

102Under §ll.3 of the LCR rule, the term ‘‘retail 

customer or counterparty’’ includes individuals, 

certain small businesses, and certain living or 

testamentary trusts. The term ‘‘wholesale customer 

or counterparty’’ refers to any customer or 

counterparty that is not a retail customer or 

counterparty. The term ‘‘financial sector entity’’ 

refers to a regulated financial company, identified 

company, investment advisor, investment company, 

pension fund, or non-regulated fund, as such terms 

are defined in §ll.3 of the LCR rule. The final 

rule incorporates these definitions. For purposes of 

determining ASF and RSF factors assigned to 

liabilities, assets, and commitments where 

counterparty type is relevant, the final rule treats 

an unconsolidated affiliate of a covered company as 

a financial sector entity. 

‘‘sister bank exemption’’ in section 

223.41(b) of Regulation W.98

The final rule generally adopts the 

proposed rule’s approach to assigning 

ASF factors subject to certain 

modifications and clarifications that are 

discussed below in this Supplementary 

Information section. The final rule treats 

funding to be relatively less stable if 

there is a greater likelihood that a 

covered company would need to replace 

or repay it over a one-year time horizon. 

As in the proposed rule, the final rule 

assigns an ASF factor to NSFR 

regulatory capital elements and NSFR 

liabilities based on three characteristics 

relating to the stability of the funding: 

(1) Funding tenor, (2) funding type, and 

(3) counterparty type. As discussed 

below, certain ASF factor assignments 

under the final rule reflect additional 

policy considerations. 

a) Funding Tenor 

For purposes of assigning ASF factors, 

the final rule assigns a higher ASF factor 

to funding that has a longer remaining 

maturity (or tenor) than shorter-term 

funding because, funding that by its 

terms has a longer tenor is more stable 

relative to a one-year horizon and 

should be less susceptible to short-term 

rollover risk. Specifically, the 

assignment of a higher ASF factor 

reflects the relatively decreased 

likelihood that a firm in the near term 

would need to replace funding that has 

a longer tenor, or if necessary, monetize 

assets at a loss to repay the funding in 

comparison to funding of a shorter 

tenor. The need to replace funding or 

monetize assets could adversely impact 

a firm’s liquidity position or generate 

negative externalities for other market 

participants. Longer-term funding, 

therefore, generally would provide 

greater stability across all market 

conditions. For operational simplicity, 

and consistent with the proposed rule, 

the final rule groups the tenor of NSFR 

regulatory capital elements and NSFR 

liabilities into one of the four ASF 

maturity categories: One year or more, 

less than one year, six months or more 

but less than one year, and less than six 

months. These ASF maturity categories 

are consistent with the design principles 

described in section V of this 

Supplementary Information section and 

the Basel NSFR standard. They are also 

generally consistent to other approaches 

used for reflecting the role of residual 

maturities in other agencies’ regulations 

and supervisory approaches.99

The purpose of the ASF maturity 

categories is to categorize NSFR 

regulatory capital elements and NSFR 

liabilities in a simple manner based on 

the relative stability of such funding. 

Although the categories may result in 

some greater cliff effects between groups 

than more granular categories (e.g., onemonth maturity categories), including 

more granular categories would increase 

complexity and result in a metric that is 

more difficult to monitor and 

supervise.100 The final rule generally 

treats funding with a remaining 

maturity of one year or more as the most 

stable and short-term funding as less 

stable. In this manner, the final rule 

incentivizes a covered company to 

maintain a stable funding profile by 

utilizing funding, such as equity and 

long-term debt, that matures beyond the 

NSFR’s one-year time horizon. The final 

rule generally treats funding that 

matures in six months or more but less 

than one year as less stable than 

regulatory capital and long-term debt 

because a covered company would need 

to replace or repay such funding before 

the end of the NSFR’s one-year time 

horizon. Funding with a remaining 

maturity of less than six months or an 

open maturity is generally treated as 

less stable because a covered company 

may need to replace or repay it in the 

near term. 

b) Funding Type 

The final rule recognizes that certain 

types of funding, such as certain types 

of deposits, tend to be more stable than 

other types of funding, independent of 

their tenor. For example, as described 

below in this Supplementary 

Information section, the final rule 

assigns a higher ASF factor to stable 

retail deposits relative to other retail 

deposits, due in large part to the 

presence of full deposit insurance 

coverage and other stabilizing features, 

such as another established relationship 

with the depository institution,101 that 

increase the likelihood of a counterparty 

continuing the funding across a broad 

range of market conditions. Similarly, 

the final rule assigns a higher ASF factor 

to operational deposits provided to a 

covered company than to certain other 

forms of short-term wholesale deposits, 

as discussed below in this 

Supplementary Information section. In a 

manner consistent with the proposed 

rule, the final rule takes into account the 

characteristics of funding type on 

funding stability when assigning ASF 

factors. 

c) Counterparty Type 

The final rule assigns ASF factors by 

taking into account the type of 

counterparty that provides the funding, 

using the same counterparty type 

classifications as the LCR rule: (1) Retail 

customers or counterparties, (2) 

wholesale customers or counterparties 

that are not financial sector entities, and 

(3) financial sector entities.102

Consistent with the proposed rule, the 

final rule considers the differences in 

funding provided by retail and 

wholesale customers or counterparties 

when assigning ASF factors. Retail 

customers or counterparties (including 

small businesses) typically maintain 

long-term relationships with covered 

companies and their deposits may 

consist of larger numbers of accounts 

with smaller balances relative to 

wholesale depositors. Retail customers 

or counterparties are generally less 

likely to move deposits over a one-year 

time horizon than wholesale depositors. 

In contrast, wholesale depositors are 

more likely to move deposits over a oneyear time horizon for business or 

investment reasons. Therefore, the final 

rule treats most types of deposit funding 

provided by retail customers or 

counterparties as more stable than 

deposit funding provided by wholesale 

customers or counterparties. 

In addition, wholesale customers and 

counterparties that are not financial 

sector entities typically maintain 

balances with covered companies to 

support their non-financial activities, 

such as production and physical 

investment, which tend to be less 

correlated to short-term financial market 

fluctuations than activities of financial 

sector entities. Therefore, non-financial 

wholesale customers or counterparties 

are more likely than financial sector 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9143 

103Prior to the 2007–2009 financial crisis, 

covered companies did not consistently report or 

disclose detailed liquidity information. On 

November 17, 2015, the Board adopted the revised 

FR 2052a to collect quantitative information on 

selected assets, liabilities, funding activities, and 

contingent liabilities from certain large banking 

organizations. 

entities to continue to provide funding 

to a covered company over a one-year 

horizon. 

Further, differences in business 

models and liability structures tend to 

make short-term funding provided by 

financial sector entities less stable than 

similar funding provided by nonfinancial wholesale customers or 

counterparties. Financial sector entities 

are typically less reliable funding 

providers than non-financial wholesale 

customers or counterparties due, in part, 

to their financial intermediation 

activities. Financial sector entities tend 

to be more sensitive to market 

fluctuations that could cause them to 

reduce their general level of funding 

provided to a covered company. 

Furthermore, the increased 

interconnectedness between financial 

sector entities means that there is a 

higher correlation of risks across the 

financial sector that may adversely 

impact the stability of short-term 

funding provided by a financial sector 

entity. Therefore, the final rule treats 

most short-term funding that is 

provided by financial sector entities as 

less stable than similar types of funding 

provided by non-financial wholesale 

customers or counterparties. 

Further, as a general matter, an 

affiliation would not necessarily 

improve the funding stability of the 

covered company. Banking 

organizations that generally rely on 

funding from financial sector affiliates 

may have similar balance sheet funding 

risks to those that generally rely on 

funding of the same tenor from nonaffiliates. An affiliated depository 

institution that is providing funding to 

a covered company may have a business 

model, liability structure, sensitivity to 

market fluctuations, degree of financial 

sector interconnectedness, or other 

characteristics that are similar to 

unaffiliated financial sector entities. 

While funding relationships with 

affiliates may provide a banking 

organization with additional flexibility 

in the normal course of business, 

ongoing reliance on contractually shortterm funding from affiliates may present 

risks that are similar to funding from 

non-affiliate sources, particularly during 

stress. Therefore, the final rule’s 

treatment of funding from affiliated 

sources consistent with non-affiliate 

funding provides a more appropriate 

measure of balance sheet funding risk. 

The agencies also are not convinced 

that the ASF factors applicable to 

funding provided by an affiliated 

insured depository institution should be 

higher in cases where the affiliated 

funds provider has an ASF amount in 

excess of its RSF amount when 

calculated on a standalone basis. The 

comparison of ASF to RSF amounts is 

informative of the overall funding 

position of a banking organization, 

taking into account its entire balance 

sheet, lending commitments, and 

derivative exposures. However, the 

balance sheet funding position of an 

affiliated insured depository institution 

at a calculation date does not 

necessarily imply that the institution is 

generally more likely to continue to 

provide funds to a covered company 

than an unaffiliated funding provider. 

The agencies note that the specific legal 

provisions cited by commenters (e.g., 

sections 23A and 23B of the Federal 

Reserve Act, the Board’s Regulation W, 

and the FDI Act) address different 

policy considerations than the NSFR 

and do not suggest that funding from 

affiliates is more stable than funding 

received from non-affiliates. 

While comprehensive data on the 

funding of covered companies by 

counterparty type is limited, the 

agencies’ analysis of available data 

confirmed the agencies’ expectation of 

funding stability differences across 

counterparty types.103 Prior to issuing 

the proposed rule, the agencies 

reviewed information collected on the 

Consolidated Reports of Condition and 

Income (Call Report), Report of Assets 

and Liabilities of U.S. Branches and 

Agencies of Foreign Banks (FFIEC 002), 

and the Securities and Exchange 

Commission (SEC) Financial and 

Operational Combined Uniform Single 

Report (FOCUS Report) over the period 

beginning December 31, 2007, and 

ending December 31, 2008, in 

combination with more recent FR 2052a 

report data, and supervisory information 

collected in connection with the LCR 

rule. In addition, the agencies reviewed 

supervisory information collected from 

depository institutions for which the 

FDIC was appointed as receiver in 2008 

and 2009. Although the NSFR 

requirement is designed to measure the 

stability of a covered company’s funding 

profile across all market conditions and 

would not be specifically based on a 

particular market stress environment, 

the agencies considered a period of 

stress for purposes of evaluating the 

relative effects of counterparty type on 

funding stability. Because a covered 

company under normal conditions may 

adjust funding across counterparty types 

for any number of reasons, focusing on 

periods of stress allowed the agencies to 

evaluate general differences in stability 

by counterparty type. 

The agencies’ analysis of available 

public and supervisory information 

shows that, during 2008, funding from 

financial sector entities exhibited less 

stability than funding provided by nonfinancial wholesale counterparties, 

which in turn exhibited less stability 

than insured retail deposits. For 

example, Call Report data on insured 

deposits, deposit data from the FFIEC 

002, and broker-dealer liability data 

reported on the FOCUS Report showed 

higher withdrawals in wholesale 

funding than retail deposits over this 

period. The agencies’ analysis of 

supervisory data from a sample of large 

depository institutions for which the 

FDIC was appointed as receiver in 2008 

and 2009 also indicated that, during the 

periods leading up to receivership, 

funding provided by wholesale 

counterparties was significantly less 

stable, showing higher average total 

withdrawals, than funding provided by 

retail customers and counterparties. 

3. Categories of ASF Factors 

Based on the tenor, funding type and 

counterparty type characteristics 

described above, the agencies 

categorized NSFR regulatory capital 

elements and NSFR liabilities into five 

broad categories and assigned a single 

ASF factor in each category, as shown 

in Table 1 below. The types of funding 

grouped together in each category 

generally displays relatively similar 

stability as compared to funding in a 

different category. The value of the ASF 

factor is calibrated to reflect the relative 

distinctions between categories and the 

general composition of balance sheet 

liabilities, and is generally consistent 

with the Basel NSFR standard to 

promote comparability across 

jurisdictions and the supervisory 

assessment of the aggregate funding 

position of covered companies. 


khammond on DSKJM1Z7X2PROD with RULES2
9144 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

104Section ll.3 of the LCR rule defines a 

‘‘stable retail deposit’’ as a retail deposit that is 

entirely covered by deposit insurance and either (1) 

is held by the depositor in a transactional account 

or (2) the depositor that holds the account has 

another established relationship with the covered 

company such as another deposit account, a loan, 

bill payment services, or any similar service or 

product provided to the depositor that the covered 

company demonstrates, to the satisfaction of the 

appropriate Federal banking agency, would make 

the withdrawal of the deposit highly unlikely 

during a liquidity stress event. 

TABLE 1—CATEGORIES OF NSFR REGULATORY CAPITAL ELEMENTS AND LIABILITIES BASED ON THEIR CHARACTERISTICS

AND RESULTING ASF FACTORS

Tenor Counter-party type Funding type NSFR regulatory capital and liabilities ASF factor 

percent 

One year or more ................. All ........................................ All ........................................ NSFR regulatory capital elements and long-term NSFR 

liabilities.

100 

Any tenor .............................. Retail ................................... Fully insured ....................... Stable retail deposits and ................................................

certain affiliate sweep deposits .......................................

95 

Not fully insured .................. Other non-brokered retail deposits and certain affiliate 

sweep deposits.

90 

Retail brokered ................... Fully insured ....................... Brokered reciprocal deposits ........................................... ........................

One year or more ................. ............................................. All ........................................ Other brokered deposits not held in a transactional account.

Less than one year .............. Wholesale ........................... Non-operational * ................ Unsecured funding provided by, and secured funding 

transactions with, a counterparty that is not a financial 

sector entity or central bank.

50 

Six months but less than one 

year.

Financial or central bank .... Non-operational .................. Unsecured wholesale funding provided by, and secured 

funding transactions with, a financial sector entity or 

central bank.

........................

All ........................................ Securities ............................ Securities issued by a covered company ........................ ........................

Retail brokered ................... All ........................................ Retail brokered deposits other than brokered reciprocal 

deposits, sweep deposits, or transactional deposits.

........................

Any tenor .............................. ............................................. ............................................. Transactional retail brokered deposits ............................ ........................

Not fully insured .................. Brokered reciprocal deposits ........................................... ........................

Retail ................................... All ........................................ Non-affiliate sweep deposits ............................................

Retail funding that is not a deposit or security.

Wholesale ........................... Operational ......................... Operational deposits ........................................................ ........................

Less than six months ........... Retail brokered ................... Any ...................................... Certain short-term retail brokered deposits ..................... 0 

Financial or central bank .... Non-operational .................. Short-term funding from a financial sector entity or central bank.........................

All ........................................ Securities ............................ Securities issued by a covered company ........................ ........................

Other ................................... Trade date payables ........................................................ ........................

Any tenor ** .......................... All ........................................ Derivative ............................ NSFR derivatives liability amount .................................... ........................

* That is, not an operational deposit. 

** The derivative treatment nets derivative transactions with various maturities. 

a) 100 Percent ASF Factor 

Section ll.104(a) of the proposed 

rule would have assigned a 100 percent 

ASF factor to NSFR regulatory capital 

elements, as defined in §ll.3 of the 

proposed rule, and described in section 

VI.B of this Supplementary Information 

section. The proposed rule also would 

have assigned a 100 percent ASF factor 

to NSFR liabilities that have a remaining 

maturity of one year or more from the 

calculation date, other than funding 

typically provided by retail customers 

or counterparties. This category would 

have included debt or equity securities 

issued by a covered company that have 

a remaining maturity of one year or 

more. 

In the proposed rule, the agencies 

requested comment on whether longterm debt securities issued by a covered 

company where the company is the 

primary market maker of such securities 

should be assigned an ASF factor other 

than 100 percent (for example, between 

95 and 99 percent) to recognize the risk 

that a covered company may buy back 

these debt securities. One commenter 

supported the proposed assignment of a 

100 percent ASF factor to such 

securities on the basis that a lower ASF 

is unnecessary because the NSFR is not 

a stress metric. The agencies did not 

receive other comments regarding 

treatment of the NSFR regulatory capital 

elements and NSFR liabilities that 

mature one year or more from the 

calculation date not provided by retail 

customers or counterparties. 

The final rule assigns a 100 percent 

ASF factor to NSFR regulatory capital 

elements and NSFR liabilities that 

mature one year or more from the 

calculation date as proposed. NSFR 

regulatory capital elements and nonretail long-term liabilities that do not 

mature during the NSFR’s one-year time 

horizon represent the most stable form 

of funding under the final rule because 

they are not susceptible to rollover risk 

during the NSFR’s timeframe. Similarly, 

and as noted by the commenter, there is 

reduced risk, absent stress conditions, 

that a covered company will face 

pressure to buy back its long-term debt 

securities in significant quantities 

during the NSFR’s one-year time 

horizon as compared to other liabilities 

on its balance sheet. 

The agencies received comments 

requesting assignment of a 100 percent 

ASF factor to certain other NSFR 

liabilities, which are discussed in more 

detail below. 

b) 95 Percent ASF Factor 

Section ll.104(b) of the proposed 

rule would have assigned a 95 percent 

ASF factor to stable retail deposits held 

at a covered company.104 The 

assignment of a 95 percent ASF factor 

would have reflected that such deposits 

generally provide a highly stable source 

of funding for covered companies. 

Some commenters requested that the 

final rule assign a 95 or 100 percent ASF 

factor to certain retail deposits that do 

not meet the definition of ‘‘stable retail 

deposits,’’ but are subject to contractual 

restrictions that make it less likely the 

deposits would be redeemed earlier 

than their contractual term. For 

example, some commenters suggested 

that the NSFR rule assign a 100 percent 

ASF factor to a retail deposit, such as a 

certificate of deposit, with a remaining 

maturity greater than one year if the 

covered company or its consolidated 

depository institution does not maintain 

a secondary market for the deposit, or if 

the contract contained provisions 

restricting redemption only to certain 

specified events, such as death or 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9145 

105See section VII.C.2.b of this Supplementary 

Information section. 

106Under §ll.3 of the LCR rule, a ‘‘brokered 

sweep deposit’’ previously was defined to mean a 

deposit held at a covered company by a customer 

or counterparty through a contractual feature that 

automatically transfers to the covered company 

from another regulated financial company at the 

close of each business day amounts identified 

under the agreement governing the account from 

which the amount is being transferred. As 

discussed in section VI.A.4 of this Supplementary 

Information section, the final rule amends §ll.3 

to replace ‘‘brokered sweep deposit’’ with the term 

‘‘sweep deposit’’ because not all sweep deposits are 

brokered, for example, if they meet the terms of the 

primary purpose exception under section 29 of the 

FDI Act and the FDIC’s brokered deposit 

regulations. 

determination of mental incapacity of 

the depositor. 

The final rule assigns a 95 percent 

ASF factor to deposits that meet the 

definition of ‘‘stable retail deposit’’ as 

proposed. Relative to liabilities in the 

100 percent ASF category, stable retail 

deposits either have no contractual 

restriction on withdrawal within a oneyear period or there is some likelihood 

that covered companies may permit 

withdrawals despite contractual 

restrictions within the one-year horizon. 

Although some evidence suggests that 

these deposits are highly stable, they are 

not as stable as funding for which there 

is greater certainty of maturity outside 

the NSFR one-year horizon. Therefore, 

an ASF factor that is only slightly lower 

than that assigned to NSFR regulatory 

capital elements and long-term NSFR 

liabilities is appropriate because stable 

retail deposits are nearly as stable over 

the NSFR’s one-year time horizon as 

NSFR regulatory capital elements and 

long-term NSFR liabilities under 

§ ll.104(a) of the final rule. 

The remaining maturity of stable 

retail deposits does not affect the 

assignment of an ASF factor under the 

final rule because the stability of retail 

deposits is more closely linked to 

counterparty and funding type 

characteristics. As noted in the 

preamble to the proposed rule, the 

combination of full deposit insurance 

coverage, the depositor’s relationship 

with the covered company, and the 

costs of moving transactional or 

multiple accounts to another institution 

substantially reduce the likelihood that 

retail depositors will withdraw stable 

retail deposits in significant amounts 

over a one-year time horizon.105

Maturity or other contractual provisions 

restricting redemption are less relevant, 

for example, because a covered 

company may permit withdrawal of a 

retail term deposit for business and 

reputational reasons in the event of a 

depositor’s early withdrawal request 

despite the absence of a contractual 

requirement to permit such a 

withdrawal within the NSFR’s one-year 

time horizon. Generally, other categories 

of funding that do not have the features 

of stable retail deposits are not as stable 

and therefore assigned to a lower ASF 

factor category in the final rule. 

Under the proposal, affiliated 

brokered sweep deposits deposited in 

accordance with a contract with a retail 

customer or counterparty and where the 

entire amount of the deposit is covered 

by deposit insurance would have been 

assigned a 90 percent ASF factor.106

Commenters requested that similar 

types of deposits be assigned a higher 

ASF factor, claiming that these deposits 

have historically evidenced stability 

across a range of market conditions. 

In a change from the proposal, the 

final rule also assigns a 95 percent ASF 

factor to affiliate sweep deposits where 

the entire amount of the sweep deposit 

is covered by deposit insurance and 

where a covered company has 

demonstrated to the satisfaction of its 

appropriate Federal banking agency that 

withdrawal of the deposit is highly 

unlikely to occur during a liquidity 

stress event. A sweep deposit 

arrangement places deposits at one or 

more banking organizations, with each 

banking organization receiving the 

maximum amount that is covered by 

deposit insurance, according to a 

priority ‘‘waterfall.’’ Within the 

waterfall structure, affiliates tend to be 

the first to receive deposits and the last 

from which deposits are withdrawn. 

Because of this priority relationship 

with an affiliate, a covered company is 

more likely to receive and maintain a 

steady stream of sweep deposits 

provided by a retail customer or 

counterparty across a range of market 

conditions. The priority relationship 

with an affiliate results in a deposit 

relationship that is reflective of an 

overall relationship with the underlying 

retail customer or counterparty where 

these deposits generally exhibit a 

stability profile associated with deposits 

directly from retail customers. This 

affiliate relationship combined with the 

presence of full deposit insurance 

coverage reduces the likelihood that 

retail depositors will withdraw these 

deposits in significant amounts over a 

one-year time horizon. Given these 

stabilizing characteristics, some affiliate 

sweep deposits from retail customers 

may provide similar funding stability 

across a range of market conditions as 

stable retail deposits, particularly if 

there are contractual features or costs 

that substantially reduce the likelihood 

that an affiliate sweep deposit will be 

withdrawn over a one-year time 

horizon. In light of this possibility, the 

final rule assigns a 95 percent ASF 

factor to any fully insured affiliate 

sweep deposit from a retail customer or 

counterparty that the covered company 

demonstrates is highly unlikely to be 

withdrawn during a liquidity stress 

event. For the same reasons as the 

agencies described in connection with 

this final rule, the agencies are 

considering making similar changes to 

the treatment of affiliate sweep deposits 

in the LCR in a separate rulemaking. 

c) 90 Percent ASF Factor 

While stable retail deposits and 

certain fully-insured retail affiliate 

sweep deposits, regardless of tenor, 

have the highest stability characteristics 

for deposits under the final rule, other 

non-brokered retail deposits and certain 

retail brokered deposits have a 

combination of deposit insurance, 

counterparty relationship, and tenor 

characteristics that provide relatively 

less stability than stable retail deposits 

and are assigned a slightly lower ASF 

factor of 90 percent. 

(i) Other Non-Brokered Retail Deposits 

Section ll.104(c) of the proposed 

rule would have assigned a 90 percent 

ASF factor to retail deposits that are 

neither stable retail deposits nor retail 

brokered deposits. This category would 

have included retail deposits that are 

not fully insured by the FDIC or are 

insured under non-FDIC deposit 

insurance systems. The agencies did not 

receive comments on this aspect of the 

proposed rule, and the final rule assigns 

a 90 percent ASF factor to these other 

retail deposits as proposed. 

As discussed above in section VII.C.2 

of this Supplementary Information 

section, retail customers and 

counterparties tend to provide deposits 

that are more stable than funding 

provided by other types of 

counterparties. However, deposits 

provided by retail customers and 

counterparties that are not fully covered 

by FDIC deposit insurance are assigned 

a lower ASF factor than the ASF factor 

assigned to stable retail deposits 

because of the elevated risk that 

depositors will withdraw funds if they 

become concerned about the condition 

of the bank, in part, because the 

depositor will have no guarantee that 

uninsured funds will promptly be made 

available through established and timely 

intervention and resolution protocols. In 

addition, deposits that are neither held 

in a transactional account nor from a 

customer that has another relationship 

with a covered company tend to be less 

stable than stable retail deposits because 


khammond on DSKJM1Z7X2PROD with RULES2
9146 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

107A ‘‘brokered deposit’’ previously was defined 

in §ll.3 of the LCR rule as a deposit held at the 

covered company that is obtained, directly or 

indirectly, from or through the mediation or 

assistance of a deposit broker, as that term is 

defined in section 29(g) of the FDI Act (12 U.S.C. 

1831f(g)), and includes reciprocal brokered deposits 

and brokered sweep deposits. In the final rule, the 

agencies have amended the definition to mean a 

deposit held at the covered company that is 

obtained, directly or indirectly, from or through the 

mediation or assistance of a deposit broker, as that 

term is defined in section 29(g) of the FDI Act (12 

U.S.C. 1831f(g)) and the FDIC’s regulations. See 

section VI.A.4 of this Supplementary Information 

section. 

The agencies note that the ASF factors assigned 

to retail brokered deposits are based solely on the 

stable funding characteristics of these deposits over 

a one-year time horizon. The assignment of ASF 

factors is not intended to reflect other impacts of 

these deposits on a covered company, such as their 

effect on a company’s probability of failure or loss 

given default, franchise value, or asset growth rate 

or lending practices. 

108A ‘‘reciprocal brokered deposit’’ previously 

was defined in §ll.3 of the LCR rule as a 

brokered deposit that the covered company receives 

through a deposit placement network on a 

reciprocal basis, such that: (1) For any deposit 

received, the covered company (as agent for the 

depositors) places the same amount with other 

depository institutions through the network and (2) 

each member of the network sets the interest rate 

to be paid on the entire amount of funds it places 

with other network members. The final rule 

renames the term ‘‘reciprocal brokered deposit’’ to 

‘‘brokered reciprocal deposit’’ to avoid confusion 

and use terminology consistent with other 

regulations. See 12 CFR 327.8(q). 

109See supra note 106. Typically, these 

transactions involve securities firms or investment 

companies that transfer (‘‘sweep’’) idle customer 

funds into deposit accounts at one or more banks. 

An affiliate sweep deposit is deposited in 

accordance with a contract between the retail 

customer or counterparty and the covered company, 

a controlled subsidiary of the covered company, or 

a company that is a controlled subsidiary of the 

same top-tier company of which the covered 

company is a controlled subsidiary. 

110Under the final rule, the agencies removed 

from the definition of ‘‘brokered deposit’’ references 

to deposits defined as either a ‘‘reciprocal brokered 

deposit’’ or ‘‘brokered sweep deposit’’ in §ll.3 of 

the LCR rule. This revision reflects modifications 

made to these terms under the final rule, as 

discussed in section VI.A.4 of this Supplementary 

Information section. See supra note 107. 

111These other types of brokered deposits are 

discussed in sections VII.C.3.d and VII.C.3.e of this 

Supplementary Information section. 

112 85 FR 7453. 

113As defined in section 38 of the FDI Act, 12 

U.S.C. 1831o. 

114See 12 U.S.C. 1831f. 

115Section ll.104(d)(7) of the proposed rule 

would have assigned a 50 percent ASF factor to a 

brokered affiliate sweep deposit where less than the 

entire amount of the deposit is covered by deposit 

insurance and without regard to whether a covered 

company could demonstrate to the satisfaction of its 

appropriate Federal banking agency that a 

withdrawal of such deposit is highly unlikely to 

occur during a liquidity stress event. 

the depositor is less reliant on the 

services of the covered company. 

Therefore, the assigned ASF factor 

reflects the somewhat greater likelihood 

of withdrawal for those deposits that are 

not stable retail deposits. Similar to 

stable retail deposits and for the same 

reasons, the remaining maturity of these 

retail deposits does not affect the 

assignment of an ASF factor under the 

final rule. 

(ii) Affiliate Sweep Deposits, Fully 

Insured Brokered Reciprocal Deposits, 

and Certain Longer-Term Retail 

Brokered Deposits 

Section ll.104(c) of the proposed 

rule would have assigned a 90 percent 

ASF factor to the following three 

categories of brokered deposits 107

provided by retail customers or 

counterparties: (1) A reciprocal brokered 

deposit where the entire amount is 

covered by deposit insurance,108 (2) an 

affiliated brokered sweep deposit where 

the entire amount of the deposit is 

covered by deposit insurance,109 and (3) 

a brokered deposit that is not a 

reciprocal brokered deposit or brokered 

sweep deposit, is not held in a 

transactional account, and has a 

remaining maturity of one year or 

more.110 Other types of brokered 

deposits would have been assigned 

lower ASF factors under the proposed 

rule.111

A commenter argued that brokered 

deposits are not inherently unstable and 

should receive similar treatment as nonbrokered retail deposits. Several 

commenters suggested that retail 

brokered deposits with a remaining 

maturity of one year or more be assigned 

a 100 percent ASF factor. Commenters 

argued that assigning these long-term 

retail brokered deposits an ASF factor of 

100 percent would align with the Basel 

standard and recognize the more 

significant role of this funding source in 

the U.S. financial system relative to 

other jurisdictions. The commenters 

further argued that covered companies 

can expect to rely on these deposits for 

funding over the NSFR’s one-year time 

horizon given their maturity and 

because depositors are generally not 

permitted to withdraw such deposits 

except under narrow circumstances and 

usually not without a significant 

penalty. The commenters also argued 

that depositors are less likely to 

accelerate the maturity of their brokered 

deposits outside of a stress scenario. 

Commenters also expressed concern 

that the FDIC’s interpretation of 

‘‘brokered deposit’’ is overly broad and 

reflects policy concerns, such as rapid 

deposit expansion and improper deposit 

management that are not relevant for 

purposes of determining the appropriate 

treatment of such products for 

regulatory liquidity and stable funding 

requirements. 

Except in the cases described below 

where brokered deposits have certain 

stabilizing features, the typical 

characteristics of brokered deposits 

support assigning a lower ASF factor for 

retail brokered deposits than the ASF 

factor assigned to stable or other retail 

deposits. Specifically, deposits that are 

placed by a deposit broker are typically 

at higher risk of being withdrawn over 

a one-year period as compared to a retail 

deposit placed directly by a retail 

customer or counterparty. As noted, the 

FDIC has issued a proposal revising its 

brokered deposits framework 112 and 

expects the finalization of this proposal 

will address some concerns that the 

FDIC’s existing interpretations are 

overly broad. 

Additionally, statutory restrictions on 

certain brokered deposits can make this 

form of funding less stable than other 

deposit types across a range of market 

environments. Specifically, a covered 

company that becomes less than ‘‘well 

capitalized’’ 113 is subject to restrictions 

on renewing or rolling over funds 

obtained directly or indirectly through a 

deposit broker.114

For these reasons, the final rule 

generally assigns a lower ASF factor to 

retail brokered deposits to reflect their 

reduced stability in comparison to other 

forms of retail deposits. However, 

consistent with the proposal, the final 

rule applies a 90 percent ASF factor to 

the following retail brokered deposits 

that have certain stabilizing 

characteristics: (1) A brokered reciprocal 

deposit provided by a retail customer or 

counterparty, where the entire amount 

of the deposit is covered by deposit 

insurance; and (2) a brokered deposit 

provided by a retail customer or 

counterparty that is not a brokered 

reciprocal deposit or sweep deposit, is 

not held in a transactional account, and 

has a remaining maturity of one year or 

more. In a change from the proposal, the 

final rule assigns a 90 percent ASF 

factor to any affiliate sweep deposit that 

does not meet all of the requirements for 

affiliate sweep deposits to be assigned a 

95 percent ASF factor, which includes 

affiliate sweep deposits that are not 

fully covered by deposit insurance.115

Each of these types of deposits is 

discussed below. 

Brokered reciprocal deposits. The 

reciprocal nature of a brokered 

reciprocal deposit provided by a retail 

customer or counterparty means that a 

deposit placement network 

contractually provides a covered 

company with the same amount of 

deposits that it places with other 

depository institutions. As a result, and 

because the deposit is fully insured, the 

retail customers or counterparties 

providing the deposit tend to be less 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9147 

likely to withdraw it than other types of 

deposits that are assigned a lower ASF 

factor. 

Affiliate sweep deposits. As described 

above in section VII.C.3.b of this 

Supplementary Information section, 

within the waterfall structure of sweep 

deposit arrangements, affiliates tend to 

be the first to receive deposits and the 

last from which deposits are withdrawn. 

With this priority relationship with an 

affiliate, a covered company is more 

likely to receive and maintain a steady 

stream of sweep deposits across a range 

of market conditions. Based on the 

reliability of this stream of sweep 

deposits the final rule treats sweep 

deposits received from affiliates as more 

stable than sweep deposits received 

from non-affiliates and more similar to 

other types of retail deposits. The final 

rule takes into account that the priority 

relationship with an affiliate results in 

a deposit relationship that is reflective 

of an overall relationship with the 

underlying retail customer where these 

deposits generally exhibit a stability 

profile associated with deposits directly 

from retail customers or counterparties, 

even if the deposits are not fully 

covered by deposit insurance. 

Certain longer-term brokered deposits. 

For a brokered deposit provided by a 

retail customer or counterparty that is 

not a brokered reciprocal deposit or 

sweep deposit, which is not held in a 

transactional account and that has a 

remaining maturity of one year or more, 

the contractual term makes it a more 

stable source of funding than other 

types of deposits that are assigned a 

lower ASF factor. However, these 

brokered deposits are not assigned an 

ASF factor higher than 90 percent, as 

requested by certain commenters, 

because a covered company may be 

more likely to permit withdrawal of 

retail brokered deposits in the event of 

an early withdrawal request by the 

depositor, for reputational or franchise 

reasons, despite the absence of 

contractual requirements to permit 

withdrawal within the NSFR’s one-year 

time horizon. 

d) 50 Percent ASF Factor 

The final rule assigns an ASF factor 

of 50 percent to most forms of wholesale 

funding with residual maturities of less 

than one year, certain retail brokered 

deposits that do not have the stabilizing 

characteristics described above, and 

non-deposit retail funding. For 

wholesale funding, the 50 percent ASF 

factor recognizes that funding that 

contractually matures in less than one 

year is less stable than longer term 

wholesale funding relative to the NSFR 

time horizon. The likelihood that 

maturing wholesale funding will be 

renewed generally depends on 

counterparty relationship 

characteristics, with financial sector 

entities being less likely than nonfinancial sector entities to renew their 

provision of funding. In addition, the 

final rule assigns the 50 percent ASF 

factor to all wholesale operational 

deposits, regardless of contractual 

maturity or counterparty, reflecting the 

provision of operational services. The 

50 percent ASF factor applied to certain 

retail brokered deposits and to retail 

funding that is not a deposit or security 

reflect the counterparty relationship 

characteristics and the extent to which 

the retail funding has other stabilizing 

characteristics. 

Unsecured Wholesale Funding Provided 

by, and Secured Funding Transactions 

With, a Counterparty That is Not a 

Financial Sector Entity or Central Bank 

and With Remaining Maturity of Less 

Than One Year 

Sections ll.104(d)(1) and (2) of the 

proposed rule would have assigned a 50 

percent ASF factor to a secured funding 

transaction or unsecured wholesale 

funding (including a wholesale deposit) 

that, in each case, matures less than one 

year from the calculation date and is 

provided by a wholesale customer or 

counterparty that is not a central bank 

or a financial sector entity (or a 

consolidated subsidiary thereof). The 

proposed rule would have assigned this 

ASF factor because covered companies 

generally will need to roll over or 

replace funding with these 

characteristics during the NSFR’s oneyear time horizon. 

Several commenters also requested 

that the NSFR assign a higher ASF 

factor to public sector entity deposits, 

including public deposits that must be 

collateralized and collateralized 

corporate trust deposits. These 

commenters argued that these public 

sector entity collateralized deposits are 

more stable than most other wholesale 

deposits because, among other things, 

the deposit relationship is connected to 

longer-term relationships between a 

covered company and the public sector 

entity, the relationship is often acquired 

through prescribed bidding processes, 

and the deposits frequently are secured 

by HQLA. These commenters also 

argued that assigning a higher ASF 

factor to collateralized deposits would 

be consistent with the LCR rule, which 

assigns a lower outflow rate to such 

deposits compared to other forms of 

wholesale funding. The commenters 

recommended that the agencies revise 

the ASF factor for such deposits to one 

minus the RSF factor applicable to the 

underlying collateral. One commenter 

advocated assigning a 95 percent ASF 

factor (or an alternative factor slightly 

lower than 95 percent) to public sector 

entity deposits in excess of FDIC deposit 

insurance limits if the deposit is 

privately insured or fully collateralized 

by an FHLB letter of credit. The 

commenter argued that such features 

would lower the likelihood of 

withdrawal for these types of funds, 

including during times of stress. 

Other commenters requested a higher 

ASF factor for FHLB advances because, 

in their view, FHLB advances are stable, 

reliable and fully secured, and the 

FHLBs have a proven track record of 

providing liquidity. For example, one 

commenter recommended assigning an 

ASF factor of 80 percent to FHLB 

advances with maturities of six months 

or more but less than one year. 

The treatment of wholesale deposits 

in the final rule includes consideration 

of counterparty relationships. As 

compared to retail customers or 

counterparties, wholesale customers or 

counterparties may be motivated to a 

greater degree by return and risk of an 

investment, tend to be more 

sophisticated and responsive to 

changing market conditions, and often 

employ personnel who specialize in the 

financial management of the 

counterparty. As a result, wholesale 

customers or counterparties are more 

likely to withdraw their funding than a 

retail customer or counterparty. Further, 

FDIC deposit insurance coverage does 

not mitigate these motivations and 

sophistication characteristics to increase 

the stability of funding provided by a 

wholesale customer or counterparty 

sufficient to warrant an ASF factor 

higher than 50 percent. 

The NSFR’s application to a covered 

company’s aggregate balance sheet 

generally does not involve 

differentiation between secured and 

unsecured liabilities and, by design, the 

NSFR treats the liquidity characteristics 

of collateral differently from the LCR 

rule. Although collateralization may 

reduce credit risk in the event of 

default, funding stability is influenced 

more by tenor, funding type and 

counterparty relationship 

characteristics. The fact that certain 

deposits placed by public sector entities 

are required to be collateralized for their 

contractual term does not mitigate the 

risk that a public sector entity may not 

renew such funding upon maturity. The 

final rule treats the collateralization of 

FHLB advances in the same fashion. 

Additionally, ASF and RSF factor 

values are not intended to be values of, 

respectively, cash outflow amounts as in 

the LCR rule or market haircuts of assets 


khammond on DSKJM1Z7X2PROD with RULES2
9148 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

116Additionally, as discussed in section VII.D of 

this Supplementary Information section, the final 

rule applies lower RSF factors to HQLA on a 

covered company’s balance sheet relative to certain 

less liquid assets, including HQLA used for, or 

available for, the collateralization of public sector 

entity deposits, consistent with the treatment of 

encumbered assets described below. 

117See supra note 102. 

118Securities issued by a covered company that 

have a remaining maturity of one year or more 

receive an ASF factor of 100 percent. See section 

VII.C.3.a of this Supplementary Information section. 

119The agencies note that the methodology that 

a covered company would have used to determine 

whether and to what extent a deposit is operational 

for the purposes of the proposed rule must be 

consistent with the methodology used for the 

purposes of the LCR rule. See §ll.3 of the LCR 

rule for the full list of services that qualify as 

operational services and §ll.4(b) of the LCR rule 

for additional requirements for operational 

deposits. Consistent with the proposed rule, the 

methodology for determining an operational deposit 

under the final rule is the same as the methodology 

used for the LCR rule. 

120Comments about the definition of operational 

deposits are discussed in section VI.A of this 

Supplementary Information section. 

used as collateral. Accordingly, it would 

not be appropriate for the type of 

collateral, nor the RSF factor assigned to 

such assets, to determine the ASF factor 

assigned to a collateralized deposit, as 

suggested by commenters.116

The final rule also treats the maturity 

characteristics of FHLB advances 

consistent with other wholesale 

funding. Although the FHLBs served as 

a source of liquidity during the 2007– 

2009 financial crisis, covered companies 

generally may need to renew maturing 

funding from these entities across a 

range of market conditions. The FHLB 

system also conduct maturity 

transformation in obtaining the system’s 

funding from investors. Similar to other 

wholesale counterparties, the FHLB 

system responds to events and market 

conditions in different ways than retail 

counterparties and could be sensitive to 

fluctuations in market conditions, 

which make funding already obtained 

from FHLBs less stable than retail 

deposits and other forms of funding that 

are assigned higher ASF factors. As a 

result, distinguishing FHLB advances 

from other types of wholesale funding 

would be at odds with the goal of the 

NSFR, which is to provide a 

standardized measure to ensure 

appropriate stable funding of covered 

companies relative to their assets and 

commitments. 

For the reasons discussed above, the 

final rule assigns an ASF factor of 50 

percent for a secured funding 

transaction or unsecured wholesale 

funding (including a wholesale deposit) 

that, in each case, matures less than one 

year from the calculation date and is 

provided by a wholesale customer or 

counterparty that is not a central bank 

or a financial sector entity (or a 

consolidated subsidiary thereof), as 

proposed. Funding from FHLBs and 

public sector entity deposits that have a 

residual maturity of less than one year 

from the calculation date are included 

in this category. 

Unsecured Wholesale Funding Provided 

by, and Secured Funding Transactions 

With, a Financial Sector Entity or 

Central Bank With Remaining Maturity 

of Six Months or More, but Less Than 

One Year 

Sections ll.104(d)(3) and (4) of the 

proposed rule would have assigned a 50 

percent ASF factor to a secured funding 

transaction or unsecured wholesale 

funding that matures six months or 

more but less than one year from the 

calculation date and is provided by a 

financial sector entity or a consolidated 

subsidiary thereof, or a central bank.117

The proposed rule would therefore have 

treated funding from central banks 

consistently with funding from financial 

sector entities. 

The agencies did not receive 

comments on this aspect of the 

proposed rule, and the final rule adopts 

this provision as proposed. In assigning 

a 50 percent ASF factor, the final rule 

treats secured funding transactions and 

unsecured funding that each have a 

remaining maturity of six months or 

more but less than one year, and are 

conducted with financial sector 

counterparties and central banks, the 

same as similar types of funding from 

other wholesale customers and 

counterparties. 

Securities Issued by a Covered Company 

With Remaining Maturity of Six Months 

or More, but Less Than One Year 

Section ll.104(d)(5) of the proposed 

rule would have assigned a 50 percent 

ASF factor to securities issued by a 

covered company that mature in six 

months or more, but less than one year, 

from the calculation date. 

The agencies received no comments 

on this provision of the proposed rule. 

Consistent with the proposed rule, the 

final rule assigns a 50 percent ASF 

factor to securities issued by a covered 

company that mature in six months or 

more, but less than one year, from the 

calculation date. This treatment is 

appropriate because funds providers 

that are investors in securities issued by 

covered companies include, among 

others, financial sector entities and the 

relationship of the funds provider to a 

covered company generally will have 

characteristics that make such funding 

less stable than other types of funding 

received from retail customers or 

counterparties.118 Further, due to the 

operation of secondary markets, a 

covered company may not be aware of 

the nature of the current investor in a 

security issued by a covered company 

and requiring a covered company to 

apply an ASF factor based on 

counterparty type would be 

operationally complex. 

Operational Deposits 

Section ll.104(d)(6) of the proposed 

rule would have assigned a 50 percent 

ASF factor to operational deposit 

funding, including operational deposits 

from financial sector entities. 

Operational deposits would include 

both (i) unsecured wholesale funding in 

the form of deposits and (ii) 

collateralized deposits that, in each 

case, are necessary for the provision of 

operational services, such as clearing, 

custody, or cash management 

services.119

Commenters requested that the final 

rule assign operational deposits a higher 

ASF factor (e.g., one commenter 

recommended an ASF factor of between 

60 and 75 percent) because moving 

operational deposits to a different 

institution is expensive, time 

consuming, and risky. 120 In support of 

this request, a commenter stated that 

changing custody service providers can 

take between six and twelve months and 

can significantly disrupt a company’s 

essential payment, clearing, and 

settlement functions. Another 

commenter argued that depositors are 

unlikely to move their operational 

deposits from a covered company 

because of other relationships the 

depositor has with the covered 

company, particularly when the covered 

company is a regional banking 

institution. By contrast, one commenter 

noted that operational deposits can be 

withdrawn from a covered company by 

a customer within the NSFR’s one-year 

time horizon and therefore do not 

warrant a higher ASF factor. 

Commenters also asserted that the 

proposed rule’s treatment of operational 

deposits was inconsistent with the 

treatment of operational deposits under 

the LCR rule, and argued that this type 

of funding is more stable than suggested 

by the treatment in the LCR rule or the 

proposed rule based on historical 

experience, evidenced in the empirical 

data, and the results of internal stress 

testing. These commenters contended 

that the proposed treatment of 

operational deposits would compound 

the already punitive treatment of 

operational deposits under the LCR rule. 

A commenter also argued that the 

proposed treatment of operational 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9149 

121See Federal Deposit Insurance Corporation, 

‘‘Frequently Asked Questions on Identifying, 

Accepting and Reporting Brokered Deposits,’’ 

updated June 30, 2016, available at https://

www.fdic.gov/news/news/financial/2016/ 

fil16042b.pdf. 

122 Id. 

deposits could penalize the business of 

custody banks. 

The final rule applies an ASF factor 

of 50 percent to operational deposits as 

proposed. By definition, operational 

deposits are essential for the ongoing 

provision of operational services by a 

covered company to a wholesale 

depositor. The final rule therefore 

applies the ASF factor for operational 

deposits based on the operational 

relationship with the depositor rather 

than the contractual tenor of the funding 

or the type of wholesale counterparty. 

The level of operational deposits from a 

given funds provider may vary over 

time based on the customer’s needs and, 

consistent with other wholesale funding 

that matures within one year that is 

assigned a 50 percent ASF factor, is not 

contractually guaranteed for the NSFR’s 

one-year horizon. Further a 

counterparty could successfully 

restructure how it obtains various 

operational services and could place 

some or all of its operational deposits 

with another financial institution over a 

one-year time horizon. The 50 percent 

ASF factor also recognizes that the 

stability of short-term operational and 

non-operational deposits from financial 

counterparties are not identical because 

switching operational service providers 

may be difficult and have associated 

costs that are not present with nonoperational deposits. 

As discussed in section V.C of this 

Supplementary Information section, 

ASF factors are not directly comparable 

to outflow rates assigned in the LCR rule 

or other cash flow risk assessments, 

such as internal liquidity stress testing. 

While there are some barriers to 

withdrawing operational deposits, such 

as switching costs, operational deposits 

are not as stable as those forms of 

funding that are assigned a higher ASF 

factor in the final rule. 

In response to commenters’ concern 

that the proposed treatment of 

operational deposits is especially 

impactful to the custody banks business 

model, which place greater reliance on 

operational deposits than other business 

models, the agencies note the NSFR rule 

is meant to apply a single minimum 

standard to all covered companies 

regardless of business model, in order to 

improve resiliency and comparability of 

funding profiles for all covered 

companies. Accordingly, the NSFR 

assigns ASF factors and RSF factors to 

categories of liabilities and assets based 

on the characteristics of those liabilities 

and assets rather than their prevalence 

in certain business models. 

Other Retail Brokered Deposits 

Section ll.104(d)(7) of the proposed 

rule would have assigned a 50 percent 

ASF factor to most categories of 

brokered deposits provided by retail 

customers or counterparties that do not 

include the additional stabilizing 

features described under § ll.104(c) 

and summarized above. Specifically, 

retail brokered deposits to which the 

proposed rule would have assigned a 50 

percent ASF factor included: (1) A 

brokered deposit that is not a reciprocal 

brokered deposit or brokered sweep 

deposit and that is held in a 

transactional account; (2) a brokered 

deposit that is not a reciprocal brokered 

deposit or brokered sweep deposit, is 

not held in a transactional account, and 

matures in six months or more, but less 

than one year, from the calculation date; 

(3) a reciprocal brokered deposit or 

brokered affiliate sweep deposit where 

less than the entire amount of the 

deposit is covered by deposit insurance; 

and (4) a brokered non-affiliate sweep 

deposit, regardless of deposit insurance 

coverage. 

Commenters argued that one or more 

of the above types of retail brokered 

deposits should be assigned a higher 

ASF factor. Commenters asserted the 

proposed rule’s treatment of brokered 

deposits was too conservative, arguing 

that brokered deposits have historically 

been stable sources of funding, 

including during times of stress, and 

their use has not been correlated with 

the growth of risky assets. 

Commenters recommended that 

specific brokered deposits be assigned a 

90 percent ASF factor. For example, 

some commenters suggested that nonaffiliate sweep deposits with contractual 

agreements that provide a depository 

institution with priority over other 

participants in a brokered sweep deposit 

program waterfall receive the same 90 

percent ASF factor assigned to affiliated 

brokered sweep deposits. Another 

commenter requested that the 90 

percent ASF factor be applied to all 

non-affiliate brokered retail sweep 

deposits that are fully insured and with 

remaining terms of greater than one 

year. Similarly, one commenter 

suggested that retail brokered deposits 

categorized as money market deposit 

accounts that are subject to a 

commitment to leave the balances on 

deposit with the bank for a predetermined period of time and subject 

to an early withdrawal penalty should 

be assigned a 90 percent ASF factor. The 

commenter argued that the agreements, 

which require that the funds not be 

withdrawn for a minimum period 

without incurring a significant interest 

penalty, make the funds sufficiently 

stable to warrant a higher ASF factor. 

One commenter argued that many 

brokered deposits held in transactional 

accounts behave substantially similarly 

to retail deposits and should therefore 

receive an ASF factor that is higher than 

the proposed 50 percent factor. In 

particular, this commenter noted that, 

due to the types of deposits that may be 

considered ‘‘brokered deposits’’ under 

the FDIC’s brokered deposit 

guidance,121 many transactional account 

products that act as a stable source of 

retail funding could be classified as 

‘‘brokered’’ due to a referral from a third 

party. This, the commenter noted, 

would make them subject to a 50 

percent ASF factor under the NSFR 

rule.122 Another commenter argued that 

retail brokered deposits are more stable 

due to the large number and variety of 

providers of such deposits. Accordingly, 

the commenter asserted that a covered 

company could easily find a substitute 

counterparty for a company that 

withdraws its brokered deposits from 

the covered company. 

Finally, commenters requested that 

the agencies increase the ASF factors 

applied to retail brokered deposits to 

align the ASF factors with the outflow 

rates assigned in the LCR rule. For 

example, one commenter argued that it 

would be inconsistent for brokered 

deposits that receive a 25 percent 

outflow rate under the LCR rule to 

receive a 50 percent ASF factor under 

NSFR rule. The commenter argued that 

the ASF factor and LCR outflow rate 

should be complements, and, if not, the 

ASF factor should be more favorable 

because a covered company would have 

a full year to make adjustments to its 

balance sheet to replace a withdrawal of 

retail brokered deposits, whereas the 

LCR outflow rate is assumed to occur 

over a 30 calendar-day stress period. 

The same commenter argued that the 

perceived disparate treatment of these 

brokered deposits between the NSFR 

rule and LCR rule could incentivize 

covered companies to meet funding 

needs with shorter, rather than longterm brokered deposits. 

The retail brokered deposits to which 

a 50 percent ASF factor would have 

been assigned are less stable sources of 

funding than the retail brokered 

deposits that are assigned a 90 percent 

ASF factor, other deposits that are 

assigned a 90 percent ASF factor, and 


khammond on DSKJM1Z7X2PROD with RULES2
9150 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

123As part of this effort, the agencies intend to 

revise the regulatory reporting (e.g. Call Report) to 

obtain data that may help evaluate funding stability 

of sweep deposits over time to determine their 

appropriate treatment under liquidity regulations. 

124See section VII.C.3.c.ii. of this Supplementary 

Information section. 

125As noted above, a security issued by the 

covered company that is held by a retail customer 

or counterparty would not take into account 

counterparty type and therefore would not fall 

within this category. 126See 81 FR at 35140. 127The term ‘‘retail brokerage payables’’ generally 

refers to (1) cash awaiting investment in retail 

clients’ brokerage accounts, or ‘‘free credit 

balances,’’ and (2) cash balances in a securities 

firm’s bank account related to a retail client’s 

pending securities purchase and sale transactions 

and pending deposits to and distributions from 

clients’ brokerage accounts, or ‘‘float.’’ 

128See also section VII.F of this Supplementary 

Information section. 

129 12 CFR 217.405. 

130Section ll.32(a)(5) of the LCR rule assigns 

a 40 percent outflow rate to non-deposit retail 

funding. As discussed in section V of this 

Supplementary Information section, the treatment 

of liabilities under the NSFR rule is not intended 

to align directly with that of the LCR rule due to 

the different purposes of the two requirements. 

stable retail deposits, which are 

assigned a 95 percent ASF factor. 

Although the considerations identified 

by commenters may cause certain 

brokered deposits to have increased 

relative stability, these brokered 

deposits do not have the same 

combination of stabilizing features that 

warrant assignment of a higher ASF 

factor. Specifically, they lack a 

combination of being fully covered by 

deposit insurance, being received from 

an affiliate, or having a longer-term 

maturity. 

In response to commenters’ request to 

treat certain non-affiliate sweep deposits 

in a similar manner to affiliate sweep 

deposits, the agencies note that an 

affiliate sweep deposit relationship is 

reflective of an overall relationship with 

the underlying retail customer or 

counterparty and these deposits 

generally exhibit a stability profile 

associated with deposits directly from 

retail customers, which warrants 

assignment of a higher ASF factor. As a 

result, the final rule assigns a 50 percent 

ASF factor to non-affiliate sweep 

deposits and a higher ASF factor to 

affiliate sweep deposits, as discussed 

above. The agencies will continue to 

review the treatment of sweep deposits, 

including non-affiliate sweep deposits, 

under the LCR and NSFR rules.123 In 

response to the comments regarding 

treatment under the LCR rule, as 

discussed above in section V.C of this 

Supplementary Information section, the 

agencies note that the ASF factors are 

not intended to align with the outflow 

rates assigned in the LCR rule in all 

cases due to the different purposes of 

the two rules. With the exception of 

affiliate sweep deposits where less than 

the entire amount of the deposit is 

covered by deposit insurance, which the 

final rule assigns a 90 percent ASF 

factor,124 the agencies are adopting the 

50 percent ASF factor for these deposits 

as proposed for the reasons discussed 

above. 

Funding From a Retail Customer or 

Counterparty not in the Form of a 

Deposit or Security 

The proposed rule would have 

assigned a zero percent ASF factor to 

retail funding that is not in the form of 

a deposit or security issued by the 

covered company. In the proposed rule, 

the agencies noted that non-deposit 

retail liabilities are not regular sources 

of funding or commonly utilized 

funding arrangements for covered 

companies.125 The proposed rule also, 

however, solicited comment as to 

whether the final rule should assign an 

ASF factor greater than zero to any nondeposit retail liabilities.126

Some commenters expressed concern 

that the proposed treatment of nondeposit retail liabilities was overly 

conservative and would unfairly 

penalize business models that focus on 

securities trading, such as retailoriented securities brokerage firms that 

utilize retail brokerage payables as a 

source of funding.127 For example, a 

commenter expressed concern that an 

organization with a depository 

institution and a broker-dealer 

subsidiary of equal size could face a 

funding shortfall under the proposed 

rule because the funding of the brokerdealer subsidiary would not be assigned 

sufficiently high ASF factors and the 

stable funding of the depository 

institution may not be treated under the 

NSFR rule as available to support the 

nonbank funding needs of the 

consolidated entity’s broker-dealer 

subsidiary.128 Some commenters noted 

that retail brokerage payables have been 

historically stable across both normal 

and stressed economic periods—for 

example, one commenter asserted that 

its amount of retail brokerage payables 

increased at the height of the 2007–2009 

financial crisis, and from 2009 to 2016. 

Commenters further indicated that retail 

brokerage payables have counterparty 

credit risks similar to uninsured 

deposits, in part because they arise in a 

transactional context and as part of a 

client’s larger brokerage relationship. 

One commenter argued that because the 

risk-based capital surcharge for GSIBs in 

the United States (GSIB capital 

surcharge rule) excludes non-deposit 

retail customer funding entirely from its 

Method 2 calculation methodology,129

this implicitly suggests that other Board 

rules consider such funding to be stable. 

Some commenters suggested more 

favorable treatment for specific types of 

non-deposit retail liabilities. 

Specifically, commenters argued that 

some liabilities owed to retail 

counterparties in connection with nondeposit products, such as prepaid cards, 

travelers checks, and customer rewards 

programs, should be recognized as a 

stable source of funding given historical 

experience of low volatility in balances 

and redemptions over time. In addition, 

these commenters argued that certain 

features may be offered in connection 

with certain prepaid products that 

would increase their stability, such as 

pass-through insurance provided by 

some prepaid card products and state 

law requirements that money 

transmitters hold and invest funds equal 

to outstanding prepaid liabilities in high 

grade, low-risk assets. 

Several commenters argued that the 

agencies should apply an ASF factor 

higher than zero percent to non-deposit 

retail liabilities to align with the 

treatment of similar liabilities under the 

LCR rule.130 Some commenters 

recommended assigning an ASF factor 

of 60 percent to non-deposit retail 

liabilities. Other commenters 

recommended assigning a 50 percent 

ASF factor to non-deposit retail funding 

or assigning a 50 percent ASF factor to 

the unsecured liabilities of a brokerdealer subsidiary of a covered company 

that are owed to a retail customer or 

counterparty. 

As a general matter, the final rule 

considers the relationship 

characteristics of retail customers or 

counterparties at least as favorably as 

wholesale counterparties that are not 

financial sector entities, and takes into 

account whether funding is obtained in 

connection with a transactional account 

or as part of another relationship with 

the covered company. However, not all 

forms of retail funding are equally 

stable. Although the GSIB capital 

surcharge rule excludes certain forms of 

non-deposit retail funding from the 

Method 2 calculation methodology, 

exclusion of a funding source is not 

dispositive of its stability because the 

GSIB score measures a banking 

organization’s systemic importance and 

does not measure the stability of each 

type of funding. Accordingly, the final 

rule does not calibrate ASF factors to 

non-deposit retail liabilities based on 

whether those liabilities are included in 

the Method 2 calculation under the 

GSIB capital surcharge rule. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9151 

As noted by commenters, many of the 

liabilities that would have been 

included in the non-deposit retail 

funding category have demonstrated a 

relative degree of stability during 

normal and adverse economic periods, 

similar to types of funding that receive 

a 50 percent ASF factor. As nondeposits, however, the types of retail 

funding described above do not have the 

same stabilizing characteristics as the 

categories of deposits assigned a 90 

percent or 95 percent ASF factor under 

the final rule. Although certain nondeposit retail funding may have 

transactional and other counterparty 

relationship characteristics similar to 

retail deposits and retail brokered 

deposits, they may also reflect 

counterparty sophistication 

characteristics similar to certain 

wholesale counterparties. For these 

reasons, the final rule assigns a 50 

percent ASF factor to funding from a 

retail customer that is not a deposit or 

a security, including retail brokerage 

payables. 

All Other NSFR Liabilities With 

Remaining Maturity of Six Months or 

More, but Less Than One Year 

Section ll.104(d)(8) of the proposed 

rule would have assigned a 50 percent 

ASF factor to all other NSFR liabilities 

that have a remaining maturity of six 

months or more, but less than one year. 

As discussed in section VII.C.2 of this 

Supplementary Information section, a 

covered company would not need to roll 

over a liability of this maturity in the 

shorter-term, but may need to roll it 

over before the end of the NSFR’s oneyear time horizon. 

The agencies received no comments 

on this provision of the proposed rule. 

For the reasons discussed in the 

proposed rule, the final rule assigns a 50 

percent ASF factor to all other NSFR 

liabilities that have a remaining 

maturity of six months or more, but less 

than one year as proposed. 

e) Zero Percent ASF Factor 

The final rule assigns a zero percent 

ASF factor to NSFR liabilities that 

demonstrate the least stable funding 

characteristics, including trade date 

payables, certain short-term retail 

brokered deposits, certain short-term 

funding from financial sector entities or 

central banks, and any other NSFR 

liability that matures in less than six 

months and is not described above. In 

the absence of a remaining tenor of at 

least six months, funding on a covered 

company’s balance sheet of these types 

are considered unreliable sources of 

funding relative to the need to support 

assets and commitments over the 

NSFR’s time horizon. 

Trade Date Payables 

Section ll.104(e)(1) of the proposed 

rule would have assigned an ASF factor 

of zero percent to trade date payables 

that result from purchases by a covered 

company of financial instruments, 

foreign currencies, and commodities 

that are required to settle within the 

lesser of the market standard settlement 

period for the particular transactions 

and five business days from the date of 

the sale. Trade date payables are 

established when a covered company 

buys financial instruments, foreign 

currencies, and commodities, but the 

transactions have not yet settled. Trade 

date payables are recorded on the 

covered company’s balance sheet as a 

liability. These payables should result 

in a payment from a covered company 

at the settlement date, which varies 

depending on the specific market. 

Accordingly, trade date payables are not 

a source of stable funding. 

The agencies did not receive 

comments on this provision. As 

proposed, the final rule assigns an ASF 

factor of zero percent to trade date 

payables because trade date payables 

should result in a payment from a 

covered company at the settlement date, 

meaning the liability does not represent 

a stable source of funding. 

Certain Short-Term Retail Brokered 

Deposits 

Section ll.104(e)(2) of the proposed 

rule would have assigned a zero percent 

ASF factor to a brokered deposit 

provided by a retail customer or 

counterparty that is not a reciprocal 

brokered deposit or brokered sweep 

deposit, is not held in a transactional 

account, and matures less than six 

months from the calculation date. 

Commenters argued that non-maturity 

brokered deposits that are held in a 

savings account are similar in stability 

to non-brokered retail deposits held in 

a retail savings account, and therefore 

should be assigned a higher ASF factor. 

The commenters argued that assignment 

of a zero percent ASF factor would 

overstate the funding risks of brokered 

savings accounts, which these 

commenters argued include stabilizing 

deposit features such as the availability 

of full or partial FDIC deposit insurance 

and that the account holder can use 

other services provided by the banking 

organization. 

Retail brokered deposits that are not 

brokered reciprocal deposits or sweep 

deposits, are not held in transactional 

accounts, and mature in less than six 

months tend to be less stable than other 

types of brokered deposits because they 

do not have the stabilizing features of 

brokered deposits that are assigned a 

higher ASF factor. Although nonmaturity brokered deposits held in 

savings accounts may be fully or not 

fully insured and may provide similar 

access to services as a non-brokered 

deposit in a retail savings account, 

deposit brokers can, in some cases, 

decide whether to move this funding to 

a different banking organization at low 

cost and with little notice to the covered 

company. Additionally, even if the 

deposit is fully insured, because the 

funds are held in non-transactional 

accounts they are less stable due to the 

ease with which the deposits can be 

withdrawn. Finally, under the maturity 

categories of the final rule, the term of 

these deposits would fall into the 

shortest-term and thus represent the 

least stable form of funding. 

For these reasons, the final rule 

assigns a zero percent ASF factor to a 

brokered deposit provided by a retail 

customer or counterparty that is not a 

brokered reciprocal deposit or sweep 

deposit, is not held in a transactional 

account, and matures less than six 

months from the calculation date as 

proposed. 

Securities Issued by a Covered Company 

With Remaining Maturity of Less Than 

Six Months 

Section ll.104(e)(4) of the proposed 

rule would have assigned a zero percent 

ASF factor to securities that are issued 

by a covered company and that have a 

remaining maturity of less than six 

months. As discussed above in section 

VII.C.2 of this Supplementary 

Information section, the proposed rule 

generally would have treated as less 

stable funding that has to be paid within 

the NSFR’s one-year time horizon. 

The agencies received no comments 

on this provision of the proposed rule. 

The final rule assigns a zero percent 

ASF factor to securities that are issued 

by a covered company and that have a 

remaining maturity of less than six 

months because such funding does not 

represent a source of stable funding over 

the NSFR’s one-year time horizon. 

Short-Term Funding From a Financial 

Sector Entity 

Section ll.104(e)(5) of the proposed 

rule would have applied a zero percent 

ASF factor to funding (other than 

operational deposits) for which the 

counterparty is a financial sector entity 

or a consolidated subsidiary thereof and 

the transaction matures less than six 


khammond on DSKJM1Z7X2PROD with RULES2
9152 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

131See supra note 102. 

132As discussed in section VII.D.3.a of this 

Supplementary Information section, the agencies 

are decreasing the effect on the market for shortterm secured lending transactions by adopting a 

zero percent RSF factor for certain secured lending 

transactions that are secured by rehypothecatable 

level 1 liquid assets. 

months from the calculation date.131 In 

general, financial sector entities and 

their consolidated subsidiaries are more 

likely than other types of counterparties 

to withdraw funding from a covered 

company, regardless of whether the 

funding is secured or the type of 

collateral securing the funding, as 

described in section VII.C.2 of this 

Supplementary Information section. 

Many commenters raised concerns 

that the proposed assignment of a zero 

percent ASF factor to short-term 

funding from a financial sector entity 

would impair an important funding 

source for covered companies and could 

adversely affect the functioning of credit 

markets by increasing borrowing and 

transaction costs for end-users. 

Specifically, commenters objected that 

the proposed rule would assign a zero 

percent ASF factor to secured funding 

transactions while also assigning a 10 to 

15 percent RSF factor to secured lending 

transactions.132

Commenters also raised domestic and 

international regulatory concerns 

around the proposed framework for 

repurchase agreements. Commenters 

stated that rulemakings such as the 

GSIB capital surcharge rule and the SLR 

rule have increased the costs of 

transacting in matched-book repurchase 

agreements by adding higher capital 

requirements and that the NSFR would 

further exacerbate these costs. 

Commenters also questioned the 

assumption underlying the ASF and 

RSF factors for repurchase agreement 

and reverse repurchase agreement 

transactions—namely, that a covered 

company would be more likely to roll 

over short-term loans to financial sector 

entities than such entities would be 

likely to roll over short-term funding to 

a covered company. Since commenters 

primarily raised these concerns with 

regards to the assignment of RSF factors 

to short-term secured funding 

transactions, these issues are addressed 

more fully in section VII.D of this 

Supplementary Information section. 

Consistent with the proposed rule, the 

final rule assigns a zero percent ASF 

factor to funding (other than operational 

deposits) for which the counterparty is 

a financial sector entity or a 

consolidated subsidiary thereof and the 

transaction matures less than six 

months from the calculation date 

because financial sector counterparties 

are more likely to withdraw short term 

funding within a one-year time horizon, 

regardless of whether the transaction is 

secured or unsecured. As discussed in 

section V of this Supplementary 

Information section, one of the goals of 

the final rule is to ensure that covered 

companies have sufficient levels of 

long-term stable funding and do not 

excessively rely on short-term 

borrowings from financial sector 

entities. Moreover, these types of shortterm borrowings with financial sector 

counterparties can carry elevated risks 

to the funding needs of covered 

companies when combined with 

concentrations that can increase 

systemic risk and interconnectedness. 

The agencies do not anticipate that 

the treatment of these short-term 

secured funding transactions will have 

a significant impact on the markets 

identified by commenters, such as fixed 

income markets, commercial mortgagebacked securities, lending markets, or 

money markets, especially in light of the 

adjustments made in the treatment of 

short-term secured lending transactions 

as discussed in VII.D.3 of this 

Supplementary Information section. 

However, the agencies monitor these 

market segments on an ongoing basis to 

evaluate the impact of agency 

rulemakings on financial 

intermediation. At the same time, the 

agencies will continue to examine 

collateral markets for any warning 

signals, including the costs of short- and 

long-term funding, participation rates, 

and collateral flows between covered 

companies and financial sector entities. 

Short-Term Funding From a Central 

Bank 

Section ll.104(e)(5) of the proposed 

rule also would have assigned a zero 

percent ASF factor to short-term 

funding from central banks to recognize 

the short-term nature of such funding 

from central banks, consistent with the 

proposed rule’s focus on stable funding 

from market sources. For example, 

funding obtained from the discount 

window would have been assigned a 

zero percent ASF factor, consistent with 

the terms of discount window advances. 

The agencies received no comments 

on this provision of the proposed rule. 

The final rule assigns a zero percent 

ASF factor to short-term funding from 

central banks as proposed. 

All Other NSFR Liabilities With 

Remaining Maturity of Less Than Six 

Months or an Open Maturity 

Section ll.104(e)(6) of the proposed 

rule would have assigned a zero percent 

ASF factor to all other NSFR liabilities, 

including those that mature less than six 

months from the calculation date and 

those that have an open maturity. NSFR 

liabilities that do not fall into one of the 

categories that are assigned an ASF 

factor generally would not represent a 

regular or reliable source of funding 

and, therefore, the proposed rule would 

not have treated any portion as stable 

funding. 

Commenters requested that the NSFR 

rule assign a non-zero ASF factor to the 

unused borrowing capacity with FHLBs 

because the FHLB system is an 

important source of liquidity for U.S. 

banking organizations. The commenters 

pointed to FHLB lending activity during 

the 2007–2009 financial crisis, which 

demonstrated that FHLBs increased 

their lending by 50 percent between 

2007 and 2008. Commenters argued that 

recognizing this source of funding was 

appropriate since the NSFR 

requirement, unlike the LCR rule, is 

intended to be a structural metric that 

reflects the stable funding required 

across all market conditions over a 

longer one-year time horizon. One 

commenter suggested that the agencies 

conduct a study on the potential impact 

of the final rule on the FHLB system and 

its role in providing liquidity to banks. 

As discussed in section V.C of this 

Supplementary Information section, the 

NSFR is determined based on a covered 

company’s balance sheet at a point in 

time. In order for a funding source to be 

considered relevant stable funding 

under the NSFR, a covered company 

must have obtained the funding for its 

balance sheet at that point in time. 

Establishing reliable sources of 

contingent funding in advance of 

potential funding needs is an essential 

part of sound liquidity risk management 

for banking organizations. For the 

purposes of assessing the risks 

presented by a banking organization’s 

balance sheet, however, the NSFR does 

not treat undrawn lines of credit 

available to a covered company as stable 

funding, regardless of whether they are 

collateralized or whether they are 

provided by the FHLB system, the 

Federal Reserve System, or any other 

third parties. 

The final rule assigns a zero percent 

ASF factor to all other NSFR liabilities, 

including those that mature less than six 

months from the calculation date and 

those that have an open maturity. 

D. Required Stable Funding 

1. Calculation of the RSF Amount 

Consistent with the proposed rule, 

under the final rule a covered 

company’s RSF amount reflects a 

covered company’s funding requirement 

based on the liquidity characteristics of 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9153 

133See supra note 102. 134For example, a commenter recommended 

incorporating the impact of existing regulations on 

a given asset or the counterparty to the asset, and 

an asset’s external credit rating. The commenter 

recommended other market and operational factors, 

including the seniority, hedging, clearing 

characteristics of the asset and the size of the 

market for the asset. 

its assets, commitments, and derivative 

exposures. Under § ll.105 of the 

proposed rule, a covered company’s 

RSF amount would have equaled the 

sum of two components: (i) The carrying 

values of a covered company’s assets 

(other than assets included in the 

calculation of the covered company’s 

derivatives RSF amount) and the 

undrawn amounts of its committed 

credit and liquidity facilities, each 

multiplied by an RSF factor assigned 

under §ll.106 (discussed in section 

VII.D.3 of this Supplementary 

Information section), and (ii) the 

covered company’s derivatives RSF 

amount, as calculated under §ll.107 

(discussed in section VII.E of this 

Supplementary Information section). 

The agencies received no comments on 

the calculation of the RSF amount and 

are adopting it as proposed. 

2. Characteristics for Assignment of RSF 

Factors 

The proposed rule would have 

grouped NSFR assets, derivative 

exposures and commitments into broad 

categories and assigned RSF factors to 

determine the overall amount of stable 

funding a covered company must 

maintain. RSF factors would have been 

scaled from zero to 100 percent based 

on the tenor and other liquidity 

characteristics of an asset, derivative 

exposure, or committed facility. The 

agencies did not receive comments on 

this general approach to using the 

characteristics of assets and 

commitments, and the final rule adopts 

the characteristics for assigning RSF 

factors as proposed. As in the proposed 

rule, the final rule categorizes assets, 

derivative exposures, and committed 

facilities into categories and assigns RSF 

factors based on the following liquidity 

characteristics: (1) Tenor; (2) 

encumbrance; (3) type of counterparty; 

(4) credit quality, and (5) market 

characteristics. As discussed below and 

in the relevant sections of this 

Supplementary Information section, the 

final rule assigns RSF factors using 

these characteristics as proposed with 

certain modifications that simplify the 

framework to seven categories for the 

assignment of RSF factors. 

a) Tenor 

In general, the final rule requires a 

covered company to maintain more 

stable funding to support assets that 

have longer tenors because of the greater 

time the asset will remain on the 

balance sheet and before the covered 

company is contractually scheduled to 

realize inflows at the maturity of the 

asset. In addition, if assets with a longer 

tenor are not held to maturity, such 

assets may liquidate at a discount 

because of the increased market and 

credit risks associated with cash flows 

occurring further in the future. Assets 

with a shorter tenor, in contrast, 

generally require a smaller amount of 

stable funding under the final rule 

because a covered company would not 

need to fund such assets after the 

maturity date unless the assets are 

extended or rolled over and the covered 

company would therefore have access to 

the inflows from these maturing assets 

sooner. The final rule divides maturities 

for purposes of a covered company’s 

RSF amount calculation into the same 

four maturity categories consistent with 

the ASF maturity categories: One year or 

more, less than one year, six months or 

more but less than one year, and less 

than six months (RSF maturity 

categories). 

b) Encumbrance 

As described in section VII.D.3.h of 

this Supplementary Information section, 

whether an asset is encumbered and the 

extent of the encumbrance dictates the 

amount of stable funding required to 

support the particular asset. Similar to 

assets with longer contractual tenors, 

assets that are encumbered at a 

calculation date may be required to be 

held for the duration of the 

encumbrance and these assets often 

cannot be monetized while encumbered. 

In general, the longer an asset is 

encumbered, the more stable funding is 

required under the final rule. 

c) Counterparty Type 

A covered company may face pressure 

to renew some portion of its assets at 

contractual maturity in order to 

maintain its franchise value with 

customers and because a failure to roll 

over such assets could be perceived by 

market participants as an indicator of 

financial distress at the covered 

company. Typically, these pressures are 

influenced by the type of counterparty 

to the maturing asset. For example, 

covered companies often consider their 

lending relationships with a wholesale, 

non-financial borrower to be important 

to maintain current business and 

generate additional business in the 

future. By contrast, the agencies expect 

these concerns are less likely to be a 

factor with respect to financial sector 

counterparties because financial 

counterparties typically have a wider 

range of alternate funding sources 

already in place, face lower transaction 

costs associated with arranging alternate 

funding, and have less expectation of 

stable lending relationships with any 

single provider of credit. In light of 

these business and reputational 

considerations, the final rule generally 

requires a covered company to maintain 

more aggregate stable funding to support 

certain lending to non-financial 

counterparties than for lending to 

financial counterparties.133

d) Credit Quality 

Credit quality is a factor in an asset’s 

general funding requirements because 

market participants tend to be more 

willing to purchase assets with higher 

credit quality on a consistent basis and 

the prices of these assets are generally 

less volatile across a range of market 

and economic conditions. The demand 

for higher credit quality assets, 

therefore, is more likely to persist, and 

such assets are more likely to have 

resilient values, allowing a covered 

company to dispose of them more easily 

across a range of market conditions. 

Assets of lower credit quality, in 

contrast, are less likely to retain their 

value over time across market 

conditions. The final rule, like the 

proposed rule, generally requires greater 

aggregate stable funding with respect to 

assets of lower credit quality, to reduce 

the risk that in the event of having to 

dispose of such an asset prior to 

maturity a covered company may have 

to monetize it at a discount. 

e) Market Characteristics 

Assets that are traded in transparent, 

standardized markets with large 

numbers of participants and dedicated 

intermediaries tend to exhibit a higher 

degree of reliable liquidity. The final 

rule, therefore, generally requires less 

aggregate stable funding for holdings of 

such assets relative to those traded in 

markets characterized by information 

asymmetry and relatively few 

participants. 

f) Comments Proposing Other Liquidity 

Characteristics 

The agencies invited comment on 

whether other characteristics should be 

considered for purposes of assigning 

RSF factors. Several commenters 

suggested that RSF factors should be 

assigned based on criteria related to 

existing regulations and other market 

and operational factors.134 Another 

commenter argued that RSF factors 

should more closely align with market 

haircuts used in secured funding 

markets. One commenter recommended 


khammond on DSKJM1Z7X2PROD with RULES2
9154 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

135As discussed in section VII.C.3 of this 

Supplementary Information section, some 

commenters also recommended assigning a nonzero ASF factor to unused borrowing capacity from 

FHLBs. 

136 In respect to FHLB advances, many FHLB 

advances may have long maturities that may be 

reflected in the assignment of ASF factors described 

in section VII.C.3 of this Supplementary 

Information section. 

the agencies assign RSF factors based on 

the intent for which a security is held 

and apply a lower RSF factor to shortterm securities held for market-making 

purposes than for securities held for 

investment purposes, arguing that the 

proposal would negatively impact 

market-making activities. Other 

commenters argued that the assignment 

of RSF factors should take into account 

eligibility of assets as collateral for 

FHLB advances.135

As discussed in section V.B of this 

Supplementary Information section, the 

final rule addresses funding stability 

risks not directly addressed in other 

parts of the agencies’ regulatory 

framework. Although the agencies 

recognize that other regulations may 

require or incentivize covered 

companies to hold, or refrain from 

holding, certain assets, those regulations 

do not directly address the stability of 

a banking organization’s funding profile 

in relation to the composition of its 

assets and commitments. Accordingly, it 

would not be appropriate to assign RSF 

factors to assets based on their treatment 

in other regulations or the impact of 

regulations on the counterparty to an 

asset. The liquidity characteristics 

described above tend to be generally 

reflected in market haircuts, but RSF 

factor values are not directly 

representative of asset haircuts and 

closer alignment of RSF factors with 

haircuts used in secured funding 

markets would be inappropriate for 

calibrating aggregate funding 

requirements of covered companies. As 

also discussed in section V.C, the final 

rule’s simplified and standardized 

measure of funding risk does not 

differentiate between business activities 

or the intent for which a covered 

company holds a given asset. 

Accordingly, the final rule takes into 

account an asset’s contractual residual 

maturity at a point in time and does not 

speculate on a covered company’s 

intended purpose and timeframe for 

holding an asset in the future. Further, 

an asset’s eligibility as collateral for 

FHLB advances is not an appropriate 

additional basis for determining RSF 

factors. The liquidity characteristics 

described above, including credit 

quality, are likely factors also 

considered by FHLBs when assessing 

collateral eligibility. Generally, assets 

currently held by a covered company 

contribute to its balance sheet funding 

risk regardless of the covered company’s 

operational ability to obtain FHLB 

advances in the future.136

3. Categories of RSF Factors for 

Unencumbered Assets and 

Commitments 

Based on the tenor, encumbrance, 

counterparty type, credit quality, and 

market characteristics described above, 

the final rule assigns RSF factors to 

unencumbered assets and commitments 

in the categories shown in Table 2. The 

treatment of encumbered assets is 

described below and shown in Table 3. 

The assignment of RSF factors for 

derivative exposures is described in 

section VII.E of this Supplementary 

Information section. 

TABLE 2—CATEGORIES OF UNENCUMBERED ASSETS AND COMMITMENTS BASED ON THEIR CHARACTERISTSICS AND

RESULTING RSF FACTORS

Unencumbered and with 

tenor of: Counterparty types Credit quality or market characteristics NSFR assets or commitments RSF factor percent 

Perpetual .............................. Central bank ....................... Other ................................... Currency and coin ........................................................... 0 

Any tenor .............................. Non-financial ....................... HQLA .................................. Level 1 liquid assets held on balance sheet ................... ........................

Less than six months ........... All ........................................ Other ................................... Cash items in the process of collection and certain 

trade date receivables.

........................

Central bank ....................... HQLA .................................. Reserve Bank balances and claims on foreign central 

banks.

........................

Financial ............................. Non-operational .................. Secured lending transactions secured by 

rehypothecatable level 1 liquid assets.

........................

Committed ............................ All ........................................ Other ................................... Committed credit and liquidity facilities ........................... 5 

Any tenor .............................. Non-financial ....................... HQLA .................................. Level 2A liquid assets held on balance sheet ................. 15 

Less than six months ........... Financial ............................. Non-operational .................. Secured lending transactions secured by assets other 

than rehypothecatable level 1 liquid assets and unsecured lending.

........................

Any tenor .............................. Non-financial ....................... HQLA .................................. Level 2B liquid assets held on balance sheet ................. 50 

Six months or more, but less 

than one year.

Financial ............................. Non-operational .................. Secured lending transactions and unsecured wholesale 

lending.

........................

Any tenor .............................. Financial ............................. Operational ......................... Operational deposit placements ...................................... ........................

Less than one year .............. Non-financial ....................... Non-operational .................. Secured lending transactions and unsecured lending .... ........................

Retail ................................... Any ...................................... Retail lending ................................................................... ........................

Any ...................................... Any ...................................... All other assets ................................................................ ........................

One year or more ................. Retail ................................... Risk weight ≤50 percent ..... Retail mortgages .............................................................. 65 

Retail and non-financial ...... Risk weight ≤20 percent ..... Secured lending transactions, unsecured wholesale 

lending, and retail lending.

........................

Retail ................................... Risk weight >50 percent ..... Retail mortgages .............................................................. 85 

Retail and non-financial ...... Risk weight >20 percent ..... Secured lending transactions, unsecured wholesale 

lending, and retail lending.

........................

All ........................................ Non-HQLA .......................... Securities other than common equity shares that are 

not HQLA.

........................

Any tenor .............................. ............................................. ............................................. Publicly traded common equity shares that are not 

HQLA.

........................

Derivative transactions are 

traded on U.S. or nonU.S. exchanges.

Commodities .................................................................... ........................

One year or more ................. Financial ............................. Any ...................................... Secured lending transactions and unsecured lending to 

a financial sector entity.

100 

Any tenor .............................. All ........................................ >90 days past due or nonaccrual.Nonperforming assets ...................................................... ........................

Any ...................................... All other assets ................................................................ ........................


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9155 

137This description of currency and coin is 

consistent with the treatment of currency and coin 

in Federal Reserve form FR Y–9C. 

138This description of cash items in the process 

of collection is consistent with the treatment of cash 

items in process of collection in Federal Reserve 

form FR Y–9C. 

139For example, the term ‘‘Reserve Bank balance’’ 

does not include balances maintained by a covered 

company on behalf of a respondent for which it acts 

as a pass-through correspondent. See 12 CFR 

204.5(a)(1)(ii). The definition also does not include 

balances maintained on behalf of an excess balance 

account participant. See 12 CFR 204.10(d). The 

Board reduced reserve requirement ratios to zero 

percent effective March 26, 2020. This action 

eliminated reserve requirements for all depository 

institutions. See https://www.federalreserve.gov/ 

monetarypolicy/reservereq.htm The Board could 

revise required reserve requirements in the future. 

TABLE 2—CATEGORIES OF UNENCUMBERED ASSETS AND COMMITMENTS BASED ON THEIR CHARACTERISTSICS AND

RESULTING RSF FACTORS—Continued 

Unencumbered and with 

tenor of: Counterparty types Credit quality or market characteristics NSFR assets or commitments RSF factor percent 

Any tenor * ............................ All ........................................ Derivative ............................ NSFR derivatives asset amount ...................................... ........................

* The derivative treatment nets derivative transactions with various maturities. 

a) Zero Percent RSF Factor 

Certain assets held by banking 

organizations have unique 

characteristics such that they do not 

contribute risk to a banking 

organization’s funding profile. Assets 

such as currency, coin, cash items in the 

process of collection and short-term 

central bank reserves on a covered 

company’s balance sheet at the NSFR 

calculation date generally can be used 

in the immediate term to meet 

obligations and eliminate short-term 

liabilities. In the normal course of 

business, trade date receivables also 

constitute assets of this type, even 

though they are subject to certain 

operational frictions. 

Certain other assets in this category, 

such as level 1 liquid asset securities on 

a covered company’s balance sheet and 

certain short-term secured lending 

transactions backed by rehypothecatable 

level 1 liquid assets conducted with 

financial sector entities make minimal 

contribution to a covered company’s 

aggregate funding risk and are important 

to the efficient operation of key shortterm funding markets. 

These unique characteristics make it 

appropriate to assign an RSF factor of 

zero percent, the lowest RSF factor 

assigned to assets. 

(i) Asset Classes for Which the Agencies 

Received No Comments 

The proposal would have applied a 

zero percent RSF factor to currency, 

coin, cash items in the process of 

collection, Reserve Bank balances and 

other central bank reserves with a 

maturity of less than six months. The 

agencies received no comments on these 

asset classes and are finalizing them as 

proposed. 

Currency and Coin 

Section ll.106(a)(1)(i) of the final 

rule assigns a zero percent RSF factor to 

currency and coin because these assets 

can be directly used to meet financial 

obligations. Currency and coin include 

U.S. and foreign currency and coin 

owned and held in all offices of a 

covered company; currency and coin in 

transit to a Federal Reserve Bank or to 

any other depository institution for 

which the covered company’s 

subsidiaries have not yet received 

credit; and currency and coin in transit 

from a Federal Reserve Bank or from 

any other depository institution for 

which the accounts of the subsidiaries 

of the covered company have already 

been charged.137

Cash Items in the Process of Collection 

Section ll.106(a)(1)(ii) of the final 

rule assigns a zero percent RSF factor to 

cash items in the process of collection 

because these assets will not persist on 

a covered company’s balance sheet, but 

rather will be converted to assets that 

can be directly used to meet financial 

obligations in the immediate term. 

These items would include: (1) Checks 

or drafts in process of collection that are 

drawn on another depository institution 

(or a Federal Reserve Bank) and that are 

payable immediately upon presentation 

in the country where the covered 

company’s office that is clearing or 

collecting the check or draft is located, 

including checks or drafts drawn on 

other institutions that have already been 

forwarded for collection, but for which 

the covered company has not yet been 

given credit (known as cash letters), and 

checks or drafts on hand that will be 

presented for payment or forwarded for 

collection on the following business 

day; (2) U.S. government checks drawn 

on the Treasury of the United States or 

any other U.S. government agency that 

are payable immediately upon 

presentation and that are in process of 

collection; and (3) such other items in 

process of collection that are payable 

immediately upon presentation and that 

are customarily cleared or collected as 

cash items by depository institutions in 

the country where the covered 

company’s office that is clearing or 

collecting the item is located.138

Reserve Bank Balances and Other 

Claims on a Reserve Bank That Mature 

in Less Than Six Months 

Section ll.106(a)(1)(iii) of the final 

rule assigns a zero percent RSF factor to 

a Reserve Bank balance or to another 

claim on a Reserve Bank that matures in 

less than six months from the 

calculation date. The term ‘‘Reserve 

Bank balances’’ is defined in § ll.3 of 

the LCR rule and includes required 

reserve balances and excess reserves, 

but not other balances that a covered 

company maintains on behalf of another 

institution.139 Reserve Bank balances 

can be directly used to meet financial 

obligations through the Federal 

Reserve’s payment system. Although 

other claims on Reserve Banks that 

mature in less than six months cannot 

be directly used to meet financial 

obligations, a covered company faces 

little risk of harm to its franchise value 

if it does not roll over the lending to a 

Reserve Bank at maturity. The covered 

company, therefore, may realize cash 

flows associated with the asset in the 

near term and not retain the asset on its 

balance sheet. 

Claims on a Foreign Central Bank That 

Matures in Less Than Six Months 

Section ll.106(a)(1)(iv) of the final 

rule assigns a zero percent RSF factor to 

claims on a foreign central bank that 

mature in less than six months. Similar 

to claims on a Reserve Bank, claims on 

a foreign central bank in this category 

may generally either be directly used to 

meet financial obligations or will be 

available for such use in the near term, 

and a covered company faces little risk 

of harm to its franchise value if it does 

not roll over the lending. 

(ii) Asset Classes for Which the 

Agencies Received Comments 

The proposed rule would have 

applied a zero percent RSF factor to 

trade date receivables that met certain 

criteria. The proposed rule also would 

have assigned RSF factors higher than 

zero to (1) certain level 1 liquid assets 

and (2) secured lending transactions 

with a maturity of less than six months 


khammond on DSKJM1Z7X2PROD with RULES2
9156 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

140 In addition, consistent with the definition of 

‘‘derivative transaction’’ under §ll.3 of the LCR 

rule, a trade date receivable that has a contractual 

settlement or delivery lag longer than the lesser of 

the market standard for the particular instrument or 

five days would have been treated as a derivative 

transaction under §ll.107 of this final rule. 

141As discussed in section VI of this 

Supplementary Information section, the final rule 

incorporates the LCR rule’s definition of ‘‘liquid 

and readily-marketable,’’ which means, with 

respect to a security that the security is traded in 

an active secondary market with: (1) More than two 

committed market makers; (2) a large number of 

non-market maker participants on both the buying 

and selling sides of transactions; (3) timely and 

observable market prices; and (4) a high trading 

volume. See §ll.3 of the LCR rule. 

142These commenters also argued that the 

proposed treatment would be more conservative 

than the treatment of level 1 liquid assets under the 

LCR rule, which allows a banking organization to 

include the full fair value of level 1 liquid assets 

in its HQLA amount. The value of RSF factors are 

not representative of market haircuts to asset 

values. 

conducted with financial sector entities 

(or their subsidiaries) and secured by 

rehypothecatable level 1 liquid assets. 

The agencies received a number of 

comments on the proposed treatment of 

these assets. 

Trade Date Receivables 

Section ll.106(a)(1)(v) of the 

proposed rule would have assigned a 

zero percent RSF factor to a trade date 

receivable due to a covered company 

that results from the sale of a financial 

instrument, foreign currency, or 

commodity that (1) is contractually 

required to settle within the lesser of the 

market standard settlement period for 

the relevant type of transaction, without 

extension of the standard settlement 

period, and five business days from the 

date of the sale; and (2) has not failed 

to settle within the required settlement 

period. By contrast, §ll.106(a)(8) of 

the proposed rule would have assigned 

a 100 percent RSF factor to a trade date 

receivable that (1) is contractually 

required to settle within the lesser of the 

market standard settlement period and 

five business days, but (2) fails to settle 

within this period.140 Several 

commenters expressed concerns that the 

proposed treatment was overly 

conservative and would result in 

assignment of a 100 percent RSF to 

trade date receivables that would likely 

still settle. Some commenters requested 

a zero percent RSF factor for trade date 

receivables that have failed to settle 

within the standard settlement period or 

five days, but still are expected to settle. 

These commenters noted that such 

treatment would align with the 

treatment in the Basel NSFR standard. 

One commenter contended that certain 

instruments have standard market 

settlement periods longer than five days 

and requested a zero percent RSF factor 

for receivables that settle within the 

greater of the standard market 

settlement period and five days. 

Another commenter requested a zero 

percent RSF factor for trade date 

receivables that failed to settle but are 

not more than five days past the 

standard settlement date, arguing that a 

covered company would expect the 

majority of its trade date receivables to 

have settled by that date. 

The final rule expands the types of 

trade date receivables that are assigned 

a zero percent RSF factor to include 

trade date receivables due to a covered 

company that result from the sale of a 

financial instrument, foreign currency, 

or commodity that is required to settle 

no later than the market standard for the 

particular transaction, and that has yet 

to settle but is not more than five 

business days past the scheduled 

settlement date. This change from the 

proposal will more accurately measure 

the amount of receivables that are 

expected to settle and result in inflows 

in the near future because such trade 

date receivables are still reasonably 

expected to settle imminently. As 

discussed in section VII.D.3.g of this 

Supplementary Information, trade date 

receivables that do not qualify for a zero 

percent RSF factor are assigned a 100 

percent RSF factor. 

Unencumbered Level 1 Liquid Assets 

Held on Balance Sheet 

Section ll.106(a)(2)(i) of the 

proposed rule would have assigned a 5 

percent RSF factor to unencumbered 

level 1 liquid assets that would not have 

been assigned a zero percent RSF factor. 

The proposed rule would have 

incorporated the definition of ‘‘level 1 

liquid assets’’ set forth in § ll.20(a) of 

the LCR rule but would not have taken 

into consideration the operational 

requirements described in § ll.22 of 

the LCR rule. As a result, the proposed 

rule would have assigned a 5 percent 

RSF factor to the following level 1 

liquid assets: (1) Securities issued or 

unconditionally guaranteed as to the 

timely payment of principal and interest 

by the U.S. Department of the Treasury; 

(2) liquid and readily-marketable 

securities,141 as defined in §ll.3 of 

the LCR rule, issued or unconditionally 

guaranteed as to the timely payment of 

principal and interest by any other U.S. 

government agency (provided that its 

obligations are fully and explicitly 

guaranteed by the full faith and credit 

of the U.S. government); (3) certain 

liquid and readily-marketable securities 

that are claims on, or claims guaranteed 

by, a sovereign entity, a central bank, 

the Bank for International Settlements, 

the International Monetary Fund, the 

European Central Bank and European 

Community, or a multilateral 

development bank; and (4) certain 

liquid and readily-marketable debt 

securities issued by sovereign entities. 

Some commenters argued that the 

NSFR rule should assign a zero percent 

RSF factor for all HQLA. These 

commenters argued that the proposed 

non-zero RSF factors for these assets 

would unduly penalize low-risk sources 

of funding, increase banking 

organizations’ costs for holding HQLA 

and engaging in securities financing 

transactions involving HQLA, and 

undermine the ability of banking 

organizations to act as market makers. 

Other commenters believed a zero 

percent RSF factor would provide for a 

more level playing field by aligning 

with other jurisdictions’ 

implementation of the NSFR. 

A number of commenters requested a 

zero percent RSF factor be assigned to 

all level 1 liquid assets, which include 

certain government securities that 

commenters argued have liquidity 

characteristics similar to assets that 

would have been assigned a zero 

percent RSF factor under the proposed 

rule.142 Many commenters argued that 

U.S. Treasury securities, in particular, 

should be assigned a zero percent RSF 

factor because they are among the most 

liquid and readily marketable securities 

a covered company may hold and 

benefit from flight to quality during 

times of stress. 

As described above, assets that a 

covered company can directly use to 

meet financial obligations or can 

reasonably expect to obtain the cash 

inflows at the maturity of these assets in 

the near future are assigned a zero 

percent RSF factor under the final rule. 

Such assets generally do not present 

risks to a covered company or the 

financial sector in the event of funding 

disruptions. Similarly, given their 

liquidity characteristics, level 1 liquid 

asset securities present minimal risks 

resulting from a covered company’s 

funding of these assets as assessed over 

a one-year time horizon. Across a broad 

range of market conditions, a covered 

company generally may be less likely to 

have to fund these securities for one 

year compared to other securities. 

Although U.S. Treasury securities and 

other level 1 liquid asset securities 

generally must be monetized before they 

can be used to settle obligations and 

face modest transaction costs in doing 

so, these assets, regardless of their 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9157 

143See section VI of this Supplementary 

Information section for a description of the 

definition of ‘‘secured lending transaction’’ in 

§ll.3 of the LCR rule. 

144The proposal would have assigned a 15 

percent RSF factor to all other secured lending 

transactions to a financial sector counterparty with 

a remaining maturity of less than six months. 

145The terms ‘‘credit facility,’’ ‘‘liquidity 

facility,’’ and ‘‘committed’’ are defined terms under 

§ll.3 of the LCR rule. As discussed in section 

Continued 

contractual maturity, serve as reliable 

sources of liquidity across market 

conditions, based on their high credit 

quality and the favorable characteristics 

of the markets for these assets. Further, 

level 1 liquid asset securities generally 

retain their value in the event of market 

disruptions relative to most other assets. 

In addition, these level 1 liquid asset 

securities serve a critically important 

role in supporting the smooth 

functioning of the funding markets, and, 

as further discussed in section X of this 

Supplementary Information section, a 

non-zero RSF factor on level 1 liquid 

assets could discourage intermediation 

in the U.S. Treasury market. For these 

reasons, the final rule applies a zero 

percent RSF factor to unencumbered 

level 1 liquid assets. Responses to 

comments requesting the final rule 

assign a zero percent RSF factor to all 

other HQLA are included below. 

Secured Lending Transactions With a 

Financial Sector Entity or a Subsidiary 

Thereof That Mature Within Six Months 

and Are Secured by Rehypothecatable 

Level 1 Liquid Assets 

Section ll.106(a)(3) of the proposed 

rule would have assigned a 10 percent 

RSF factor to a secured lending 

transaction 143 with a financial sector 

entity or a consolidated subsidiary 

thereof that matures within six months 

of the calculation date and is secured by 

level 1 liquid assets that are 

rehypothecatable for the duration of the 

transaction.144 The proposal explained 

that a relatively lower amount of stable 

funding is needed to support all forms 

of short-term lending to financial sector 

entities because the financial nature of 

the counterparty presents relatively 

lower reputational risk to a covered 

company if it chooses not to roll over 

the transaction when it matures. As a 

general matter, the proposed rule would 

have treated secured lending 

transactions and unsecured lending 

transactions with financial sector 

counterparties the same. However, the 

proposed rule would have assigned a 

lower RSF factor to such short-term 

lending transactions that are secured by 

rehypothecatable level 1 assets, relative 

to most other lending, because of a 

covered company’s ability to monetize 

the level 1 liquid asset for the duration 

of the transactions. 

A number of commenters requested 

that the agencies reduce or remove the 

proposed RSF factors for all short-term 

secured lending transactions to financial 

sector entities. These commenters 

argued that the RSF factor should match 

the zero percent ASF factor assigned to 

short-term secured funding transactions 

with financial sector entities, noting that 

the proposed asymmetrical treatment 

would prevent a covered company from 

using such short-term funding 

transactions wholly to fund its shortterm lending transactions. Commenters 

asserted that this asymmetry would be 

overly punitive, impair a covered 

company’s ability to conduct prudent 

short-term liquidity risk management, 

not accurately reflect collateral quality, 

and increase costs. Such increased 

costs, commenters contended, would 

cause covered companies to reduce such 

lending, resulting in a further 

contraction of the repo market, 

increased market volatility for the 

securities typically used as collateral, 

and have a negative impact on financial 

institutions that rely on the short-term 

funding market. Commenters also 

argued that the proposed RSF factors for 

short-term secured lending transactions 

to financial sector entities are 

unnecessary and overly burdensome 

because other regulatory measures 

sufficiently address the risks posed by 

these transactions. Several commenters 

argued that the proposed RSF treatment 

would reduce the competitiveness of 

covered companies relative to other 

market participants. Other commenters 

requested that the agencies reduce the 

RSF factors to align with other 

jurisdictions’ implementation of the 

NSFR. 

The agencies also received comments 

requesting a zero percent RSF factor be 

assigned to short-term secured lending 

transactions with financial sector 

entities secured by rehypothecatable 

level 1 liquid assets. One commenter 

argued that these transactions present 

few risks of disorderly or destabilizing 

unwinds due to the quality of the 

underlying collateral. Another 

commenter expressed concern that the 

proposed 10 percent RSF factor would 

incentivize a covered company to 

purchase on balance sheet level 1 liquid 

assets rather than borrow such assets 

through secured lending transactions to 

obtain more favorable RSF treatment, 

which would increase liquidity and 

interest rate risk as a result of holding 

the assets on balance sheet. 

Covered companies may use shortterm secured funding and lending 

transactions, such as repurchase 

agreements and reverse repurchase 

agreements, for collateral management 

and funding purposes as well as other 

business and risk management 

purposes. Short-term secured funding 

and lending transactions, however, can 

give rise to certain funding risks. For 

example, a covered company is exposed 

to risk of borrower default and 

fluctuation in the price of the 

underlying collateral. At the same time, 

a covered company may be incentivized 

to continue funding a certain portion of 

its lending under these transactions 

even as it loses access to its short term 

funding transactions. Although the 

agencies recognize that other regulations 

reduce certain risks associated with 

short-term secured lending transactions, 

the NSFR requirement is designed to 

directly measure and ensure the 

stability of covered companies’ 

aggregate funding profile over a oneyear horizon. 

Consistent with the proposed rule, the 

final rule generally treats secured 

lending transactions with financial 

sector counterparties the same as 

unsecured lending to these 

counterparties based on their tenor and 

counterparty characteristics, described 

below. However, the agencies have 

revised the proposed rule by adding 

§ ll.106(a)(1)(vii) to the final rule, 

which assigns an RSF factor of zero 

percent, rather than 10 percent, for 

short-term lending transactions with a 

financial sector entity secured by 

rehypothecatable level 1 liquid assets, 

as such short-term secured lending 

transactions present minimal risk to the 

covered company. Moreover, as further 

discussed in section X of this 

Supplementary Information section, a 

non-zero RSF factor on secured lending 

transactions secured with 

rehypothecateble level 1 liquid assets 

could also discourage intermediation in 

certain short-term secured lending 

markets. The calibration would also 

align the RSF factor for these loan 

receivables with the RSF factor for level 

1 liquid assets that are held on the 

covered company’s balance sheet. 

b) 5 Percent RSF Factor 

Committed Credit and Liquidity 

Facilities—RSF Factor and Undrawn 

Amount 

Section ll.106(a)(2)(ii) of the 

proposed rule would have assigned a 5 

percent RSF factor to the undrawn 

amount of committed credit and 

liquidity facilities that a covered 

company provides to its customers and 

counterparties.145 The proposed rule 


khammond on DSKJM1Z7X2PROD with RULES2
9158 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

VI.A of this Supplementary Information section, the 

final rule modifies the definition of ‘‘committed.’’ 

146The NSFR requirement generally does not take 

into account prospective inflows arising from the 

receipt of collateral. As explained further below in 

section VII.E of this Supplementary Information 

section, the NSFR requirement’s treatment of 

derivative transactions permits the receipt of certain 

eligible collateral to be netted against the 

derivatives asset amount. Recognition in the NSFR 

requirement of the funding value of collateral for 

derivatives transactions is appropriate 

notwithstanding the rule’s general prohibition 

against netting collateral because of the special role 

of derivatives margin and because the rule sets forth 

a number of restrictions and contractual netting 

criteria for certain collateral to be netted against the 

derivatives asset amount. 

147See §ll.32(e)(3) of the LCR rule. 

148For example, if the governing agreement 

provides that (1) the counterparty must liquidate 

collateral securing the facility before drawing on the 

facility and (2) the covered company must provide 

the amount available under the facility less the 

proceeds of the collateral sale, the undrawn amount 

would be the full value of the amount available 

under the facility (i.e., not reduced by the proceeds 

of the collateral sale). This reflects the contractual 

possibility that the covered company may still be 

required to provide the counterparty the full value 

allowed under the facility, even though under many 

circumstances the covered company’s exposure 

would be reduced. 

clarified that the ‘‘undrawn amount’’ for 

purposes of the NSFR rule would be the 

amount that could be drawn within one 

year of the calculation date, but would 

not have included amounts that could 

only be drawn contingent upon 

contractual milestones or events that 

cannot reasonably be expected to occur 

within one year. 

The agencies did not receive any 

comments on the proposed 5 percent 

RSF factor assigned to the undrawn 

amount of committed credit and 

liquidity facilities. However, several 

commenters requested the agencies 

modify the proposed rule to permit a 

covered company to reduce the 

undrawn commitments by the value of 

collateral that it receives to secure its 

committed facility, particularly 

collateral in the form of HQLA, for 

purposes of determining the applicable 

RSF amount. Commenters noted that the 

LCR rule permits covered companies to 

net, for purposes of calculating outflow 

amounts, level 1 and level 2A liquid 

assets that secure a committed credit or 

liquidity facility against the undrawn 

amount of the facility, and requested 

similar treatment under the NSFR rule. 

Consistent with the proposed rule, the 

final rule does not permit a covered 

company to net collateral against 

undrawn amounts of commitments.146

As described in section V.C of this 

Supplementary Information section, 

unlike the LCR rule, which addresses 

the risk of cash outflows and permits a 

covered company to net certain highquality collateral against the undrawn 

amount of a committed credit or 

liquidity facility because such collateral 

may be used to meet its short-term 

obligations,147 the NSFR measures the 

funding profile of a covered company’s 

balance sheet and any draw upon a 

committed facility would become an 

asset (i.e., a loan) on a covered 

company’s balance sheet that generally 

would increase the covered company’s 

stable funding needs. Similarly, 

collateral obtained pursuant to a default 

of a draw on a secured facility would 

add to a covered company’s balance 

sheet and require stable funding. 

One commenter requested 

clarification of the term ‘‘undrawn 

amount’’ and the treatment of funded 

commitments that result in 

contractually offsetting collateral 

inflows. The commenter also asked 

what level of support would be required 

to demonstrate an amount is excludable 

from the undrawn amount because it is 

contingent upon events not reasonably 

expected to occur within the NSFR’s 

time horizon. The agencies are 

clarifying that the undrawn amount is 

the maximum amount that could be 

drawn under the agreement within the 

NSFR requirement’s one-year time 

horizon under all reasonably possible 

circumstances.148 The undrawn amount 

does not include amounts that are 

contingent on the occurrence of a 

contractual milestone or other events 

that cannot reasonably be expected to be 

reached or occur within the one-year 

time horizon. For example, if a 

construction company can draw a 

certain amount from a credit facility 

only upon meeting a construction 

milestone that cannot reasonably be 

expected to be reached within one year, 

such as entering the final stage of a 

multi-year project that has just begun, 

then the undrawn amount would not 

include the amount that would become 

available only upon entering the final 

stage of the project. 

Similarly, a letter of credit that meets 

the definition of credit or liquidity 

facility may entitle a seller to obtain 

funds from a covered company if a 

buyer fails to pay the seller. If the seller 

is legally entitled to obtain the funds 

available under the letter of credit as of 

the calculation date (because the buyer 

has defaulted) or if the buyer should 

reasonably be expected to default within 

the NSFR’s one-year time horizon, then 

the funds available under the letter of 

credit are undrawn amounts. However, 

if, under the terms of the letter of credit, 

the seller is not legally entitled to obtain 

funds from the covered company as of 

the calculation date because the buyer 

has not failed to perform under the 

agreement with the seller, and the 

covered company does not reasonably 

expect nonperformance within the 

NSFR’s one-year time horizon, then the 

funds potentially available under the 

letter of credit are not undrawn 

amounts. 

The agencies expect that a covered 

company would conduct an analysis of 

the likelihood of contingent contractual 

milestones or other events to be reached 

or occur, which may include reliance on 

historical experience, including 

consideration of both internal and 

industry-wide data. The agencies also 

expect a covered company to be able to 

provide sufficient supporting 

documentation that justifies its 

assessment that a contractual milestone 

or other event cannot reasonably be 

expected to be reached or occur within 

the one-year time horizon. The 

sufficiency and appropriateness of that 

documentation would be reviewed by 

supervisory staff. 

The agencies are finalizing the 

assigned 5 percent RSF factor to the 

undrawn amount of committed credit 

and liquidity facilities that a covered 

company provides to its customers and 

counterparties as proposed. The final 

rule requires a covered company to 

recognize committed facilities in its 

aggregate stable funding requirement to 

a limited extent, even though they are 

generally not included on a covered 

company’s balance sheet. The 5 percent 

RSF factor is the lowest non-zero RSF 

factor and is applied uniquely to offbalance sheet commitments. 

c) 15 Percent RSF Factor 

The final rule applies a 15 percent 

RSF factor to unencumbered level 2A 

liquid assets held on a covered 

company’s balance sheet and lending to 

financial counterparties that matures in 

less than six months, other than secured 

lending transactions backed by 

rehypothecatable level 1 liquid assets. 

Based on their liquidity characteristics, 

including their high credit quality, these 

assets may also not need to be funded 

for the entirety of the NSFR’s one-year 

time horizon, and covered companies 

may have the ability to recognize 

inflows from such assets within one 

year across a range of market conditions. 

Unencumbered Level 2A Liquid Assets 

Section ll.106(a)(4)(i) of the 

proposed rule would have assigned a 15 

percent RSF factor to level 2A liquid 

assets, as defined in §ll.20(b) of the 

LCR rule, but would not have taken into 

consideration the operational 

requirements described in § ll.22 or 

the level 2 cap in § ll.21. As set forth 

in the LCR rule, level 2A liquid assets 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9159 

149 12 CFR 3.32 (OCC); 12 CFR 217.32 (Board); 12 

CFR 324.32 (FDIC). 

150See supra note 102. 

include certain obligations issued or 

guaranteed by a Government Sponsored 

Enterprise (GSE) and certain obligations 

issued or guaranteed by a sovereign 

entity or a multilateral development 

bank. The LCR rule requires these 

securities to be liquid and readilymarketable, as defined in §ll.3, to 

qualify as level 2A liquid assets. 

Commenters requested more favorable 

treatment for certain GSE securities 

under the NSFR rule. Several 

commenters recommended that 

mortgage-backed securities issued by 

the Federal National Mortgage 

Association (Fannie Mae) and Federal 

Home Loan Mortgage Corporation 

(Freddie Mac) should receive the same 

5 percent RSF factor proposed for level 

1 liquid assets, as long as Fannie Mae 

and Freddie Mac remain under the 

conservatorship of the Federal Housing 

Finance Agency (FHFA). One 

commenter argued these securities 

exhibit favorable liquidity 

characteristics and are low risk, and 

expressed concern that the proposed 15 

percent RSF factor would discourage 

banks from purchasing these mortgagebacked securities, which would result in 

increased mortgage interest rates for 

homeowners. Another commenter noted 

that the European Union allows covered 

bonds with similar liquidity 

characteristics to qualify as level 1 

liquid assets. Another commenter 

recommended that FHLB consolidated 

debt obligations should receive a 5 

percent RSF factor based on the 

historical performance of these 

obligations during financial stress and 

their strong market attributes, including 

narrow bid-ask spreads, numerous 

active and diverse market makers, 

timely market prices, and high trading 

volumes. 

Similar to other HQLA, level 2A 

liquid assets held by covered companies 

on their balance sheets have a broad 

range of residual maturities and are held 

for a variety of purposes. For example, 

covered companies hold such securities 

as long-term investments, as 

instruments to maintain medium-term 

hedges or as part of the covered 

company’s eligible HQLA under the 

LCR rule. Holdings of unencumbered 

level 2A liquid assets on a covered 

company’s balance sheet present only 

modest risks to the covered company or 

financial system in the event of funding 

disruptions. A 15 percent RSF factor is 

appropriate for GSE-issued or GSEguaranteed obligations because they 

have high credit quality and are traded 

in deep, liquid markets. For example, 

mortgage-backed securities issued by 

GSEs have a higher credit quality, 

higher average daily trading volume, 

and lower bid-ask spreads relative to 

corporate debt securities, which are 

assigned a higher RSF factor. However, 

these securities have different liquidity 

characteristics than U.S. Treasury 

securities and other level 1 liquid assets. 

For instance, GSE obligations are not 

subject to the same unconditional 

sovereign guarantee as certain securities 

that are level 1 liquid assets, which are 

assigned a zero percent RSF factor. 

Moreover, while certain GSEs are 

currently operating under the 

conservatorship of the FHFA, GSE 

obligations are not explicitly guaranteed 

by the full faith and credit of the United 

States, and they should not receive the 

same treatment as obligations that have 

such an explicit guarantee. This 

treatment is consistent with the 

agencies’ risk-based capital rule, which 

differentiates between obligations and 

guarantees of U.S. GSEs, including those 

operating under conservatorship of 

FHFA and securities explicitly 

guaranteed by the full faith and credit 

of the United States.149 With respect to 

covered bonds, the agencies have 

determined that covered bonds do not 

meet the liquid and readily-marketable 

standard in the United States and thus 

do not meet the liquidity characteristics 

to qualify as a level 1 or level 2A liquid 

asset. The final rule adopts a 15 percent 

RSF factor for level 2A liquid assets as 

proposed. 

Secured Lending Transactions Secured 

by All Other Collateral and Unsecured 

Wholesale Lending With a Financial 

Sector Entity or a Subsidiary Thereof 

That Mature Within Six Months 

Section ll.106(a)(4)(ii) of the 

proposed rule would have assigned a 15 

percent RSF factor to a secured lending 

transaction with a financial sector entity 

or a consolidated subsidiary thereof that 

is secured by assets other than 

rehypothecatable level 1 liquid assets 

and that matures within six months of 

the calculation date. The proposal also 

would have assigned a 15 percent RSF 

factor to unsecured wholesale lending to 

a financial sector entity or a 

consolidated subsidiary thereof that 

matures within six months of the 

calculation date.150

The comments received by the 

agencies regarding the treatment of 

secured lending transactions generally, 

as well as the agencies’ response to the 

comments, are summarized above in 

section VII.D.3.a of this Supplementary 

Information section. The agencies did 

not receive any comments specific to 

the proposed treatment of unsecured 

wholesale lending to a financial sector 

entity or a subsidiary thereof that 

matures within six months. 

The final rule adopts the proposed 

treatment for these transactions without 

any modification. A 15 percent RSF 

factor reflects that these transactions 

contribute less to a covered company’s 

aggregate funding requirement because 

of their shorter tenors relative to loans 

with a longer remaining maturity, when 

considering cash inflows upon maturity 

of the loan. In addition, these loans also 

generally present lower reputational risk 

if a covered company chooses not to roll 

over the transaction because of the 

financial nature of the counterparty. For 

these reasons, a 15 percent RSF factor 

for these assets is lower than the RSF 

factor assigned to longer-term secured 

transactions to similar counterparties or 

to similar-term loans to non-financial 

counterparties. However, the 

assignment of a higher RSF factor to 

these assets compared to similar shortterm secured lending transactions to 

financial counterparties that are secured 

by rehypothecatable level 1 liquid assets 

reflects the covered company’s more 

limited ability to monetize assets that 

are not level 1 liquid assets for the 

duration of the transaction. 

d) 50 Percent RSF Factor 

Based on the NSFR’s one-year time 

horizon, the final rule applies the 

median RSF factor of 50 percent to 

unencumbered level 2B liquid assets of 

all maturities. Covered companies may 

not need to fund these securities for the 

entirety of the NSFR’s one-year time 

horizon, and covered companies may 

have the ability to recognize inflows 

from such assets within one year, each 

across a range of market conditions. 

The final rule also applies a 50 

percent RSF factor to most loans with 

remaining maturities of less than one 

year and to operational deposit 

placements. Lending that matures in 

less than one year is less likely to 

require funding for a full year relative to 

loans that have residual maturities of 

one year or more, which generally 

receive a higher RSF factor under the 

final rule. While certain loans that 

mature in less than one year may be 

renewed, covered companies are 

generally more likely to receive cash 

inflows when these loans mature 

compared to longer maturities. With 

respect to operational deposit 

placements, the 50 percent RSF factor 

reflects that covered companies as 

recipients of operational services likely 

would face limitations to making 

significant changes to their operational 

activities during the NSFR’s one-year 


khammond on DSKJM1Z7X2PROD with RULES2
9160 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

151Public Law 115–174, 132 Stat. 1296–1368 

(May 24, 2018). 

152See 84 FR 25975 (June 5, 2019). As a result, 

the agencies are not also finalizing proposed 

§ll.106(a)(5)(iv). 

153Pursuant to the LCR rule, corporate debt 

securities must be investment grade in order to 

qualify as a level 2B liquid asset. 12 CFR 

249.20(c)(1)(i). 

154Section ll.106(a)(5)(iv) of the proposed rule, 

which would have assigned a 50 percent RSF factor 

to general obligation securities of a public sector 

entity, is removed because such securities now are 

encompassed by the definition of municipal 

obligations in §ll.3 of the LCR rule. Consistent 

with section 403 of EGRRCPA, §ll.3 of the LCR 

rule defines a ‘‘municipal obligation’’ as ‘‘an 

obligation of (1) a state or any political subdivision 

thereof, or (2) any agency or instrumentality of a 

state or any political subdivision thereof.’’ 

time horizon across a range of market 

conditions. 

Unencumbered Level 2B Liquid Assets 

Section ll.106(a)(5)(i) of the 

proposed rule would have assigned a 50 

percent RSF factor to level 2B liquid 

assets, as defined in §ll.20(c) of the 

LCR rule, but without taking into 

consideration the operational 

requirements described in § ll.22 or 

the level 2 caps in § ll.21. At the time 

of proposal, level 2B liquid assets 

included certain publicly traded 

corporate debt securities and publicly 

traded common equity shares that are 

liquid and readily-marketable. To 

qualify as a level 2B liquid asset, the 

asset must meet certain criteria under 

§ ll.20 of the LCR rule. For example, 

among other criteria, equity securities 

must be part of a major index and both 

corporate debt securities and municipal 

obligations must be ‘‘investment grade’’ 

under 12 CFR part 1. 

Subsequent to the issuance of the 

proposed rule, EGRRCPA was enacted, 

which requires the agencies to treat 

certain municipal obligations as a level 

2B liquid asset for purposes of the LCR 

rule and any other regulation that 

incorporates a definition of the term 

‘‘high-quality liquid asset’’ or 

substantially similar term.151 Consistent 

with EGRRCPA, the agencies amended 

the LCR rule to treat municipal 

obligations that are investment grade 

and liquid and readily-marketable as 

level 2B liquid assets.152

Several commenters expressed 

concern that the proposed RSF factor for 

level 2B liquid assets was too high and 

argued that these securities should be 

considered more liquid over the NSFR’s 

one-year horizon. For example, one 

commenter requested a 15 percent RSF 

factor for equity securities that are 

included in major market indices, such 

as exchange-traded funds that track a 

major market index. Some commenters 

recommended revised RSF treatment for 

level 2B liquid asset eligible corporate 

debt securities. For example, some 

commenters requested that the RSF 

factor for corporate debt securities be 

more granular and calibrated based on 

the tenor of the securities, the issuer’s 

creditworthiness, or the desired tenor of 

funding used to purchase the securities. 

One commenter requested eliminating 

the requirement that a corporate debt 

security be investment grade.153

Another commenter recommended the 

agencies adopt the RSF factors assigned 

to various types of corporate debt in the 

Basel NSFR standard. One commenter 

recommended that the agencies more 

closely align the RSF factor for these 

assets to the market haircuts in secured 

funding markets. Another commenter 

expressed concern that the proposed 

RSF treatment would make it more 

expensive for banking organizations to 

hold debt and equity securities intended 

for trading, which would result in 

decreased willingness to hold 

inventories and negatively impact 

capital markets. The commenter 

asserted that, given the importance of 

capital markets in the United States, the 

proposed RSF factor would place the 

United States at a competitive 

disadvantage to other jurisdictions. 

The final rule maintains as proposed 

the 50 percent RSF factor for level 2B 

liquid assets, which include certain 

investment grade publicly traded 

corporate debt securities and municipal 

obligations 154 and certain publicly 

traded common equity shares included 

on the Russell 1000 or an index that a 

foreign supervisor recognizes for 

purposes of including equity shares in 

level 2B liquid assets under applicable 

regulatory policy of a foreign 

jurisdiction. As described in section V.C 

of this Supplementary Information 

section, the final rule uses definitions 

common to the LCR rule to increase the 

efficiency of the rule. The agencies did 

not propose and the final rule does not 

adopt any changes to the definition of 

level 2B liquid assets. The agencies, 

therefore, are not changing the 

requirements for corporate debt 

securities to qualify as a level 2B liquid 

asset. Such changes would be outside 

the scope of this rulemaking. Assets that 

meet the definition of level 2B liquid 

assets have distinctive liquidity 

characteristics as described in the LCR 

rule, which include either relatively 

higher credit risk, lower trading 

volumes, or elevated price volatility 

across market conditions when 

compared to level 1 and level 2A liquid 

assets. These securities also have 

relatively greater liquidity relative to 

assets that are not HQLA under the LCR 

rule. For these reasons, the RSF factor 

assigned to level 2B liquid assets is 

materially higher than the RSF factor of 

15 percent applied to level 2A liquid 

assets, but lower than the RSF factor 

applied to securities that do not qualify 

as HQLA. 

Covered companies may be holding 

level 2B liquid assets on balance sheet 

at a calculation date that have a wide 

range of residual maturities and for a 

range of purposes, each of which may 

require various contractual or 

anticipated holding periods. While 

some portion of level 2B liquid assets 

may mature or be contractually 

scheduled to be sold within one year, a 

covered company may need to fund 

certain of these securities over a oneyear time horizon. Similar to level 2A 

liquid assets, covered companies may 

hold these securities for investment 

purposes or as part of a covered 

company’s HQLA amount. Over a range 

of market conditions, a covered 

company may be generally less likely to 

have to fund these securities for one 

year compared to securities that do not 

qualify as HQLA. For the reasons above, 

it is appropriate for the RSF factor 

applied to level 2B liquid assets to be 

materially higher than the RSF factor of 

15 percent applied to level 2A liquid 

assets but lower than that applied to 

securities that do not qualify as HQLA. 

In response to commenters’ requests 

for additional granularity, the agencies 

note that the purpose of the NSFR is to 

provide a broad, standardized measure 

of funding stability that can be 

compared across covered companies. As 

discussed in section V.C, to achieve this 

purpose, the final rule uses a small 

number of standardized maturity 

buckets rather than using granular 

maturity buckets of debt instruments or 

the funding used to purchase such 

assets. In addition, the final rule does 

not differentiate between assets based 

on other difficult to monitor criteria, 

such as a covered company’s intent for 

holding or funding the asset or the 

characteristics of the issuer, because to 

do so would require the agencies to 

make determinations about each 

covered company’s intent or the credit 

risk of each issuer. Such individualized 

determinations would be contrary to the 

NSFR’s purpose as a standardized 

measure. In addition, contrary to 

commenters’ concerns, the agencies 

expect that the final rule will strengthen 

the U.S. financial system, including 

capital markets, by ensuring banking 

organizations maintain sufficiently 

stable funding on an ongoing basis. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9161 

155Section ll.106(a)(5)(ii) of the final rule does 

not apply to an operational deposit placed at a 

financial sector entity or consolidated subsidiary 

thereof. The treatment of such an operational 

deposit is covered by §ll.106(a)(4)(iii) of the final 

rule. 

156This provision is adopted at 

§ll.106(a)(4)(iv)(A) of the final rule. 

157This provision is adopted at 

§ll.106(a)(4)(iv)(B) of the final rule. 

Secured Lending Transactions and 

Unsecured Wholesale Lending to a 

Financial Sector Entity or a Subsidiary 

Thereof or a Central Bank That Mature 

in Six Months or More, But Less Than 

One Year 

Section ll.106(a)(5)(ii) of the 

proposed rule would have assigned a 50 

percent RSF factor to a secured lending 

transaction or unsecured wholesale 

lending transaction that matures in six 

months or more, but less than one year 

from the calculation date, where the 

counterparty is a financial sector entity 

or a consolidated subsidiary thereof or 

the counterparty is a central bank.155 As 

discussed above, a covered company 

faces lower reputational risk if it 

chooses not to roll over secured or 

unsecured loans to financial 

counterparties or claims on a central 

bank than it would with loans to nonfinancial counterparties. Even though 

loans in this category have terms greater 

than six months (and liquidity from 

principal repayments will not be 

available in the near term) these loans 

mature within the NSFR’s one-year time 

horizon so the proposed rule would not 

have required them to be fully 

supported by stable funding. For the 

reasons discussed in the proposal, the 

agencies are finalizing a 50 percent RSF 

factor for these transactions as 

proposed. 

Operational Deposits Held at Financial 

Sector Entities 

Section ll.106(a)(5)(iii) of the 

proposed rule would have assigned a 50 

percent RSF factor to an operational 

deposit, as defined in §ll.3 of the 

LCR rule, placed by the covered 

company at a financial sector entity. 

Consistent with the reasoning for the 

ASF factor assigned to operational 

deposits placed at a covered company, 

described in section VII.C.3.d of this 

Supplementary Information section, 

such operational deposits placed by a 

covered company are less readily 

monetizable by the covered company 

compared to non-operational 

placements. These deposits are placed 

for operational purposes, and covered 

companies likely would face legal or 

operational limitations to making 

significant withdrawals during the 

NSFR’s one-year time horizon. While 

the agencies received comments 

addressing the ASF factor assigned to 

operational deposits received by a 

covered company, as discussed above at 

section VII.C.3.d, the agencies did not 

receive any comments addressing the 

RSF factor assigned to operational 

deposits placed by a covered company 

at an unaffiliated financial sector entity. 

For the reasons discussed in the 

proposed rule, the final rule adopts the 

50 percent RSF factor for operational 

deposits placed by a covered company 

at another financial sector entity as 

proposed. 

Secured Lending Transactions and 

Unsecured Wholesale Lending to 

Counterparties That Are Not Financial 

Sector Entities and Are Not Central 

Banks and That Mature in Less Than 

One Year 

Section ll.106(a)(5)(v) of the 

proposed rule would have assigned a 50 

percent RSF factor to lending to a 

wholesale customer or counterparty that 

is not a financial sector entity or central 

bank, including a non-financial 

corporate, sovereign, or public sector 

entity, that matures in less than one year 

from the calculation date. Unlike with 

lending to financial sector entities and 

central banks, the proposed rule would 

have assigned the same RSF factor to 

lending to these entities with a 

remaining maturity of less than six 

months as it would have assigned to 

lending with a remaining maturity of six 

months or more, but less than one year. 

The proposed rule would not have 

required this lending to be fully 

supported by stable funding based on its 

maturity within the NSFR’s one-year 

time horizon and the assumption that a 

covered company may be able to reduce 

its lending to some degree over the 

NSFR’s one-year time horizon. 

However, the proposed rule’s 

assignment of a 50 percent RSF factor 

reflected the stronger incentives that a 

covered company is likely to have to 

continue to lend to these wholesale 

counterparties due to reputational risk 

and a covered company’s need to 

maintain its franchise value, even when 

the lending is scheduled to mature in 

the nearer term, as discussed in section 

VII.D.2.c of this Supplementary 

Information section. The agencies did 

not receive any comments addressing 

the proposed RSF factor assigned to this 

category. For the reasons discussed in 

the proposal, the agencies are adopting 

this provision as proposed.156

Lending to Retail Customers and 

Counterparties That Matures in Less 

Than One Year 

Section ll.106(a)(5)(v) of the 

proposed rule would have assigned a 50 

percent RSF factor to lending to retail 

customers or counterparties (including 

certain small businesses), as defined in 

§ ll.3 of the LCR rule, that matures 

less than one year from the calculation 

date for the same reputational and 

franchise value maintenance reasons for 

which it would have assigned a 50 

percent RSF factor to lending to 

wholesale customers and counterparties 

that are not financial sector entities or 

central banks. The agencies did not 

receive any comments specific to the 

RSF factor assigned to this asset 

category. For the reasons described in 

the proposed rule, the agencies are 

adopting this provision as proposed.157

All Other Assets That Mature in Less 

Than One Year 

Section ll.106(a)(5)(v) of the 

proposed rule would have assigned a 50 

percent RSF factor to all other assets 

that mature within one year of the 

calculation date but are not described in 

the categories above. The shorter 

maturity of an asset in this category 

reduces a covered company’s funding 

needs, since the asset may not need to 

be retained on the covered company’s 

balance sheet past maturity and 

provides for cash inflows upon maturity 

during the NSFR’s one-year time 

horizon. However, a covered company 

generally may be less able to monetize 

these assets due to their lower credit 

quality and their relevant market 

characteristics as compared to the 

enumerated asset classes that are 

assigned lower RSF factors. 

One commenter expressed concern 

that this category would capture assetbacked commercial paper that is fully 

supported by a credit or liquidity 

facility provided by another bank and 

has a maturity of six months or less, 

while unencumbered loans to banks 

with maturities of less than six months 

are assigned a 15 percent RSF factor. 

The commenter argued that a covered 

company’s risk exposure for purchasing 

asset-backed commercial paper that is 

fully supported by a facility provided by 

a bank is equivalent to its risk exposure 

for a loan to another bank. Accordingly, 

the commenter argued that such assetbacked commercial paper should 

receive the same 15 percent RSF factor 

as a short-term loan to a financial sector 

entity. Another commenter argued that 

the RSF factor assigned to commercial 


khammond on DSKJM1Z7X2PROD with RULES2
9162 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

158This provision is adopted at §ll106(a)(4)(iv) 

of the final rule. 

159See 12 CFR 3.32(g) (OCC); 12 CFR 217.32(g) 

(Board); 12 CFR 324.32(g) (FDIC). The final rule is 

consistent with the Basel NSFR standard, which 

assigns a 65 percent RSF factor to residential 

mortgages that receive a 35 percent risk weight 

under the Basel II standardized approach for credit 

risk, because the agencies’ risk-based capital rule 

assigns a 50 percent risk weight to residential 

mortgage exposures that meet the same criteria as 

those that receive a 35 percent risk weight under 

the Basel II standardized approach for credit risk. 

160See 12 CFR 3.32(g) (OCC); 12 CFR 217.32(g) 

(Board); 12 CFR 324.32(g) (FDIC). This aspect of the 

proposed rule would have been consistent with the 

Basel NSFR standard, which assigns a 65 percent 

RSF factor to loans that receive a 35 percent or 

lower risk weight under the Basel II standardized 

approach for credit risk, because the standardized 

approach in the agencies’ risk-based capital rule 

does not assign a risk weight that is between 20 and 

35 percent to such loans. 

paper should be based on the 

creditworthiness of the issuing 

company. 

In response, the agencies note that the 

final rule generally assigns RSF factors 

to exposures as of a point in time. For 

holdings of asset-backed commercial 

paper that are supported by a credit or 

liquidity facility provided by a bank, a 

covered company would not have an 

exposure to a financial sector entity 

unless the facility has been drawn upon; 

therefore, such asset-backed commercial 

paper is not treated as a loan to a 

financial sector entity under the final 

rule. Although the contractual features 

of an individual asset or the credit 

worthiness of its issuer can affect the 

funding needs related to holding that 

particular asset, the final rule is 

intended to provide a standardized 

measure of funding stability that can be 

compared across covered companies. 

Differentiating between holdings of 

commercial paper based on contractual 

features or the issuer’s credit worthiness 

would require the agencies to make 

determinations based on each 

contractual arrangement and the credit 

risk of each issuer. Such individualized 

determinations would be contrary to the 

NSFR’s purpose as a standardized 

measure. 

For the reasons discussed in the 

proposed rule, the agencies are 

finalizing this provision as proposed.158

e) 65 Percent RSF Factor 

Under the final rule, loans that mature 

in one year or more (other than 

operational deposit placements) are 

assigned higher RSF factors than loans 

that mature in less than one year. The 

final rule assigns a 65 percent RSF 

factor to retail mortgages that mature in 

one year or more and are assigned a risk 

weight of no greater than 50 percent 

under the agencies’ risk-based capital 

rule and loans to retail and nonfinancial wholesale counterparties that 

mature in one year or more and are 

assigned a risk weight of no greater than 

20 percent. 

Retail Mortgages That Mature in One 

Year or More and Are Assigned a Risk 

Weight of No Greater Than 50 Percent 

Section ll.106(a)(6)(i) of the 

proposed rule would have assigned a 65 

percent RSF factor to retail mortgages 

that mature one year or more from the 

calculation date and are assigned a risk 

weight of no greater than 50 percent 

under subpart D of the agencies’ riskbased capital rule. Under the agencies’ 

risk-based capital rule, residential 

mortgage exposures secured by a first 

lien on a one-to-four family property 

that are prudently underwritten, are not 

90 days or more past due or carried in 

nonaccrual status, and that are neither 

restructured nor modified generally 

receive a 50 percent risk weight.159

Some commenters argued that the 

proposed rule’s treatment for mortgage 

loans would be overly conservative in 

comparison to the 15 percent RSF factor 

assigned to certain GSE-issued or GSEguaranteed mortgage-backed securities. 

One commenter noted that prudently 

underwritten mortgages can be pooled 

into GSE or private label mortgagebacked securities and argued that, as a 

result, they should receive an RSF factor 

no higher than 50 percent. Similarly, 

another commenter noted that single 

family mortgage loans should not 

receive an RSF factor above 50 percent 

because such loans can be used as 

collateral for FHLB loans. One 

commenter suggested that the proposed 

RSF factor for mortgage loans under the 

NSFR could encourage banks to 

originate and sell loans rather than hold 

them in portfolio. 

Mortgage lending to households is an 

important form of financial 

intermediation conducted by banking 

organizations, including during times of 

funding disruptions. To support 

financial intermediation, and based on 

the residual maturity and other liquidity 

characteristics of mortgage loans, the 

final rule requires individual mortgages 

that meet certain criteria to be 

supported by a greater amount of stable 

funding than assets assigned a 50 

percent RSF factor. Individual mortgage 

loans have substantially different credit 

and liquidity characteristics than 

mortgage-backed securities eligible for a 

lower RSF factor. In particular, GSEissued and GSE-guaranteed securities 

have a much higher trading volume than 

individual mortgage loans. Mortgage 

loans also do not have the same 

liquidity characteristics as assets that 

are assigned a 50 percent RSF factor, 

such as assets that are either securities 

that satisfy certain benchmark market 

thresholds or assets with relatively short 

maturity. In contrast, mortgage loans in 

the 65 percent RSF category mature in 

more than one year from the calculation 

date, and typically have many years 

until they mature. Prior to maturity, it 

may be difficult to monetize an 

individual mortgage loan in a timely 

fashion or without incurring a relatively 

higher haircut in a secured funding 

transaction compared to HQLA. 

In addition, the agencies acknowledge 

that covered companies will take into 

account the final rule’s assignment of a 

65 percent RSF factor when deciding 

whether to sell mortgage loans or retain 

them in portfolio. However, covered 

companies may choose to retain or sell 

mortgage loan originations for a variety 

of reasons including earnings, liquidity, 

and capital management. Accordingly, 

the 65 percent RSF factor for mortgage 

loans would not significantly impact a 

covered company’s decision to retain a 

mortgage loan in portfolio. The primary 

purpose of the final rule is to ensure 

that a banking organization’s assets are 

adequately funded. For the reasons 

described above, the final rule assigns a 

65 percent RSF factor to mortgage loans 

that meet certain criteria as proposed. 

Secured Lending Transactions, 

Unsecured Wholesale Lending, and 

Lending to Retail Customers and 

Counterparties That Mature in One Year 

or More and Are Assigned a Risk Weight 

of No Greater Than 20 Percent 

Section ll.106(a)(6)(ii) of the 

proposed rule would have assigned a 65 

percent RSF factor to secured lending 

transactions, unsecured wholesale 

lending, and lending to retail customers 

and counterparties that are not 

otherwise assigned an RSF factor, that 

mature one year or more from the 

calculation date, that are assigned a risk 

weight of no greater than 20 percent 

under subpart D of the agencies’ riskbased capital rule, and where the 

borrower is not a financial sector entity 

or a consolidated subsidiary thereof.160

As discussed in the proposed rule, these 

loans generally have more favorable 

liquidity characteristics because of their 

lower credit risk than loans that have a 

risk weight greater than 20 percent 

under the agencies’ risk-based capital 

rule. However, these loans require more 

stable funding than loans that mature 

and provide liquidity within the NSFR’s 

one-year time horizon. The agencies did 

not receive any comments on this 

provision. For the reasons discussed in 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9163 

161See supra note 159. 

162Under the agencies’ risk-based capital rule, the 

risk weight on mortgages may be reduced to less 

than 50 percent if certain conditions are satisfied. 

In these cases, the final rule assigns an RSF factor 

of 65 percent, which is the RSF factor assigned to 

retail mortgages that mature in one year or more 

and are assigned a risk weight of no greater than 

50 percent. See 12 CFR 3.36 (OCC); 12 CFR 217.36 

(Board); 12 CFR 324.36 (FDIC). 

the proposed rule, the agencies are 

adopting this provision as proposed. 

f) 85 Percent RSF Factor 

The final rule assigns an 85 percent 

RSF factor to all other retail mortgages 

not assigned an RSF factor above, all 

other loans to non-financial sector 

counterparties, publicly traded common 

equity shares that are not HQLA, other 

non-HQLA securities that mature in one 

year or more, and certain commodities. 

Retail Mortgages That Mature in One 

Year or More and Are Assigned a Risk 

Weight of Greater Than 50 Percent 

Section ll.106(a)(7)(i) of the 

proposed rule would have assigned an 

85 percent RSF factor to retail mortgages 

that mature one year or more from the 

calculation date and are assigned a risk 

weight of greater than 50 percent under 

subpart D of the agencies’ risk-based 

capital rule. As noted above, under the 

agencies’ risk-based capital rule, a retail 

mortgage is assigned a 50 percent risk 

weight if it is secured by a first lien on 

a one-to-four family property, prudently 

underwritten, not 90 days or more past 

due or carried in nonaccrual status, and 

has not been restructured or 

modified.161 Mortgages that do not meet 

these criteria are assigned a risk weight 

of greater than 50 percent.162 The 

proposed rule would have treated these 

mortgages as generally riskier than 

mortgages that receive a risk weight of 

50 percent or less and would have 

required them to be supported by more 

stable funding because of the possibility 

that they would be more difficult to 

monetize. 

For the reasons discussed in the 

proposed rule, the final rule assigns an 

85 percent RSF factor to these mortgage 

exposures as proposed. 

Secured Lending Transactions, 

Unsecured Wholesale Lending, and 

Lending to Retail Customers and 

Counterparties That Mature in One Year 

or More and Are Assigned a Risk Weight 

of Greater Than 20 Percent 

Section ll.106(a)(7)(ii) of the 

proposed rule would have assigned an 

85 percent RSF factor to secured lending 

transactions, unsecured wholesale 

lending, and lending to retail customers 

and counterparties that are not 

otherwise assigned an RSF factor (such 

as retail mortgages), that mature one 

year or more from the calculation date, 

that are assigned a risk weight greater 

than 20 percent under subpart D of the 

agencies’ risk-based capital rule, and for 

which the borrower is not a financial 

sector entity or consolidated subsidiary 

thereof. 

Several commenters requested lower 

RSF factors for certain lending 

transactions. For example, a few 

commenters argued that commercial 

real estate mortgages should be assigned 

an RSF factor lower than 85 percent 

because commercial real estate loans are 

low risk, and covered companies 

already are subject to regulatory 

requirements related to their real estate 

portfolios, which renders an RSF 

requirement unnecessary. Another 

commenter requested the agencies 

reduce the RSF factor for credit card 

exposures to customers who pay their 

entire account balances each month. 

This commenter argued that credit card 

exposures to these customers are 

analogous to short-term loans that 

receive a 50 percent RSF factor. 

The final rule retains the 85 percent 

RSF factor for this category of lending. 

These loans mature in one year or more 

and have less favorable liquidity and 

market characteristics, including greater 

credit risk associated with higher risk 

weights under the agencies’ risk-based 

capital rule. Commercial real estate 

loans generally present a higher risk 

profile, heightened vulnerability to 

changing market conditions, and greater 

monetization difficulty than loans that 

are assigned a lower RSF factor. 

Although commercial real estate lending 

is subject to other regulations designed 

to promote safe and sound lending 

practices, these regulations do not 

specifically address the funding risks 

presented by these loans. Accordingly, 

the agencies consider the 85 percent 

RSF factor appropriate for these loans in 

order to ensure covered companies 

maintain sufficient funding to support 

these assets. 

In addition, the agencies decline to 

adopt a commenter’s suggestion to 

apply a lower RSF factor to credit card 

exposures to customers who repay their 

entire account balances each month. 

Although some credit card customers 

fully and regularly repay account 

balances, assigning different RSF factors 

to credit card exposures based on a 

covered company’s assumptions of a 

credit card customer’s future repayment 

behavior would be inconsistent with the 

NSFR’s purpose as a standardized 

measure of funding stability. 

Accordingly, the final rule assigns an 85 

percent RSF factor to all credit card 

exposures that mature in one year or 

more and have a risk weight of greater 

than 20 percent under the agencies’ riskbased capital rule as proposed. The 

agencies are clarifying, however, that 

contractual minimum payment amounts 

due on credit card exposures would 

generally be considered to be a loan to 

a retail customer maturing in less than 

one year and would be subject to the 50 

percent RSF factor. 

Publicly Traded Common Equity Shares 

That Are Not HQLA and Other 

Securities That Mature in One Year or 

More That Are Not HQLA 

Sections ll.106(a)(7)(iii) and (iv) of 

the proposed rule would have assigned 

an 85 percent RSF factor to publicly 

traded common equity shares that are 

not HQLA and other non-HQLA 

securities that mature one year or more 

from the calculation date. For example, 

these assets would have included equity 

shares not listed on a recognized 

exchange, low rated corporate debt 

securities and municipal obligations, 

private-label mortgage-backed 

securities, and other types of assetbacked securities. 

As described above, commenters 

generally expressed concern that the 

proposed rule’s assignment of RSF 

factors to equity shares was overly 

conservative and not reflective of 

market haircuts for such securities. 

Commenters, however, also expressed 

specific concerns related to the 85 

percent RSF factor assigned to nonHQLA publicly traded common equity 

shares and other securities that mature 

in one year or more. One commenter 

expressed concern that higher RSF 

factors for non-HQLA securities would 

be procyclical and incentivize covered 

companies to sell non-HQLA securities 

in favor of HQLA securities in a crisis. 

Other commenters argued that even 

though equity and debt securities issued 

by a financial sector entity are 

precluded from qualifying as HQLA, 

these assets should receive a lower RSF 

factor because there is no empirical 

basis for assigning a higher RSF factor 

to securities issued by a financial sector 

entity than to securities issued by a nonfinancial sector entity. These 

commenters also asserted that the 85 

percent RSF factor would adversely 

impact capital flows to financial sector 

entities, which would impair their 

ability to provide market-making and 

other services. Another commenter 

argued that the 85 percent RSF factor is 

overly conservative because it fails to 

take into account a bank’s ability to 

mitigate its exposure risk with liquid 

options, swaps, or future instruments. 

Several commenters also requested 

that lower RSF factors be assigned to 


khammond on DSKJM1Z7X2PROD with RULES2
9164 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

163 7 U.S.C. 7 and 7 U.S.C. 8. 

164 7 U.S.C. 7b–3. 

165Examples of commodities that currently meet 

this requirement are gold, oil, natural gas, and 

various agricultural products. 

specific types of equities and securities. 

For example, one commenter 

recommended a 50 percent RSF factor 

for equities traded on an exchange that 

are included in certain global stock 

indexes. Other commenters requested 

lower RSF factors for certain privatelabel residential mortgage-backed 

securities, commercial mortgage backed 

securities, and certain asset-backed 

securities. Commenters argued that the 

85 percent RSF factor was overly 

punitive and would discourage covered 

companies from holding these 

securities, which would impair the 

markets served by these securities. 

Some of these commenters argued that 

residential mortgage-backed securities, 

in particular, should receive the same 

RSF treatment as level 2 liquid assets 

consistent with the Basel NSFR 

standard and the EU NSFR rule. Other 

commenters requested lower RSF 

factors for certain traditional 

securitizations, which commenters 

asserted are safer assets as a result of 

certain changes to regulatory 

requirements and rating agency 

protocols. One commenter 

recommended the agencies examine 

recent initiatives by the BCBS and 

International Organizations of Securities 

Commission to identify specific 

securities that warrant lower RSF 

factors. 

The final rule retains the 85 percent 

RSF factor for publicly traded securities 

that are not HQLA and mature in one 

year or more. Non-HQLA securities, 

including securities issued by financial 

sector entities, historically have 

demonstrated greater price volatility 

and lower marketability across market 

conditions than securities that qualify as 

HQLA. Given this historical experience, 

it is appropriate to assign a higher RSF 

factor to these securities than HQLA 

securities. Although a banking 

organization may have some ability to 

mitigate its risk exposure to these assets, 

the final rule is designed as a 

standardized measure of the stability of 

a covered company’s funding profile 

and therefore does not take into account 

the company’s idiosyncratic risk 

management practices. With respect to 

the concern that the 85 percent RSF 

factor would incentivize covered 

companies to liquidate non-HQLA 

during a stress period, the 85 percent 

RSF factor will reduce this risk because 

covered companies would be holding 

large amounts of stable funding to 

support these assets, decreasing the 

need to immediately monetize these 

assets. 

For the reasons described above, the 

agencies decline to reduce the RSF 

factor for certain types of securities 

which are not eligible as HQLA, as 

requested by commenters. As previously 

explained, equities that are not HQLA 

generally exhibit less favorable liquidity 

characteristics relative to equities that 

qualify as HQLA, regardless of the 

country location of the index or 

exchange on which that equity is traded. 

Although specific issuances of privatelabel residential mortgage-backed 

securities, commercial mortgage backed 

securities, or asset-backed securities 

may exhibit liquidity characteristics 

similar to HQLA, the final rule assigns 

RSF factors based on asset class to 

ensure standardization and ease of 

comparability of the measure. These 

securities can exhibit high price 

volatility, depending on the 

performance of their underlying assets 

and specific contractual features. In 

addition, the bespoke characteristics of 

securitization structures may be tailored 

to a limited range of investors, which 

can limit a banking organization’s 

ability to monetize a given 

securitization issuance. Although 

changes in regulatory requirements and 

rating agency protocols regulations may 

have reduced certain risks associated 

with certain securitizations, many of 

these assets do not have a proven 

history of liquidity. As a result, the final 

rule assigns an 85 percent RSF factor as 

proposed. 

Commodities 

Section ll.106(a)(7)(v) of the 

proposed rule would have assigned an 

85 percent RSF factor to commodities 

held by a covered company for which a 

liquid market exists, as indicated by 

whether derivative transactions for the 

commodity are traded on a U.S. board 

of trade or trading facility designated as 

a contract market (DCM) under sections 

5 and 6 of the Commodity Exchange 

Act 163 or on a U.S. swap execution 

facility (SEF) registered under section 

5h of the Commodity Exchange Act.164

The proposed rule would have assigned 

a 100 percent RSF factor to all other 

commodities held by a covered 

company. The proposed rule would 

have required a covered company to 

support its commodities positions with 

a substantial amount of stable funding 

because, in general, commodities as an 

asset class have historical material price 

volatility. 

The proposed rule would have 

assigned an 85 percent RSF factor, 

rather than a 100 percent RSF factor, to 

commodities for which derivative 

transactions are traded on a U.S. DCM 

or U.S. SEF because the exchange 

trading of derivatives on a commodity 

tends to indicate a greater degree of 

standardization, fungibility, and 

liquidity in the market for the 

commodity.165 As noted in the 

Supplementary Information section to 

the proposed rule, a market for a 

commodity for which a derivative 

transaction is traded on a U.S. DCM or 

U.S. SEF is more likely to have 

established standards (for example, with 

respect to different grades of 

commodities) that are relied upon in 

determining the commodities that can 

be provided to effect physical settlement 

under a derivative transaction. In 

addition, the exchange-traded market 

for a commodity derivative transaction 

generally increases price transparency 

for the underlying commodity. A 

covered company could therefore more 

easily monetize a commodity that meets 

this requirement than a commodity that 

does not, either through the spot market 

or through derivative transactions based 

on the commodity. The proposed rule 

accordingly would have required less 

stable funding to support holdings of 

commodities for which derivative 

transactions are traded on a U.S. DCM 

or U.S. SEF than it would have required 

for other commodities, which a covered 

company may not be able to monetize 

as easily. 

One commenter argued that the stated 

rationale for assigning an 85 percent 

RSF factor to commodities traded on 

U.S. exchanges should apply equally to 

commodities traded on non-U.S. 

exchanges. The commenter requested 

that rather than assigning a 100 percent 

RSF factor to commodities traded on 

non-U.S. exchanges, the final rule assign 

an 85 percent RSF factor to commodities 

that are traded on non-U.S. exchanges 

that are registered in non-U.S. 

jurisdictions in order to provide 

consistent treatment with commodities 

traded on a U.S. exchange. These 

commodities, the commenter argued, 

have similar liquidity characteristics to 

commodities traded on U.S. exchanges. 

As noted by the commenter, 

commodities for which derivative 

transactions are traded on exchanges 

registered outside the United States may 

have a similar degree of liquidity as 

commodities for which derivative 

transactions are traded on a U.S. DCM 

or U.S. SEF. To provide consistent 

treatment of commodities traded on U.S. 

and non-U.S. exchanges, the final rule 

assigns an 85 percent RSF factor to any 

commodity held by a covered company 

for which derivative transactions are 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9165 

166As with all derivatives, commodity derivatives 

are subject to §ll.107 of the final rule. 167 12 U.S.C. 1843(k)(1)(B). The types of 

commodities permitted by the Board for financial 

holding companies generally are assigned an 85 

percent RSF factor under the final rule. For 

example, under Board precedent, commodity 

trading activities involving any type of coal would 

be permissible for a financial holding company, 

even though the CFTC has authorized only Central 

Appalachian coal. Therefore, under the final rule, 

the carrying value of any type of coal would be 

assigned an 85 percent RSF factor. Any derivative 

transaction based on coal, though, would be subject 

to §ll.107 of the final rule. With respect to 

commodities for which a derivative is traded on a 

non-U.S. exchange, the agencies note that such nonU.S. exchanges will be supervised by a prudential 

regulator in the relevant jurisdiction. 

168Assets deducted from regulatory capital 

include, but are not limited to, goodwill, certain 

deferred tax assets, certain mortgage servicing 

assets, and certain defined benefit pension fund net 

assets. See 12 CFR 3.22 (OCC); 12 CFR 217.22 

(Board); 12 CFR 324.22 (FDIC). These assets, as a 

class, tend to be difficult for a covered company to 

readily monetize. 

169The final rule’s description of nonperforming 

assets in §ll.106(b), like the proposed rule’s 

description, is consistent with the definition of 

‘‘nonperforming exposure’’ in §ll.3 of the LCR 

rule. 

170As discussed in section VI.B of this 

Supplementary Information section, the final rule’s 

definition of ‘‘encumbered’’ does not consider an 

asset to be encumbered solely because the asset is 

pledged to a central bank or GSE to secure a 

transaction if (i) potential credit secured by the 

asset is not currently extended to the covered 

company or its consolidated subsidiaries and (ii) 

the pledged asset is not required to support access 

to the payment services of a central bank. The final 

rule’s definition of ‘‘encumbered’’ does not include 

any substantive changes to the concept of 

encumbrance included in the LCR rule. See 79 FR 

at 61469. 

authorized to be traded on an U.S. DCM, 

U.S. SEF, or any other exchange, 

whether located in the United States or 

in a jurisdiction outside of the United 

States.166 The agencies note that 

covered companies are limited in the 

types of physical commodities activities 

in which they are able to engage. For 

example, the Board has approved 

requests from certain financial holding 

companies to engage in certain physical 

commodities trading activities for which 

derivative contracts are approved for 

trading on a U.S. futures exchange by 

the U.S. Commodity Futures Trading 

Commission (CFTC) (unless specifically 

excluded by the Board) or other 

commodities that have been specifically 

authorized by the Board under section 

4(k)(1)(B) of the Bank Holding Company 

Act of 1956.167 The legal restrictions 

applicable to bank holding companies 

and financial holding companies under 

the BHC Act (as well as restrictions 

applicable to national banks and statechartered banks under the National 

Bank Act and the FDI Act, respectively) 

continue to apply, and the final rule 

does not grant a covered company the 

authority to engage in any commodities 

activities not otherwise permitted by 

applicable law. 

g) 100 Percent RSF Factor 

All Other Assets Not Described Above 

Section ll.106(a)(8) of the proposed 

rule would have assigned a 100 percent 

RSF factor to all other performing assets 

not otherwise assigned an RSF factor 

under §ll.106 or § ll.107. These 

assets include, but are not limited to, 

loans to financial institutions (including 

to an unconsolidated affiliate) that 

mature in one year or more; assets 

deducted from regulatory capital; 168

common equity shares that are not 

traded on a public exchange; unposted 

debits; and trade date receivables that 

have failed to settle within the lesser of 

the market standard settlement period 

for the relevant type of transaction, 

without extension of the standard 

settlement period, and five business 

days from the date of the sale. 

The agencies received a number of 

comments suggesting that certain trade 

date receivables receiving a 100 percent 

RSF factor under the proposed rule 

should receive a lower RSF factor. As 

described above, several commenters 

opposed the proposal’s assignment of a 

100 percent RSF factor to trade date 

receivables that fail to settle within the 

lesser of five business days and the 

standard settlement period but are still 

expected to settle. Another commenter 

argued that, in the case of trade date 

receivables generated by primary 

offerings, settlement delays reflect 

unique timing needs rather than 

increased funding risk. Accordingly, the 

commenter recommended that the 

agencies assign a zero percent RSF 

factor to trade date receivables 

generated by primary offering 

settlements for the duration of the 

primary offering. 

As described above, the agencies are 

amending the final rule to assign a zero 

percent RSF factor to trade date 

receivables due to a covered company 

that result from the sale of a financial 

instrument, foreign currency, or 

commodity that are required to settle no 

later than the market standard for the 

particular instrument, and have yet to 

settle but are not more than five 

business days past the scheduled 

settlement date. The final rule otherwise 

retains the assignment of a 100 percent 

RSF factor as proposed. Assets in this 

category do not consistently exhibit 

liquidity characteristics that would 

suggest a covered company should 

support them with anything less than 

full stable funding. 

Nonperforming Assets RSF Factor 

Section ll.106(b) of the proposed 

rule would have assigned a 100 percent 

RSF factor to any asset on a covered 

company’s balance sheet that is past due 

by more than 90 days or that has 

nonaccrual status. Because these assets 

have an elevated risk of non-payment, 

these assets tend to be illiquid 

regardless of their tenor. The agencies 

did not receive any comments on this 

aspect of the proposal. Consistent with 

the proposed rule, the final rule requires 

a covered company to assign a 100 

percent RSF factor to nonperforming 

assets.169

h) RSF Factors for Encumbered Balance 

Sheet Assets 

Consistent with the criteria used for 

assigning RSF factors described above, 

the RSF factor that the proposed rule 

would have assigned to an asset would 

have depended on whether or not the 

asset is encumbered and the length of 

any encumbrance. As discussed in 

section VI of this Supplementary 

Information section, the proposed rule 

would have defined ‘‘encumbered’’ (a 

new defined term under §ll.3), as the 

converse of the term ‘‘unencumbered’’ 

currently used in the LCR rule. 

Encumbered assets must generally be 

retained for the period of encumbrance 

and generally cannot be monetized 

during this period. Thus, §ll.106(c) 

of the proposed rule would have 

assigned the RSF factor to encumbered 

assets based on the tenor of the 

encumbrance. 

The agencies received one comment 

regarding the potential impact of the 

proposed rule’s treatment of assets 

pledged for six months or longer by a 

covered company to an FHLB under a 

blanket, but not asset-specific, lien to 

secure an extension of credit to the 

covered company. 

As is the case for an asset pledged to 

any other counterparty to secure or 

provide credit enhancement to a 

transaction, a covered company 

generally must retain or replace an asset 

pledged to an FHLB during the period 

in which it is encumbered and cannot 

monetize the asset while 

encumbered.170 However, where an 

asset of a covered company is subject to 

a blanket, rather than asset-specific lien, 

in favor of an FHLB, such asset would 

not be considered ‘‘encumbered’’ if 

credit secured by the asset is not 

currently extended to the covered 

company or its consolidated 

subsidiaries. Where credit has been 

extended and is secured by a blanket 


khammond on DSKJM1Z7X2PROD with RULES2
9166 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

171For example, the proposed rule would not 

consider an asset held pursuant to the SEC’s Rule 

15c3–3 (17 CFR 240.15c3–3) or the CFTC’s Rule 

1.20 or Part 22 (17 CFR 1.20; 17 CFR part 22) to 

be encumbered solely because it is held in a 

segregated account. 

172Comments requesting treatment as 

interdependent assets and liabilities are discussed 

in section VII.H of this Supplementary Information 

section. 

lien, a covered company may identify 

which specific assets covered by the 

blanket lien secure the amount of 

extended credit, consistent with the 

requirements of the LCR rule. 

The final rule retains the treatment of 

encumbered assets as proposed. Under 

the final rule, an asset that is 

encumbered for less than six months 

from the calculation date is assigned the 

same RSF factor as would be assigned 

to the asset if it were not encumbered 

because the covered company will not 

need to retain the asset beyond six 

months. For an asset that is encumbered 

for a period of six months or more, but 

less than one year, the final rule assigns 

an RSF factor equal to the greater of 50 

percent and the RSF factor that would 

be assigned if the asset were not 

encumbered. This treatment ensures 

that a covered company’s RSF amount 

reflects the effect of the encumbrance on 

an asset that would be assigned a lower 

RSF factor if unencumbered based on its 

tenor and other liquidity characteristics. 

Additionally, the final rule assigns a 100 

percent RSF factor to an asset that is 

encumbered for a remaining period of 

one year or more because the asset 

would be retained and unavailable to 

the covered company for the entirety of 

the NSFR’s one-year time horizon. 

Finally, in cases where the duration of 

an asset’s encumbrance exceeds the 

maturity of that asset, the final rule 

assigns an RSF factor to the asset based 

on its encumbrance period. For 

example, if a covered company provides 

a level 1 liquid asset security that 

matures in three months as collateral in 

a one-year repurchase agreement, the 

covered company would need to replace 

that security upon its maturity with 

another asset that meets the 

requirements of the repurchase 

agreement. Thus, even though the 

maturity of the asset currently provided 

as collateral is short-dated, a covered 

company must fully support an asset 

with stable funding for the duration of 

the one-year repurchase agreement. As a 

result, the RSF factor determined by on 

the one-year encumbrance period. 

Table 3 sets forth the RSF factors for 

assets that are encumbered. 

TABLE 3—RSF FACTORS FOR ENCUMBERED ASSETS

RSF factors for encumbered assets * 

Asset encumbered <6 months Asset encumbered ≥6 months <1 year Asset encumbered 

≥1 year 

If RSF factor for unencumbered asset 

is ≤50 percent:.

RSF factor for the asset as if it were 

unencumbered.

50 percent ............................................. 100 percent. 

If RSF factor for unencumbered asset 

is >50 percent:.

RSF factor for the asset as if it were 

unencumbered.

RSF factor for the asset as if it were 

unencumbered.

100 percent. 

* If the remaining encumbrance period exceeds the effective maturity of the asset, the final rule assigns an RSF factor to the asset based on 

its encumbrance period. 

i) Assets Held in Certain Customer 

Protection Segregated Accounts 

Section ll.106(c)(3) of the proposed 

rule would have specified that an asset 

held in a segregated account maintained 

pursuant to statutory or regulatory 

requirements for the protection of 

customer assets would not have been 

considered to be encumbered solely 

because it is held in such a segregated 

account.171 Instead, the proposed rule 

would have assigned an asset held in 

such a segregated account the RSF factor 

that would be assigned to the asset 

under §ll.106 if it were not held in 

a segregated account. For example, a 

covered company must segregate 

customer free credits, which are 

customer funds held prior to their 

investment, until the customer decides 

to invest or withdraw the funds. The 

proposed rule would have treated the 

funds that a covered company places on 

deposit with a third-party depository 

institution in accordance with 

segregation requirements as a short-term 

loan to a financial sector entity, which 

would have been assigned a 15 percent 

RSF factor. 

Several commenters argued that 

segregated client assets should have no 

stable funding requirement because, 

among other reasons, they already are 

funded by liabilities to the client and 

pose limited funding risks to covered 

companies. Some commenters noted 

that SEC and CFTC rules require client 

assets to be segregated and accounted 

for separately from the covered 

company’s assets, protected from the 

bankruptcy of the covered company, 

and held in cash or other limited 

investments. Commenters also argued 

that segregated client assets should be 

treated analogously to currency and 

coin, which are assigned a 0 percent 

RSF factor. One commenter argued that 

the proposed treatment for segregated 

client assets would conflict with the 

treatment of such assets under the LCR 

rule, which recognizes some inflows 

from anticipated changes in the value of 

segregated client accounts and 100 

percent outflows for non-operational 

deposits placed by financial institution 

counterparties. 

Several commenters claimed that 

requiring stable funding for segregated 

client assets would inappropriately 

incentivize covered companies to 

maintain such balances in non-cash 

form (e.g., U.S. Treasury securities) 

rather than hold them in a deposit 

account at a third-party bank in order to 

reduce the RSF factor. Other 

commenters expressed concern that 

covered companies may pass the cost of 

maintaining stable funding for 

segregated client assets on to the client 

or stop providing services that require 

segregated accounts. 

The agencies are finalizing the 

treatment of customer segregated 

account assets as proposed.172 As 

discussed in section V.C of this 

Supplementary Information section, the 

NSFR applies to a covered company’s 

entire balance sheet, does not 

differentiate between assets based on 

business line or the reason for which 

they are held, and is not designed to 

mirror the treatment of assets under the 

LCR rule. Regulatory or contractual 

requirements to segregate certain assets 

for the benefit of customers do not 

necessarily reduce a covered company’s 

funding risks relative to holding the 

same assets absent segregation, based on 

the covered company’s funding stability 

relative to the tenor and other liquidity 

characteristics of its assets. The NSFR 

measure generally utilizes the carrying 

value of assets where possible and, 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9167 

173The final rule does include certain netting of 

specific assets against certain liabilities as described 

in sections VII.A.2 and VII.E.2 of this 

Supplementary Information section. 174See section VII.D.3.a of this Supplementary 

Information section. 

consistent with GAAP, does not 

distinguish segregated balance sheet 

assets from other assets, except to the 

extent the final rule does not consider 

assets to be encumbered solely as a 

result of segregation. Additionally, 

regulatory requirements to hold 

specified amounts of assets for clients, 

in the form of cash, limited investments, 

or other assets, may result in a covered 

company holding additional assets 

relative to the absence of such 

regulatory requirements and the need to 

fund such assets is treated consistently 

in the final rule relative to assets of the 

same type. For example, the covered 

company may hold, and need to fund, 

identical level 1 liquid asset securities 

for the purpose of customer protection 

and as a hedging instrument to provide 

protection to the covered company; 

therefore, the final rule would assign the 

RSF factor corresponding to the level 1 

liquid asset securities. Further, the 

NSFR applies to an aggregate balance 

sheet and generally does not associate 

specific assets with specific funding.173

For example, the NSFR does not 

associate aggregate deposit placements 

for the protection of clients collectively 

that may be funded with individual 

liabilities due to certain clients, as 

described by commenters. 

As discussed above, the final rule 

assigns a zero percent RSF factor to 

unencumbered level 1 liquid assets and 

generally assigns a 15 percent RSF 

factor to a deposit placed at a thirdparty financial institution with a 

remaining maturity of less than six 

months, based on the tenor and other 

liquidity characteristics of these assets. 

A covered company’s requirement to 

comply with certain customer 

protection segregation requirements that 

result in a deposit at a third-party 

financial institution does not, by itself, 

adjust the tenor of such a placement or 

serve to improve the covered company’s 

ability to withdraw the funds or 

otherwise monetize the asset in 

comparison to other deposits placed 

with a third-party banking organization. 

For example, unlike coin and currency, 

a covered company cannot directly use 

customer segregated account assets to 

satisfy its own obligations.174

For these reasons, it would not be 

appropriate to assign a zero percent RSF 

factor to assets based on their segregated 

status and an asset held in this type of 

segregated account is assigned the RSF 

factor that would be assigned to the 

asset under § ll.106 as if it was not 

held in a segregated account. 

4. Treatment of Rehypothecated OffBalance Sheet Assets 

As discussed in section V of this 

Supplementary Information section, the 

NSFR calculation is based on the 

carrying value of assets on a covered 

company’s balance sheet consistent 

with GAAP. However, certain assets that 

can affect a covered company’s 

aggregate funding risks may not be 

included on a covered company’s 

balance sheet under GAAP. The 

proposed rule, therefore, would have 

included provisions to address the 

funding risks associated with certain 

off-balance sheet assets that a covered 

company may obtain through lending 

transactions, asset exchanges, or other 

transactions. These assets can affect a 

covered company’s balance sheet risk 

profile where they are rehypothecated 

and used to obtain funding. For 

example, a covered company may use 

off-balance sheet assets to generate 

funding. The assignment of an ASF 

factor to this liability without 

recognizing the encumbrance placed on 

a covered company’s balance sheet 

would distort the NSFR assessment of a 

covered company’s overall balance 

sheet risks. Therefore, it is appropriate 

that such reuse of off-balance sheet 

assets should be associated with an 

appropriate contribution to a covered 

company’s RSF amount regardless of the 

source of the assets. This is especially 

the case if the off-balance sheet asset is 

encumbered to generate funding that 

has a longer tenor than the transaction 

through which the off-balance sheet 

asset was sourced. In that case, a 

covered company may need to roll over 

the transaction through which it 

obtained the off-balance sheet asset 

before the encumbrance of the asset 

terminates. Alternatively, the covered 

company may need to obtain a 

replacement asset to close out the 

sourcing transaction under which it 

obtained the asset before the 

encumbrance expires. Under either 

approach, the covered company must 

fund an asset for the duration of the 

encumbrance. 

Section ll.106(d) of the proposed 

rule specified how a covered company 

would have assigned an RSF factor to a 

transaction involving an off-balance 

sheet asset that secures an NSFR 

liability or the sale of an off-balance 

sheet asset that results in an NSFR 

liability (for instance, in the case of a 

short sale). The proposed rule would 

have assigned an RSF factor to a 

receivable of a lending transaction, a 

security provided in an asset exchange, 

or to the off-balance sheet asset itself 

depending on the transaction through 

which the covered company obtained 

the off-balance sheet asset. Specifically, 

for an off-balance sheet asset obtained 

under a lending transaction, 

§ ll.106(d)(1) of the proposed rule 

would have assigned an RSF factor to 

the receivable of the lending transaction 

as if it were encumbered for the longer 

of (1) the remaining maturity of the 

NSFR liability secured by or resulting 

from the sale of the off-balance sheet 

asset and (2) any other encumbrance 

period already applicable to the lending 

transaction. For an off-balance sheet 

asset obtained through an asset 

exchange, §ll.106(d)(2) of the 

proposed rule would have assigned an 

RSF factor to the asset provided by the 

covered company in the asset exchange 

as if it were encumbered for the longer 

of (1) the remaining maturity of the 

NSFR liability secured by or resulting 

from the sale of the off-balance sheet 

asset and (2) any other encumbrance 

period applicable to the provided asset. 

For an off-balance sheet asset not 

obtained under either a lending 

transaction or asset exchange, 

§ .106(d)(3) of the proposed rule would 

have assigned an RSF factor to the offbalance sheet asset as if it were 

encumbered for the longer of (1) the 

remaining maturity of the NSFR liability 

secured by or resulting from the sale of 

the off-balance sheet asset and (2) any 

other encumbrance period applicable to 

the off-balance sheet asset. 

The agencies received several 

comments on the proposed treatment of 

rehypothecated off-balance sheet assets 

under §ll.106(d) of the proposed 

rule. Commenters argued that the 

proposed treatment would be 

inconsistent with the concept of the 

NSFR as a balance-sheet metric because 

it would assign RSF factors based on 

assets not included on the covered 

company’s balance sheet under GAAP. 

Some commenters also argued that the 

agencies should not adopt the proposed 

treatment because it would result in 

stable funding requirements that would 

be greater than specified under the Basel 

NSFR standard. Commenters also 

argued that the proposed rule lacked a 

clear empirical foundation for the 

treatment of rehypothecated off-balance 

sheet assets. One commenter argued that 

the proposed treatment would result in 

the assignment of ASF and RSF factors 

that do not accurately reflect the 

funding risk of the underlying 

transactions. One commenter objected 

to the proposed treatment for 

rehypothecated off-balance sheet assets 

received in an asset exchange, asserting 


khammond on DSKJM1Z7X2PROD with RULES2
9168 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

175BCBS, ‘‘Basel III—The Net Stable Funding 

Ratio: frequently asked questions,’’ February 2017, 

available at https://www.bis.org/bcbs/publ/ 

d396.pdf. 

176As described in section VI.A.2 of this 

Supplementary Information section, the final rule 

defines the term ‘‘secured lending transaction’’ to 

mean any lending transaction that is subject to a 

legally binding agreement that gives rise to a cash 

obligation of a wholesale customer or counterparty 

to the covered company that is secured under 

applicable law by a lien on securities or loans 

provided by the wholesale customer or 

counterparty, which gives the covered company, as 

holder of the lien, priority over the securities or 

loans. Section .ll106(d)(1) applies to an offbalance sheet asset obtained under any lending 

transaction, regardless of the nature of the 

counterparty or the off-balance sheet asset. For the 

purposes of this section of this Supplementary 

Information section, a lending transaction is not an 

asset exchange or a derivative transaction. 

177As described in section VI.B of this 

Supplementary Information section, the final rule 

includes a new definition of ‘‘Encumbered’’ based 

on any legal, regulatory, contractual or other 

restrictions on the ability of a covered company to 

monetize an asset. See §ll.3 of the LCR rule. 

that the final rule should assign an ASF 

factor to the value of the asset received 

in an asset exchange, based on the type 

of asset and the remaining maturity of 

the asset exchange. Another commenter 

asserted that asset exchanges enable a 

covered company to manage its 

collateral at reduced funding costs and 

lower funding risks, so the proposed 

treatment of rehypothecated off-balance 

sheet assets received in an asset 

exchange is unnecessary to achieve the 

agencies’ stated goal of ensuring that offbalance sheet assets are not used to 

generate ASF while not reducing the 

covered company’s overall funding risk. 

Commenters requested additional 

clarification as to the scope of activities 

intended to be covered by § ll.106(d) 

of the proposed rule, in particular by 

proposed §ll.106(d)(3), which would 

have addressed off-balance sheet assets 

that are sourced through all other types 

of transactions. One of these 

commenters stated that proposed 

§ ll.106(d)(3) is extremely punitive 

and could lead to unintended 

consequences. 

Another commenter asserted that it 

would be operationally difficult to 

comply with § ll.106(d) of the 

proposed rule if a covered company is 

required to link each source and use of 

off-balance sheet assets to on-balance 

sheet assets and liabilities. This 

commenter also suggested that the final 

rule should recognize the benefits to a 

covered company of collateral 

substitution rights, for example, where a 

covered company has provided two 

assets to a single counterparty or a 

single tri-party repurchase agreement 

intermediary to secure two separate 

NSFR liabilities, and the covered 

company has the operational and legal 

capability to determine the allocation of 

the assets to each NSFR liability. 

To address the funding risks 

presented when a covered company has 

an NSFR liability that is secured by, or 

results from the sale of, an off-balance 

sheet asset and to prevent distortion of 

the NSFR metric, the agencies are 

finalizing the treatment of 

rehypothecated off-balance sheet assets 

under §ll.106(d) generally as 

proposed, but are narrowing the scope 

of the section such that § ll.106(d) 

does not apply to off-balance sheet 

assets received as variation margin 

under a derivative transaction. The 

agencies also are modifying 

§ ll.106(d)(3), as explained in this 

Supplementary Information section. As 

noted by commenters, the NSFR is a 

balance-sheet metric, and the treatment 

for rehypothecated off-balance sheet 

assets under the final rule assigns RSF 

factors to assets recorded on a covered 

company’s balance sheet, rather than to 

off-balance sheet assets. The agencies 

also note that the BCBS clarified the 

treatment of certain off-balance sheet 

assets under the Basel NSFR standard as 

a result of rehypothecation, which is 

generally consistent with the treatment 

under the final rule.175

a) Off-Balance Sheet Assets Obtained in 

Lending Transactions 

Where a covered company obtains an 

off-balance sheet asset through a lending 

transaction,176 the lending transaction 

will be included as a receivable asset on 

the covered company’s balance sheet. 

Under §ll.106(d)(1) of the final rule, 

if a covered company obtained an offbalance sheet asset through a lending 

transaction (e.g., a reverse repurchase 

agreement), the final rule treats the 

balance sheet receivable associated with 

the lending transaction as encumbered 

for the longer of: (1) The remaining 

maturity of the NSFR liability secured 

by the off-balance sheet asset (e.g., a 

repurchase agreement) or resulting from 

the sale of the off-balance sheet asset 

(e.g., a short sale), as the case may be, 

and (2) any other encumbrance period 

already applicable to the lending 

transaction. The remaining maturity of 

the liability secured by the off-balance 

sheet asset, or resulting from the sale of 

the off-balance sheet asset, restricts the 

ability of a covered company to 

monetize the lending transaction 

receivable and the lending receivable is 

therefore treated as encumbered.177 For 

example, §ll.106(d)(1) applies if a 

covered company obtains a level 2A 

liquid asset as collateral under an 

overnight reverse repurchase agreement 

with a financial counterparty and 

subsequently pledges the level 2A 

liquid asset as collateral in a repurchase 

transaction with a maturity of one year 

or more but, consistent with GAAP, 

does not include the level 2A liquid 

asset on its balance sheet. In this case, 

the final rule treats the covered 

company’s balance-sheet receivable 

associated with the reverse repurchase 

agreement as encumbered for a period of 

one year or more, since the remaining 

maturity of the repurchase agreement 

secured by the rehypothecated level 2A 

liquid asset is one year or more. 

Accordingly, the final rule assigns the 

reverse repurchase agreement receivable 

an RSF factor of 100 percent (under 

§ ll.106(c)(1)(iii)) instead of 15 

percent (under § ll.106(a)(3)(i)). 

A commenter asserted that this type 

of position poses less funding risk, 

because the on-balance sheet receivable 

has a shorter maturity than the liability 

and the off-balance sheet asset is highly 

liquid. However, the asset funding need 

for this type of transaction is driven by 

the obligation to continue to 

collateralize the liability for a period of 

one year or more relative to the shortterm sourcing transaction rather than 

the liquidity characteristics of the asset 

pledged. Therefore, the effective 

funding need of the receivable 

associated with the asset pledged must 

take into account the one-year period of 

encumbrance, consistent with a 100 

percent RSF factor. 

b) Off-Balance Sheet Assets Obtained in 

an Asset Exchange 

Where a covered company provides a 

security in an asset exchange, the 

security provided remains on the 

covered company’s balance sheet under 

GAAP. However, the security received 

by the covered company in the asset 

exchange may be an off-balance sheet 

asset under GAAP (for example, because 

the covered company acted as a 

securities borrower in the asset 

exchange). Under § ll.106(d)(2) of the 

final rule, if a covered company obtains 

an off-balance sheet asset under an asset 

exchange and has an NSFR liability 

secured by, or resulting from the sale of, 

the off-balance sheet asset, the final rule 

treats the on-balance sheet asset 

provided by the covered company in the 

asset exchange as encumbered for the 

longer of: (1) The remaining maturity of 

the NSFR liability secured by the offbalance sheet asset or resulting from the 

sale of the off-balance asset, as the case 

may be, and (2) any encumbrance 

period already applicable to the 

provided asset. For example, assume a 

covered company, acting as a securities 

borrower, provides a level 2A liquid 

asset as collateral and obtains a level 1 

liquid asset security under an asset 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9169 

178Under GAAP, where a covered company 

acting as a securities borrower engages in an asset 

exchange, the asset provided by the covered 

company typically remains on the covered 

company’s balance sheet while the received asset, 

if not rehypothecated, would not be on the covered 

company’s balance sheet. To the extent a covered 

company includes on its balance sheet an asset 

received in an asset exchange and the covered 

company subsequently uses the on-balance sheet 

asset as collateral to secure a separate NSFR 

liability, §ll.106(d) of the final rule does not 

apply. For example, if a covered company acts as 

a securities lender in an asset exchange and 

recognizes the collateral securities received on its 

balance sheet, the covered company should treat 

those collateral securities received as encumbered 

if the covered company sells or rehypothecates the 

collateral securities received, taking into account 

the remaining maturity of the transaction in which 

they have been rehypothecated. While the covered 

company should treat the securities it provided in 

the asset exchange as encumbered, the covered 

company would not be required to treat the 

securities it provided in the original asset exchange 

as encumbered for a period other than the 

remaining maturity of the asset exchange. The onbalance sheet asset used as collateral to secure the 

NSFR liability is assigned an RSF factor in the same 

manner as other assets on the covered company’s 

balance sheet (including by taking into account the 

asset’s encumbrance) pursuant to §§ll.106(a) 

through (c) or §ll.107 of the final rule, as 

applicable. See section VII.A.3 of this 

Supplementary Information section for assets 

received that remain unencumbered and section 

VII.D.3.h of this Supplementary Information section 

for any balance sheet assets that are encumbered. 

179 If the NSFR liability is a short sale that is 

booked on an open basis or otherwise has a 

remaining maturity of less than six months, the 

asset resulting from the NSFR liability would be 

treated as unencumbered. 

180This treatment applies to both assets received 

as variation margin necessary to cover the current 

exposure of a derivative or derivative netting set 

and variation margin received in excess of such an 

amount. 

181Section ll.107 of the final rule provides for 

netting of certain rehypothecatable level 1 liquid 

assets received as variation margin by the covered 

company against the value of the underlying 

derivative asset for purposes of a covered 

company’s derivatives RSF amount. See section 

VII.E.2 of this Supplementary Information section. 

The final rule’s modifications to §ll.106(d)(3) of 

the proposed rule are consistent with §ll.107 of 

the final rule. 

exchange with counterparty A and with 

a remaining maturity of six months, and 

subsequently provides the level 1 liquid 

asset security as collateral to secure a 

repurchase agreement with counterparty 

B and that matures in one year or more. 

In such a case, the covered company 

typically would not include the level 1 

liquid asset security on its balance 

sheet.178 Under §ll.106(d)(2) of the 

final rule, the level 2A liquid asset 

provided by the covered company 

(which remains on the covered 

company’s balance sheet) is treated as 

encumbered for a period of one year or 

more (equal to the remaining maturity of 

the repurchase agreement secured by 

the rehypothecated level 1 liquid asset 

security) instead of six months (equal to 

the remaining maturity of the asset 

exchange) and the carrying value of the 

level 2A liquid asset provided is 

assigned an RSF factor of 100 percent 

(in accordance with §ll.106(c)(1)(iii)) 

instead of 50 percent. 

With regard to comments that the 

final rule should recognize the funding 

value of the off-balance sheet asset 

received in an asset exchange (in the 

example above where the covered 

company acts a securities borrower, the 

level 1 liquid asset) and for the reasons 

described in section VII.A.3 of this 

Supplementary Information section, the 

final rule provides that a covered 

company must assign an RSF factor to 

the on-balance sheet asset provided (in 

the example above, the level 2A liquid 

asset) rather than the off-balance sheet 

asset received because the on-balance 

sheet asset is a component of the 

covered company’s aggregate funding 

need at the calculation date. Unlike the 

LCR rule, where an off-balance sheet 

asset received in an asset exchange can 

potentially qualify as eligible HQLA 

available to satisfy short-term cash-flow 

needs, the NSFR is a measure of the 

stability of a covered company’s funding 

profile relative to its assets. As 

discussed in section V of this 

Supplementary Information section, the 

final rule generally does not consider 

the future availability of an asset as a 

source of liquidity and assigns RSF 

factors to assets rather than ASF factors 

as suggested by commenters. 

c) Off-Balance Sheet Assets Obtained 

Through Other Transactions 

Where a covered company obtains an 

off-balance sheet asset through a 

transaction that is not a lending 

transaction or an asset exchange (source 

transaction), there is the potential that 

the covered company might not record 

the source transaction on its balance 

sheet. At the same time, the covered 

company may rehypothecate the offbalance sheet asset obtained in the 

source transaction to obtain funding and 

generate an NSFR liability. This funding 

could increase the covered company’s 

ASF amount, depending on the maturity 

and other characteristics of the NSFR 

liability, without the source transaction 

or the off-balance sheet asset itself being 

reflected in its RSF amount. However, 

due to the rehypothecation of the offbalance sheet asset, a covered company 

may record a liability to return the asset 

to the counterparty of the source 

transaction or a liability secured by the 

off-balance sheet asset.179 Further, the 

covered company may need to roll over 

the source transaction if this transaction 

matures before the encumbrance of the 

rehypothecated asset terminates. 

Alternatively, the covered company may 

need to obtain a replacement asset to 

close out the source transaction before 

the encumbrance expires. 

To address this risk and prevent 

potential distortions of the NSFR, under 

§ ll.106(d)(3) of the final rule, if a 

covered company has an off-balance 

sheet asset that it did not obtain under 

either a lending transaction or an asset 

exchange, the covered company is 

required to treat any associated onbalance sheet asset resulting from the 

rehypothecation transaction as 

encumbered for a period equal to the 

greater of the remaining maturity of the 

NSFR liability or the encumbrance of 

the source transaction. This provision 

would apply to any proceeds that 

appeared on a covered company’s 

balance sheet as a result of a 

rehypothecation transaction. For 

example, if a covered company 

rehypothecates an off-balance sheet 

asset for a period of one year more and 

receives cash as proceeds of the 

rehypothecation, the covered company 

would be required to treat the cash 

received as encumbered and assigned a 

100 percent RSF factor. Covered 

companies are not required to treat the 

off-balance sheet asset as if the offbalance sheet asset was included on a 

company’s balance sheet. Even if a 

covered company reuses the proceeds of 

the rehypothecated transaction, the 

covered company should still apply an 

RSF factor, based on the encumbrance, 

to the on-balance sheet asset that was 

the direct result of the transaction. 

Without this treatment, a covered 

company’s RSF amount would not 

reflect the funding risk that the covered 

company must maintain the asset, or a 

similar asset, or the fact that the covered 

company has limited its ability to 

monetize or recognize inflows from the 

source transaction for the duration of 

the rehypothecation. 

Additionally, §ll.106(d)(3) of the 

proposed rule would have applied in 

the case of an NSFR liability secured by, 

or resulting from the sale of, an offbalance sheet asset that a covered 

company had received in the form of 

variation margin under a derivative 

transaction. The final rule modifies the 

proposal by not subjecting assets 

received as variation margin under a 

derivative transaction to the 

requirements of § ll.106(d).180

Excluding such variation margin from 

§ ll.106(d) of the final rule is 

appropriate because the final rule 

accounts for variation margin within the 

derivatives RSF amount calculation 

specified in § ll.107.181 Section 

ll.106(d)(3) of the final rule therefore 


khammond on DSKJM1Z7X2PROD with RULES2
9170 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

182A covered company would assign appropriate 

RSF factors to the value of the lending transaction 

receivables, or assets provided in the asset 

exchanges, equivalent to the value of the 

rehypothecated off-balance sheet assets based on 

the appropriate encumbrance periods and 

categories of RSF factors under §ll.106 of the 

final rule. 

applies where a covered company has 

rehypothecated an off-balance sheet 

asset not received under a lending 

transaction or asset exchange or as 

variation margin under a derivative 

transaction. For example, the agencies 

note that § ll.106(d)(3) of the final 

rule applies if a covered company 

obtains an asset as initial margin under 

a derivative transaction or borrows an 

asset for a fee without providing 

collateral and uses the asset to generate 

an NSFR liability without including the 

asset on its balance sheet under GAAP. 

TABLE 4—TREATMENT OF OFF-BALANCE SHEET ASSETS

Transaction through which a covered company obtains an off-balance 

sheet asset (source transaction) and whether the asset is subsequently used in a transaction to generate a NSFR liability.

RSF factor is applied to the following on-balance sheet asset, taking 

into account the remaining maturity of the NSFR liability and the encumbrance period of the source transaction. 

Off-balance sheet asset received in any source transaction and is not 

rehypothecated.

No RSF factor applied. 

Off-balance sheet asset received in a lending transaction and subsequently used to generate a NSFR liability.RSF factor is applied to on-balance sheet lending transaction receivable under §ll.106(d)(1). 

Off-balance sheet asset received in an asset exchange (e.g., where a 

covered company acts as securities borrower) subsequently used to 

generate a NSFR liability *.

RSF factor is applied to the on-balance sheet asset provided in the 

asset exchange under §ll.106(d)(2). 

Off-balance sheet asset received as variation margin under a derivative 

transaction.

See derivative treatment under §ll.107 of the final rule. 

Off-balance sheet asset received in a source transaction other than a 

lending transaction, or asset exchange, and the asset is not received 

as variation margin under a derivative transaction, and subsequently 

used to generate a NSFR liability.

RSF factor is applied to the on-balance sheet asset resulting from the 

NSFR liability under §ll.106(d)(3). 

* For assets received in an asset exchange recorded on balance sheet (e.g., when a covered company acts as a securities lender) see sections VII.A.3 and VII.D.3.h of this Supplementary Information section. 

Consistent with the proposed rule, 

§ ll.106(d) of the final rule does not 

apply in cases where a covered 

company has an NSFR liability secured 

by, or resulting from the sale of, an onbalance sheet asset. 

d) Technical and Operational 

Clarifications 

(i) Amounts of Rehypothecated OffBalance Sheet Assets Relative to 

Transactions Through Which the Assets 

Are Obtained 

If the value of rehypothecated offbalance sheet assets obtained in lending 

transactions or asset exchanges is less 

than the carrying value of the onbalance sheet receivables for the lending 

transactions or assets provided under 

the asset exchanges, respectively, the 

covered company should treat the value 

of the receivables or assets provided as 

encumbered in an amount equivalent to 

the value of the rehypothecated offbalance sheet assets, for purposes of 

§§ ll.106(d)(1) and (2).182 This 

treatment recognizes that when a 

covered company rehypothecates only a 

portion of the value of off-balance sheet 

assets obtained in a lending transaction 

or an asset exchange, it would be overly 

conservative to apply an RSF factor 

based on such encumbrance to the 

entire value of the lending transaction 

receivable, or to the full value of assets 

provided in the asset exchange, as 

applicable. Accordingly, the covered 

company need not treat the entire value 

of the receivables or assets provided as 

encumbered. 

Conversely, the value of 

rehypothecated off-balance sheet assets 

received by a covered company in a 

lending transaction, asset exchange, or 

other transaction might exceed the value 

of the on-balance sheet receivable for 

the lending transaction, the assets 

provided under the asset exchange, or 

the asset resulting from the NSFR 

liability, respectively. In such cases, a 

covered company potentially could 

rehypothecate an amount of off-balance 

sheet assets to produce an NSFR 

liability that exceeds the value of the 

on-balance sheet lending transaction 

receivable or assets provided (excess 

rehypothecated assets). Under the final 

rule, on-balance sheet assets resulting 

from the rehypothecation of the offbalance sheet assets are assigned the 

appropriate RSF factor consistent with 

other on-balance sheet assets. Covered 

companies should use appropriate and 

justifiable assumptions in identifying 

and attributing the sources and uses of 

off-balance sheet assets, including 

excess rehypothecated assets, consistent 

with the operational clarifications 

below. 

(ii) Operational Clarifications 

With regard to a commenter’s 

concerns about the operational burden 

associated with linking assets and 

liabilities for purposes of §ll.106(d), 

if a covered company provides an asset 

as collateral, and the covered company 

operationally could have provided 

either an off-balance sheet asset or the 

same security in the form of on-balance 

sheet asset, the final rule permits the 

covered company to identify either the 

off-balance sheet asset or the on-balance 

sheet asset as the provided collateral for 

purposes of determining encumbrance 

treatment under §§ ll.106(c) and (d). 

Similarly, if a covered company 

operationally could have provided 

either of two equivalent off-balance 

sheet assets, one received under a 

lending transaction and the other under 

an asset exchange, the final rule does 

not restrict the covered company’s 

ability to identify either asset as the 

provided collateral for purposes of 

determining encumbrance treatment 

under §ll.106(d). In either case, the 

covered company’s identification for 

purposes of §§ ll.106(c) and 

ll.106(d) must be consistent with 

contractual and other applicable 

requirements on the relevant calculation 

date. The same treatment would apply 

for a covered company’s use of a 

security as collateral and the covered 

company’s ability to identify whether 

the security is already owned by the 

covered company or is an identical 

security received from a lending 

transaction, asset exchange, or other 

transaction. 

For example, if a covered company 

receives a security in a reverse 

repurchase agreement that is identical to 

a security the covered company already 

owns, and the covered company 

provides one of these securities as 

collateral to secure a repurchase 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9171 

183 In the case of securities, this approach would 

involve a covered company identifying its aggregate 

encumbrances by each security identifier (e.g., 

CUSIP or ISIN) for each of the NSFR’s encumbrance 

periods; the aggregate value held in a covered 

company’s inventory by each security identifier; 

and the aggregate value of on-balance sheet 

receivables or assets associated with transactions 

sourcing each security identifier. Since the NSFR 

generally applies the same funding requirement to 

all transaction types that have similar counterparty, 

collateral and maturity characteristics (e.g., a 

margin loan to a financial sector entity maturing in 

six months and a reverse repo to a financial sector 

entity maturing in six months would have the same 

funding requirement), a covered company may 

consider transactions that are treated equivalently 

by the NSFR in aggregate when calculating the 

receivable amounts that are subject to §ll.106(d) 

of the final rule. 

184Covered companies may allocate collateral 

encumbered at the calculation date between 

transactions secured by such collateral based on the 

eligibility of the currently encumbered pool of 

collateral using justifiable and consistent 

assumptions. For the purposes of §ll.106 of the 

final rule, a covered company should not make 

assumptions regarding the potential future 

substitution of encumbered collateral with other 

assets. 

185As defined in §ll.3 of the LCR rule, 

‘‘derivative transaction’’ means a financial contract 

whose value is derived from the values of one or 

more underlying assets, reference rates, or indices 

of asset values or reference rates. Derivative 

contracts include interest rate derivative contracts, 

exchange rate derivative contracts, equity derivative 

contracts, commodity derivative contracts, credit 

derivative contracts, forward contracts, and any 

other instrument that poses similar counterparty 

credit risks. Derivative contracts also include 

unsettled securities, commodities, and foreign 

currency exchange transactions with a contractual 

settlement or delivery lag that is longer than the 

lesser of the market standard for the particular 

instrument or five business days. A derivative does 

not include any identified banking product, as that 

term is defined in section 402(b) of the Legal 

Certainty for Bank Products Act of 2000 (7 U.S.C. 

27(b)), that is subject to section 403(a) of that Act 

(7 U.S.C. 27a(a)). 

186The proposed rule would have included 

mortgage commitments that are derivative 

transactions in the general derivative transactions 

treatment, in contrast to the LCR rule, which 

excludes those transactions and applies a separate, 

self-contained mortgage commitment treatment. See 

§§ll.32(c) and (d) of the LCR rule. 

agreement, the final rule permits the 

covered company to identify, for 

purposes of determining encumbrance 

treatment under §§ ll.106(c) and (d), 

either the owned security or the security 

received in the reverse repurchase 

agreement as the encumbered collateral 

for the repurchase agreement, provided 

that the covered company had the 

operational and legal capability to 

provide either one of the securities as of 

the calculation date. If the covered 

company chooses to treat the off-balance 

sheet security received in connection 

with the reverse repurchase agreement 

as the collateral securing the repurchase 

agreement at the calculation date, 

§ ll.106(d)(1) would apply and the 

covered company would treat the 

reverse repurchase agreement as 

encumbered for purposes of assigning 

an RSF factor. If the covered company 

instead chooses to treat the owned 

security as the collateral encumbered by 

the repurchase agreement, the covered 

company would apply the appropriate 

RSF factor (reflecting the encumbrance) 

to the owned security under 

§ ll.106(c) and no additional 

adjustment would need to be made to 

the encumbrance of the reverse 

repurchase agreement under 

§ ll.106(d). 

The agencies anticipate that a covered 

company would be able to comply with 

this section based on aggregate 

information (because much of the data 

is currently collected and monitored for 

other purposes, including the FR 2052a 

and compliance with the LCR rule) 

rather than through transaction-bytransaction tracking. For example, a 

covered company may determine its 

requirements under §§ ll.106(c) and 

ll.106(d) based on the aggregate value 

of an asset class pledged at each of the 

NSFR rule’s encumbrance periods (less 

than six months, six months or more but 

less than one year, or one year or more); 

the aggregate value of the asset class on 

the covered company’s balance sheet; 

and the values and maturity categories 

of balance sheet receivables or assets 

provided by the covered company under 

transactions sourcing each type of 

borrowed asset.183 The agencies expect 

this approach to substantially limit any 

incremental operational costs of 

compliance for covered companies. 

In addition, when the covered 

company has provided two assets to a 

single counterparty to secure two 

different NSFR liabilities, and the 

covered company had the sole legal 

right and operational capability to 

determine the allocation of the collateral 

provided to each of the NSFR liabilities 

at the calculation date, the final rule 

permits the covered company to identify 

which asset secures which NSFR 

liability for purposes of determining 

encumbrance treatment under 

§§ ll.106(c) and ll.106(d). As an 

example, assume that a covered 

company enters into two secured 

funding transactions with a single 

counterparty (or with a single tri-party 

repo intermediary), one with an 

overnight maturity and one with a 

maturity of one year, and provides level 

2A liquid assets as collateral for one 

secured funding transaction and level 

2B liquid assets as collateral for the 

second secured funding transaction. If 

the covered company had the legal right 

and operational capability to allocate 

the provided level 2A and level 2B 

liquid assets between the two secured 

funding transactions, the final rule 

permits the covered company to identify 

which of the securities are encumbered 

for a period of one year and which are 

encumbered overnight for purposes of 

§§ ll.106(c) and ll.106(d). As 

described above, the covered company’s 

determinations for purposes of these 

sections must be consistent with 

contractual and other applicable 

requirements, including accounting 

treatment.184 Similar considerations 

apply where a covered company has 

borrowed an asset of one type from a 

counterparty pursuant to an asset 

borrowing transaction and the covered 

company has the legal right and 

operational capability to substitute 

another type of asset to return. 

E. Derivative Transactions 

The proposed rule would have 

required a covered company to maintain 

stable funding to support its on-balance 

sheet derivative activities. Under the 

proposed rule, a covered company 

would have calculated its required 

stable funding amount relating to its 

derivative transactions 185 (derivatives 

RSF amount) separately from its other 

assets, commitments, and liabilities due 

to the variable nature and generally 

more complex features of derivative 

transactions relative to other on-balance 

sheet assets and liabilities of covered 

companies.186 For similar reasons, the 

proposed rule would not have 

separately treated derivative liabilities 

in excess of derivative assets as 

available stable funding to support nonderivative assets and commitments, as 

described below. 

Under the proposed rule, a covered 

company’s derivatives RSF amount 

would have consisted of three general 

components, each described further 

below: (1) A component reflecting the 

current net value of a covered 

company’s derivative assets and 

liabilities, taking into account variation 

margin provided by and received by the 

covered company (current net value 

component); (2) a component to account 

for initial margin provided by a covered 

company for its derivative transactions 

and assets contributed by a covered 

company to a CCP’s mutualized losssharing arrangement in connection with 

cleared derivative transactions (initial 

margin component); and (3) a 

component to account for potential 

future derivatives valuation changes 

(future value component). For the 

current net value component, a covered 

company would have netted its 

derivatives transactions and certain 

variation margin amounts to identify 

whether the current net value of its 


khammond on DSKJM1Z7X2PROD with RULES2
9172 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

187Although the term ‘‘commercial end-user’’ is 

not defined in the Dodd-Frank Act, it is used in this 

Supplementary Information section to mean a 

company that is eligible for the exception to the 

mandatory clearing requirement for swaps under 

section 2(h)(7)(A) of the Commodity Exchange Act 

and section 3C(g)(1) of the Securities Exchange Act, 

respectively. This exception is generally available 

to a person that (1) is not a financial entity, (2) is 

using the swap to hedge or mitigate commercial 

risk, and (3) has notified the CFTC or SEC how it 

generally meets its financial obligations with 

respect to non-cleared swaps or security-based 

swaps. See 7 U.S.C. 2(h)(7)(A) and 15 U.S.C. 78c– 

3(g)(1). 

188See 12 CFR part 45 (OCC); 12 CFR part 237 

(Board); 12 CFR part 349 (FDIC); see also Final 

Rule, Margin and Capital Requirements for Covered 

Swap Entities, 80 FR 74840 (November 30, 2015). 

189These commenters cited to 7 U.S.C. 2(h)(7), 

6s(e)(4) as examples within the Dodd-Frank Act. 

One commenter noted that certain regulatory 

requirements relating to derivative transactions in 

jurisdictions outside the United States also exempt 

certain derivative transactions with non-financial 

sector entities, which the commenter argued 

provided support for an exemption from the NSFR. 

190As discussed further below, the final rule, like 

the proposed rule, also applies a stable funding 

requirement based on a covered company’s 

derivative transactions in the aggregate, using a 

standardized measure rather than a more granular 

approach that would consider in greater detail 

specific features of individual transactions, such as 

counterparty type. 

191For example, the standardized approach for 

calculating the exposure amount of derivative 

contracts under the agencies’ regulatory capital rule 

removes the alpha factor from the exposure amount 

formula for derivative contracts with commercial 

end-user counterparties, resulting in lower 

requirements in comparison to similar derivative 

contracts with a counterparty that is not a 

commercial end-user. 

derivatives positions was either an 

NSFR derivatives asset amount or an 

NSFR derivatives liability amount 

(described below) and assigned a 100 

percent RSF factor or zero percent ASF 

factor, respectively. For the initial 

margin component, the proposed rule 

would have assigned an 85 percent RSF 

factor to CCP contributions and a 

minimum 85 percent RSF factor to 

initial margin provided by a covered 

company. The proposed rule also would 

have assigned a 100 percent RSF factor 

to the future value component, which 

would have equaled 20 percent of the 

sum of a covered company’s gross 

derivative liabilities. The final rule 

makes certain adjustments to the current 

net value component’s treatment of 

variation margin received by covered 

companies and the calibration of the 

future value component. 

1. Scope of Derivatives Transactions 

Subject to § ll.107 of the Final Rule 

The proposed rule would have 

required a covered company to measure 

its derivatives exposures in its 

calculation of the NSFR, regardless of 

the counterparty. A few commenters 

suggested that all derivative transactions 

with commercial end-users— 

specifically, entities that are not subject 

to the clearing requirement under the 

Commodity Exchange Act 187 or the 

margin requirements for non-cleared 

swaps under the agencies’ swap margin 

rule (swap margin rule)—should be 

excluded from the NSFR rule.188 These 

commenters argued that derivative 

activities of commercial end-users do 

not pose a threat to financial stability 

and that applying funding requirements 

for such activities would be inconsistent 

with Congress’s intent in the DoddFrank Act that the regulation of 

derivative trading not impose costs on 

commercial end-users.189

The final rule does not distinguish 

between derivative transactions with 

commercial end-users and other 

counterparty types. Unlike the clearing 

and margin requirements cited by 

commenters, which apply specifically to 

derivative transactions and include 

statutory exemptions for certain 

transactions with non-financial sector 

counterparties, the final rule seeks to 

measure and address funding risks of a 

covered company’s aggregate balance 

sheet. The final rule therefore includes 

derivative transactions as one of many 

types of exposures that contribute to a 

covered company’s aggregate funding 

risk.190 Derivative transactions are 

subject to a range of funding risks 

driven by the underlying economic 

exposures and contractual features, such 

as their variable nature and the regular 

need to exchange collateral. These 

funding risks are not primarily 

determined by the derivative 

transaction’s counterparty, and therefore 

transactions with commercial end-user 

counterparties could contribute to 

funding risk in a manner similar to 

derivative transactions with financial 

sector entity counterparties. In addition, 

although the agencies’ regulatory capital 

rule differentiates the capital 

requirements for derivative transactions 

with commercial end-user and financial 

sector counterparties in certain cases, 

such distinction is based largely on the 

potential for the transactions with 

commercial end-users to be primarily 

used to hedge or mitigate commercial 

risks, which can be a material 

consideration in determining the 

counterparty credit risk for an 

exposure.191 By contrast, the NSFR is 

not designed to measure the risks 

associated with counterparty defaults, 

but instead presumes a covered 

company would continue to 

intermediate and fund its derivatives 

portfolio over a one-year horizon. 

Accordingly, the final rule does not 

provide an exclusion for derivative 

transactions with commercial end-user 

counterparties and requires a covered 

company to include all its balance sheet 

derivatives exposures in its calculation 

of the NSFR. 

2. Current Net Value Component 

Under the proposed rule, the stable 

funding requirement for the current net 

value component of a covered 

company’s derivative assets and 

liabilities would have been based on the 

value (as of the calculation date) of each 

of its derivative transactions (not subject 

to a QMNA) and each QMNA netting set 

and the variation margin provided by 

and received by the covered company. 

For the current net value component, 

the proposed rule would have measured 

a covered company’s aggregate 

derivative activities on a net basis by: (i) 

Reducing exposures with each 

counterparty by taking into account 

QMNA netting sets; (ii) determining the 

value of each derivative asset, liability 

or QMNA netting set after netting 

certain variation margin amounts; and 

(iii) offsetting a covered company’s 

overall total derivatives asset amount 

with its total derivatives liability 

amount, each as described below (i.e., 

the proposed rule’s NSFR derivatives 

asset or liability amount). Through these 

netting calculations, a covered company 

would have determined whether the 

current net value of its derivatives 

positions was either an NSFR 

derivatives asset amount or an NSFR 

derivatives liability amount. The 

proposed rule would have assigned a 

100 percent RSF factor to a covered 

company’s NSFR derivatives asset 

amount or a zero percent ASF factor to 

a covered company’s NSFR derivatives 

liability amount. By netting across 

assets and liabilities in addition to 

counterparties and transactions, the 

current net value component would 

have reflected the current stable funding 

needs associated with the covered 

company’s overall derivatives activities. 

The agencies received a number of 

comments regarding this component, 

including comments on the calculation 

of the NSFR derivative asset or liability 

amount, the proposed RSF and ASF 

factors for these amounts, and how the 

proposed calculation would have 

accounted for variation margin received 

and provided by a covered company. 

The final rule modifies the calculation 

of the current net value component with 

certain adjustments to the types of 

variation margin that are eligible for 

netting in such component, but 

otherwise adopts the treatment as 

proposed. Due to the variable nature of 

derivative transactions, the 

interdependencies within the derivative 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9173 

192See §ll.107(f) of the final rule. 

193 Initial margin includes payments provided 

and received by a covered company to provide 

credit protection relative to a derivative exposure, 

including independent amounts. Such payments 

should be considered as initial margin under the 

final rule except in instances where a payment, 

such as the return of part or all of an independent 

amount, has occurred due to the change in the 

value of a derivative exposure and the payment has 

been netted against the covered company’s 

exposure, in which case the payment should be 

treated as variation margin. 

194See §ll.107(e) of the final rule. 

195See §ll.107(d) of the final rule. 

196See §§ll.107(b) and (c) of the final rule. 

197See 12 CFR 3.132(d)(4) (OCC); 12 CFR 

217.132(d)(4) (Board); 12 CFR 324.132(d)(4) (FDIC). 

portfolios of covered companies, and 

the connection to assets and liabilities 

related to margin provided and received 

by a covered company, the final rule, 

like the proposed rule, assesses the 

funding risks of derivatives activities on 

a net basis. Under the final rule, the 

NSFR point-in-time measure generally 

reflects the funding provided by 

derivative transactions and associated 

variation margin in supporting a 

covered company’s funding needs for its 

derivative portfolio. Under the final 

rule, the current net value component is 

calculated as follows: 

Step 1: Calculation of Derivative and 

QMNA Netting set Asset and Liability 

Values 

First, a covered company determines 

the asset or liability value of each 

derivative transaction (not subject to a 

QMNA) and each QMNA netting set. 

Each derivative transaction or QMNA 

netting set has either a derivatives asset 

value or derivatives liability value, 

depending on (1) the derivative 

transaction’s or QMNA netting set’s 

asset or liability valuation and (2) the 

value of variation margin provided or 

received under the derivative 

transaction or QMNA netting set that is 

eligible for netting under the final 

rule.192

A derivatives asset value of a 

derivative transaction or QMNA netting 

set is the asset value after netting 

variation margin received in the form of 

cash or rehypothecatable level 1 liquid 

asset securities by the covered company 

that meets the eligibility conditions 

described in § ll.107(f)(1) of the final 

rule and discussed in section VII.E.2.b 

of this Supplementary Information 

section. 

A derivatives liability value of a 

derivative transaction or QMNA netting 

set is the liability value after netting any 

variation margin provided by the 

covered company, regardless of the type 

of variation margin. The final rule also 

specifies that a covered company may 

not reduce its derivatives asset or 

liability values by initial margin 

provided to or received from 

counterparties.193

Step 2: Calculation of Total Derivatives 

Asset Amounts and Total Derivatives 

Liability Amounts 

Second, a covered company sums its 

derivatives asset values, as calculated in 

step 1, to determine its total derivatives 

asset amount, and separately sums its 

derivatives liability values, as calculated 

in step 1, to determine its total 

derivatives liability amount.194

Step 3: Calculation of NSFR Derivatives 

Asset Amount or NSFR Derivatives 

Liability Amount 

Third, a covered company calculates 

its overall NSFR derivatives asset 

amount or NSFR derivatives liability 

amount by calculating the difference 

between its total derivatives asset 

amount and its total derivatives liability 

amount, each as calculated in step 2.195

If a covered company’s total derivatives 

asset amount exceeds its total 

derivatives liability amount, the covered 

company would have an NSFR 

derivatives asset amount. Conversely, if 

a covered company’s total derivatives 

liability amount exceeds the total 

derivatives asset amount, the covered 

company would have an NSFR 

derivatives liability amount. The NSFR 

derivatives asset or NSFR derivatives 

liability amount represents a covered 

company’s overall derivatives activities 

on a net basis. 

Step 4: Application of RSF or ASF 

Factors to the NSFR Derivatives Asset 

Amount or NSFR Derivatives Liability 

Amount 

Fourth, and finally, the final rule 

assigns a 100 percent RSF factor to a 

covered company’s NSFR derivatives 

asset amount or a zero percent ASF 

factor to a covered company’s NSFR 

derivatives liability amount. 196

a) Comments Regarding NSFR 

Derivatives Asset Amount and NSFR 

Derivatives Liability Amount 

A number of commenters 

recommended that the approach for 

calculating the NSFR derivatives asset 

amount or NSFR derivatives liability 

amount should be based on the 

remaining maturity of a covered 

company’s derivative transactions or 

netting sets, which commenters asserted 

would be more consistent with the 

proposed rule’s consideration of tenor 

for assigning an RSF factor for certain 

other assets. Moreover, commenters 

asserted that short-dated derivatives do 

not require as much long-term funding 

as long-dated derivatives because a 

covered company could generally 

expect to allow its short-dated 

derivative transactions to mature within 

the NSFR’s one-year horizon, there are 

generally no market or client 

expectations that firms would roll over 

derivative transactions, and the agencies 

did not provide empirical evidence 

suggesting otherwise. For example, 

commenters suggested reducing the RSF 

factor for assets based on individual 

derivative transactions with a remaining 

maturity of less than one year, with a 

further reduction for asset values based 

on individual derivative transactions 

with a remaining maturity of six months 

or less. Some commenters suggested 

that the agencies should rely on other 

regulatory measures to determine the 

remaining maturity of derivative netting 

sets, such as the calculation of maturity 

for derivative netting sets under the 

internal models methodology for 

counterparty credit risk under the 

agencies’ advanced approaches riskbased capital rule.197 As an alternative 

to incorporating tenor considerations to 

determine a covered company’s 

derivatives asset amount, one 

commenter suggested that the final rule 

assign reduced RSF factors for an asset 

purchased by a covered company as a 

hedge to a derivative transaction based 

on the remaining maturity of the 

derivative it is meant to hedge. 

The agencies are not adopting in the 

final rule a more granular approach to 

the calculation of the NSFR derivatives 

asset amount and are instead adopting 

the approach under the proposed rule. 

The current net value component is an 

operationally simple measure of the 

funding needs associated with a covered 

company’s aggregate derivatives 

portfolio. Relative to other approaches, 

such as the more granular approaches 

suggested by commenters that would 

take into account the remaining 

maturity of certain derivative 

transactions or hedging transactions, the 

final rule’s approach allows for a 

consistent and comparable measure of 

net derivative exposures across covered 

companies. Further, while a more 

complex approach based on a covered 

company’s internal models 

methodology as suggested by 

commenters may be appropriate in other 

contexts, such an approach would be 

contrary to the NSFR’s standardized 

calculation of a relatively simple 

measure of the risks raised by a covered 

company’s derivative positions. 

Although this simplified approach may 

overstate the funding risk of certain 

short-maturity derivative assets, it may 


khammond on DSKJM1Z7X2PROD with RULES2
9174 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

198See 12 CFR 3.10(c)(4)(ii)(C) (OCC); 12 CFR 

217.10(c)(4)(ii)(C) (Board); 12 CFR 

324.10(c)(4)(ii)(C) (FDIC). Specifically, under the 

proposed rule, these conditions were: (1) Cash 

collateral received is not segregated; (2) variation 

margin is calculated and transferred on a daily basis 

based on mark-to-fair value of the derivative 

contract; (3) variation margin transferred is the full 

amount necessary to fully extinguish the net current 

credit exposure to the counterparty, subject to the 

applicable threshold and minimum transfer 

amounts; (4) variation margin is cash in the same 

currency as the settlement currency in the contract; 

(5) the derivative contract and the variation margin 

are governed by a QMNA between the 

counterparties to the contract, which stipulates that 

the counterparties agree to settle any payment 

obligations on a net basis, taking into account any 

variation margin received or provided; (6) variation 

margin is used to reduce the current credit exposure 

of the derivative contract and not the PFE (as that 

term is defined in the SLR rule); and (7) variation 

margin may not reduce net or gross credit exposure 

for purposes of calculating the Net-to-gross Ratio (as 

that term is defined in the SLR rule). 

also understate the funding risk of 

certain short-maturity derivative 

liabilities. As described above, the 

current net value component is arrived 

at through a series of netting procedures 

to determine the NSFR derivatives asset 

amount. Derivative asset exposures to a 

counterparty with varying maturities 

may be offset by derivative liabilities 

within a netting set. Additionally, total 

derivative assets are netted with total 

derivative liabilities. Given the 

inclusion of many different transactions 

in the calculation, the remaining 

maturity of the resulting NSFR 

derivatives asset amount or NSFR 

derivatives liability amount to which 

the RSF or ASF factor is applied would 

not be intuitive or meaningful for the 

NSFR’s one-year time horizon and 

estimating its effective maturity would 

require complex calculations. Under the 

final rule’s approach, a covered 

company’s current net value component 

can be reduced by the value of 

derivative liabilities of any maturity, 

including short-dated positions. This 

simplified approach should serve as a 

reasonable and balanced approximation 

of the current stable funding needs 

associated with a covered company’s 

overall derivatives activities. 

In response to comments requesting 

the assignment of reduced RSF factors 

to assets that hedge derivative 

transactions, the agencies similarly note 

that the current net value component of 

the final rule is designed as a simplified 

approach that nets all derivative 

liabilities against derivative assets. An 

alternative approach that permits a 

covered company to match particular 

derivative assets or liabilities to specific 

hedging positions (whether derivative 

transactions or otherwise) to determine 

the assignment of RSF factors for the 

current net value component would 

introduce significant complexity, reduce 

standardization, and, depending on the 

approach, introduce an additional 

operational burden or increased reliance 

on covered companies’ internal models. 

In addition, although derivative assets 

or liabilities may reduce certain risks of 

the specific positions for which they are 

hedging, they would still require stable 

funding to enable the covered company 

to continue to intermediate and fund its 

derivatives portfolio and hedging 

positions over a one-year time horizon. 

The final rule therefore adopts the same 

calculation structure as the proposed 

rule for the current net value 

component, with modifications 

discussed below with respect to 

consideration of variation margin 

received by a covered company. 

The agencies are adopting the 

proposed rule’s assignment of a 100 

percent RSF factor to an NSFR 

derivatives asset amount and a zero 

percent ASF factor to an NSFR 

derivatives liability amount. The 

calculation of a covered company’s 

NSFR derivatives asset amount already 

recognizes the contribution made by 

variation margin and derivative 

liabilities to the funding for derivative 

asset positions, based on their treatment 

under the final rule. As a result, the 

NSFR derivatives asset amount 

represents overall derivatives activities 

that are not fully margined, based on the 

eligibility of variation margin for netting 

under the rule. Derivative transactions 

are complex financial instruments that 

can significantly and quickly fluctuate 

in value. Given these risks, the final 

rule, like the proposed rule, would 

require full stable funding for these net 

residual exposures. Moreover, while the 

final rule’s current net value component 

recognizes the contribution made by 

derivative liabilities to the funding for 

derivative asset positions, the agencies 

do not consider a covered company’s 

NSFR derivatives liability amount, if 

any, to be available stable funding to 

support assets outside of the covered 

company’s derivative portfolio. 

b) Variation Margin Received and 

Provided 

Under the proposed rule’s calculation 

of a covered company’s current net 

value component, a covered company 

would have been permitted to offset 

derivative assets only by variation 

margin received that was in the form of 

cash that met criteria at 

§ ll.10(c)(4)(ii)(C)(1) through (7) of the 

SLR rule (SLR netting criteria).198

Additionally, under the proposed rule, 

all variation margin provided by the 

covered company would have been 

taken into account in determining 

derivatives liability values. The 

proposed rule also would have assigned 

RSF factors to on-balance sheet assets 

that the covered company has provided 

or received as variation margin under a 

derivative transaction (not subject to a 

QMNA netting set) or QMNA netting 

set, and an ASF factor to any liability 

that arises from an obligation to return 

variation margin. 

(i) Criteria for Netting of Variation 

Margin Received or Provided Against 

Derivative Assets or Liabilities, 

Respectively 

The agencies received comments 

regarding the proposed rule’s criteria for 

variation margin received to be eligible 

for netting against derivatives asset 

values. Commenters argued that the 

proposed rule lacked a rationale for 

recognizing all forms of variation 

margin provided by a covered company 

against derivatives liability values, 

while only permitting derivatives asset 

values to be netted by variation margin 

received by a covered company if the 

variation margin met the SLR netting 

criteria. These commenters argued that 

the proposed treatment for netting 

variation margin received was overly 

conservative and would increase costs 

to covered companies. Commenters 

requested that the agencies allow 

additional forms of variation margin 

received to be netted against derivatives 

assets. 

Operational and Contractual Criteria for 

Netting Variation Margin Received 

Many commenters requested that the 

final rule permit netting of additional 

variation margin received against the 

covered company’s derivative assets 

because the amounts received would 

represent a funding benefit to the 

covered company. Commenters argued 

that, unlike the SLR rule, the NSFR rule 

is designed to measure the funding risk 

of a covered company’s balance sheet 

and, therefore, should recognize the 

value of collateral received when the 

receipt of collateral represents a source 

of liquidity or facilitates the 

monetization of the underlying 

derivative asset. These commenters 

asserted that the final rule should 

recognize netting for any cash collateral 

that is received by a covered company, 

specifically criticizing the proposed 

criteria that variation margin be 

calculated and transferred on a daily 

basis or provide for the full 

extinguishment of a net current credit 

exposure, as the amounts of cash 

collateral received would represent a 

funding benefit to the covered company. 

Commenters noted that, under the 

proposed rule, a small shortfall of 

variation margin would result in a 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9175 

199See BCBS, Consultative Document: Revisions 

to the Basel Leverage Ratio Framework (April 2016), 

p. 7, Annex ¶ 24(iv). 

200See 12 CFR 45.6 (OCC); 12 CFR 237.6. (Board); 

12 CFR 349.6 (FDIC). 

201Because the final rule does not include the 

proposed criterion regarding full extinguishment, 

the agencies note that comparisons of this criterion 

to the Basel Leverage Ratio Framework are 

accordingly no longer relevant. 

202See 12 CFR 45.6 (OCC); 12 CFR 237.6. (Board); 

12 CFR 349.6 (FDIC). 

derivative asset being considered as 

entirely un-margined, which could lead 

to volatility in the amounts allowed for 

netting due to periodic shortfalls. 

Certain commenters requested that, at a 

minimum, this requirement be revised 

so that margin disputes or operational 

shortfalls would not have an impact on 

the netting amount. Commenters also 

argued that, if the SLR netting criteria 

are retained in the final rule, the criteria 

should be changed to align with 

proposed changes to the Basel Leverage 

Ratio Framework to avoid the final rule 

being more be more stringent than the 

Basel NSFR standard, which 

incorporates the Basel Leverage Ratio 

Framework netting criteria by 

reference.199

Commenters also specifically 

recommended that the final rule not 

include the proposed criterion that cash 

variation margin received must be in the 

same currency as the settlement 

currency in the contract. These 

commenters noted that the LCR rule 

treats HQLA denominated in a foreign 

currency as a source of liquidity that 

can be used to meet near-term outflows 

denominated in a different currency and 

the swap margin rule permits the receipt 

of cash collateral denominated in a 

currency different from the settlement 

currency of the derivative transaction if 

the currency falls within swap margin 

rule’s definition of ‘‘major currency’’ or, 

if the cash variation margin is not in a 

‘‘major currency,’’ subject to an 8 

percent haircut under that rule.200

Commenters expressed concern that the 

proposed criterion would discourage 

covered companies from accepting 

variation margin in certain currencies. 

These commenters argued the proposed 

criterion would make transactions more 

expensive if covered companies passed 

along any increased costs to 

counterparties by requiring them to 

provide variation margin in certain 

currencies. 

After considering these comments, the 

agencies have revised the proposal by: 

(1) Removing the requirement that 

variation margin be received in the full 

amount necessary to extinguish the net 

current credit exposure to a 

counterparty in order to be recognized 

for netting purposes; and (2) modifying 

the currency requirement. In the final 

rule, to be recognized for netting 

purposes, the variation margin (1) must 

not be segregated; (2) must be received 

in connection with a derivative 

transaction that is governed by a QMNA 

or other contract between the 

counterparties to the derivative 

transaction, which stipulates that the 

counterparties agree to settle any 

payment obligations on a net basis, 

taking into account any variation margin 

received or provided; (3) must be 

calculated and transferred on a daily 

basis on mark-to-fair value of the 

derivative contract; and (4) must be in 

a currency specified as an acceptable 

currency to settle payment obligations 

in the relevant governing contract. 

In response to commenters, the final 

rule does not include the requirement 

that variation margin be received in the 

full amount necessary to extinguish the 

net current credit exposure to a 

counterparty in order to be recognized 

for netting purposes. This change will 

avoid unduly penalizing a covered 

company if variation margin the covered 

company has received does not fully 

extinguish the underlying derivative 

exposure due to short-term margin 

disputes or operational reasons and 

would avoid volatility in a covered 

company’s funding requirement due to 

periodic, short-term shortfalls in 

variation margin received.201

The final rule includes a modified 

version of the proposed netting criterion 

for currency. Specifically, the final rule 

requires that in order to qualify for 

netting treatment, variation margin 

received by a covered company must be 

in a currency specified as an acceptable 

currency to settle the obligation in the 

relevant governing contract. Non-cash 

variation margin must be denominated 

in a currency specified as an acceptable 

currency. The final rule does not adopt 

certain commenters’ suggestions to 

permit netting of variation margin only 

if it is denominated in certain major 

currencies, or to apply discount rates to 

account for costs of currency 

conversion, because such requirements 

would have significantly increased the 

complexity of the final rule. Allowing 

variation margin, whether cash or noncash, that is not in a currency specified 

as an acceptable currency would also 

entail currency conversion risks and 

decrease the certainty about whether the 

variation margin truly netted out a 

derivatives exposure. 

The final rule retains the requirement 

that variation margin is calculated on a 

daily basis based on the fair value of the 

derivative contract. To satisfy this 

criterion, derivative positions must be 

valued daily, and margin must be 

transferred daily when the threshold 

and daily minimum transfer amounts 

are satisfied according to the terms of 

the derivative contract. While variation 

margin exchanged less frequently may 

reduce the funding risk associated with 

a derivative position, the requirement 

that margin be exchanged daily makes 

the funding flows associated with 

derivative positions more predictable 

and manageable. Derivative positions 

with less frequent or episodic transfers 

of variation margin present more 

significant funding concerns than 

derivative positions subject to daily 

margin exchanges. 

Netting Variation Margin Received in 

the Form of Non-Cash Collateral 

With respect to non-cash variation 

margin received by a covered company, 

commenters recommended that the final 

rule recognize variation margin received 

in the form of rehypothecatable 

securities. In particular, commenters 

argued that variation margin received in 

the form of rehypothecatable level 1 

liquid assets represents stable funding 

to a covered company with respect to 

derivative assets. The commenters cited 

the treatment of level 1 liquid assets 

under the LCR rule as evidence that 

such securities have limited liquidity 

and market risk. 

Other commenters recommended that 

all classes of rehypothecatable HQLA, 

not only rehypothecatable level 1 liquid 

assets, should be recognized for netting 

under §ll.107 of the final rule. Some 

commenters urged the agencies to 

permit netting of variation margin 

received in the form of rehypothecatable 

HQLA, subject to haircuts equivalent to 

the applicable RSF factors for such 

assets. One commenter also suggested 

applying the haircuts used by the Board 

for collateral accepted at the discount 

window to determine the amount by 

which such collateral received as 

variation margin would offset a 

derivatives asset. Other commenters 

asserted that market practices—such as 

haircuts and daily exchange of 

collateral—ensure that non-cash 

variation margin received would 

provide a sufficiently stable source of 

funding for purposes of netting against 

a covered company’s derivative assets. 

Commenters also asserted that 

permitting netting of non-cash variation 

margin received would better align with 

the treatment of collateral under the 

swap margin rule, which allows certain 

non-cash collateral to be used to meet 

variation margin requirements.202


khammond on DSKJM1Z7X2PROD with RULES2
9176 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

203Commenters noted that short-term secured 

lending transactions with a financial sector entity 

secured by rehypothecatable level 1 liquid assets 

would have received a lower RSF factor than other 

secured and unsecured lending transactions under 

the proposed rule. 

204The commenters also noted that a covered 

company may then have an incentive to invest the 

cash variation margin received in securities for 

business and risk management reasons. 

205As noted above, for purposes of the netting 

criterion for currency, rehypothecatable level 1 

liquid assets received as variation margin must be 

denominated in a currency that is specified as an 

acceptable currency to settle the obligation in the 

relevant governing contract. 

206The swap margin rule requires variation 

margin exchanged between swap entities to be cash, 

which represents a significant portion of the swaps 

market. See 12 CFR 45.6(a) (OCC); 12 CFR 237.6(a) 

(Board); 12 CFR 349.6(a) (FDIC). According to the 

ISDA’s Margin Survey for 2019, the 20 

counterparties with the largest outstanding notional 

amounts of derivative transactions reported that 

their regulatory and discretionary variation margin 

delivered is comprised of approximately 84.6 

percent cash, and 13.2 percent government 

securities, and regulatory and discretionary 

variation margin received is approximately 76.5 

percent cash and 14.2 percent government 

securities. See ISDA Margin Survey 2019 

(September 2019), available at https://

www.isda.org/a/1F7TE/ISDA-Margin-Survey-Yearend-2019.pdf. 

207To the extent a covered company receives 

variation margin in excess of the asset value of the 

derivative transaction or QMNA netting set, the 

derivative asset value may not be reduced below 

zero, treated as a derivative liability value, or netted 

against other derivative asset values. 

208For example, if a covered company uses 

securities from its trading inventory to satisfy a 

requirement to provide variation margin in respect 

to a derivative liability, these securities would 

remain on its balance sheet under GAAP. For cash 

variation margin provided in respect to a similar 

derivative transaction, a covered company’s cash 

balance would already have been reduced, and the 

covered company would have recorded a 

receivable. The receivable amount may reflect 

amounts of cash variation margin previously 

provided in excess of a covered company’s liability 

and owed by a counterparty. 

Commenters further argued that 

recognition of non-cash variation 

margin received would be consistent 

with the proposed rule’s treatment of 

variation margin provided as well as 

other parts of the proposed rule that 

would have assigned lower RSF factors 

to an asset based on receipt of 

collateral.203

Commenters argued that the proposed 

treatment of non-cash variation margin 

received would have a 

disproportionately adverse impact on 

certain counterparties, such as mutual 

funds, pension funds, and insurance 

companies, which generally provide 

securities as variation margin due to 

their business models. Commenters 

stated that, in order to be able to provide 

cash variation margin to a covered 

company, these counterparties would 

have to engage in securities lending or 

repurchase agreements, which could 

increase interconnectedness and 

systemic risks within the financial 

system, adversely affect the liquidity of 

such securities, and reduce returns to 

these counterparties.204 Another 

commenter argued that the NSFR rule 

would create a substantial new funding 

requirement across all covered 

companies if it did not allow netting of 

non-cash variation margin received in 

the form of HQLA. 

In a change from the proposed rule, 

for purposes of determining derivatives 

asset values under the final rule, a 

covered company may take into account 

variation margin received in the form of 

rehypothecatable level 1 liquid asset 

securities. Level 1 liquid asset securities 

tend to have very stable value and 

reliable liquidity across market 

conditions. However, other types of 

non-cash collateral (i.e., non-level 1 

liquid asset securities) are less likely to 

hold their value across market 

conditions, are more likely to be 

difficult to monetize, and may fluctuate 

in value to a greater degree. Therefore, 

the final rule does not permit a covered 

company to net against a derivatives 

asset variation margin received in the 

form of non-level 1 liquid asset 

securities or other non-cash assets. 

Moreover, the contractual ability to 

rehypothecate the level 1 liquid asset 

securities ensures that the covered 

company is able to monetize the 

collateral without a triggering event, 

such as a default by the counterparty, 

across market conditions. Therefore, in 

order to be recognized for netting under 

the final rule, level 1 liquid asset 

securities received as variation margin 

must be rehypothecatable, in addition to 

meeting the other netting criteria that 

are required for recognition of cash 

variation margin.205

The final rule’s allowance of 

rehypothecatable level 1 liquid assets to 

be netted against derivatives assets will 

further align the final rule and the 

agencies’ swap margin rule. Although 

the swap margin rule permits certain 

non-level l liquid assets to be used as 

variation margin for certain swap 

transactions, limiting the final rule’s 

permissible netting to variation margin 

received in the form of cash and 

rehypothecatable level 1 liquid asset 

securities is appropriate because 

permitting a covered company to reduce 

its derivative assets by other types of 

non-cash collateral could increase the 

funding risk associated with its 

derivative portfolio and reduce its 

ability to continue to intermediate and 

fund its derivatives portfolio over a oneyear horizon. The agencies also 

recognize that, when measured by total 

volume, a significant majority of 

variation margin exchanged by swap 

dealers continues to be comprised of 

cash, with the majority of the remaining 

variation margin comprised of 

government securities.206 As a result, 

the agencies do not expect that the final 

rule’s allowance of rehypothecatable 

level 1 liquid assets for the purposes of 

netting will materially alter 

counterparties’ behaviors regarding 

variation margin or result in substantial 

new funding requirements. 

Accordingly, §ll.107(f)(1)(ii) of the 

final rule provides that a covered 

company must calculate the derivatives 

asset value of the underlying derivative 

transaction or QMNA netting set by 

subtracting the value of variation margin 

received that is in the form of 

rehypothecatable level 1 liquid asset 

securities from the asset value of the 

derivative transaction or QMNA netting 

set.207

(ii) RSF and ASF Factors Assigned to 

Assets Provided or Received as 

Variation Margin and Associated 

Liabilities 

The proposed rule would have 

required a covered company to include 

in its RSF amount on-balance sheet 

assets that the covered company has 

provided (that remain on a covered 

company’s balance sheet) and received 

as variation margin in connection with 

its derivative transactions. 

On-Balance Sheet Variation Margin 

Provided by a Covered Company 

The proposed rule would have 

assigned an RSF factor to on-balance 

sheet variation margin 208 provided by a 

covered company based on whether the 

variation margin reduces the covered 

company’s derivatives liability value or 

whether it is excess variation margin. 

The agencies did not receive any 

comments regarding this proposed 

treatment. 

As described above, under the final 

rule, the liability value of a derivative 

transaction or QMNA netting set, as 

applicable, takes into account any 

variation margin provided by a covered 

company. A covered company may have 

provided variation margin in an amount 

that reduces its liability to a 

counterparty or variation margin in 

excess of this amount. For example, the 

amount of a receivable or of securities 

recorded on a covered company’s 

balance sheet may represent both an 

amount of variation margin provided 

that reduces a covered company’s 

derivative liability, as calculated under 

the final rule, and excess variation 

margin provided. Consistent with the 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9177 

209Under the final rule, RSF factors are assigned 

to variation margin received that are recorded as onbalance sheet assets of a covered company 

regardless of whether the variation margin received 

has reduced the covered company’s derivative asset 

value under the rule. GAAP’s treatment of variation 

margin assets received by a covered company 

depends on whether the variation margin was 

received in the form of cash or securities. Variation 

margin received that is eligible for netting under 

GAAP reduces the value of derivative assets under 

GAAP. 

210A covered company generally will record a 

liability on its balance sheet representing its 

obligation to return a value of variation margin 

received. 

211Similar to variation margin received, a covered 

company will record a liability for its obligation to 

return initial margin and independent amounts 

received. 

proposed rule, if the variation margin 

provided by a covered company reduces 

the derivatives liability value of a 

derivative transaction or QMNA netting 

set, the final rule assigns a zero percent 

RSF factor to the carrying value of such 

variation margin. This variation margin 

already reduces the covered company’s 

derivatives liabilities, resulting in a 

lower total derivatives liability amount 

that, in turn, offsets the covered 

company’s total derivatives asset 

amount when calculating its NSFR 

derivatives asset amount. As a result, 

the funding needs for this variation 

margin provided is already reflected in 

a covered company’s RSF amount 

through the current net value 

component. 

To the extent a covered company 

provides excess variation margin—that 

is, an amount of variation margin that 

does not reduce the liability value of a 

derivative transaction or QMNA netting 

set—and includes the excess variation 

margin asset on its balance sheet, the 

final rule assigns such excess variation 

margin an RSF factor under § ll.106, 

based on the characteristics of the asset 

or balance sheet receivable associated 

with the asset, as applicable. Since 

excess variation margin does not reduce 

a covered company’s derivatives 

liabilities values, the covered company’s 

current net value component does not 

reflect these on-balance sheet assets. 

The final rule assigns RSF factors to 

excess variation margin on a covered 

company’s balance sheet to reflect the 

need for stable funding for such assets 

as part of the covered company’s 

aggregate balance sheet. The RSF factor 

applied to excess variation margin 

provided depends on the asset 

provided. If a covered company has 

provided different types of variation 

margin (for example, both cash and 

securities), the covered company can 

determine which variation margin 

should be treated as excess and apply 

the appropriate RSF factor. 

On-Balance Sheet Assets for Variation 

Margin Received by a Covered Company 

The proposed rule would have 

assigned an RSF factor to all variation 

margin received by a covered company 

that is on the balance sheet of the 

covered company,209 according to the 

characteristics of each asset received. 

The agencies received no comments on 

this aspect of the proposal. 

The agencies are adopting the 

requirement for variation margin 

received by a covered company that is 

on the covered company’s balance sheet 

as proposed. As described above, under 

the final rule, the derivatives asset value 

of a derivative transaction or QMNA 

netting set, as applicable, takes into 

account certain variation margin 

received by a covered company. This 

variation margin received reduces the 

covered company’s derivative assets, 

resulting in a lower total derivatives 

asset amount. As a result, the funding 

needs for this variation margin received 

is not reflected in the current net value 

component. Therefore, regardless of 

whether on-balance sheet variation 

margin received is eligible for netting 

under the current net value component 

calculation, assignment of an RSF factor 

to these on-balance sheet assets under 

§ ll.106 is necessary to capture the 

funding risk associated with these 

assets. 

ASF Assignment for Balance Sheet 

Liabilities Representing the Return of 

Variation Margin Received by a Covered 

Company 

The proposed rule would have 

assigned a zero percent ASF factor to 

any liability that arises from an 

obligation to return 210 variation margin 

received by a covered company related 

to its derivative transactions. One 

commenter suggested that the final rule 

assign an ASF factor of greater than zero 

to the liability to return variation margin 

received by a covered company. The 

commenter argued that this change 

would be consistent with the BCBS and 

the International Organization of 

Securities Commission guidelines for 

acceptable classes of derivatives 

collateral. 

As discussed in the proposed rule, 

given that these liabilities can change 

based on the underlying derivative 

transactions and remain on balance 

sheet, at most, only for the duration of 

the associated derivative transactions, 

they do not represent stable funding for 

a covered company. Additionally, the 

contribution of variation margin 

received to the covered company’s 

funding risk is appropriately recognized 

through the final rule’s calculation of 

the NSFR derivatives asset amount 

described above and an additional 

contribution to a covered company’s 

ASF amount in respect to an accounting 

liability to return such assets would be 

duplicative. For these reasons, the final 

rule assigns a zero percent ASF factor to 

liabilities representing an obligation to 

return variation margin received by a 

covered company. 

3. Initial Margin Received by a Covered 

Company 

For initial margin received by the 

covered company that is recorded as an 

asset on its balance sheet, the proposed 

rule would not have treated the asset 

received as initial margin differently 

from other balance sheet assets and 

would have assigned an RSF factor 

according to the characteristics of each 

asset received. Additionally, the 

proposed rule would have assigned a 

zero percent ASF factor to any liability 

that arises from an obligation to return 

initial margin received by a covered 

company related to its derivative 

transactions.211

Some commenters argued that the 

final rule should recognize the receipt of 

initial margin by a covered company as 

a potential source of stable funding, 

especially if the covered company has 

the contractual and operational ability 

to re-use the collateral assets in the 

future, which commenters asserted is 

common market practice in the overthe-counter derivatives market. 

Commenters requested that the final 

rule more closely align the ASF 

treatment of liabilities for initial margin 

received with the RSF treatment of 

initial margin assets provided by a 

covered company, in particular with 

respect to initial margin received from 

a counterparty that is a commercial enduser. Some commenters requested that 

the final rule apply an ASF factor of at 

least 50 percent to liabilities for initial 

margin received by a covered company 

and permit initial margin received to 

reduce the RSF amount for initial 

margin provided by a covered company 

in the initial margin component. As 

another approach, commenters 

requested that the NSFR rule permit 

initial margin assets received by a 

covered company that can be 

rehypothecated in the future to offset 

the current RSF amount derived from 

the related derivative asset, subject to 

haircuts on the initial margin assets, 

because such initial margin is 

contractually linked to the covered 

company’s rights and obligations under 

the derivative transaction and is 


khammond on DSKJM1Z7X2PROD with RULES2
9178 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

212The proposed rule requested comment 

regarding whether the value of a cleared derivative 

transaction that a covered company, acting as agent, 

has submitted to a CCP on behalf of a customer of 

the covered company would be included on the 

covered company’s balance sheet under any 

circumstances other than in connection with a 

default by the customer. Commenters did not 

identify any such circumstances. 

available to the covered company for the 

duration of the derivative contract. 

The agencies are adopting the 

treatment of initial margin received as 

proposed. As discussed in section V of 

this Supplementary Information section, 

the general design of the final rule 

requires a covered company to assess of 

the amount of its stable funding based 

on NSFR regulatory capital and 

liabilities at a point in time, and the 

adequacy of such funding based on the 

characteristics of assets and 

commitments. The NSFR generally does 

not determine current stable funding 

based on the potential future reuse of 

assets. Consistent with this approach, 

the derivative framework under the final 

rule does not recognize as stable 

funding the potential reuse at a future 

date of assets received as initial margin. 

Additionally, the amount of initial 

margin received by a covered company, 

and the liability to return such margin, 

can change based on the aggregate 

underlying derivative transactions and 

customer preferences, such as 

counterparties’ demand for derivatives 

exposure, which may fluctuate over 

time. Moreover, the extent to which the 

initial margin assets received are 

available to a covered company may 

also fluctuate. Initial margin received by 

a covered company, including initial 

margin subject to the swap margin rule, 

often is subject to segregation 

requirements that arise from regulatory 

or contractual requirements, which 

limits the ability of the covered 

company to re-use initial margin assets. 

Even absent a segregation requirement, 

a covered company may voluntarily 

agree to segregate the initial margin 

received at the request of its 

counterparties or novate the position 

from the covered company to another 

counterparty at some point in the future 

in order to preserve franchise value and 

avoid negative signaling to market 

participants, making unsegregated 

initial margin also an unstable source of 

funding. This is true also in those cases 

where a covered company currently has 

the ability to re-use the initial margin 

assets that it receives, as the initial 

margin is only available to the covered 

company at most for the duration of the 

derivative transaction. Consistent with 

the general treatment of balance sheet 

assets, the final rule applies an RSF 

factor to a covered company’s onbalance sheet assets received as initial 

margin. These assets result from the 

current level of activity with derivative 

counterparties and likely will be held 

on balance sheet for the duration of the 

associated derivative transactions or 

counterparty relationships. It is 

therefore appropriate to assign RSF 

factors to these assets based on their 

liquidity characteristics. 

With respect to the liability to return 

initial margin received, this liability is 

subject to change based on a covered 

company’s counterparties and their 

derivative positions and remains, at 

most, only for the duration of the 

associated derivative transactions, such 

that it does not represent stable funding 

for a covered company. In response to 

commenters’ request that initial margin 

received be permitted to reduce the RSF 

amount for initial margin provided, the 

agencies note that unlike variation 

margin that is exchanged to account for 

changes in the current valuations of a 

derivative transaction or QMNA netting 

set, initial margin received from 

counterparties is intended to cover a 

covered company’s potential losses in 

connection with a counterparty’s default 

(e.g., the cost to close out or replace the 

transaction with a defaulted 

counterparty) and therefore would not 

factor into the measure of the current 

value of a covered company’s 

derivatives portfolio. 

For these reasons, the final rule 

assigns a zero percent ASF factor to any 

liability representing an obligation to 

return initial margin received and 

assigns an RSF factor under § ll.106 

to an asset received as initial margin 

that is on the covered company’s 

balance sheet based on the 

characteristics of the asset. 

4. Customer Cleared Derivative 

Transactions 

Under the proposed rule, the 

treatment of a covered company’s 

cleared derivative transaction would 

have depended on whether the covered 

company was acting as an agent or as a 

principal. A covered company’s NSFR 

derivatives asset amount or NSFR 

derivatives liability amount would have 

taken into account the asset or liability 

values of derivative transactions 

between a CCP and a covered company, 

acting as principal, where the covered 

company has entered into an offsetting 

transaction (commonly known as a 

‘‘back-to-back’’ transaction) with a 

customer. Because a covered company 

would have obligations as a principal 

under both derivative transactions 

comprising the back-to-back transaction, 

any asset or liability values arising from 

these transactions, or any variation 

margin provided or received in 

connection with these transactions, 

would have been taken into account in 

the covered company’s calculations of 

its NSFR derivatives asset or liability 

amount. 

If a covered company was a clearing 

member of a CCP, it would not have 

included in its NSFR derivatives asset 

amount or NSFR derivatives liability 

amount the value of a cleared derivative 

transaction that the covered company, 

acting as agent, has submitted to the 

CCP on behalf of a customer, including 

when the covered company has 

provided a guarantee to the CCP for the 

performance of the customer. As the 

proposed rule explained, these cleared 

derivative transactions are assets or 

liabilities of a covered company’s 

customer and not the covered company. 

Similarly, a covered company would 

not have included in its calculations 

under §ll.107 of the proposed rule 

variation margin provided or received in 

connection with customer cleared 

derivative transactions. 

To the extent a covered company 

includes on its balance sheet under 

GAAP a derivative asset or liability 

value (as opposed to a separate 

receivable or payable in connection 

with a derivative transaction) associated 

with a customer cleared derivative 

transaction, the derivative transaction 

would have constituted a derivative 

transaction of the covered company 

under the proposed rule.212 If a covered 

company includes on its balance sheet 

an asset associated with a guarantee of 

a customer’s performance on a cleared 

derivative transaction and that balance 

sheet entry is substantially equivalent to 

a derivative contract, the asset should be 

treated as a derivative. 

To the extent a covered company has 

an asset or liability on its balance sheet 

associated with a customer derivative 

transaction that is not a derivative asset 

or liability—for example, if a covered 

company has extended credit on behalf 

of a customer to cover a variation 

margin payment or a covered company 

holds customer funds relating to 

derivative transactions in a customer 

protection segregated account—such 

asset or liability of the covered company 

would have been assigned an RSF or 

ASF factor under §§ll.106 or 

ll.104 of the proposed rule, 

respectively. Accordingly, to the extent 

a covered company’s balance sheet 

includes a receivable asset owed by a 

CCP or payable liability owed to a CCP 

in connection with customer receipts 

and payments under derivative 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9179 

transactions, this asset or liability would 

not have constituted a derivative asset 

or liability of the covered company and 

would not have been included in the 

covered company’s calculations under 

§ ll.107 of the proposed rule. 

Commenters supported the proposed 

exclusion from a covered company’s 

NSFR for a cleared derivative 

transaction that the covered company, 

acting as agent, has submitted to a CCP 

on behalf of a customer, stating that this 

treatment appropriately reflected the 

limited funding risks of these activities. 

Some commenters suggested that certain 

back-to-back derivative transactions 

with a customer and a CCP also should 

be excluded from a covered company’s 

NSFR derivatives asset or liability 

amount because they present minimal 

funding risks that are similar to cleared 

derivative transactions where the 

covered company is acting as an agent. 

Specifically, commenters highlighted as 

low risk a derivative transaction where 

the covered company is not 

contractually required to make a 

payment to the customer unless and 

until the covered company has received 

a corresponding payment from the CCP. 

These commenters noted that in both a 

back-to-back arrangement and a cleared 

derivative transaction submitted by a 

covered company as agent with a 

guarantee of the customer’s 

performance, the covered company 

faces the same risk upon customer 

default of being required to make 

payments to the CCP without receiving 

a corresponding payment from the 

customer. 

One commenter asked how the 

proposed rule would treat initial margin 

that a covered company receives from 

customers in excess of amounts 

provided to the CCP in connection with 

a cleared derivative transaction. The 

commenter asked how the proposed 

rule would treat a customer’s initial 

margin that a covered company 

maintains in segregated accounts and 

invests in accordance with applicable 

rules, regulations and agreements with 

the customer. The commenter also 

asserted that the customer’s initial 

margin functions as funding for the 

resulting assets. 

Under the final rule, and consistent 

with the proposal, a covered company’s 

NSFR derivatives asset amount or NSFR 

derivatives liability amount does not 

include the value of a cleared derivative 

transaction that the covered company, 

acting as agent, has submitted to a CCP 

on behalf of a customer. This includes 

instances when the covered company, 

acting as agent, has provided a 

guarantee to the CCP for the 

performance of the customer, as long as 

the cleared derivative transaction does 

not appear on a covered company’s 

balance sheet. Additionally, consistent 

with GAAP, the final rule requires a 

covered company to include in its NSFR 

the derivative asset or liability amounts 

related to back-to-back derivative 

transactions that the covered company 

has executed with a CCP and a customer 

of the covered company as proposed. 

As discussed in section V of this 

Supplementary Information section, the 

NSFR rule is a standardized metric that 

generally relies on the assets and 

liabilities on a covered company’s 

balance sheet. The treatments of 

submitted agency transactions and 

executed back-to-back derivative 

transactions are consistent with the final 

rule’s reliance of on-balance sheet items. 

Since exposures due to back-to-back 

derivative transactions are recorded on 

the balance sheet of a covered company, 

the final rule’s treatment for these 

exposures will ease administration of 

the rule by aligning with the balance 

sheet treatment, consistent with the 

design of the NSFR. The agencies note 

that in the case of back-to-back 

derivative transactions executed with a 

customer and a CCP where the covered 

company maintains equal exposures to 

each counterparty (which reflects the 

amount of variation margin posted and 

collected), the covered company’s 

derivative asset and liability positions 

facing the customer and CCP should 

generally offset within the covered 

company’s NSFR derivatives asset or 

liability amount, reflecting a neutral 

stable funding requirement. However, 

by taking this approach, the final rule 

reflects the incremental funding risk 

that is present when these exposures are 

not fully offset, such as in the case 

where there are differences in the 

amount of eligible variation margin 

received and collected. In addition, 

these net exposures are not excluded 

from the final rule as certain funding 

risks may still be present. For example, 

as commenters noted, a covered 

company in a back-to-back arrangement 

may be required to make payments to 

the CCP even if the covered company’s 

customer has failed to make a 

corresponding payment to the covered 

company. Initial margin received by a 

covered company from customers in 

excess of amounts provided to a CCP in 

connection with a cleared derivative 

transaction, including initial margin 

maintained in segregated accounts and 

other permitted assets, is treated the 

same as other initial margin received by 

a covered company, as described in 

section VII.E.3 of this Supplementary 

Information section. Additional RSF 

amounts could also result from initial 

margin provided by a covered company 

to the CCP and the derivatives future 

value component, each as described 

below. 

5. Initial Margin Component 

The proposed derivative framework 

included an initial margin component 

that would address the treatment of 

assets contributed to a CCP’s mutualized 

loss-sharing arrangement and initial 

margin provided by a covered company 

in respect to its derivative transactions. 

Under the proposed rule, a covered 

company’s contribution to a CCP’s 

mutualized loss-sharing arrangement 

would have been assigned an RSF factor 

of 85 percent. Similarly, under the 

proposed rule, initial margin provided 

by a covered company for derivative 

transactions (except where the covered 

company acts as an agent for a 

customer’s cleared derivative 

transaction, as described below) would 

have been assigned an RSF factor equal 

to the higher of 85 percent or the RSF 

factor applicable under §ll.106 to 

each asset comprising the initial margin 

provided. The proposed rule would 

have assigned an 85 percent RSF factor 

to the fair value of a covered company’s 

contributions to a CCP’s mutualized 

loss-sharing arrangement or initial 

margin provided by a covered company 

regardless of whether the contribution 

or initial margin is included on the 

covered company’s balance sheet. This 

treatment reflects the fact that a covered 

company would have faced the same 

funding needs and risks as a result of 

having to provide these assets, 

regardless of their balance sheet 

treatment under GAAP. Under the 

proposed rule, to the extent a covered 

company included on its balance sheet 

a receivable for its contributions to a 

CCP’s mutualized loss-sharing 

arrangement or for initial margin 

provided for derivative transactions, the 

covered company would have assigned 

an RSF factor to the fair value of the 

asset, but not the receivable, in order to 

avoid double-counting. 

Under the proposed rule, a covered 

company would not have assigned an 

RSF factor to initial margin provided by 

the covered company when it is acting 

as an agent for a customer’s cleared 

derivative transaction and the covered 

company does not guarantee return of 

the initial margin to the customer. The 

preamble to the proposal noted that a 

covered company would have had 

limited liquidity risk for such initial 

margin because, following certain 

timing delays, the customer would have 

been obligated to fund the initial margin 

for the duration of the transaction. 


khammond on DSKJM1Z7X2PROD with RULES2
9180 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

213See 17 CFR 39.13(g). 

214See supra note 188. 

215See section V of this Supplementary 

Information section. 

However, to the extent a covered 

company would have included such 

initial margin on its balance sheet, the 

proposed rule would have required the 

covered company to assign an RSF 

factor to the resulting initial margin 

asset under § ll.106 of the proposed 

rule and an ASF factor to the 

corresponding liability under § ll.104 

of the proposed rule, similar to the 

treatment of other on-balance sheet 

items. 

One commenter asserted that the 

agencies should not adopt the 85 

percent RSF factor because the process 

by which this percentage was developed 

for the Basel NSFR standard did not 

include public input or publication of 

supporting evidence by the BCBS. 

Commenters also requested that a lower 

RSF factor be assigned to a covered 

company’s contributions to a CCP’s 

mutualized loss-sharing arrangement 

(e.g., one commenter requested an RSF 

factor of 50 percent, other commenters 

recommended assigning the RSF factor 

that applies to operational deposits held 

at a financial sector entity). To support 

a lower RSF factor, one commenter 

asserted that the amount of such 

contributions tend to exhibit low 

variability over time and are typically 

redeemable within a three-month time 

horizon. The commenter also asserted 

that there is a low probability of a CCP 

drawing on the funds available in the 

mutualized loss-sharing account, which 

are used in very rare cases of a clearing 

member default and only after 

exhaustion of the defaulter clearing 

member’s resources and the CCP’s first 

loss contributions to the mutualized 

loss-sharing resources. Finally, the 

commenter argued that a lower RSF 

amount could be more appropriately set 

by assigning RSF factors directly to the 

underlying assets contributed to a CCP’s 

mutualized loss-sharing arrangement, 

given the low probability that the assets 

will be used by a CCP. 

With respect to the treatment of initial 

margin provided by a covered company 

for derivative transactions, the agencies 

received several comments 

recommending that such initial margin 

should be assigned an RSF factor of less 

than 85 percent and also that the RSF 

factor should be assigned based on the 

remaining contractual maturity of the 

relevant derivative transaction or 

QMNA netting set. Commenters argued 

that such treatment is warranted 

because a covered company may choose 

to not re-enter into a short-dated 

derivative transaction following its 

maturity if the covered company has 

liquidity needs at that point and a 

covered company will be able to 

liquidate the initial margin provided for 

the transaction in a short period of time 

after the contract matures. 

One commenter argued that initial 

margin provided to a CCP for cleared 

derivative transactions should be 

assigned a lower RSF factor than initial 

margin provided for non-cleared 

derivative transactions because cleared 

derivatives tend to be more 

standardized and liquid, and turn over 

more frequently, than non-cleared 

derivatives. The commenter asserted 

that a covered company could choose to 

reduce its cleared derivative activities 

with a CCP in the future and realize the 

return of initial margin provided to a 

CCP within a six-month time horizon. 

Therefore, the commenter argued, the 

final rule should assign an RSF factor of 

50 percent to initial margin provided for 

cleared derivative transactions, similar 

to the RSF factor assigned to secured 

lending transactions with a financial 

sector entity that matures in six months 

or more but less than one year. The 

commenter also argued that providing 

favorable treatment for initial margin 

provided for cleared derivative 

transactions would be consistent with 

the CFTC’s margin requirements for 

derivatives clearing organizations, 

which assume short liquidation 

periods,213 and the agencies’ swap 

margin rule.214

One commenter supported the 

proposed rule’s treatment of initial 

margin provided by a covered company 

when the covered company is acting as 

an agent for the client and does not 

guarantee the performance of the CCP to 

the client. This commenter stated that 

the proposed rule appropriately reflects 

the central clearing market structure and 

noted that the majority of initial margin 

that a covered company receives from a 

client for the client’s cleared derivative 

transactions is passed through to the 

CCP. 

After reviewing these comments, the 

agencies are adopting the treatment of 

assets provided to a CCP’s mutualized 

loss sharing arrangement and initial 

margin provided by a covered company 

for derivative transactions as proposed. 

The final rule assesses a covered 

company’s funding profile for its 

derivative activities on an aggregate net 

basis based on its current contractual 

positions. In addition, the final rule 

generally does not consider the range of 

potential activities that covered 

companies or counterparties may take in 

the future.215 For example, the 

standardized initial margin component 

is applied consistently to all covered 

companies and does not take into 

account an individual covered 

company’s ability to adjust its level of 

cleared derivative activities or the 

probability of individual CCP’s usage of 

a covered company’s contributions to a 

default fund upon a member default. 

Additionally, an individual covered 

company may face challenges in 

meaningfully reducing its derivative 

exposures and initial margin 

requirements without impacting its 

customer relationships and 

intermediation. Moreover, during 

periods of market volatility, initial 

margin requirements may increase, 

which would increase a covered 

company’s funding needs related to 

initial margin assets. 

The final rule does not incorporate 

more granular assignments of RSF 

factors to initial margin provided by a 

covered company based on the maturity 

of the underlying derivative 

transactions. As discussed above, the 

final rule’s treatment of initial margin 

provided is consistent with the overall 

approach taken in the rule to utilize an 

aggregate portfolio framework with 

respect to derivative transactions that 

does not take into account the 

scheduled maturity of individual 

transactions. For the reasons discussed, 

while there may be some benefits to a 

more granular approach, the agencies 

have determined that a change from the 

proposal is not justified because such an 

approach would unnecessarily increase 

the complexity of the measure and 

require reliance on covered companies’ 

internal modeling, which is contrary to 

the NSFR’s design as a standardized 

measure. 

Specifically, the final rule assigns an 

RSF factor of 85 percent to the fair value 

of assets provided to a CCP’s mutualized 

loss sharing arrangement and an RSF 

factor of at least 85 percent to the fair 

value of initial margin provided for 

derivatives transactions. The 

application of these RSF factors is based 

on the assumption that a covered 

company generally must maintain most 

of its CCP mutualized loss sharing 

arrangement contributions or initial 

margin provided in order to continue to 

support its customers and intermediate 

in derivative markets. For similar 

reasons, the treatment applies regardless 

of whether the contribution or initial 

margin is included on the covered 

company’s balance sheet. The final 

rule’s assignment of an 85 percent RSF 

factor reflects a standardized 

assumption across all derivative 

transactions based on an assumption of 

derivatives activities at an aggregate 

level. In addition, the standardized 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9181 

216For example, during the 2007–2009 financial 

crisis, some covered companies experienced 

volatility in their derivatives portfolios, which led 

to margin payments that were a significant drain on 

liquidity and contributed to systemic instability. 

Since the 2007–2009 crisis, banking organizations 

continue to experience funding needs in their net 

margin flows over time, with the size and impact 

of the funding needs varying across covered 

companies depending on the size and composition 

of their derivatives portfolios. 

minimum 85 percent RSF factor reflects 

the difficulty for covered companies 

generally to significantly reduce the 

aggregate level of derivative activity 

(both principal and client-driven 

behavior) without damaging their 

customer relationships or reputations as 

intermediaries. 

Another commenter asked that the 

agencies clarify whether initial margin 

provided by a covered company in 

connection with cleared derivative 

transactions of a customer that have a 

remaining maturity of one year or more 

would be assigned an RSF factor of 100 

percent, similar to the proposed 

treatment of assets encumbered for a 

period of one year or longer. 

Like the proposed rule, §ll.107 of 

the final rule does not assign an RSF 

factor to initial margin provided by a 

covered company acting as agent for a 

customer’s cleared derivative 

transactions where the covered 

company does not guarantee the return 

of the initial margin to the customer. To 

the extent a covered company includes 

on its balance sheet any such initial 

margin provided, this initial margin 

would instead be assigned an RSF factor 

pursuant to § ll.106 of the final rule 

and any corresponding liability would 

be assigned an ASF factor pursuant to 

§ ll.104. 

6. Future Value Component 

In addition to the current net value 

component, which requires a covered 

company to maintain stable funding 

relative to its net current derivatives 

position as of the calculation date, the 

proposed rule would have required a 

covered company to maintain stable 

funding to support potential changes in 

the valuation of its derivative 

transactions over the NSFR’s one-year 

horizon (future value component). 

Specifically, this future value 

component would have addressed the 

risk that the covered company may need 

to provide or return margin or make 

settlement payments to its 

counterparties as the net value of its 

derivatives portfolio fluctuates. 

Under the proposed rule, the future 

value component would have equaled 

20 percent of the sum of a covered 

company’s gross derivative values that 

are liabilities (i.e., liabilities related to 

each of its derivative transactions not 

subject to a QMNA and each of its 

QMNA netting sets that are liabilities 

prior to consideration of margin, 

hereinafter gross derivative liabilities), 

multiplied by an RSF factor of 100 

percent. Gross derivative liabilities in 

this context would have referred to 

derivative liabilities calculated without 

recognition of variation margin or 

settlement payments provided or 

received based on changes in the value 

of the covered company’s derivative 

transactions. For example, if the value 

of a covered company’s derivative 

transaction moves from $0 to a liability 

position of ¥$10, the covered 

company’s gross derivative liability 

value would be $10, even if the covered 

company has provided $10 of variation 

margin to cover the change in value. 

While some commenters supported 

addressing funding risk associated with 

changes in the value of derivative 

transactions in the final rule, other 

commenters asserted that this 

component should not be included in 

the final rule because the NSFR, as a 

business-as-usual and point-in-time 

funding metric, should not take into 

account funding needs that could result 

from potential future market changes. 

One commenter argued that the future 

value component was unnecessary 

because the LCR rule already adequately 

addresses the risks associated with 

potential valuation changes in a covered 

company’s derivatives portfolio. 

The agencies also received a number 

of comments on the specific design and 

calibration of the proposed future value 

component. Many of these commenters 

asserted that the proposed calibration 

was overly conservative and was not 

sufficiently supported by empirical 

evidence. Commenters also argued that 

gross derivative liabilities are a poor 

indicator of a covered company’s 

potential contingent funding obligation. 

The value of a covered company’s 

derivatives portfolio may fluctuate over 

time (e.g., due to a covered company 

having to provide or return margin to its 

counterparties) in a way that results in 

a material increase to its funding 

requirements over the one-year time 

horizon. It is necessary to address the 

contingent funding risk associated with 

derivatives in the final rule in order to 

adequately ensure the resilience of a 

covered company’s funding profile and 

to address a funding need not picked up 

by the current net value component. 

Covered companies require sufficient 

stable funding to support margin flows 

in a range of market conditions, 

including a stress event.216

The current net value component 

relies on a uniform netting treatment 

that assumes payment inflows and 

outflows related to derivatives assets 

and liabilities would be perfectly 

offsetting across QMNAs, 

counterparties, derivative types, and 

maturities. On its own, this assumption 

generally benefits covered companies by 

resulting in a lower funding 

requirement under the NSFR than might 

occur in practice. In addition, even if a 

covered company’s payment inflows 

and outflows under its derivatives are 

matched, as the first component 

assumes, the covered company’s margin 

inflows and outflows may not be. For 

example, even where a covered 

company has entered into offsetting 

positions in terms of market risk, its 

margin rights and obligations (based on 

changes in the value of its derivatives, 

contractual triggers such as changes in 

the covered company’s financial 

condition, or business considerations 

such as customer requests) may differ. 

This could occur if it faces different 

types of counterparties, such as a 

commercial end-user on one side and a 

dealer on the other side, for each 

offsetting position. For covered 

companies with substantial derivatives 

activities, margin flows can be a 

significant source of liquidity risk. 

The final rule generally retains the 

proposed rule’s treatment of derivative 

portfolio potential valuation changes 

but reduces the weighting of this 

component from 20 percent to 5 percent 

of gross derivative liabilities. This 

revision should reduce the potentially 

pro-cyclical effects raised by 

commenters in response to the proposed 

rule’s calibration at 20 percent. To the 

extent the proposed rule’s requirement 

could have disincentivized covered 

companies from maintaining longerdated derivative transactions used by 

clients for hedging purposes, this 

change also should reduce such effects. 

This calibration also ensures covered 

companies maintain at least a minimum 

amount of stable funding for funding 

risks associated with potential valuation 

changes in derivatives portfolios. In 

addition, the agencies expect the final 

rule’s reduction of the calibration from 

20 percent to 5 percent should lessen 

the incentive for a covered company to 

reduce its NSFR funding requirement 

without meaningfully changing its risk 

profile by closing out derivative 

transactions with large gross derivative 

liabilities and re-entering into 

equivalent transactions with zero 

liability exposure. The agencies will 

monitor this risk through supervisory 

processes and evaluate the 

appropriateness of the 5 percent 

calibration as more data, reflective of a 


khammond on DSKJM1Z7X2PROD with RULES2
9182 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

217Any change to the 5 percent calibration would 

be subject to the agencies’ notice and comment 

rulemaking process. 

218As noted above, some commenters argued that 

the agencies should not include the proposed 

treatment of variation margin exchanged 

characterized as settlement payments because the 

commenters believed such an approach would be 

more stringent than the Basel NSFR standard. While 

it is possible that covered companies could be 

subject to a more stringent requirement with respect 

to this component of the final rule than banking 

organizations in foreign jurisdictions that adopt a 

different approach, the final rule’s treatment of 

settlement payments is necessary to prevent evasion 

of the final rule’s requirements. 

wider variety of economic conditions, 

become available.217

The final rule relies on gross 

derivative liabilities as the basis for 

measuring a covered company’s funding 

risks associated with derivatives 

portfolio potential valuation changes. 

Gross derivative liabilities tend to 

positively correlate with cumulative 

losses realized over the life of 

outstanding contracts. Thus, large 

amounts of gross derivative liabilities 

are likely to be positively correlated 

with derivatives portfolios characterized 

by higher average volatility and 

collateral and settlement flows. In 

addition, although gross derivative 

liabilities may include transactions that 

are not currently subject to the exchange 

of variation margin, the agencies note 

that these transactions may become 

subject to margin calls or early 

repayment due to contractual triggers or 

client requests, for example in response 

to a change in the covered company’s 

financial condition. 

Consistent with the proposed rule, the 

final rule requires a covered company to 

treat settlement payments based on 

changes in the fair value of derivative 

transactions equivalently to variation 

margin for purposes of calculating the 

covered company’s gross derivative 

liabilities. While these settlement 

payments fully extinguish a covered 

company’s current derivative exposure 

from an accounting perspective, they do 

not reduce a derivative transaction’s 

funding risk related to potential 

valuation changes. Under both the 

collateralized-to-market and settled-tomarket approaches, a covered company 

may be required to fund equivalent 

flows of margin or settlement payments 

based on changes in the value of its 

derivative transactions. Permitting 

settlement payments to reduce the gross 

derivatives liability measure could 

inappropriately incentivize covered 

companies to re-characterize variation 

margin as settlement payments in order 

to evade the stable funding requirement 

for potential derivative valuation 

changes. Therefore, derivative liabilities 

that have been extinguished from the 

balance sheet by such settlement 

payments must still be included in the 

covered company’s calculation of gross 

derivative liabilities for the purposes of 

this component. This requirement also 

should reduce opportunities for 

evasion.218

The agencies also considered a range 

of alternative approaches for addressing 

funding risks associated with 

derivatives portfolio potential valuation 

changes, including alternative 

approaches suggested by commenters. 

The agencies, however, have 

determined to adopt this component as 

proposed because the benefits of a 

simpler measure with less operational 

costs outweighs its shortcomings. 

Although many of the alternatives could 

have increased this component’s risk 

sensitivity, they also would have 

introduced increased complexity and 

pro-cyclicality. In addition, the 

suggested alternative of applying the 20 

percent calculation as a floor to the 

overall NSFR derivatives RSF amount 

would not reflect the funding risks 

arising from the other components of 

the NSFR derivatives treatment. 

7. Comments on the Effect on Capital 

Markets and Commercial End Users 

The agencies received a number of 

comments arguing that the proposed 

rule would increase the cost to covered 

companies of engaging in derivative 

transactions, which commenters argued 

would harm capital markets and the 

economy. Some of these commenters 

asserted that covered companies would 

pass on increased costs to derivatives 

end-users, making it more expensive for 

commercial firms to hedge business 

risks. 

The final rule promotes stable funding 

by a covered company of derivatives 

activities and restricts a covered 

company’s ability to fund such activities 

with unstable liabilities in a manner 

that could generate undue risks to the 

safety and soundness of the covered 

company or impose costs on U.S. 

businesses, consumers, and taxpayers in 

the event of a disruption to the U.S. 

financial system. In addition, in 

comparison to the proposed rule, certain 

modifications included in the final rule 

will reduce the RSF amount in 

connection with derivative transactions, 

thereby also reducing any incremental 

funding cost increases for covered 

companies that would have resulted 

from the proposed requirement. Section 

X of this Supplementary Information 

section further discusses the expected 

impacts of the rule, including potential 

benefits and costs for covered 

companies and other market 

participants. 

8. Derivatives RSF Amount Calculation 

Under the final rule, a covered 

company must sum the required stable 

funding amounts calculated under 

§ ll.107 to determine the covered 

company’s derivatives RSF amount. A 

covered company’s derivatives RSF 

amount includes the following 

components: 

(1) The RSF amount for the current 

net value component, which is equal to 

the covered company’s NSFR 

derivatives asset amount, multiplied by 

an RSF of 100 percent, as described in 

section VII.E.2 of this Supplementary 

Information section; 

(2) The RSF amount for non-excess 

variation margin provided by the 

covered company, which, as described 

in section VII.E.2 of this Supplementary 

Information section, equals the carrying 

value of variation margin provided by 

the covered company that reduces the 

covered company’s derivatives liability 

value of the relevant QMNA netting set 

or derivative transaction not subject to 

a QMNA netting set, multiplied by an 

RSF factor of zero percent; 

(3) The RSF amount for excess 

variation margin provided by the 

covered company, which as described 

in section VII.E.2 of this Supplementary 

Information section, equals the sum of 

the carrying values of each excess 

variation margin asset provided by the 

covered company, multiplied by the 

RSF factor assigned to the asset 

pursuant to § ll.106; 

(4) The RSF amount for variation 

margin received, which comprises the 

total of the carrying value of variation 

margin received by the covered 

company, multiplied by the RSF factor 

assigned to each asset comprising the 

variation margin pursuant to §ll.106, 

as described in section VII.E.2 of this 

Supplementary Information section; and 

(5) The RSF amount for potential 

future valuation changes of the covered 

company’s derivatives portfolio, which, 

as described in section VII.E.6 of this 

Supplementary Information section, 

equals 5 percent of the sum of the 

covered company’s gross derivatives 

liabilities, calculated as if no variation 

margin had been exchanged and no 

settlement payments had been made 

based on changes in the values of the 

derivative transactions, multiplied by an 

RSF factor of 100 percent; 

(6) The fair value of a covered 

company’s contributions to CCP 

mutualized loss sharing arrangements, 

multiplied by an RSF factor of 85 

percent, as described in section VII.E.5 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9183 

of this Supplementary Information 

section. 

(7) The fair value of initial margin 

provided by the covered company, 

multiplied by the higher of an RSF 

factor of 85 percent and the RSF factor 

assigned to the initial margin asset 

pursuant to § ll.106, as described in 

section VII.E.5 of this Supplementary 

Information section. 

9. Derivatives RSF Amount Numerical 

Example 

The following is a numerical example 

illustrating the calculation of a covered 

company’s derivatives RSF amount 

under the final rule. Table 5 sets forth 

the facts of the example, which assumes 

that: (1) Each transaction is covered by 

a QMNA between the covered company 

and each counterparty; (2) any cash and 

U.S. Treasury securities received as 

variation margin by the covered 

company meet the conditions specified 

in §ll.107(f)(1); (3) variation margin 

provided by the covered company is not 

included on the covered company’s 

balance sheet; (4) the covered company 

has provided U.S. Treasuries as initial 

margin to its counterparties; and (5) the 

derivative transactions are not cleared 

through a CCP. 

TABLE 5—DERIVATIVES RSF AMOUNT NUMERICAL EXAMPLE

Derivatives RSF amount numerical example 

Asset (liability) 

value for the 

covered company, 

prior to netting 

variation margin 

Variation margin provided (received) by the 

covered company 

Initial margin 

provided by the 

covered company 

Counterparty A: 

Derivative 1A ............................................ 10 (1) cash .................................................................. 2 

Derivative 2A ............................................ (2) (1) U.S. Treasury securities.

Counterparty B: 

Derivative 1B ............................................ (10) 3 cash ..................................................................... 1 

Derivative 2B ............................................ 5 

Counterparty C: 

Derivative 1C ............................................ (2) 0 ............................................................................. 0 

Calculation of derivatives assets and 

liabilities. 

(1) The derivatives asset value for 

counterparty A = (10¥2)¥2 = 6. 

(2) The derivatives liability value for 

counterparty B = (10¥5)¥3 = 2. 

(3) The derivatives liability value for 

counterparty C = 2. 

Calculation of total derivatives asset 

and liability amounts. 

(1) The covered company’s total 

derivatives asset amount = 6. 

(2) The covered company’s total 

derivatives liability amount = 2 + 2 = 4. 

Calculation of NSFR derivatives asset 

or liability amount. 

(1) The covered company’s NSFR 

derivatives asset amount = max (0, 6¥4) 

= 2. 

(2) The covered company’s NSFR 

derivatives liability amount = max (0, 

4¥6) = 0. 

Required stable funding relating to 

derivative transactions. 

The covered company’s derivatives 

RSF amount is equal to the sum of the 

following: 

(1) NSFR derivatives asset amount × 

100% = 2 × 1.0 = 2; 

(2) Non-excess variation margin 

provided × 0% = 3 × 0.0 = 0; 

(3) Excess variation provided × 

applicable RSF factor(s) = 0; 

(4) Variation margin received × 

applicable RSF factor(s) = 2 × 0.0 = 0; 

(5) Gross derivatives liabilities × 5% 

× 100% = (5+2) × 0.05 × 1.0 = 0.35; 

(6) Contributions to CCP mutualized 

loss-sharing arrangements × 85% = 0 × 

0.85 = 0; and 

(7) Initial margin provided × higher of 

85% or applicable RSF factor(s) = (2+1) 

× max (0.85, 0.0) = 2.55. 

The covered company’s derivatives 

RSF amount = 2 + 0 + 0 + 0 + 0.35 + 

0 + 2.55 = 4.90. 

F. NSFR Consolidation Limitations 

The proposed rule would have 

required a covered company to calculate 

its NSFR on a consolidated basis. When 

calculating its consolidated ASF 

amount, the proposed rule would have 

required a covered company to take into 

account restrictions on the availability 

of stable funding at a consolidated 

subsidiary to support assets, derivative 

exposures, and commitments of the 

covered company held at entities other 

than the subsidiary. 

To determine a consolidated ASF 

amount, a covered company would have 

calculated the contribution to its 

consolidated ASF and RSF amounts, 

respectively, associated with each 

consolidated subsidiary, each as 

calculated by the covered company for 

purposes of the covered company’s 

consolidated NSFR (subsidiary ASF 

contribution and subsidiary RSF 

contribution). Where a subsidiary’s ASF 

contribution is greater that the 

subsidiary’s RSF contribution, the 

amounts above the subsidiary RSF 

contribution would have been 

considered an ‘‘excess’’ ASF amount of 

the subsidiary, as calculated for the 

purpose of the consolidated firm (excess 

ASF amount). The proposed rule would 

have permitted the covered company to 

include in its consolidated ASF amount 

each subsidiary ASF contribution: (1) 

Up to the subsidiary RSF contribution, 

as calculated from the covered 

company’s perspective, plus (2) any 

excess ASF amount above the 

subsidiary’s RSF contribution, only to 

the extent the consolidated subsidiary 

could transfer assets to the top-tier 

entity of the covered company, taking 

into account statutory, regulatory, 

contractual, or supervisory restrictions. 

This approach to calculating a covered 

company’s consolidated ASF amount 

would have been similar to the 

approach taken in the LCR rule to 

calculate a covered company’s HQLA 

amount. 

ASF amounts associated with a 

consolidated subsidiary, in this context, 

refer to those amounts that would be 

calculated from the perspective of the 

covered company. That is, in calculating 

the ASF amount of a consolidated 

subsidiary that can be included in the 

covered company’s consolidated ASF 

amount, the covered company would 

not include certain transactions between 

consolidated subsidiaries that are netted 

under GAAP. For this reason, an ASF 

amount of a consolidated subsidiary 

that is included in a covered company’s 

consolidated NSFR calculation may not 

always be equal to the ASF amount of 


khammond on DSKJM1Z7X2PROD with RULES2
9184 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

the consolidated subsidiary when 

calculated on a standalone basis if the 

consolidated subsidiary is itself a 

covered company. 

The proposed rule would have 

required a covered company that 

includes a consolidated subsidiary’s 

excess ASF amount in its consolidated 

NSFR to implement and maintain 

written procedures to identify and 

monitor restrictions on transferring 

assets from its consolidated 

subsidiaries. The covered company 

would have been required to document 

the types of transactions, such as loans 

or dividends, a covered company’s 

consolidated subsidiary could use to 

transfer assets and how the transactions 

would comply with applicable 

restrictions. The proposed rule would 

have required the covered company to 

be able to demonstrate to the 

satisfaction of the appropriate agency 

that assets may be transferred freely in 

compliance with statutory, regulatory, 

contractual, or supervisory restrictions 

that may apply in any relevant 

jurisdiction. A covered company that 

did not include any excess ASF amount 

from its consolidated subsidiaries in its 

NSFR would not have been be required 

to have such procedures in place. The 

proposal also requested alternative 

approaches that the agencies should 

consider regarding the treatment of 

excess ASF amounts. 

Two commenters requested that the 

agencies clarify how the proposed 

consolidation provisions would apply to 

inter-affiliate transactions, including 

those that qualify as regulatory capital 

of a covered company’s consolidated 

subsidiary. One commenter supported 

the proposed rule’s treatment of certain 

inter-affiliate transactions for purposes 

of determining the subsidiary ASF and 

RSF contributions because ignoring 

such inter-affiliate transactions is 

consistent with the GAAP accounting 

treatment of such transactions. Another 

commenter argued that the ASF and 

RSF contribution amounts of a 

consolidated subsidiary should reflect 

the calculation of ASF and RSF from the 

subsidiary’s perspective on a standalone 

basis. For example, under this approach, 

the funding raised by a covered 

company that is downstreamed to a 

consolidated subsidiary and included as 

capital at that subsidiary (downstream 

funding) would be counted as ASF of 

the subsidiary and part of the subsidiary 

ASF contribution. In addition, one 

commenter requested that the agencies 

clarify whether the consolidation 

provisions would apply to securitization 

vehicles that must be consolidated on 

the covered company’s balance sheet in 

accordance with GAAP. 

The agencies also received comments 

on the calculation of the consolidated 

NSFR for covered companies that are 

subject to a reduced NSFR requirement. 

Several commenters requested that 

covered companies subject to a reduced 

NSFR requirement be allowed to 

automatically include in their 

consolidated NSFR a subsidiary’s ASF 

contribution up to 100 percent of the 

subsidiary’s RSF contribution, rather 

than limiting the automatically included 

amount based on a reduced requirement 

at the subsidiary. These commenters 

asserted that the subsidiary’s ASF 

contribution would be available to meet 

its full RSF contribution without regards 

to a reduced consolidated requirement 

and that this approach would be 

consistent with the Board’s originally 

proposed modified NSFR treatment. 

The final rule includes the 

consolidation provisions as proposed. 

Consistent with the proposed rule, the 

final rule permits a covered company to 

include in its consolidated ASF amount 

any portion of the subsidiary ASF 

contribution of a consolidated 

subsidiary that is less than or equal to 

the subsidiary RSF contribution because 

the subsidiary’s NSFR liabilities and 

NSFR regulatory capital elements 

generating that ASF amount are 

available as stable funding for the 

subsidiary’s assets, derivative 

exposures, and commitments. The final 

rule limits the automatic inclusion of 

excess ASF amounts, however, because 

the stable funding at one consolidated 

subsidiary of the covered company may 

not always be available to support 

assets, derivative exposures, and 

commitments at another consolidated 

subsidiary. 

For example, if a covered company 

calculates a subsidiary RSF contribution 

of $90 based on the assets, derivative 

exposures, and commitments of a 

consolidated subsidiary and a 

subsidiary ASF contribution of $100 

based on the NSFR regulatory capital 

elements and NSFR liabilities of the 

consolidated subsidiary, the 

consolidated subsidiary would have an 

excess ASF amount of $10 for purposes 

of the consolidation provision in the 

final rule. The covered company may 

only include an amount of this $10 

excess ASF amount in its consolidated 

ASF amount to the extent the 

consolidated subsidiary may transfer 

assets to the top-tier entity of the 

covered company (for example, through 

a dividend or loan from the subsidiary 

to the top-tier covered company), taking 

into account any statutory, regulatory, 

contractual, or supervisory restrictions. 

Examples of restrictions on transfers of 

assets that a covered company must take 

into account in calculating its NSFR 

include sections 23A and 23B of the 

Federal Reserve Act (12 U.S.C. 371c and 

12 U.S.C. 371c–1); the Board’s 

Regulation W (12 CFR part 223); any 

restrictions on a consolidated subsidiary 

by state or Federal law, such as 

restrictions imposed by a state banking 

or insurance supervisor; and any 

restrictions on a consolidated subsidiary 

or branches of a U.S. entity domiciled 

outside the United States by a foreign 

regulatory authority, such as a foreign 

banking supervisor. This limitation on 

the excess ASF amount of a 

consolidated subsidiary includable in a 

covered company’s consolidated NSFR 

applies to both U.S. and non-U.S. 

consolidated subsidiaries. 

The agencies are not modifying the 

consolidation provisions, as suggested 

by one commenter, to require a covered 

company to determine the excess ASF 

amount of a consolidated subsidiary 

based on ASF and RSF amounts of the 

subsidiary as calculated from the 

subsidiary’s perspective on a standalone 

basis. The final rule aligns with the 

netting of exposures under GAAP at the 

consolidated level, and the final rule’s 

consolidation provisions would not 

require a covered company to take into 

account, in the calculation of the 

subsidiary ASF contribution, ASF and 

RSF amounts resulting from 

transactions between consolidated 

subsidiaries that are netted under 

GAAP. 

As described in section V of this 

Supplementary Information section, the 

NSFR uses carrying value on a covered 

company’s balance sheet where 

appropriate. The calculation of 

subsidiary ASF contribution does not 

include certain inter-affiliate 

transactions that are eliminated when a 

covered company constructs its 

consolidated balance sheet under 

GAAP. For example, if consolidated 

subsidiary ‘‘A’’ makes a loan to 

consolidated subsidiary ‘‘B’’, the loan 

asset of subsidiary A and the liability of 

subsidiary B generally would be 

eliminated when a covered company 

constructs a consolidated balance sheet 

in accordance with GAAP. Therefore, in 

this example, subsidiary B’s liability is 

not included in the calculation of 

subsidiary B’s subsidiary ASF 

contribution. 

The scope of the inter-affiliate 

transactions that are excluded from the 

calculation of a subsidiary’s excess ASF 

amount includes transactions between a 

covered company and its consolidated 

subsidiary, including where the covered 

company downstreams funding that is 

recognized as capital at the consolidated 

subsidiary. For example, if a 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9185 

219 12 U.S.C. 343(3). 

220The maturity date of a MMLF advance equals 

the earlier of the maturity date of the eligible 

collateral pledged to secure the advance and 12 

months from the date of the advance. 

221The Paycheck Protection Program Liquidity 

Facility was previously known as the Paycheck 

Protection Program Lending Facility. 

222 15 U.S.C. 636(a)(36). Congress created the PPP 

as part of the Coronavirus Aid, Relief, and 

Economic Security Act and in recognition of the 

exigent circumstances faced by small businesses. 

PPP covered loans are fully guaranteed as to 

principal and accrued interest by the Small 

Business Administration (SBA) and also afford 

borrower forgiveness up to the principal amount 

and accrued interest of the PPP covered loan, if the 

proceeds of the PPP covered loan are used for 

certain expenses. Under the PPP, eligible borrowers 

generally include businesses with fewer than 500 

employees or that are otherwise considered to be 

small by the SBA. The SBA reimburses PPP lenders 

for any amount of a PPP covered loan that is 

forgiven. In general, PPP lenders are not held liable 

for any representations made by PPP borrowers in 

connection with a borrower’s request for PPP 

covered loan forgiveness. For more information on 

the Paycheck Protection Program, see https://

www.sba.gov/funding-programs/loans/coronavirusrelief-options/paycheck-protection-program-ppp. 

223The maturity date of the loan made under the 

PPPLF will be accelerated if the underlying PPP 

covered loan goes into default and the eligible 

borrower sells the PPP covered loan to the SBA to 

realize the SBA guarantee. The maturity date of the 

loan made under the PPPLF also will be accelerated 

to the extent of any PPP covered loan forgiveness 

reimbursement received by the eligible borrower 

from the SBA. 

subsidiary’s ASF contribution equals 

$110, consisting of $10 of capital placed 

by the parent and $100 of retail 

deposits, only the retail deposits would 

be subject to the excess ASF calculation. 

If the subsidiary’s RSF contribution was 

$90 (calculated from the perspective of 

the parent covered company, after 

excluding inter-affiliate transactions), 

then there would be $10 of excess ASF. 

To the extent a large depository 

institution subsidiary of a covered 

company is subject to a stand-alone 

NSFR requirement under the final rule, 

the subsidiary’s compliance with its 

stand-alone NSFR requirement could 

potentially constitute a restriction on 

the subsidiary’s ability to transfer assets 

to the covered company, depending on 

the circumstances. Such a restriction 

would limit the parent covered 

company’s ability to include portions of 

the depository institution’s excess ASF 

amount (calculated from the perspective 

of the consolidated parent covered 

company), but would not change the 

calculation of the ASF amount of the 

subsidiary, as calculated on a 

standalone basis for purposes of its 

NSFR requirement. Likewise, regulatory 

capital requirements applicable to a 

consolidated subsidiary of a covered 

company could limit the extent to 

which the covered company may count 

the excess ASF amount of the subsidiary 

towards the covered company’s 

consolidated ASF amount, but would 

not change the calculation of the 

subsidiary’s ASF amount. 

Similar to other balance sheet items, 

the assets and liabilities of 

securitization vehicles that are 

consolidated onto a covered company’s 

balance sheet under GAAP are included 

in the calculation of the consolidated 

vehicle’s ASF contributions and RSF 

contributions. For example, securities 

issued by a securitization vehicle that 

are liabilities on a consolidated covered 

company’s balance sheet, and assets of 

a securitization vehicle that are 

included on a covered company’s 

balance sheet are included in the 

calculation of the ASF contributions 

and RSF contributions. 

In cases where a covered company is 

subject to a reduced NSFR requirement, 

the covered company must calculate the 

subsidiary ASF contribution and 

subsidiary RSF contribution amount of 

each consolidated subsidiary from the 

perspective of the covered company for 

purposes of its consolidated reduced 

NSFR requirement. Specifically, a 

covered company must apply the 

appropriate adjustment factor to its 

consolidated subsidiary’s RSF 

contribution amount when determining 

the amount of the subsidiary RSF 

contribution for purposes of 

determining the amount of the 

consolidated subsidiary’s ASF that can 

automatically be included in the 

covered company’s consolidated ASF 

amount. Any amount of the 

consolidated subsidiary’s ASF in excess 

of its adjusted RSF contribution amount, 

as calculated by the covered company, 

may only be included in the covered 

company’s consolidated NSFR to the 

extent the consolidated subsidiary can 

transfer assets to the covered company, 

taking into account statutory, regulatory, 

contractual, or supervisory restrictions. 

It is important that covered companies 

consider funding needs across the 

consolidated entity for the NSFR 

calculation as required. Accordingly, 

covered companies must consider the 

extent to which assets held at a 

consolidated subsidiary are transferable 

across the organization and ensure that 

a minimum level of ASF is positioned 

or freely available to transfer to meet 

funding needs at the subsidiary where 

they are expected to occur. Although 

ASF contribution amounts at a 

consolidated subsidiary in excess of its 

adjusted RSF contribution amount may 

be available to support that subsidiary 

during the NSFR’s one-year time 

horizon, permitting the automatic 

inclusion of such ASF contribution 

amounts up to 100 percent of the 

subsidiary’s standalone RSF 

contribution amounts, as requested by 

commenters, without appropriate 

consideration of transfer restrictions, 

may make the consolidated NSFR 

requirement less effective. 

G. Treatment of Certain Facilities 

In light of recent disruptions in 

economic conditions caused by the 

outbreak of the coronavirus disease 

2019 and the stress in U.S. financial 

markets, the Board, with the approval of 

the U.S. Secretary of the Treasury, 

established certain liquidity facilities 

pursuant to section 13(3) of the Federal 

Reserve Act.219

In order to prevent disruptions in the 

money markets from destabilizing the 

financial system, the Board authorized 

the Federal Reserve Bank of Boston to 

establish the Money Market Mutual 

Fund Liquidity Facility (MMLF). Under 

the MMLF, the Federal Reserve Bank of 

Boston may extend non-recourse loans 

to eligible borrowers to purchase assets 

from money market mutual funds. 

Assets purchased from money market 

mutual funds are posted as collateral to 

the Federal Reserve Bank of Boston. 

MMLF collateral generally comprises 

securities and other assets with the 

same maturity date as the MMLF nonrecourse loan.220

In order to provide liquidity to small 

business lenders and the broader credit 

markets, and to help stabilize the 

financial system, the Board authorized 

each of the Federal Reserve Banks to 

extend credit under the Paycheck 

Protection Program Liquidity Facility 

(PPPLF).221 Under the PPPLF, each of 

the Federal Reserve Banks may extend 

non-recourse loans to institutions that 

are eligible to make Paycheck Protection 

Program (PPP) covered loans as defined 

in section 7(a)(36) of the Small Business 

Act.222 Under the PPPLF, only PPP 

covered loans that are guaranteed by the 

Small Business Administration (SBA) 

with respect to both principal and 

accrued interest and that are originated 

by an eligible institution may be 

pledged as collateral to the Federal 

Reserve Banks. The maturity date of the 

extension of credit under the PPPLF 

equals the maturity date of the PPP 

covered loans pledged to secure the 

extension of credit.223

Eligible borrowers under the MMLF 

and PPPLF include certain banking 

organizations that are currently subject 

to the LCR rule and that will be subject 

to the final rule upon its effective date. 

Advances from the MMLF and PPPLF 

facilities are non-recourse, and the 

maturity of the advance generally aligns 

with the maturity of the collateral. 

Accordingly, a covered company is not 


khammond on DSKJM1Z7X2PROD with RULES2
9186 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

224 85 FR 26835 (May 6, 2020). The agencies also 

adopted interim final rules to address the capital 

treatment of participation in the MMLF (85 FR 

16232 (Mar. 23, 2020)) and capital treatment of 

participation in the PPPLF (85 FR 20387 (Apr. 13, 

2020)). These interim final rules were adopted as 

final on September 29, 2020. 

225See 12 CFR 50.34 (OCC); 12 CFR 249.34 

(Board); 12 CFR 329.34 (FDIC). Section ll.34 does 

not apply to the extent the covered company 

secures Covered Federal Reserve Facility Funding 

with securities, debt obligations, or other 

instruments issued by the covered company or its 

consolidated entity. 

226The new definition of ‘‘Covered Federal 

Reserve Facility Funding’’ was added into the 

common definitions section of the LCR and NSFR 

rules. Consistent with the LCR interim final rule, 

the final rule does not amend the agencies’ 

definitions of average weighted short-term 

wholesale funding in the common definitions 

section of the LCR and NSFR rules and the Board 

is not amending the calculation of weighted shortterm wholesale funding on reporting form FR Y–15 

related to §ll.108 of the final rule. Weighted 

short-term wholesale funding measures a banking 

organization’s typical dependency on certain types 

of funding and generally does not measure funding 

risks related to the composition of a banking 

organization’s assets and commitments. 227See supra note 6 at para 45. 

exposed to credit or market risk from 

the collateral securing the MMLF or 

PPPLF advance that could otherwise 

affect the banking organization’s ability 

to settle the loan and generally can use 

the value of cash received from the 

collateral to repay the advances at 

maturity. 

To facilitate the use of the MMLF and 

the PPPLF, on May 6, 2020, the agencies 

published in the Federal Register an 

interim final rule to require a banking 

organization subject to the LCR rule to 

neutralize the effect on its LCR of 

participation in the MMLF and PPPLF 

(LCR interim final rule).224 The LCR 

interim final rule requires a covered 

company to neutralize the LCR effects of 

the advances made by the MMLF and 

PPPLF together with the assets securing 

these advances. Specifically, the LCR 

interim final rule added a new 

definition to the LCR rule for ‘‘Covered 

Federal Reserve Facility Funding’’ to 

identify MMLF and PPPLF advances 

separately from other secured funding 

transactions under the LCR rule. The 

LCR interim final rule requires outflow 

amounts associated with Covered 

Federal Reserve Facility Funding and 

inflow amounts associated with the 

assets securing this funding to be 

excluded from a covered company’s 

total net cash outflow amount under the 

LCR rule.225 The treatment under the 

LCR interim final rule better aligns the 

treatment of these advances and 

collateral under the LCR rule with the 

liquidity risk associated with funding 

exposures through these facilities, and 

to ensure consistent and predictable 

treatment of covered companies’ 

participation in the facilities under the 

LCR rule. The agencies received one 

comment letter, from a trade 

association, on the LCR interim final 

rule. The commenter supported the 

requirements under the LCR interim 

final rule, arguing that the requirements 

encourage participation in the facilities, 

which ultimately provides benefits to 

small businesses, households, and 

investors. 

For the same reasons that the agencies 

issued the LCR interim final rule, the 

agencies are adopting, as final, 

provisions to better align the treatment 

of these advances and collateral under 

the NSFR rule with the liquidity risk 

associated with funding exposures 

through these facilities, and to ensure 

consistent and predictable treatment of 

covered companies’ participation in the 

facilities under the NSFR rule.226

Specifically, the final rule adds a new 

§ ll.108 that requires liability and 

asset amounts associated with Covered 

Federal Reserve Facility Funding to be 

excluded from a covered company’s 

NSFR. Consistent with the LCR rule, 

this new § ll.108 does not apply to 

the extent the covered company secures 

Covered Federal Reserve Facility 

Funding with securities, debt 

obligations, or other instruments issued 

by the covered company or its 

consolidated entity. This arrangement 

presents liquidity risk due to the 

asymmetric cash flows of the covered 

company because the covered company 

would not have an inflow to offset its 

cash outflows. 

Pursuant to section 553(b)(B) of the 

APA, general notice and the opportunity 

for public comment are not required 

with respect to a rulemaking when an 

‘‘agency for good cause finds (and 

incorporates the finding and a brief 

statement of reasons therefore in the 

rules issued) that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest.’’ The agencies have determined 

that it is in the public interest to finalize 

these changes without notice and 

comment. The MMLF and PPPLF were 

established in response to urgent and 

severe economic disruptions, and these 

changes will provide certainty to 

covered companies regarding the NSFR 

treatment of transactions under the 

facilities, thereby facilitating the 

continued operation of, and covered 

companies’ participation in the 

facilities. In addition, the agencies note 

that it may be unnecessary to provide 

notice or the opportunity to comment 

prior to adopting these changes because 

the public recently had an opportunity 

to comment on substantively similar 

changes to the LCR rule, and no adverse 

comments were submitted to the 

agencies in connection with those 

changes. 

H. Interdependent Assets and Liabilities 

The Basel NSFR standard provides 

that, subject to strict conditions and in 

limited circumstances, it may be 

appropriate for an asset and a liability 

to be considered interdependent and 

assigned a zero percent RSF factor and 

a zero percent ASF factor, 

respectively.227 The proposed rule did 

not include a framework for 

interdependent assets and liabilities 

because, as stated in the proposal, the 

agencies did not identify transactions 

conducted by U.S. banking 

organizations that would meet the 

conditions in the Basel NSFR standard. 

As the proposed rule noted, in order 

for an asset and liability to be 

considered interdependent, the Basel 

NSFR standard would require all of the 

following conditions to be met: (1) The 

interdependence of the asset and 

liability must be established on the basis 

of contractual arrangements, (2) the 

liability cannot fall due while the asset 

remains on the balance sheet, (3) the 

principal payment flows from the asset 

cannot be used for purposes other than 

repaying the liability, (4) the liability 

cannot be used to fund other assets, (5) 

the individual interdependent asset and 

liability must be clearly identifiable, (6) 

the maturity and principal amount of 

both the interdependent liability and 

asset must be the same, (7) the bank 

must be acting solely as a pass-through 

unit to channel the funding received 

from the liability into the corresponding 

interdependent asset, and (8) the 

counterparties for each pair of 

interdependent liabilities and assets 

must not be the same. 

The Basel NSFR standard’s conditions 

for establishing interdependence are 

intended to ensure that the specific 

liability will, on the basis of contractual 

terms and under all circumstances, 

remain for the life of the asset and all 

cash flows during the life of the asset 

and at maturity are perfectly matched 

with cash flows of the liability. Under 

such conditions, a covered company 

would face no funding risk or benefit 

arising from the interdependent asset 

and liability. For example, the proposed 

rule noted that if a sovereign entity 

establishes a program where it provides 

funding through financial institutions 

that act as pass-through entities to make 

loans to third parties, and all the 

conditions set forth in the Basel NSFR 

standard are met, the liquidity profile of 

a financial institution would not be 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9187 

affected by its participation in the 

program. As such, the assets of the 

financial institution created through 

such a program could be considered 

interdependent with the liabilities that 

would also be created through the 

program, and the assets and liabilities 

could be assigned a zero percent RSF 

factor and a zero percent ASF factor, 

respectively. The proposed rule noted 

that no such programs at that time 

existed in the United States. Therefore, 

the proposed rule did not include a 

provision for assigning zero percent RSF 

and ASF factors to assets and liabilities 

that are ‘‘interdependent.’’ However, the 

proposed rule requested comment as to 

whether any assets and liabilities of 

covered companies should receive such 

treatment under the NSFR rule. 

Commenters requested that the final 

rule recognize as interdependent 

various assets and liabilities. 

Specifically, commenters requested 

interdependent treatment in connection 

with securities borrowing and lending 

transactions to facilitate client short 

positions; securities borrowing 

transactions and covered company short 

positions; certain client segregated 

assets and liabilities for client claims on 

those assets; assets and liabilities arising 

from derivatives clearing activities on 

behalf of clients; initial margin received 

by a covered company under clientfacing derivative transactions and used 

to fund hedge positions for the 

derivative transactions, and assets and 

liabilities related to mortgage servicing 

activities. Commenters asserted that 

these transactions present no funding 

risk to covered companies. Discussions 

below address comments on the 

treatment of assets and liabilities as 

interdependent. 

As discussed in section V of this 

Supplementary Information section, the 

NSFR is a broad measure of the funding 

profile of the whole balance sheet of a 

covered company at a point in time and 

the final rule generally does not apply 

separate requirements to individual 

lines of business or to subsets of assets 

and liabilities of a covered company. 

The treatment of specific assets and 

liabilities as interdependent would 

effectively remove these items from the 

assessment of the covered company’s 

stable funding profile overall. As 

discussed in sections VII.C.2.a and 

VII.D.2.a of this Supplementary 

Information section, the final rule uses 

the remaining maturity of assets and 

liabilities to assess a covered company’s 

funding risks. As a general principle, it 

would be inconsistent with the 

purposes and design of the NSFR to 

provide interdependent treatment to a 

specific asset and liability where the 

specified asset can contractually persist 

on the balance sheet of the covered 

company after the extinguishment of the 

specified liability. Additionally, the 

final rule generally does not consider 

the range of actions that a covered 

company may take in the future that 

would adjust the maturity of an asset in 

response to the maturity of a liability. 

Consistent with the purposes and design 

of the NSFR, as discussed above, the 

agencies have concluded that it would 

be inappropriate to recognize any assets 

and liabilities as interdependent. 

Additionally, including in the final rule 

the criteria under which certain 

transactions could qualify as 

interdependent would add considerable 

complexity and undermine the NSFR’s 

design as a simple and standardized 

measure. In the discussion below, the 

agencies discuss concerns about why 

particular transactions suggested by 

commenters will not qualify as 

interdependent. 

Short Sales 

Commenters requested that the 

agencies reconsider interdependent 

treatment for transactions conducted by 

a covered company that facilitate the 

covered company or its customers 

entering into short positions. 

Commenters provided examples of 

certain secured funding transactions, 

such as firm shorts or loans of collateral 

to customers, that they asserted directly 

fund certain secured lending 

transactions, such as a reverse 

repurchase agreement or a securities 

borrowing transaction. These 

commenters asserted that the short sale 

of a security by a covered company 

represents a liability on its balance 

sheet. In a similar manner, a client short 

sale may result in a covered company 

receiving the cash proceeds as collateral 

for the security provided to cover the 

client’s short position, increasing the 

covered company’s balance sheet 

liability to its clients. In each case, the 

covered company may use the proceeds 

from its short sale or the cash collateral 

from the client’s short sale to 

collateralize a secured lending 

transaction to source the security sold 

short. The secured lending transaction 

is recorded as an asset on the covered 

company’s balance sheet. 

At the time of terminating its short 

exposure, the covered company 

extinguishes its short position liability. 

Similarly, at the unwind of the client 

short transaction, the client may return 

the security to the covered company in 

return for the cash proceeds of the 

initial short sale, closing out the covered 

company’s liability to the client. In 

either case, to close out the asset the 

covered company may return the 

security to the securities lender or 

reverse repurchase agreement 

counterparty and receive back the cash 

collateral. Commenters asserted that 

when either type of short position is 

unwound, the associated balance sheet 

liabilities and assets would roll off 

simultaneously. These commenters 

argued that such transactions are 

substantially similar to transactions in 

which a covered company acts as 

riskless principal; that the transactions 

are linked by regulation, internal 

procedures, and business practices; that 

the principal amounts of the asset and 

liability generated by a customer short 

position are generally the same; and that 

such treatment would be consistent 

with the Basel NSFR standard that 

provides special treatment for securities 

borrowing transactions. As a result, 

commenters requested that the agencies 

assign no funding requirement to the 

secured lending transaction that sources 

the security, which is the covered 

company’s balance-sheet asset. 

Commenters also noted that certain 

securities borrowing transactions 

conducted by a covered company are 

subject to the Board’s Regulation T and 

requested that the agencies recognize 

that conducting a stock borrow for a 

permitted purpose under Regulation T 

creates a clear link between the liability 

to the client and the secured lending 

transaction. One commenter speculated 

that covered companies would need to 

raise additional long-term funding to 

support the stable funding requirement 

for activities that facilitate short 

positions and that the cash raised 

through such issuance may increase a 

covered company’s balance sheet 

leverage, which in turn may cause the 

covered company to reduce other 

financial intermediation activities. One 

commenter argued that failing to reduce 

the funding requirement for facilitating 

short-sale activities would impede 

market liquidity and cited a report by 

the Federal Reserve Bank of New York 

concerning the short-sale ban in the 

United States from September 18, 2018, 

to October 8, 2018, as evidence that 

impeding the short-sale market would 

damage equities markets. 

The agencies have concluded that 

because there is a risk that the 

maturities of the assets and liabilities for 

these transactions may not match, it 

would be inappropriate to treat these 

assets and liabilities as interdependent. 

It is unclear whether the consequence of 

the maturity of all short sales liabilities 

on related assets would be the same in 

practice. For example, the related assets 

may potentially persist beyond the 

maturity of the liability. In addition, 


khammond on DSKJM1Z7X2PROD with RULES2
9188 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

228See section VII.D.3.i of this Supplementary 

Information section, which discusses the 

assignment of RSF factors to assets held in certain 

customer protection segregated accounts. 

although there are regulatory 

requirements that could require brokerdealers to take a capital charge if they 

do not return securities to a securities 

lender, these regulations may not 

subject all potential transactions to 

capital charges and a covered company 

could still technically retain a security 

if it is was willing to incur such capital 

charges. 

Secured funding and lending 

transactions conducted by a covered 

company that facilitate the covered 

company, or its customers, entering into 

a short exposure contribute to the 

funding profile of the covered company 

similar to secured funding and lending 

transactions conducted for other 

purposes, such as matched book 

repurchase and reverse repurchase 

agreements. Providing interconnected 

treatment for assets and liabilities 

related to short positions could incent 

covered companies to engage in 

regulatory arbitrage by transforming 

some matched book repurchase 

agreements into customer shorts 

covered by sourcing an asset from a 

third party. Further, covered companies 

frequently conduct short-facilitation 

transactions on an open basis, or with 

significant embedded optionality, and 

with highly sophisticated financial 

counterparties. A covered company may 

have limited control over the maturity 

of either the related asset or liability and 

may be exposed to the asymmetric 

timing of the maturities or the 

termination amounts. The decision to 

terminate the funding received from a 

short sale may be influenced by a range 

of factors outside the control of the 

covered company, such as market 

volatility or the investment priorities of 

a covered company’s client. In the case 

of a short exposure covered by a 

security borrow from a third party, the 

decision to terminate the secured 

lending transaction by the covered 

company may be influenced by the 

presence of alternative eligible uses for 

the security borrowed. The secured 

lending transaction maturity is also 

dependent upon the capacity of the 

securities lender to terminate the 

transaction by returning cash collateral 

on demand. Conversely, the securities 

lender may disrupt the symmetry of the 

transactions by terminating the secured 

lending transaction prior to the 

termination of the short. The covered 

company may not be able to source the 

securities elsewhere or may not be able 

to demand additional collateral from the 

customer but may have to continue 

facilitating the customer short. As 

discussed in section VII.D.3.c of this 

Supplementary Information section, the 

relatively low RSF factor applied to 

short-term secured lending transactions 

with financial counterparties is 

designed to address uncertainty as to 

whether assets may persist on the 

balance sheet. For these reasons, the 

agencies are not applying 

interdependent treatment to 

transactions facilitating short positions. 

Assets Held in Certain Customer 

Protection Segregated Accounts and 

Associated Liabilities 

In another example, commenters 

requested that the agencies recognize as 

interdependent assets that are required 

to be segregated according to regulations 

and the associated liabilities for client 

claims on these assets. In particular, a 

covered company may be required to 

hold a certain amount of segregated 

assets in order to comply with 

regulations applicable to customer 

funds of a broker-dealer or futures 

commission merchant. Under the 

proposed rule, segregated assets that are 

included on a covered company’s 

balance sheet under GAAP would be 

assigned RSF factors in the same 

manner as other assets of the covered 

company. Commenters asserted that this 

treatment would overstate the funding 

requirement associated with these assets 

since the assets are held for the benefit 

of clients, covered companies have 

limited reinvestment rights over the 

assets, and the assets are funded by 

associated liabilities to customers. 

Commenters also argued that the 

proposed treatment would incentivize 

covered companies to hold segregated 

client assets in non-cash form rather 

than deposit cash with third parties.228

Covered companies face funding risk 

with respect to such segregated accounts 

due to potential asymmetry between the 

relevant assets and liabilities. 

Accordingly, it would be inappropriate 

to treat such assets and the 

corresponding liabilities as 

interdependent. Covered companies 

have the ability to exercise control over 

client assets held in segregated 

accounts, and covered companies may 

be able to earn a return on those assets 

depending on reinvestment choices. 

Additionally, the amount and maturity 

of segregated assets may not be directly 

connected to the amount and maturity 

of liabilities to customers. In cases 

where a covered company is required to 

segregate an amount of assets, the 

determination of the aggregate value 

segregated may be dependent on many 

different activities and liabilities to 

customers, each subject to optionality 

exercisable at the discretion of the 

customer. For example, the amount of 

assets to be segregated for client 

protection under the SEC’s Rule 15c3– 

3 may be based on a substantial volume 

of individual customer free credit 

balances, margin loans extended to 

customers, and short positions. 

Clearing Activities 

Commenters requested that the 

agencies treat clearing activities 

conducted on behalf of clients as 

interdependent transactions. Under 

these transactions, covered companies 

would guarantee the performance of a 

client to the CCP and would collect any 

necessary margin requirements from the 

client and post them to the CCP on 

behalf of the client. Commenters argued 

that these client clearing activities 

should be considered as interdependent 

transactions, as the covered company 

would be acting solely on behalf of the 

client. 

As discussed in section VII.E.4 of this 

Supplementary Information section, if a 

covered company is engaged in clearing 

activities as an agent for a client, it may 

be that the covered company would 

record no balance sheet entries 

associated with such activities. 

Accordingly, there would be no RSF 

factor assigned to such activities. Under 

these circumstances, interdependent 

treatment would be unnecessary. To the 

extent that a covered company 

guarantees the performance of its client 

or otherwise engages in activities that 

cause these transactions to be recorded 

on its balance sheet, it would be 

inappropriate to de-recognize them for 

purposes of the NSFR. In some 

situations, a covered company may 

continue to face funding risk as the 

intermediary between its client and the 

CCP. 

Hedges of Derivative Transactions 

Financed With Initial Margin 

Commenters stated that a covered 

company in certain circumstances can 

use initial margin that is provided by a 

client to purchase a security that can 

then be used to hedge the market risk of 

a client-facing derivative transaction. In 

these cases, commenters asserted that a 

covered company’s liability to return 

initial margin may be viewed as directly 

funding the hedge security on the 

covered company’s balance sheet. 

Commenters argued that interdependent 

treatment is warranted for the assets and 

liabilities generated by such activity 

because the covered company acts as an 

intermediary when using client funds to 

hedge the risk created by the clientVerDate Sep<11>2014 21:48 Feb 10, 2021 Jkt 253001 PO 00000 Frm 00070 Fmt 4701 Sfmt 4700 E:\FR\FM\11FER2.SGM 11FER2

khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9189 

229Basel Committee, Haircut floors for noncentrally cleared securities financing transactions 

(November 2015), available at http://www.bis.org/ 

bcbs/publ/d340.htm. 

facing derivative. Additionally, the 

covered company generally sells the 

hedge asset when the client’s derivative 

position is unwound, regardless of the 

remaining maturity of the hedge asset. 

The commenters alternatively 

recommended that the agencies could 

limit interdependent treatment in these 

cases to circumstances where the sale of 

the hedge asset and the unwind of the 

derivative (together with the associated 

liability to return the initial margin) 

occur simultaneously pursuant to a 

contract or internal procedures. One 

commenter argued that contractual 

provisions and auditable internal 

policies and procedures create links 

between assets and liabilities that are 

sufficiently formal and enforceable such 

that interdependent treatment is 

warranted. For example, in the case of 

initial margin provided by a client and 

used by a covered company to purchase 

a security to hedge the customer-facing 

derivative exposure, one commenter 

argued that force majeure clauses 

relieve a covered company from 

returning initial margin to a client when 

the company is unable to sell the hedge 

security asset. In this case, the 

commenter argued that the hedge asset 

and initial margin liability are linked 

because the firm will not be required to 

return the initial margin until it is able 

to sell the hedge security. 

In these cases, commenters requested 

that the agencies either assign a nonzero ASF factor for rehypothecatable 

initial margin received by a covered 

company or reduce the RSF factor 

assigned to the hedge asset purchased 

using initial margin provided by a 

client. Commenters asserted that the 

proposed rule should provide greater 

funding value to initial margin received 

by a covered company from clients and 

used by the covered company to hedge 

its derivative position with the client 

because this source of funding is more 

closely related to the covered company’s 

derivatives activities than other sources 

of funding that receive higher ASF 

factors, like retail deposits. The 

commenters also expressed the view 

that failure to give interdependent 

treatment to initial margin liabilities 

and related hedge assets under these 

circumstances effectively punishes 

covered companies for financing 

corporate entities, which would 

adversely impact corporate financing. 

While a covered company may be 

unlikely in practice to continue to hold 

a hedge asset without a corresponding 

liability to its client, there is generally 

no absolute contractual bar against this. 

A covered company generally could 

continue to hold an asset formally used 

as a hedge despite a change in or 

elimination of a particular client’s 

derivative position. A covered company 

could, for example, return a client’s 

initial margin but continue to hold the 

asset purchased as a hedge, if only for 

a short time. It is not the case that the 

asset and liability necessarily fall due at 

the same time. Accordingly, it would 

not be appropriate to treat these assets 

and liabilities as interdependent. 

Mortgage Servicing 

A commenter also suggested that 

mortgage servicing rights and deposits 

related to mortgage servicing be granted 

interdependent treatment. The 

commenter argued that the asset 

(mortgage servicing rights) and liability 

(mortgage borrower deposits consisting 

of the principal, interest, tax, and 

insurance payments collected from the 

borrowers to be remitted to investors, 

insurers, and state and local 

governments) are linked and treated as 

self-funding by the industry. The 

commenter also argued that deposits 

arising from mortgage servicing should 

be considered stable because they have 

predictable inflow and outflow patterns. 

It would be inconsistent with the 

NSFR’s aggregated balance sheet 

approach to remove from the ratio 

calculation, through interdependent 

treatment, an asset and a liability that 

are not each clearly identifiable or 

where the maturities and amounts of the 

asset and the liability do not align. 

While certain assets and liabilities may 

be closely linked (such as mortgage 

servicing rights and borrower 

liabilities), there is not enough certainty 

that the size and maturity of these assets 

and liabilities would always align. 

Other Comments on Interdependent 

Assets and Liabilities 

Commenters also submitted several 

general comments applicable to many 

types of transactions that they argued 

should receive interdependent 

treatment. Commenters suggested that 

the agencies could impose data 

reporting requirements to verify that 

internal policies and procedures are 

maintaining a link between the various 

parts of the transactions they believe 

should be granted interdependent 

treatment. Another commenter argued 

that, if covered companies engage in the 

transactions outlined above in 

accordance with the BCBS haircut floors 

for non-centrally cleared securities 

financing transactions,229 then the 

transactions should be treated as 

interdependent. Several commenters 

also warned that failure to provide 

interdependent treatment for the 

positions described above would 

significantly reduce liquidity in the 

relevant markets. 

A discussed in section V of this 

Supplementary Information section, the 

NSFR is a broad measure of the funding 

profile of the whole balance sheet of a 

covered company and the final rule 

does not apply separate requirements to 

individual lines of business or to 

subsets of assets and liabilities of a 

covered company. The treatment of 

specific assets and liabilities as 

interconnected would effectively 

remove these items from the assessment 

of the covered company’s stable funding 

profile overall. As a general principle, it 

would be inconsistent with the 

purposes and design of the NSFR to 

provide interdependent treatment to a 

specific asset and liability where the 

specified asset can contractually persist 

on the balance sheet of the covered 

company after the extinguishment of the 

specified liability. While internal 

processes and procedures may increase 

the probability of such assets and 

liabilities aligning, it would be 

impractical to expand the final rule to 

create or regulate such processes in a 

manner that would ensure alignment. 

VIII. Net Stable Funding Ratio Shortfall 

As noted above, the proposed rule 

would have required a covered 

company to maintain an NSFR of at 

least 1.0 on an ongoing basis. The 

agencies expect circumstances where a 

covered company has an NSFR below 

1.0 to arise rarely. However, given the 

range of reasons, both idiosyncratic and 

systemic, a covered company could 

have an NSFR below 1.0 (for example, 

a covered company’s NSFR might 

temporarily fall below 1.0 during a 

period of extreme liquidity stress), the 

proposed rule would not have 

prescribed a particular supervisory 

response to address a violation of the 

NSFR requirement. Instead, the 

proposed rule would have provided 

flexibility for the appropriate Federal 

banking agency to respond based on the 

circumstances of a particular case. 

Potential supervisory responses could 

include, for example, an informal 

supervisory action, a cease-and-desist 

order, or a civil money penalty. 

The proposed rule would have 

required a covered company to notify 

the appropriate Federal banking agency 

of an NSFR shortfall or potential 

shortfall. Specifically, the proposed rule 

would have required a covered 

company to notify its appropriate 

Federal banking agency no later than 10 

business days, or such other period as 


khammond on DSKJM1Z7X2PROD with RULES2
9190 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

230See §ll.2(c) of the final rule. 

231See section IX of this Supplementary 

Information section. 232The ability for a covered company to calculate 

its NSFR at any point in which its funding profile 

materially changes intra-quarter is similar to the 

application of minimum capital requirements under 

the agencies regulatory capital rule. For example, 

Prompt Corrective Action requires an insured 

depository institution to provide written notice to 

its primary supervisor that an adjustment to its 

capital category may have occurred no later than 15 

calendar days following the date that any material 

event has occurred that would cause the insured 

depository institution to be placed in a lower 

capital category. See 12 CFR 6.3 (OCC); 12 CFR 

208.42 (Board); 12 CFR 324.402 (FDIC). 

the appropriate Federal banking agency 

may otherwise require by written notice, 

following the date that any event has 

occurred that has caused or would cause 

the covered company’s NSFR to fall 

below the minimum requirement. 

In addition, a covered company 

would have been required to develop a 

plan for remediation in the event of an 

NSFR shortfall. As set forth in the 

proposed rule, such a plan would have 

been required to include an assessment 

of the covered company’s liquidity 

profile, the actions the covered 

company has taken and will take to 

achieve full compliance with the 

proposed rule (including a plan for 

adjusting the covered company’s 

liquidity profile to comply with the 

proposed rule’s NSFR requirement and 

a plan for fixing any operational or 

management issues that may have 

contributed to the covered company’s 

noncompliance), and an estimated time 

frame for achieving compliance. The 

proposed rule would have required a 

covered company to submit its 

remediation plan to its appropriate 

Federal banking agency no later than 10 

business days, or such other period as 

the appropriate Federal banking agency 

may otherwise require by written notice, 

after: (1) The covered company’s NSFR 

falls below, or is likely to fall below, the 

minimum requirement and the covered 

company has or should have notified 

the appropriate Federal banking agency, 

as required under the proposed rule; (2) 

the covered company’s required NSFR 

disclosures or other regulatory reports 

or disclosures indicate that its NSFR is 

below the minimum requirement; or (3) 

the appropriate Federal banking agency 

notifies the covered company that it 

must submit a plan for NSFR 

remediation and the agency provides a 

reason for requiring such a plan. 

Finally, the covered company would 

have been required to report to the 

appropriate Federal banking agency no 

less than monthly (or other frequency, 

as required by the agency) on its 

progress towards achieving full 

compliance with the proposed rule. 

These reports would have been 

mandatory until the firm’s NSFR was 

equal to or greater than 1.0. 

The agencies would have retained the 

authority to take supervisory action 

against a covered company that fails to 

comply with the NSFR requirement.230

Any action taken would have depended 

on the circumstances surrounding the 

funding shortfall, including, but not 

limited to, operational issues at a 

covered company, the frequency or 

magnitude of the noncompliance, the 

nature of the event that caused a 

shortfall, and whether such an event 

was temporary or unusual. 

The agencies received one comment 

requesting clarification of how 

frequently a covered company must 

calculate its NSFR to meet the proposed 

rule’s requirement to maintain an NSFR 

of 1.0 on an ‘‘ongoing basis.’’ The 

commenter suggested that the final rule 

should require a covered company to 

calculate its NSFR in the same manner 

as it calculates its regulatory capital 

levels. The commenter argued that, 

because the NSFR is a long-term 

funding metric calculated primarily by 

reference to a covered company’s 

balance sheet, it would not be possible 

to calculate a firm’s NSFR more 

frequently than monthly. 

The agencies also received two 

comments related to the proposed rule’s 

shortfall provisions. One commenter 

asserted that the proposed rule did not 

have a mechanism similar to the LCR 

permitting a covered company’s NSFR 

to fall below 1.0. Another commenter 

responded to the agencies’ request for 

comment as to whether the proposed 

shortfall framework should include a de 

minimis exception, such that a covered 

company would not be required to 

report a shortfall if its NSFR returned to 

the required minimum within a short 

grace period. This commenter requested 

a de minimis exception when the cause 

of an NSFR shortfall is beyond a 

covered company’s control and the 

shortfall would not be expected to 

increase systemic risk because of an 

expected short duration and minimal 

amount. This commenter also requested 

that the final rule include a cure period 

where a shortfall is caused by a merger 

or acquisition by a covered company. 

Another commenter requested that the 

requirement to submit a formal 

remediation plan should be determined 

on a case-by-case basis by the covered 

company’s appropriate Federal banking 

agency. The commenter also requested 

that the requirement to respond to an 

NSFR shortfall be calibrated to the 

materiality and likely persistence of the 

shortfall. 

Consistent with the proposed rule, the 

final rule requires a covered company to 

maintain an NSFR of at least 1.0 on an 

ongoing basis. The NSFR is designed to 

ensure that covered companies have the 

ability to serve households and 

businesses in both normal and adverse 

economic situations. The agencies 

would generally support a covered 

company that chooses to reduce its 

NSFR during a liquidity stress period in 

order to continue to lend and undertake 

other actions to support the broader 

economy in a safe and sound manner. 

While the final rule requires a covered 

company that is a U.S. depository 

institution holding company or U.S. 

intermediate holding company to 

disclose its NSFR for each quarter on a 

semi-annual basis,231 a covered 

company needs to monitor its funding 

profile on an ongoing basis to ensure 

compliance with the NSFR requirement. 

If a covered company’s funding profile 

materially changes intra-quarter, the 

agencies expect the company to be able 

to calculate its NSFR to determine 

whether it remains compliant with the 

NSFR requirement, consistent with the 

notification requirements of § ll.110 

of the final rule.232 The agencies are 

adopting the shortfall provisions of the 

final rule as proposed. Consistent with 

the shortfall framework in the LCR rule, 

the final rule’s shortfall framework 

provides supervisory flexibility for the 

appropriate agency to respond to an 

NSFR shortfall based on the particular 

circumstances of the shortfall. 

Depending on the circumstances, an 

NSFR shortfall would not necessarily 

result in supervisory action, but, at a 

minimum, would result in a notification 

to the appropriate agency and 

heightened supervisory monitoring 

through a remediation plan. 

The agencies have determined not to 

include a cure period or de minimis 

exception to the shortfall notification 

requirement in the final rule. The 

shortfall notification procedures are 

intended to help the agencies identify a 

covered company that has a heightened 

liquidity risk profile, and identify and 

evaluate shortfall patterns over time and 

across covered companies. Timely 

notification of a shortfall allows the 

appropriate Federal banking agency to 

make an informed determination as to 

the appropriate supervisory response. 

As a result, the agencies are finalizing 

the requirement that a covered company 

must provide such notification no later 

than 10 business days, or such other 

period as the appropriate agency may 

otherwise require by written notice, 

following the date that any shortfall 

event has occurred. Similarly, timely 

submission of a remediation plan 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9191 

233The FBO tailoring proposal would have 

applied NSFR public disclosure requirements to a 

U.S. intermediate holding company of a foreign 

banking organization subject to Category II or III 

liquidity standards, or subject to Category IV 

liquidity standards with $50 billion or more in 

weighted short-term wholesale funding. 84 FR at 

24320. 

234The Board noted in the Supplementary 

Information section of the proposed rule that it may 

develop a different or modified reporting form that 

would be required for both depository institutions 

and depository institution holding companies 

subject to the proposed rule. The Board stated that 

it anticipated that it would solicit public comment 

on any such new reporting form. 

235The ‘‘unweighted’’ amount generally refers to 

values of ASF or RSF components prior to applying 

the assigned ASF or RSF factors, whereas the 

‘‘weighted’’ amount generally refers to the amounts 

resulting after applying the assigned ASF or RSF 

factors. 

236As described in section V.E.3 of this 

Supplementary Information section, the final rule 

includes reduced NSFR requirements for certain 

covered companies. The final rule makes certain 

adjustments to the NSFR disclosure template in 

§ll.131 of the final rule to incorporate the 

reduced requirements. 

facilitates evaluation of shortfalls and 

the efforts undertaken by covered 

companies to address them, which 

assists the agencies in determining the 

appropriate supervisory response. Such 

supervisory monitoring and response 

could be hindered if notice were to 

occur or remediation plans were only 

submitted after a shortfall persisted in 

duration or increased in amount. 

IX. Disclosure Requirements 

A. NSFR Public Disclosure 

Requirements 

The disclosure requirements of the 

proposed rule would have applied to 

certain bank holding companies and 

savings and loan holding companies. 

The tailoring proposals would have 

amended the scope of application of the 

proposed disclosure requirements to 

apply to domestic top-tier depository 

institution holding companies and U.S. 

intermediate holding companies of 

foreign banking organizations subject to 

the proposed NSFR rule.233 The 

disclosure requirements of the proposed 

rule would not have applied to 

depository institutions.234 The proposed 

rule would have required public 

disclosure of a company’s NSFR and 

components, as well as discussion of 

certain qualitative features to facilitate 

an understanding of the company’s 

calculation and results. The final rule 

adopts the public disclosure 

requirements for domestic top-tier 

depository institution holding 

companies and U.S. intermediate 

holding companies of foreign banking 

organizations that are subject to the final 

rule (covered holding companies). 

B. Quantitative Disclosure Requirements 

The proposals would have required a 

company subject to the proposed 

disclosure requirements to publicly 

disclose the company’s NSFR and its 

components. The proposed NSFR 

disclosure template would have 

included components of a company’s 

ASF and RSF calculations (ASF 

components and RSF components, 

respectively), as well as the company’s 

ASF amount, RSF amount, and NSFR. 

For most ASF and RSF components, the 

proposed rule would have required 

disclosure of both ‘‘unweighted’’ and 

‘‘weighted’’ amounts.235 For certain line 

items in the proposed NSFR disclosure 

template relating to derivative 

transactions that include components of 

multi-step calculations before an ASF or 

RSF factor is applied, a company would 

only have been required to disclose a 

single amount for the component. 

Two commenters argued that the 

proposed NSFR disclosure template 

should not include certain information 

that is more granular than, or in 

addition to, the information specified in 

the BCBS common template, such as the 

requirement for additional detail 

regarding a company’s HQLA and 

certain other assets. One of these 

commenters asserted that the proposed 

level of detail of required disclosures 

could constrain a company’s ability to 

execute its funding and related business 

strategies because a firm subject to the 

disclosure requirements would be wary 

of adjusting its funding structure in a 

way that would appear to market 

participants to diverge from the funding 

structures of peer firms. The commenter 

also argued this anticipation of a market 

response would inappropriately force 

firms with different business models 

and funding needs to maintain similar 

funding structures. The commenter 

acknowledged that these concerns could 

be mitigated if firms explain the 

difference between their funding 

structures and those of other firms in 

the qualitative portion of the public 

disclosure, but argued that market 

participants are likely to pay more 

attention to the quantitative portion of 

a firm’s disclosure. To address these 

concerns, the commenter argued that 

reducing the required granularity of the 

proposed disclosures would provide the 

market with sufficient information 

about a company’s liquidity profile 

without resulting in what the 

commenter argued would be negative 

effects of overly detailed disclosures. 

Other commenters suggested that the 

final rule require a company to disclose 

its average NSFR over the relevant 

reporting period, rather than the 

company’s NSFR at the end of the 

quarter. The commenters argued that 

liquidity positions, and consequently a 

company’s NSFR, can be volatile. 

Accordingly, disclosing a company’s 

NSFR for the day ending a reporting 

period could suggest that the company’s 

liquidity position is more volatile than 

an average of the company’s NSFR over 

the entire reporting period would 

suggest. One commenter also argued 

that using an average value would be 

consistent with the disclosure 

requirements for the LCR. The final rule 

retains the quantitative disclosure 

requirements largely as proposed.236

However, in a change from the proposal, 

the final rule requires covered holding 

companies to use simple daily averages 

rather than quarter end data in its public 

disclosures. This change from the 

proposal will reduce the possibility of 

‘‘window dressing’’ by covered holding 

companies and will benefit the public 

by more accurately reflecting the long 

term funding profile of the reporting 

covered holding companies. 

Although the final rule requires 

disclosure of certain liquidity data, it 

does not require a covered holding 

company to disclose specific asset-, 

liability-, or transaction-level details. 

This should limit the risk that public 

disclosures will prevent a covered 

holding company from executing its risk 

management and business strategies. 

The disclosure requirements in the final 

rule are generally consistent with the 

items specified in the BCBS common 

template, with some relatively small 

differences, as described below. By 

using a standardized tabular format that 

is generally similar to the BCBS 

common template, the final rule’s NSFR 

disclosure template enables market 

participants to compare funding 

characteristics of covered holding 

companies in the United States and 

other banking organizations subject to 

similar requirements in other 

jurisdictions. 

For most ASF or RSF components, the 

final rule’s NSFR disclosure template, 

like the proposed NSFR disclosure 

template, requires separation of the 

unweighted amount based on maturity 

categories relevant to the NSFR 

requirement: Open maturity; less than 

six months after the calculation date; six 

months or more, but less than one year 

after the calculation date; one year or 

more after the calculation date; and 

perpetual. While the BCBS common 

template does not distinguish between 

the ‘‘open’’ and ‘‘perpetual’’ maturity 

categories (grouping them together 

under the heading ‘‘no maturity’’), the 

final rule requires a company to disclose 


khammond on DSKJM1Z7X2PROD with RULES2
9192 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

237A company would have been required to 

disclose nonperforming assets as part of the line 

item for other assets and nonperforming assets, 

rather than as part of a line item based on the type 

of asset that has become nonperforming. 

238The Board notes that the information to be 

disclosed relating to HQLA is consistent with the 

design and purpose of the NSFR and is different 

from disclosures under the LCR rule. The carrying 

values of the various types of liquid assets at the 

reporting date, together with their maturity profile, 

provide additional clarity regarding the structure of 

the reporting company’s balance sheet. In contrast, 

the LCR rule focuses on the ability to monetize 

assets in a period of stress and the LCR disclosure 

template contains averages of market values of 

eligible HQLA. 

amounts in the ‘‘open’’ and ‘‘perpetual’’ 

maturity categories separately because 

the categories are on opposite ends of 

the maturity spectrum for purposes of 

the final rule. The ‘‘open’’ maturity 

category is meant to identify 

instruments that do not have a stated 

contractual maturity and may be closed 

out on demand, such as demand 

deposits. The ‘‘perpetual’’ category is 

intended to identify instruments that 

contractually may never mature and 

may not be closed out on demand, such 

as equity securities. The final rule’s 

NSFR disclosure template separates 

these two categories into different 

columns to improve the transparency 

and quality of the disclosure without 

undermining the ability to compare the 

NSFR component disclosures of banking 

organizations in other jurisdictions that 

utilize the BCBS common template 

because these two columns can be 

summed for comparison purposes. For 

certain ASF and RSF components that 

represent calculations that do not 

depend on maturities, such as the NSFR 

derivatives asset or liability amount, the 

final rule’s NSFR disclosure template, 

like the proposed NSFR disclosure 

template, does not require a covered 

holding company to separate its 

disclosed amount by maturity category. 

As described further below, the final 

rule, like the proposed rule, identifies 

the ASF and RSF components that a 

covered holding company must include 

in each row of the NSFR disclosure 

template, including cross-references to 

the relevant sections of the final rule. In 

some cases, the final rule’s NSFR 

disclosure template requires 

instruments that are assigned identical 

ASF or RSF factors to be disclosed in 

different rows or columns, and some 

rows and columns combine disclosure 

of instruments that are assigned 

different ASF or RSF factors. 

For consistency, the final rule’s NSFR 

disclosure template requires a covered 

holding company to clearly indicate the 

as-of date for disclosed amounts and 

report all amounts on a consolidated 

basis and expressed in millions of U.S. 

dollars or as a percentage, as applicable. 

1. Disclosure of ASF Components 

The proposed rule would have 

required a company subject to the 

proposed requirement to disclose its 

ASF components, separated into the 

following categories: (1) Capital and 

securities, which includes NSFR 

regulatory capital elements and other 

capital elements and securities; (2) retail 

funding, which includes stable retail 

deposits, less stable retail deposits, 

retail brokered deposits, and other retail 

funding; (3) wholesale funding, which 

includes operational deposits and other 

wholesale funding; and (4) other 

liabilities, which include the company’s 

NSFR derivatives liability amount and 

any other liabilities not included in 

other categories. The Board is adopting 

the ASF component disclosure 

categories as proposed. 

The final rule’s NSFR disclosure 

template differs from the BCBS common 

template by including some additional 

ASF categories that are not separately 

broken out under the Basel NSFR, such 

as retail brokered deposits. The final 

rule’s NSFR disclosure template also 

includes additional information 

regarding a covered holding company’s 

total derivatives amount. These 

differences from the BCBS common 

template provide greater transparency 

by requiring disclosure of additional 

information relevant for understanding 

a covered holding company’s liquidity 

profile. These differences would not 

impact comparability across 

jurisdictions, as the more specific line 

items can be added together to produce 

a comparable total amount. 

2. Disclosure of RSF Components 

The proposed disclosure requirements 

would have required a company to 

disclose its RSF components, separated 

into the following categories: (1) Total 

HQLA and each of its component asset 

categories (i.e., level 1, level 2A, and 

level 2B liquid assets); (2) assets other 

than HQLA that are assigned a zero 

percent RSF factor; (3) operational 

deposits; (4) loans and securities, 

separated into categories including 

retail mortgages and securities that are 

not HQLA; (5) other assets, which 

include commodities, certain 

components of the company’s 

derivatives RSF amount, and all other 

assets not included in another category 

(including nonperforming assets); 237

and (6) undrawn amounts of committed 

credit and liquidity facilities. 

As discussed in section VII.D.3.h of 

this Supplementary Information section, 

the proposed rule would have assigned 

RSF factors to encumbered assets under 

§§ ll.106(c) and (d). A company 

subject to the proposed disclosure 

requirements would have been required 

to include encumbered assets in a cell 

of the NSFR disclosure template based 

on the asset category and asset maturity 

rather than based on the encumbrance 

period. Similar treatment would have 

applied for an asset provided or 

received by a company as variation 

margin to which an RSF factor is 

assigned under § ll.107. 

The final rule includes the RSF 

component disclosure categories as 

proposed with adjustments to 

incorporate the reduced requirements 

under the final rule. The final rule’s 

NSFR disclosure template differs in 

some respects from the BCBS common 

template to provide more granular 

information regarding RSF components 

without undermining comparability 

across jurisdictions. For example, the 

final rule requires disclosure of a 

covered holding company’s level 1, 

level 2A, and level 2B liquid assets by 

maturity category, which is not required 

under the BCBS common template, to 

assist market participants and other 

parties in assessing the composition of 

a covered holding company’s HQLA 

portfolio.238 Additionally, because some 

assets that are assigned a zero percent 

RSF factor under the final rule are not 

HQLA under the LCR rule, such as 

currency and coin and certain trade date 

receivables, the template includes a 

distinct category for zero percent RSF 

assets that are not level 1 liquid assets. 

The NSFR disclosure template also 

differs from the BCBS common template 

in its presentation of the components of 

a covered holding company’s NSFR 

derivatives asset amount, generally to 

improve the clarity of disclosure by 

separating components into distinct 

rows and by including the total 

derivatives asset amount so that market 

participants and other parties can better 

understand a covered holding 

company’s NSFR derivatives asset 

calculation. 

C. Qualitative Disclosure Requirements 

A company subject to the proposed 

disclosure requirements would have 

been required to provide a qualitative 

discussion of the company’s NSFR and 

its components sufficient to facilitate an 

understanding of the calculation and 

results. The proposed rule would not 

have prescribed the content or format of 

a company’s qualitative disclosures; 

rather, it would have allowed flexibility 

for discussion based on each company’s 

particular circumstances. The proposed 

rule would, however, have provided 

guidance through examples of topics 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9193 

239See 12 CFR 217.62, 217.172 and ‘‘Regulatory 

Capital Rules: Regulatory Capital, Implementation 

of Basel III, Capital Adequacy, Transition 

Provisions, Prompt Corrective Action, Standardized 

Approach for Risk-Weighted Assets, Market 

Discipline and Disclosure Requirements, Advanced 

Approaches Risk-Based Capital Rule, and Market 

Risk Capital Rule,’’ 78 FR 62018, 62129 (October 11, 

2013); 12 CFR 249.91(d) and ‘‘Liquidity Coverage 

Ratio: Public Disclosure Requirements; Extension of 

Compliance Period for Certain Companies to Meet 

the Liquidity Coverage Ratio Requirements,’’ 81 FR 

94922, 94926 (December 27, 2016). 

240 81 FR 94922. 

241 81 FR at 94926. 

242The Board will issue a separate proposal for 

notice and comment to amend its information 

collection under its FR 2052a to collect information 

and data related to the requirements of the final 

rule. 

that a company may discuss, to the 

extent they would be significant to the 

company’s NSFR. These examples 

would have included: (1) The main 

drivers of the company’s NSFR; (2) 

changes in the company’s NSFR over 

time and the causes of such changes (for 

example, changes in strategies or 

circumstances); (3) concentrations of 

funding sources and changes in funding 

structure; (4) concentrations of available 

and required stable funding within a 

company’s corporate structure (for 

example, across legal entities); and (5) 

other sources of funding or other factors 

in the NSFR calculation that the 

company considers to be relevant to 

facilitate an understanding of its 

liquidity profile. 

One commenter requested that under 

the final rule a company only be 

required to provide a qualitative 

discussion of items that are ‘‘material’’ 

rather than ‘‘significant’’ to the 

company’s NSFR, which the commenter 

argued would be consistent with 

disclosure requirements applicable 

under U.S. federal securities laws and 

facilitate more effective compliance. 

The final rule, like the proposed rule, 

uses the term ‘‘significant’’ to describe 

the examples of items affecting a 

covered holding company’s NSFR about 

which a covered holding company 

should provide a qualitative discussion. 

However, a covered holding company 

may determine the relevant qualitative 

disclosures based on a materiality 

concept. Information is regarded as 

material for purposes of the disclosure 

requirements in the final rule if the 

information’s omission or misstatement 

could change or influence the 

assessment or decision of a user relying 

on that information for the purpose of 

making investment decisions. This 

approach is consistent with the 

disclosure requirements under the 

Board’s regulatory capital rules and the 

LCR public disclosure requirement.239

As noted above, the proposed rule 

would have required a company to 

provide a qualitative discussion of its 

NSFR and included an illustrative list of 

potentially relevant items that a 

company could discuss, to the extent 

relevant to its NSFR. Among the 

illustrative list of potentially relevant 

items was an item titled ‘‘Other sources 

of funding or other factors in the net 

stable funding ratio calculation that the 

covered depository institution holding 

company considers to be relevant to 

facilitate an understanding of its 

liquidity profile.’’ The Board has 

determined that this item would have 

been redundant given the proposed 

rule’s general requirement that a 

covered holding company must provide 

a qualitative discussion of its NSFR. For 

this reason, the final rule eliminates this 

example. 

Disclosure requirements under the 

LCR rule also include a qualitative 

disclosure section.240 Given that the 

proposed rule and the LCR rule would 

be complementary quantitative liquidity 

requirements, a company subject to both 

disclosure requirements would have 

been permitted to combine the two 

qualitative disclosures, as long as the 

specific qualitative disclosure 

requirements of each are satisfied. In 

response to a comment that the Board 

received on the proposed rule for the 

LCR public disclosure requirements 

suggesting that required qualitative 

disclosures include an exemption for 

certain confidential or proprietary 

information, the final LCR public 

disclosure rule clarified that a firm 

subject to that rule is not required to 

include in its qualitative disclosures any 

information that is proprietary or 

confidential.241 Instead, the covered 

holding company is only required to 

disclose general information about those 

subjects and provide a reason why the 

specific information has not been 

disclosed. To maintain consistency 

between the qualitative disclosure 

requirements of the LCR and final rules, 

the final rule does not require a covered 

holding company to include in the 

qualitative disclosure for its NSFR any 

information that is proprietary or 

confidential so long as the company 

discloses general information about the 

non-disclosed subject and provides a 

specific reason why the information is 

not being disclosed. 

D. Frequency and Timing of Disclosure 

The proposed rule would have 

required a company to provide timely 

public disclosures after each calendar 

quarter. One commenter argued that the 

frequency of the required disclosure 

should be increased to daily because 

market participants need more timely 

information to adequately adjust their 

risk management and business activities 

based on the liquidity risk of 

companies. The commenter also argued 

that quarterly NSFR disclosures could 

increase market instability relative to 

more frequent disclosures, because, the 

commenter argued, large changes in a 

company’s NSFR between quarters 

would be more disruptive to the market 

compared to more frequent disclosures 

that revealed smaller incremental 

changes to a company’s NSFR. Finally, 

the commenter argued that more 

frequent disclosure would make it more 

difficult for a company to engage in 

‘‘window dressing’’ its NSFR to create 

the appearance that its liquidity profile 

is more stable than the company 

normally maintains. 

Like the proposed rule, the final rule 

requires public disclosures for each 

calendar quarter. However, in a change 

from the proposal, the quarterly NSFR 

disclosures are required to be reported 

on a semiannual basis for every second 

and fourth calendar quarter. For 

example, following the end of the 

second quarter of 2023, covered holding 

companies are required to publicly 

disclose their NSFRs and ASF and RSF 

components for the first quarter of 2023 

and the second quarter of 2023. This 

approach balances the benefits of 

quarterly disclosures, which includes 

allowing market participants and other 

parties to assess the funding risk 

profiles of covered holding companies, 

with the concerns that more frequent 

disclosure could result in unintended 

consequences. The Board will continue 

to assess the potential effects that public 

disclosures have on the ability of 

banking organizations to engage in 

banking activities that support the 

economy, especially in times of stress. 

The Board will work with international 

groups, such as the BCBS, as part of its 

continuing evaluation of the efficacy of 

timely public disclosures. 

For supervisory purposes, the Board 

will continue to monitor on a more 

frequent basis any changes to a covered 

holding company’s liquidity profile 

through the information submitted on 

the FR 2052a report.242

As noted above, the proposed rule 

would have required a company subject 

to the proposed requirements to 

publicly disclose, in a direct and 

prominent manner, the required 

information on its public internet site or 

in its public financial or other public 

regulatory reports. The Board requires 

that the disclosures be readily accessible 

to the general public for a period of at 

least five years after the disclosure date. 


khammond on DSKJM1Z7X2PROD with RULES2
9194 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

243The LCR rule similarly does not require 

covered holding companies to provide public LCR 

disclosures until the first calendar quarter that 

includes the date that is 18 months after the 

covered holding company becomes subject to the 

LCR rule. 12 CFR 249.90(b). 

244See 78 FR 62018, 62129 (capital); 12 CFR 

249.94 (LCR). 

245Short-term funding markets experienced a 

period of significant stress in March 2020 that was 

alleviated by financial and economic policy 

interventions. 

246Eleven banking organizations that would be 

subject to Category III standards that have less than 

$75 billion in average weighted short-term 

wholesale funding and would be subject to a 

reduced NSFR requirement calibrated at 85 percent. 

247As described above in Supplementary 

Information section III, the tailoring proposals 

would have modified the scope of application of the 

LCR rule and the proposed NSFR rule to apply to 

certain U.S. banking organizations and U.S. 

intermediate holding companies of foreign banking 

organizations, each with $100 billion or more in 

total consolidated assets, together with certain of 

their depository institution subsidiaries. In 2019, 

the agencies adopted a tailoring final rule that 

amended the scope of the LCR rule. See ‘‘Changes 

to Applicability Thresholds for Regulatory Capital 

and Liquidity Requirements,’’ 84 FR 59230. 

The Board received no comments on 

this aspect of the proposed rule and are 

including it in the final rule without 

modification. 

Under the proposed rule, the first 

reporting period for which a company 

would have been required to disclose its 

NSFR and its components would have 

been the calendar quarter that begins on 

the date the company becomes subject 

to the proposed NSFR requirement. 

Several commenters suggested that 

companies be given additional time to 

comply with disclosure and reporting 

requirements after becoming subject to 

the final rule. In addition, one 

commenter suggested that the disclosure 

requirements not be effective until at 

least two years after a final NSFR rule 

is adopted. Some argued that companies 

need additional time to build and 

implement the data collection systems 

necessary to meet the NSFR disclosure 

requirements. Other commenters argued 

that companies need additional time to 

align their existing liquidity data 

reporting processes under the FR 2052a 

and the LCR public disclosure 

requirements with those required for the 

NSFR rule. Another commenter also 

argued that additional time is necessary 

to allow the Board to clarify, through 

interpretation, the definitions of various 

terms used in the LCR rule and the 

proposed NSFR, and to allow 

companies to modify their compliance 

systems consistent with such 

interpretations. 

To allow covered holding companies 

sufficient time to modify their reporting 

and compliance systems, the final rule 

does not require covered holding 

companies to provide public NSFR 

disclosures until the first calendar 

quarter that includes the date that is 18 

months after the covered holding 

company becomes subject to the NSFR 

requirement.243 This means that covered 

holding companies that are subject to 

the final rule beginning on the effective 

date of July 1, 2021, are required to 

make public disclosures for the first and 

second quarters of 2023 approximately 

45 days after the end of the second 

quarter of 2023. 

As discussed in the Supplementary 

Information section of the proposed 

rule, the timing of disclosures required 

under the Federal banking laws may not 

always coincide with the timing of 

disclosures required under other 

Federal laws, including disclosures 

required under the Federal securities 

laws. For calendar quarters that do not 

correspond to a company’s fiscal year or 

quarter end, under the proposals the 

Board would have considered those 

disclosures that are made within 45 

days of the end of the calendar quarter 

(or within 60 days for the limited 

purpose of the company’s first reporting 

period in which it is subject to the 

proposed rule’s disclosure 

requirements) as timely. In general, 

where a company’s fiscal year end 

coincides with the end of a calendar 

quarter, the Board would have 

considered disclosures to be timely if 

they are made no later than the 

applicable SEC disclosure deadline for 

the corresponding Form 10–K annual 

report. In cases where a company’s 

fiscal year end does not coincide with 

the end of a calendar quarter, the Board 

would have considered the timeliness of 

disclosures on a case-by-case basis. 

This approach to timely disclosures is 

consistent with the approach to public 

disclosures that the Board has taken in 

the context of other regulatory reporting 

and disclosure requirements. For 

example, the Board has used the same 

indicia of timeliness with respect to the 

public disclosures required under its 

regulatory capital rules and the LCR 

public disclosure requirements.244 The 

Board did not receive any comments 

regarding this aspect of the proposed 

rule, and the final rule includes it as 

proposed. 

X. Impact Assessment 

A. Impact on Funding 

The agencies analyzed the potential 

impact of the final rule on the funding 

structure of covered companies and 

estimated the potential increase in 

funding costs for covered companies. In 

addition, the impact analysis considered 

the potential costs and benefits of an 

alternative policy of incorporating a 

small RSF requirement for level 1 liquid 

assets and certain short-term secured 

lending transactions with financial 

sector counterparties secured by level 1 

liquid assets. Finally, this section 

presents responses to impact-related 

comments received on the NSFR 

proposed rule. 

The agencies used bank funding data 

from the second quarter of 2020 to 

obtain the latest available view of the 

impact of the final rule. While the 

second quarter of 2020 represents a 

period of macroeconomic stress as a 

result of economic disruptions related to 

the COVID–19 pandemic, the banking 

system was healthy and bank funding 

markets remained open and functioning, 

partly due to the establishment of 

facilities by the Board that supported 

market functioning and provision of 

credit to households and businesses.245

The impact of the final rule could vary 

through the economic and credit cycle 

based on the liquidity profile of a 

covered company’s assets and appetite 

for funding risk. However, the agencies 

expect the impact of the final rule to be 

broadly similar if estimated using assets, 

commitments, and liabilities data from 

periods immediately preceding the 

onset of the COVID–19 pandemic. 

The agencies approximated ASF and 

RSF amounts at the consolidated level 

for covered companies that would be 

subject to the full or reduced NSFR 

requirement, as applicable, to estimate 

stable funding shortfalls and excesses. 

These estimates were based on 

confidential supervisory data collected 

on the FR 2052a report and publicly 

available data from the FR Y–9C. As the 

available regulatory reports do not 

correspond perfectly to the final rule’s 

categories of assets, commitments, and 

liabilities to which RSF and ASF factors 

are assigned, the estimation entailed the 

use of staff judgment, which may 

introduce some measurement error and 

hence, uncertainty into the estimates. 

The scope of application for the final 

rule includes 20 banking organizations, 

11 of which would be Category III 

banking organizations subject to a 

reduced NSFR requirement.246

Additionally, 27 depository institutions 

with $10 billion or more in total 

consolidated assets that are 

consolidated subsidiaries of the 20 

banking organizations described above 

are also covered by the final rule. The 

initial proposal would have included a 

broader set of covered companies, but 

the agencies subsequently established a 

modified scope as part of their recent 

efforts to tailor regulations for domestic 

and foreign banks to more closely match 

their risk profiles.247 The final rule 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9195 

248The agencies have explored the 

methodological differences between the proposal 

and final rule estimates and concluded these 

differences likely would not substantially affect the 

estimates. 

249The agencies also analyzed the costs and 

benefits of a 10 percent RSF factor for short-term 

secured lending transactions to financial sector 

counterparties, and came to the same conclusion as 

with the 5 percent RSF factor. This reflects the fact 

that a higher RSF factor on these assets increases 

both the associated costs and benefits, 

aligns its scope of application with the 

LCR rule. 

Using the approach described above, 

and assuming uncertainty of 5 percent 

in the NSFR due to measurement errors 

and management buffers, the agencies 

estimate that nearly all of these covered 

companies would be in compliance 

with the applicable NSFR requirement 

in the second quarter of 2020. The 

agencies estimate that a small number of 

GSIBs subject to the full NSFR could 

face an expected NSFR shortfall. The 

total shortfall is estimated to be $10 to 

$31 billion of stable funding. The 

agencies’ estimates of shortfalls at these 

individual covered companies range 

from a negligible amount to 8 percent of 

the company’s current level of ASF of 

their estimated NSFR. Beyond this small 

number of companies with shortfalls, 

the additional change in stable funding 

necessary to comply with the final rule 

at other covered companies, including 

all depository institution subsidiaries, is 

zero. Considering all banking 

organizations that would be subject to 

the final rule, the agencies estimate that 

there is a total ASF of $8.5 trillion, a 

$1.3 trillion surplus over the total RSF. 

As the final rule has differential 

effects on the use of funding of different 

tenors, the agencies studied the effect of 

the final rule on overall bank funding 

costs. The agencies do not expect most 

covered companies to incur an increase 

in funding costs to comply with the 

NSFR requirements. Across the 

companies with possible NSFR 

shortfalls, the agencies estimate that the 

annual funding costs of raising 

additional stable funding ranges from 

$80 to $250 million. For the individual 

companies, estimates of the funding 

costs range from a negligible amount to 

about 3 percent of net income from the 

third quarter of 2019 to the second 

quarter of 2020. The cost estimate 

assumes companies with a shortfall 

would elect to eliminate it by replacing 

liabilities that are assigned a lower ASF 

factor with longer maturity liabilities 

that are assigned a higher ASF factor. 

This cost is based on an estimated 

difference in relative interest expense 

between 90 day AA-rated commercial 

paper (assigned a zero percent ASF 

factor) and unsecured debt that matures 

in one year (assigned a 100 percent ASF 

factor). The estimated difference is 

approximately 80 basis points, based on 

the average cost difference between 

these two sources of funding from 

January 2002 to February 2020. 

Covered companies have multiple 

avenues by which to adjust their 

funding sources to increase their NSFRs, 

such as raising more retail deposits, 

raising capital, or lengthening funding 

terms. In general, covered companies 

would be expected to adjust to changes 

in regulation in a manner that provides 

the most favorable tradeoff between 

revenues and the cost of compliance. 

For this analysis, the agencies assumed 

that covered companies would resolve 

any NSFR shortfall by increasing their 

use of 12-month term funding, which is 

the shortest term that qualifies for a 100 

percent ASF factor, and thus is a good 

proxy for the lowest cost way of 

resolving an NSFR shortfall through 

additional funding. 

Instead of changing their funding mix 

to increase available stable funding, 

covered companies with a stable 

funding shortfall could instead change 

their asset mix to reduce their required 

stable funding. Covered companies may 

do so if the forgone revenues from such 

assets are smaller than the cost of 

raising additional stable funding. In this 

scenario, the costs incurred by covered 

companies would be even smaller than 

the agencies’ estimates. Due to the depth 

and competitiveness of U.S. financial 

markets, such portfolio changes, if they 

were to occur, would likely have little 

knock-on effects on households and 

businesses. 

Maintaining stable funding 

requirements may reduce the risk of 

covered company failure and the 

vulnerability of the financial system 

more broadly. To assess this, the 

agencies examined measures of stable 

funding for financial institutions 

leading up to and during the 2007–2009 

financial crisis. The agencies found that, 

during the crisis, financial institutions 

that held low amounts of stable funding 

were significantly more likely to fail, be 

resolved, or receive liquidity and 

funding assistance from federal 

programs such as the FDIC’s Temporary 

Liquidity Guarantee Program. This 

analysis indicates that the final rule is 

likely to increase the overall resilience 

of the banking system. 

To assess changes since the financial 

crisis, the agencies examined broad 

measures of funding stability, including 

the loans-to-deposits ratio and an 

approximation of the NSFR that, unlike 

the more precise measure used to 

estimate the shortfall, can be calculated 

back to the mid-2000’s. These measures 

show clear improvement since the mid2000’s. Much of this improvement 

appeared soon after the financial crisis, 

potentially reflecting the combined 

effects of the post-crisis regulatory 

reforms as well as the release of the 

BCBS’s draft NSFR standard in 2010. 

These broader improvements in funding 

stability suggest that the total 

adjustments that banking organizations 

have made in response to the NSFR 

standard and proposed rule may be 

greater than the stable funding shortfalls 

suggested by the most recent data. 

To assess changes in stable funding 

since the NSFR notice of proposed 

rulemaking, the agencies compared the 

stable funding shortfall under the 

proposed rule, estimated at the time of 

the proposed rule (December 2015), and 

the stable funding shortfall under the 

final rule. Under the proposed rule, the 

agencies estimated an aggregate stable 

funding shortfall of $39 billion as of 

December 2015. The agencies estimate 

that, as of June 2020 under the final 

rule, the shortfall is between $10 and 

$31 billion, or a difference of $8 to $29 

billion from the proposed rule in 

December 2015.248 This difference is 

similar to the difference in stable 

funding requirements caused by the 

changes in the RSF factors in the final 

rule for level 1 high quality liquid assets 

and gross derivative liabilities from the 

proposal. The agencies estimate that the 

aggregate required stable funding 

needed by banking organizations to 

comply with the NSFR would have been 

$28 to $65 billion had these changes not 

been implemented. The comparable 

figures suggest that the change in the 

shortfall from the proposal to the final 

rule is comparable to the isolated 

impact of the changes implemented in 

the final rule. More broadly, the 

historical perspective suggests that the 

final rule will help lock in the gains in 

funding stability made since the 

financial crisis. 

B. Costs and Benefits of an RSF Factor 

for Level 1 HQLA, Both Held Outright 

and as Collateral for Short-Term 

Lending Transactions 

The final rule establishes a zero 

percent RSF factor for level 1 liquid 

assets held outright and short-term 

secured lending transactions with 

financial sector counterparties that are 

secured by level 1 high quality liquid 

assets. The agencies analyzed the costs 

and benefits of an alternate policy of a 

5 percent RSF factor for such assets. As 

discussed above, the agencies estimated 

that the marginal cost of additional 

stable funding is about 80 basis 

points.249 Based on this estimate, the 


khammond on DSKJM1Z7X2PROD with RULES2
9196 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

250A stable funding requirement of 5 percent 

multiplied by an 80 basis points stable funding 

annual premium equals an annual cost of four basis 

points. 

agencies predict that covered companies 

with an NSFR shortfall would have to 

incur an annual cost of about four basis 

points for each dollar of level 1 liquid 

assets needed to comply with a 5 

percent stable funding requirement.250

For such a covered company, the 

increase in funding costs due to a 5 

percent RSF factor on level 1 liquid 

assets would offset about 3 percent of 

interest revenues on U.S. Treasury and 

Agency securities and about 2 percent of 

interest revenues on reverse repurchase 

agreements. 

By reducing the profitability of 

holding these assets, the funding cost of 

a non-zero RSF factor on level 1 liquid 

assets could discourage intermediation 

in U.S. Treasury and repo markets by 

covered companies that have an NSFR 

close to or below 100 percent or are 

concerned that they could have an 

NSFR below 100 percent under stress. 

To the extent that higher costs 

discourage private sector intermediation 

in these markets, these costs could 

reduce intermediation activity. Robust 

intermediation activity is seen as 

beneficial to the smooth functioning of 

these key components of the financial 

system. During past periods of 

significant market stress or impaired 

liquidity, the Federal Reserve has taken 

actions to support the smooth 

functioning of the markets for Treasury 

securities and short-term U.S. dollar 

funding markets. These actions have 

been taken to prevent strains in the 

Treasury market from impeding the flow 

of credit in the economy or to mitigate 

the risk that money market pressures 

could adversely affect monetary policy 

implementation. 

In addition, a non-zero RSF factor for 

level 1 liquid assets would make it more 

costly for covered companies to hold 

level 1 liquid assets than to hold central 

bank reserves, which have a zero 

percent RSF factor. The differential 

treatment of these assets, which count 

equally towards HQLA requirements 

under the LCR rule, may increase 

demand for central bank reserves 

relative to other level 1 liquid assets. 

Having a range of high-quality assets 

that can serve as near substitutes for 

each other allows more flexibility in 

monetary policy implementation and 

supports banking organizations’ ability 

to manage liquidity risks efficiently as 

the supply of these different asset types 

varies over time, further supporting 

smooth market functioning. 

The agencies identified two benefits 

of a small RSF requirement on level 1 

liquid assets. The first benefit is that the 

stable funding requirement would help 

insulate covered companies against 

sharp price declines of level 1 liquid 

assets. Such price declines might put 

liquidity pressure on covered 

companies by triggering collateral and 

margin calls, and, in more severe cases, 

fire sales. Although level 1 liquid assets 

are less volatile and more liquid than 

other securities, selling large quantities 

of them in a short period can depress 

their price further. In particular, using 

BrokerTec data, the agencies estimated 

that the price impact of selling $100 

million of on-the-run U.S. Treasury 

securities ranges from 2 to 13 basis 

points during financial market stress. A 

small RSF requirement on level 1 liquid 

assets would ensure that covered 

companies fund a small portion of these 

securities from stable sources, which 

could ease the liquidity pressure caused 

by price declines and thus potentially 

reduce the need for Federal Reserve 

liquidity support in times of stress. 

The second benefit of a small RSF 

requirement is that it would insulate 

covered companies against the systemic 

risk associated with the 

interconnectedness of short-term 

financing positions secured by level 1 

liquid assets. In particular, covered 

companies may want to provide shortterm financing to counterparties during 

financial market stress to preserve client 

relationships, thus maintaining a set of 

interconnected positions. In the event of 

counterparty default, covered 

companies might be forced to sell the 

level 1 liquid asset collateral securing 

these positions to be able to perform on 

their short-term obligations. However, 

unwinding such interconnected 

positions could potentially put further 

liquidity stress on both covered 

companies and short-term financing 

markets, especially during periods of 

stress. Importantly, the agencies found 

that, over the last 15 years, there were 

several episodes where the typical 1 to 

2 percent haircuts used in U.S. Treasury 

repurchase agreements did not provide 

sufficient protection against day-to-day 

losses on U.S. Treasury securities. A 

small RSF requirement would 

incentivize covered companies to fund 

level 1 liquid assets with more stable 

funding, which would reduce the risks 

associated with interconnected shortterm financing positions. 

After considering the above costs and 

benefits, importantly including the 

concern that a small RSF requirement 

could interfere with the functioning of 

U.S. Treasury and repo markets by 

disincentivizing covered companies 

from acting as intermediaries, the 

agencies are adopting as part of the final 

rule a zero percent RSF factor for level 

1 liquid assets held as securities and for 

short-term secured lending transactions 

secured by level 1 liquid assets. 

C. Response to Comments 

The agencies received many 

comments concerning the potential 

impact of the proposal, most of which 

argued that the cost of the proposal 

would have been greater than predicted 

by the agencies. Commenters argued the 

impact of the NSFR alone and together 

with other more recently finalized 

regulations would have adverse impacts 

on banking activities, markets, and the 

real economy. For example, one 

commenter argued that the NSFR would 

further reduce the ability of covered 

companies to act as financial 

intermediaries, extend credit, promote 

price discovery, and conduct 

segregation and custody of client assets, 

which the commenters argued has 

already been reduced by recent 

regulation, including the SLR rule and 

the GSIB capital surcharge rule. This 

commenter also argued that the NSFR 

would reduce liquidity in the markets 

for securities, raise costs for derivatives 

end-users, make pricing less efficient, 

and result in a sunk cost to covered 

companies in the form of a liquidity 

buffer. The commenter further argued 

that the increase in costs to covered 

companies stemming from the NSFR 

could be passed on to a covered 

company’s clients. The commenters 

noted that the predicted cost of the 

Basel NSFR standard has been cited by 

other jurisdictions as justification to 

change the standard, and that the 

agencies should consider changes to 

reduce the costs of the proposal. 

In regard to commenters’ concerns 

that the proposal would decrease 

financial intermediation, reduce market 

liquidity, and increase costs to 

customers, the estimates from the 

analysis demonstrated that nearly all 

covered companies are already in 

compliance with their NSFR 

requirements, and there is a substantial 

surplus of ASF in excess of RSF across 

covered companies at an aggregate level. 

The agencies also studied the effect of 

the final rule on overall bank funding 

costs and do not expect most covered 

companies to incur an increase in 

funding costs to comply with the final 

NSFR requirements. As such, the final 

rule would not require further changes 

by most covered companies to comply 

with the rule, limiting adverse effects on 

financial intermediation or market 

liquidity. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9197 

251The impact analysis reported in the proposal 

used a different data collection that was less 

comprehensive in its coverage of banking 

companies covered by the NSFR, and less detailed 

in its description of balance sheet items. 

252Better Markets, The Cost of the Crisis: $20 

Trillion and Counting (2015). 253The Basel Committee on Banking Supervision, 

an Assessment of the Long-Term Economic Impact 

of Stronger Capital and Liquidity Requirements 

(2010). 

In developing the final rule, the 

agencies considered commenters’ 

concerns regarding potential costs of 

specific aspects of the NSFR, and in 

some cases have made certain targeted 

changes that reduce potential negative 

impacts on covered companies. For 

example, the proposal set the RSF 

factors for level 1 liquid asset securities 

held outright and short-term reverse 

repos secured by level 1 liquid assets to 

5 percent and 10 percent, respectively. 

The final rule establishes a zero percent 

RSF factor for both level 1 liquid asset 

securities held outright and short-term 

reverse repos secured by level 1 liquid 

assets, in part to avoid disincentivizing 

covered companies from U.S. Treasury 

and repo market intermediation. The 

proposal also required a 20 percent RSF 

add-on factor for gross derivatives 

liabilities. Many commenters expressed 

concerns that this treatment would 

reduce the willingness of covered 

companies to act as derivatives 

counterparties and could thus aggravate 

financial market liquidity stress. The 

final rule establishes a 5 percent RSF 

add-on factor for gross derivatives 

liabilities to take these concerns into 

account. The change in the RSF factor 

from 20 percent to 5 percent reduces 

estimated aggregate RSF by $77 billion, 

or 1 percent of the estimated total RSF. 

Commenters also asserted that the 

agencies had insufficient data to 

estimate the impact of the NSFR on 

covered companies. The agencies note 

that the impact analysis for the final 

rule used publicly available FR Y–9C 

report data and confidential data from 

the FR 2052a report data from the 

second quarter of 2020, which is the 

most up-to-date and comprehensive 

information on covered companies.251

Although the confidential supervisory 

and publicly available data in the 

analysis does not perfectly correspond 

to the categories of assets, commitments, 

and liabilities used in the final rule, the 

data is sufficient to construct 

informative estimates in the impact 

analysis. 

The agencies also received comments 

suggesting that a point-in-time estimate 

of the amount of ASF relative to RSF, 

as provided above, is an inadequate 

measure of the economic effect of the 

NSFR. In particular, the commenters 

argued that the NSFR fluctuates over the 

business cycle because categories with 

high RSF factors, such as nonperforming 

assets and gross derivatives liabilities, 

tend to increase during economic 

downturns. The commenters expressed 

concerns that, as a result, the NSFR 

requirement could have pro-cyclical 

effects. The agencies partly address this 

concern by reducing the RSF factor for 

gross derivative liabilities from 20 

percent to 5 percent. In addition, the 

agencies note that the NSFR of nearly all 

covered companies increased over the 

first half of 2020, while nonperforming 

assets and gross derivative liabilities 

increased for most covered companies. 

Notably, this increase in the NSFR was 

partly driven by the inflow of retail 

deposits at covered companies, which 

was similar to the inflow of retail 

deposits during the global financial 

crisis of 2007–2009. Therefore, the 

available empirical evidence currently 

available suggests that retail deposit 

inflows can partially counteract the 

potential pro-cyclicality of the NSFR 

requirement on covered companies 

during economic downturns. 

One commenter agreed with the 

agencies’ statement in the 

Supplementary Information section to 

the proposal that even a slight reduction 

in the probability of another financial 

crisis would far outweigh the additional 

costs of the proposal. This commenter 

cites a study showing that the estimated 

cost of the 2007–2009 financial crisis 

was greater than $20 trillion.252 The 

BCBS finds banking crises typically 

have smaller but still very large 

cumulative discounted costs of 20 to 60 

percent of GDP, which translates to a 

total cost of $4 to $12 trillion.253 The 

final rule promotes safety and 

soundness by protecting covered 

companies against an extended period 

of liquidity and market stress by 

mandating a minimum amount of stable 

funding commensurate to the liquidity 

risks of their assets and certain 

contingent exposures. 

Several commenters questioned 

whether the impact assessment in the 

proposal adequately accounts for costs 

to the intermediate holding companies 

of foreign banking organizations, noting 

that the impact assessment was 

developed prior to the finalization of the 

requirement that certain foreign banking 

organizations form an intermediate 

holding company in the United States 

under the Board’s enhanced prudential 

standards rule. The commenters 

asserted that this timing likely resulted 

in the impact assessment in the 

proposal not including or 

underestimating the impact to 

intermediate holding companies. The 

impact analysis in the final rule 

considered all covered companies, 

including intermediate holding 

companies, using data from the second 

quarter of 2020. 

XI. Effective Dates and Transitions 

A. Effective Dates 

Under the proposed rule, the NSFR 

requirement would have been effective 

as of January 1, 2018. At the time the 

proposal was issued in April 2016, the 

agencies set this effective date to 

provide covered companies with 

sufficient time to adjust to the 

requirements of the proposal, including 

to make any changes to ensure their 

assets, derivative exposures, and 

commitments are stably funded and to 

adjust information systems to calculate 

and monitor their NSFR ratios. The 

NSFR is a balance-sheet metric and its 

calculations would generally be based 

on the carrying value, as determined 

under GAAP, of a covered company’s 

assets, liabilities, and equity. As a 

result, covered companies should 

generally be able to leverage current 

financial reporting systems to comply 

with the NSFR requirement. 

Under the proposed rule, the updated 

definitions were set to become effective 

for purposes of the LCR rule at the 

beginning of the calendar quarter after 

finalization of the proposed NSFR rule, 

instead of on January 1, 2018. The 

agencies proposed that revisions to 

definitions in the LCR rule become 

effective sooner than the proposed 

NSFR effective date because they would 

enhance the clarity of certain definitions 

used in the LCR rule. Several 

commenters requested additional time 

to adjust the revised LCR definitions 

into their liquidity compliance systems. 

One commenter requested at least 180 

days after the final rule is published for 

the revised LCR definitions to be 

effective. Another commenter requested 

that the Board issue additional guidance 

on how the revised definitions should 

be incorporated into FR 2052a reporting 

requirements prior to implementation of 

the final rule, particularly the 

definitions of ‘‘secured funding’’ and 

‘‘secured lending.’’ 

Many commenters requested that the 

January 1, 2018 effective date be 

delayed to provide covered companies 

additional time to achieve compliance 

with the NSFR requirement. For 

example, one commenter requested that 

the effective date be delayed to at least 

January 2020. One commenter argued 

that the agencies should take additional 

time to better understand the multiple 

new regulatory initiatives, including 


khammond on DSKJM1Z7X2PROD with RULES2
9198 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

254On November 17, 2015, the Board adopted the 

revised FR 2052a report to collect quantitative 

information on selected assets, liabilities, funding 

activities, and contingent liabilities from certain 

large banking organizations. 

255https://www.federalreserve.gov/bankinforeg/ 

large-institution-supervision.htm. 

256See 12 CFR 45.1(e) (OCC); 12 CFR 237.1(e) 

(Board); 12 CFR 349.1(e) (FDIC). 

257Section ll.105 of the final rule assigns 

required stable funding adjustment percentages to 

banking organizations based on their category of 

standards and amount of average weighted shortterm wholesale funding. A banking organization’s 

category and average weighted short-term wholesale 

funding are deemed to change during the quarter in 

which the banking organization files the reporting 

form demonstrating it meets the definition of a new 

category or its level of average weighted short-term 

wholesale funding triggers an increased or 

decreased required stable funding adjustment 

percentage under section ll.105 of the final rule. 

Accordingly, the banking organization is deemed to 

be subject to a new required stable funding 

adjustment percentage in the quarter during which 

the relevant information (used to determine 

category eligibility or level of average weighted 

short-term wholesale funding) is reported. For 

example, if a banking organization subject to 

Category III standards and an 85 percent required 

stable funding adjustment percentage subsequently 

files an FR Y–15 during the fourth quarter of a 

calendar year (representing a September 30 as-of 

reporting date) that reports an amount of weighted 

short-term wholesale funding such that the banking 

organization’s average weighted short-term 

wholesale funding is $75 billion or more, the 

banking organization would be deemed to be 

subject to the higher required stable funding 

adjustment percentage (100 percent) as of the fourth 

quarter of that calendar year. Such a banking 

organization would have a two-quarter transition 

period and be required to comply with the higher 

adjustment percentage by the first day of the third 

calendar quarter of the next calendar year (July 1st). 

258See supra note 19. 

proposed and potential total loss 

absorbing capacity requirements, before 

introducing a new NSFR requirement. 

Commenters argued that covered 

companies should be given additional 

time to build and update internal 

reporting systems and comply with 

public disclosure requirements given 

their ongoing work to implement 

existing requirements under the LCR 

rule and the Board’s FR 2052a reporting 

form.254 These commenters asserted that 

covered companies required additional 

time beyond 2018 to develop necessary 

staffing, management, compliance, and 

information technology resources. Some 

commenters also noted that certain 

covered companies would likely require 

additional time to make structural 

adjustments to their balance sheets to be 

in compliance with the NSFR 

requirement and other pending 

rulemakings. One commenter suggested 

that the final rule should be 

implemented in three transitional 

phrases consisting of a study of the 

cumulative impacts of existing postcrisis regulatory reforms on the 

economy, finalizing the NSFR with an 

initial ratio of ASF to RSF of 0.70, and 

adjusting the NSFR requirement to 1.0 

only for certain of the largest banking 

organizations.255 The commenter also 

suggested that the agencies should not 

implement beyond the first phase if they 

find that economic impacts are not 

minimal or the rule is found to be 

ineffective. Another commenter 

suggested that the treatment for 

derivatives should be instituted through 

a phased-in transition to better align 

with the agencies’ margin requirements 

for non-cleared swaps.256

In response to commenters’ concerns 

and in light of the revised date on which 

the agencies are finalizing the NSFR 

rule, the agencies are revising the final 

rule to require covered companies to 

maintain an NSFR of 1.0 beginning on 

July 1, 2021. This effective date 

provides sufficient time for covered 

companies to take into account the new 

requirement and, as necessary, to make 

infrastructure and operational 

adjustments that may be required to 

comply with the final rule. To the extent 

a covered company is required to 

change its funding profile to comply 

with the final rule, the effective date 

should be sufficient to allow the firm to 

assess the prevailing market conditions 

to achieve optimal results. 

The final rule also adopts an effective 

date of July 1, 2021 for revisions to 

definitions currently used in the LCR 

rule. The effective date for revisions to 

the definitions in the LCR rule is 

appropriate, as the revisions will 

provide additional clarity on the 

meaning of such terms. In addition, 

covered companies will be able to 

modify their compliance systems to 

incorporate the revised definitions by 

the effective date, especially since the 

revisions will likely require covered 

companies to make adjustments to their 

existing systems and not require 

covered companies to develop entirely 

new systems. 

B. Transitions 

1. Initial Transitions for Banking 

Organizations That Become Subject to 

NSFR Rule After the Effective Date 

Under the tailoring proposals, a 

banking organization that would have 

become subject to the LCR rule or 

proposed rule after the effective date of 

the final rule would have been required 

to comply with the LCR rule or 

proposed rule on the first day of the 

second quarter after the banking 

organization became subject to it (newly 

covered banking organizations), 

consistent with the amount of time 

previously provided under the LCR rule 

or proposed rule. 

Some commenters requested 

additional time to comply with the LCR 

rule, and the tailoring final rule 

provided an additional quarter to 

comply for newly covered banking 

organizations to comply with the LCR 

rule. Consistent with the LCR rule, the 

final rule provides an additional quarter 

to comply with the final rule, such that 

a newly covered company will be 

required to comply with these 

requirements on the first day of the 

third quarter after becoming subject to 

these requirements. A covered company 

becomes subject to the NSFR based on 

its category of applicable standards. A 

covered company’s category is 

determined based on risk-based 

indicators as reported on its Call Report, 

FR Y–9LP or FR Y–15, or on averages 

of such reported items. 

2. Transitions for Changes to an NSFR 

Requirement 

Under the tailoring proposals, a 

banking organization subject to the LCR 

rule or proposed rule that becomes 

subject to a higher outflow or required 

stable funding adjustment percentage 

would have been able to continue using 

a lower calibration for one quarter. A 

banking organization that becomes 

subject to a lower outflow or required 

stable funding adjustment percentage at 

a quarter end would have been able to 

use the lower percentage immediately, 

as of the first day of the subsequent 

quarter. Some commenters requested 

longer transitions before a banking 

organization is required to meet an 

increased LCR requirement. 

The tailoring final rule provided an 

additional quarter in the LCR rule to 

continue to use a lower outflow 

adjustment percentage after a banking 

organization becomes subject to a higher 

outflow adjustment percentage, but 

retained the one quarter transition 

period for a banking organization that 

transitions to a lower outflow 

adjustment percentage. Consistent with 

the LCR rule, the final rule allows a 

covered company an additional quarter 

to continue using a lower required 

stable funding adjustment percentage 

after becoming subject to a higher 

required stable funding adjustment 

percentage.257 The agencies are 

finalizing the transition period for a 

banking organization that transitions to 

a lower required stable funding 

adjustment percentage as proposed. A 

depository institution subsidiary with 

$10 billion or more in total consolidated 

assets must begin complying on the 

same dates as its top-tier banking 

organization.258


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9199 

259That is, the banking organization filed reports 

in the 4th quarter of 2023 (as of September 30 report 

date) demonstrating that it had an average 

weighted-short-term wholesale funding level of 

greater than $75 billion during the four prior 

calendar quarters. 

260 5 U.S.C. 801 et seq. 

261 5 U.S.C. 801(a)(3). 

262 5 U.S.C. 804(2). 

263Public Law 106–102, sec. 722, 113 Stat. 1338, 

1471 (1999), 12 U.S.C. 4809. 

264 5 U.S.C. 601 et seq. 

265U.S. SBA, Table of Small Business Size 

Standards Matched to North American Industry 

Classification System Codes, available at https://

www.sba.gov/document/support-table-sizestandards. 

266 See id. Pursuant to SBA regulations, the asset 

size of a concern includes the assets of the concern 

whose size is at issue and all of its domestic and 

foreign affiliates. 13 CFR 121.103(6). 

TABLE 6—EXAMPLE DATES FOR CHANGES TO AN NSFR REQUIREMENT

Continue to apply prior 

required stable funding 

adjustment percentage 

Apply new required stable funding 

adjustment percentage 

Example 1: 

Banking organization that becomes subject to a 

higher required stable funding adjustment percentage as of December 31, 2023,259 as a result 

of having an average weighted-short-term wholesale funding level of greater than $75 billion 

based on the four prior calendar quarters.

1st and 2nd quarter of 2024 Beginning July 1, 2024. 

Example 2: 

Covered subsidiary depository institution of banking 

organization that moves from Category IV to another category as of December 31, 2023.

No prior requirement .......... Comply with required stable funding adjustment percentage applicable to new category beginning July 1, 

2024. 

Example 3: 

Banking organization that becomes subject to a 

lower required stable funding adjustment percentage as of December 31, 2023, as a result of having an average weighted-short-term wholesale 

funding level of less than $75 billion based on the 

four prior calendar quarters.

1st quarter of 2024 ............. Beginning April 1, 2024. 

3. Reservation of Authority To Extend 

Transitions 

The final rule includes a reservation 

of authority that provides the agencies 

with the flexibility to extend transitions 

for banking organizations where 

warranted by events and circumstances. 

There may be limited circumstances 

where a banking organization needs a 

longer transition period. For example, 

an extension may be appropriate when 

unusual or unforeseen circumstances, 

such as a merger with another entity, 

cause a banking organization to become 

subject to an NSFR requirement for the 

first time. However, the agencies expect 

that this authority would be exercised in 

limited situations, consistent with prior 

practice. 

4. Cessation of Applicability 

Under the tailoring proposals, once a 

banking organization became subject to 

an LCR or proposed NSFR requirement, 

it would have remained subject to the 

rule until the appropriate agency 

determined that application of the rule 

would not be appropriate in light of the 

banking organization’s asset size, level 

of complexity, risk profile, or scope of 

operations. The tailoring final rule 

repealed this provision in the LCR rule 

because the revised scope of application 

framework made this cessation 

provision unnecessary. Consistent with 

the LCR rule, the agencies are repealing 

this provision in the final rule. A 

banking organization that no longer 

meets the relevant criteria for being 

subject to the final rule will not be 

required to comply with the final rule. 

XII. Administrative Law Matters 

A. Congressional Review Act 

For purposes of the Congressional 

Review Act, the Office of Management 

and Budget (OMB) makes a 

determination as to whether a final rule 

constitutes a ‘‘major’’ rule.260 If a rule is 

deemed a ‘‘major rule’’ by the OMB, the 

Congressional Review Act generally 

provides that the rule may not take 

effect until at least 60 days following its 

publication.261

The Congressional Review Act defines 

a ‘‘major rule’’ as any rule that the 

Administrator of the Office of 

Information and Regulatory Affairs of 

the OMB finds has resulted in or is 

likely to result in (A) an annual effect 

on the economy of $100,000,000 or 

more; (B) a major increase in costs or 

prices for consumers, individual 

industries, Federal, State, or local 

government agencies or geographic 

regions; or (C) significant adverse effects 

on competition, employment, 

investment, productivity, innovation, or 

on the ability of United States-based 

enterprises to compete with foreignbased enterprises in domestic and 

export markets.262

As required by the Congressional 

Review Act, the agencies will submit 

the final rule and other appropriate 

reports to Congress and the Government 

Accountability Office for review. 

B. Plain Language 

Section 722 of the Gramm-LeachBliley Act,263 requires the Federal 

banking agencies to use plain language 

in all proposed and final rules 

published after January 1, 2000. The 

agencies sought to present the final rule 

in a simple and straightforward manner 

and did not receive any comments on 

the use of plain language in the 

proposed rule. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act 264

(RFA) generally requires an agency to 

either provide a regulatory flexibility 

analysis with a final rule or to certify 

that the final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The U.S. Small Business Administration 

(SBA) establishes size standards that 

define which entities are small 

businesses for purposes of the RFA.265

Except as otherwise specified below, the 

size standard to be considered a small 

business for banking entities subject to 

the final rule is $600 million or less in 

consolidated assets.266 In accordance 

with section 3(a) of the RFA, the Board 

is publishing a regulatory flexibility 

analysis with respect to the final rule. 

The OCC and FDIC are certifying that 


khammond on DSKJM1Z7X2PROD with RULES2
9200 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

267 13 CFR 121.201. 

268 5 U.S.C. 601 et seq. 

269The SBA defines a small banking organization 

as having $600 million or less in assets, where ‘‘a 

financial institution’s assets are determined by 

averaging the assets reported on its four quarterly 

financial statements for the preceding year.’’ See 13 

CFR 121.201 (as amended, effective August 19, 

2019). ‘‘SBA counts the receipts, employees, or 

other measure of size of the concern whose size is 

at issue and all of its domestic and foreign 

affiliates.’’ See 13 CFR 121.103. Following these 

regulations, the FDIC uses a covered entity’s 

affiliated and acquired assets, averaged over the 

preceding four quarters, to determine whether the 

covered entity is ‘‘small’’ for the purposes of RFA. 

270FDIC-supervised institutions are set forth in 12 

U.S.C. 1813(q)(2). 

271Call Report data, June 30, 2020. 

272Call Report data, June 30, 2020. 

273No companies with less than $100 billion in 

total consolidated assets would be subject to the 

capital and liquidity standards set forth in the 

agencies’ tailoring rule. See 84 FR 59230, 59235 

(November 1, 2019). 

274 12 U.S.C. 4802(a). 

the final rule will not have a significant 

economic impact on a substantial 

number of small entities. 

Board 

Based on its analysis and for the 

reasons stated below, the Board believes 

that the final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The final rule is intended to 

implement a quantitative liquidity 

requirement applicable for certain bank 

holding companies, savings and loan 

holding companies, and state member 

banks. 

Under regulations issued by the Small 

Business Administration, a ‘‘small 

entity’’ includes firms within the 

‘‘Finance and Insurance’’ sector with 

total assets of $600 million or less.267

The Board believes that the Finance and 

Insurance sector constitutes a 

reasonable universe of firms for these 

purposes because such firms generally 

engage in activities that are financial in 

nature. Consequently, bank holding 

companies, savings and loan holding 

companies, and state member banks 

with asset sizes of $600 million or less 

are small entities for purposes of the 

RFA. 

As discussed in section V.E of this 

Supplementary Information section, the 

final rule will generally apply to certain 

Board-regulated institutions with $100 

billion or more total consolidated assets, 

and certain of their depository 

institution subsidiaries with $10 billion 

or more in total assets. 

Companies that are subject to the final 

rule therefore substantially exceed the 

$600 million asset threshold at which a 

banking entity is considered a ‘‘small 

entity’’ under SBA regulations. Because 

the final rule does not apply to any 

company with assets of $600 million or 

less, the final rule is not expected to 

apply to any small entity for purposes 

of the RFA. As discussed in the 

Supplementary Information section, 

including section V of the 

Supplementary Information section, the 

Board does not believe that the final 

rule duplicates, overlaps, or conflicts 

with any other Federal rules. In light of 

the foregoing, the Board does not 

believe that the final rule will have a 

significant economic impact on a 

substantial number of small entities. 

OCC 

The OCC considered whether the final 

rule is likely to have a significant 

economic impact on a substantial 

number of small entities, pursuant to 

the RFA. The OCC currently supervises 

approximately 745 small entities. 

Because the final rule will only apply to 

OCC-regulated entities that have $10 

billion or more in assets, the OCC 

concludes the rule will not have a 

significant economic impact on a 

substantial number of small OCCregulated entities. 

FDIC 

The RFA generally requires an 

agency, in connection with a final rule, 

to prepare and make available for public 

comment a final regulatory flexibility 

analysis that describes the impact of a 

final rule on small entities.268 However, 

a regulatory flexibility analysis is not 

required if the agency certifies that the 

rule will not have a significant 

economic impact on a substantial 

number of small entities. The SBA has 

defined ‘‘small entities’’ to include 

banking organizations with total assets 

of less than or equal to $600 million that 

are independently owned and operated 

or owned by a holding company with 

less than $600 million in total assets.269

Generally, the FDIC considers a 

significant effect to be a quantified effect 

in excess of 5 percent of total annual 

salaries and benefits per institution, or 

2.5 percent of total noninterest 

expenses. The FDIC believes that effects 

in excess of these thresholds typically 

represent significant effects for FDICsupervised institutions. For the reasons 

described below and under section 

605(b) of the RFA, the FDIC certifies 

that the final rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The FDIC supervises 3,270 

institutions,270 of which 2,492 are 

considered small entities for the 

purposes of the RFA.271

The final rule applies the full NSFR 

requirement to companies that are 

subject to the Category I and Category II 

liquidity standards. Companies subject 

to the Category III liquidity standards 

with $75 billion or more in average 

weighted short-term wholesale funding 

are also subject to the full NSFR 

requirement. All other companies 

subject to the Category III standards, and 

companies subject to the Category IV 

standards with $50 billion or more in 

average weighted short-term wholesale 

funding, are subject to a reduced NSFR 

requirement calibrated at 85 percent and 

70 percent, respectively. Depository 

institution subsidiaries of companies 

subject to the Category I, II, or III 

liquidity standards are subject to the 

same NSFR requirement as their top tier 

holding company if the depository 

institution subsidiary has total 

consolidated assets of $10 billion or 

more. Depository institution 

subsidiaries of companies subject to 

Category IV liquidity standards are not 

subject to the NSFR. 

As of June 30, 2020, the FDIC 

supervises four depository institutions 

that would be subject to an NSFR 

requirement calibrated at 85 percent.272

No depository institutions that are 

subject to the NSFR requirements would 

be considered small entities for the 

purposes of the RFA because the NSFR 

requirements apply only to depository 

institutions with at least $10 billion in 

total consolidated assets, and whose 

parent company is subject to the 

Category I, II, or III liquidity standards 

and, therefore, has least $100 billion in 

total consolidated assets.273

Because this rule does not apply to 

any FDIC-supervised institutions that 

would be considered small entities for 

the purposes of the RFA, the FDIC 

certifies that this final rule will not have 

a significant economic impact on a 

substantial number of small entities. 

D. Riegle Community Development and 

Regulatory Improvement Act of 1994 

Section 302(a) of the Riegle 

Community Development and 

Regulatory Improvement Act of 1994 

(RCDRIA) 274 requires that each Federal 

banking agency, in determining the 

effective date and administrative 

compliance requirements for new 

regulations that impose additional 

reporting, disclosure, or other 

requirements on insured depository 

institutions, consider, consistent with 

principles of safety and soundness and 

the public interest, any administrative 

burdens that such regulations would 

place on depository institutions, 

including small depository institutions, 

and customers of depository 

institutions, as well as the benefits of 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9201 

275 12 U.S.C. 4802(b). 

such regulations. The agencies have 

considered comments on these matters 

in other sections of this Supplementary 

Information section. 

In addition, under section 302(b) of 

the RCDRIA, new regulations that 

impose additional reporting, 

disclosures, or other new requirements 

on insured depository institutions 

generally must take effect on the first 

day of a calendar quarter that begins on 

or after the date on which the 

regulations are published in final 

form.275 Therefore, the final rule will be 

effective on July 1, 2021, the first day of 

the third calendar quarter of 2021. 

E. Paperwork Reduction Act 

Certain provisions of the final rule 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act (PRA) of 1995 

(44 U.S.C. 3501–3521). In accordance 

with the requirements of the PRA, the 

agencies may not conduct or sponsor, 

and the respondent is not required to 

respond to, an information collection 

unless it displays a currently valid OMB 

control number. The OMB control 

numbers are 1557–0323 for the OCC, 

7100–0367 for the Board, and 3064– 

0197 for the FDIC. These information 

collections will be extended for three 

years, with revision. The information 

collection requirements contained in 

this final rule have been submitted by 

the OCC and FDIC to OMB for review 

and approval under section 3507(d) of 

the PRA (44 U.S.C. 3507(d)) and section 

1320.11 of the OMB’s implementing 

regulations (5 CFR part 1320). The 

Board reviewed the final rule under the 

authority delegated to the Board by 

OMB. The agencies did not receive any 

specific public comments on the PRA 

analysis. 

The agencies have a continuing 

interest in the public’s opinions of 

information collections. At any time, 

commenters may submit comments 

regarding the burden estimate, or any 

other aspect of this collection of 

information, including suggestions for 

reducing the burden, to the addresses 

listed in the ADDRESSES section. All 

comments will become a matter of 

public record. A copy of the comments 

may also be submitted to the OMB desk 

officer for the agencies: By mail to U.S. 

Office of Management and Budget, 725 

17th Street NW, #10235, Washington, 

DC 20503; by facsimile to (202) 395– 

5806; or by email to: oira_submission@

omb.eop.gov, Attention, Federal 

Banking Agency Desk Officer. 

Proposed Revision, With Extension, of 

the Following Information Collections 

Title of information collection and 

OMB control number: Reporting and 

Recordkeeping Requirements 

Associated with Liquidity Coverage 

Ratio: Liquidity Risk Measurement, 

Standards, and Monitoring (1557–0323 

for the OCC); Reporting, Recordkeeping, 

and Disclosure Requirements 

Associated with Liquidity Risk 

Measurement Standards (7100–0367 for 

the Board); and Liquidity Coverage 

Ratio: Liquidity Risk Measurement, 

Standards, and Monitoring (LCR) (3064– 

0197 for the FDIC). 

Frequency of Response: Biannually, 

quarterly, monthly, and event generated. 

Affected Public: Businesses or other 

for-profit. 

Respondents: 

OCC: National banks and federal 

savings associations. 

Board: Insured state member banks, 

bank holding companies, and savings 

and loan holding companies, and U.S 

intermediate holding companies of 

foreign banking organizations. 

FDIC: State nonmember banks and 

state savings associations. 

Current actions: The reporting 

requirements in the final rule are found 

in sectionll.110, the recordkeeping 

requirements are found in 

sections ll.108(b) and ll.110(b), 

and the disclosure requirements are 

found in sections ll.130 and ll.131. 

The disclosure requirements are only for 

Board supervised entities. Since the 

burden estimates for the NSFR revisions 

were inadvertently included in the 

November 1, 2019, tailoring final rule 

(84 FR 59230), the burden estimates will 

not change for this submission with the 

exception of the FDIC’s burden 

estimates which have been updated to 

reflect the addition of two additional 

supervised institutions. 

Section ll.110 requires a covered 

company to take certain actions 

following any NSFR shortfall. A covered 

company would be required to notify its 

appropriate Federal banking agency of 

the shortfall no later than 10 business 

days (or such other period as the 

appropriate Federal banking agency may 

otherwise require by written notice) 

following the date that any event has 

occurred that would cause or has caused 

the covered company’s NSFR to be less 

than 1.0. It must also submit to its 

appropriate Federal banking agency its 

plan for remediation of its NSFR to at 

least 1.0, and submit at least monthly 

reports on its progress to achieve 

compliance. 

Section ll.108(b) provides that if an 

institution includes an ASF amount in 

excess of the RSF amount of the 

consolidated subsidiary, it must 

implement and maintain written 

procedures to identify and monitor 

applicable statutory, regulatory, 

contractual, supervisory, or other 

restrictions on transferring assets from 

the consolidated subsidiaries. These 

procedures must document which types 

of transactions the institution could use 

to transfer assets from a consolidated 

subsidiary to the institution and how 

these types of transactions comply with 

applicable statutory, regulatory, 

contractual, supervisory, or other 

restrictions. Section ll.110(b) requires 

preparation of a plan for remediation to 

achieve an NSFR of at least equal to 1.0, 

as required under § ll.100. 

Section ll.130 requires that a 

depository institution holding company 

subject to the NSFR publicly disclose on 

a biannual basis its NSFR calculated for 

each of the two immediately preceding 

calendar quarters, in a direct and 

prominent manner on its public internet 

site or in its public financial or other 

public regulatory reports. These 

disclosures must remain publicly 

available for at least five years after the 

date of disclosure. Section ll.131 

specifies the quantitative and qualitative 

disclosures required and provides the 

disclosure template to be used. 

Estimated average hour per response: 

Reporting 

Sections ll.40(a) and ll.110(a) 

(filed monthly)—0.5 hours. 

Sections ll.40(b) and ll.110(b)— 

0.5 hours. 

Sections ll.40(b)(3)(iv) and 

ll.110(b) (filed quarterly)—0.5 hours. 

Recordkeeping 

Sections ll.22(a)(2), ll.22(a)(5), 

and ll.108(b)—40 hours. 

Sections ll.40(b) andll.110(b)— 

200 hours. 

Disclosure (Board only) 

Sections 249.90, 249.91, 249.130, and 

249.131 (filed biannually)—24 hours. 

OCC: 

OMB control number: 1557–0323. 

Number of Respondents: 13. 

Total Estimated Annual Burden: 

4,722 hours. 

Board: 

OMB control number: 7100–0367. 

Number of Respondents: 19 for 

Recordkeeping Sections 249.22(a)(2), 

249.22(a)(5), and 249.108(b) and 

Disclosure Sections 249.90, 249.91, 

249.130, and 249.131; 1 for all other 

rows. 

Total Estimated Annual Burden: 

2,793 hours. 

FDIC: 

OMB control number: 3064–0197. 

Number of Respondents: 4. 

Total Estimated Annual Burden: 994 

hours. 


khammond on DSKJM1Z7X2PROD with RULES2
9202 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

F. OCC Unfunded Mandates Reform Act 

of 1995 Determination 

The Unfunded Mandates Reform Act 

requires that an agency prepare a 

budgetary impact statement before 

promulgating a rule that includes a 

Federal mandate that may result in the 

expenditure by state, local, and tribal 

governments, in the aggregate, or by the 

private sector, of $100 million or more, 

adjusted for inflation (currently $157 

million), in any one year. The OCC 

interprets ‘‘expenditure’’ to mean 

assessment of costs (i.e., this part of our 

UMRA analysis assesses the costs of a 

rule on OCC-supervised entities, rather 

than the overall impact). The OCC’s 

estimate of banks’ operational costs to 

comply with mandates is approximately 

$26 million in the first year. In addition 

to these operational expenditures, the 

OCC anticipates that in order to comply 

with the final rule, banks may have to 

substitute lower RSF-factor assets for 

higher yielding assets that have higher 

RSF factors. The OCC estimates the 

impact of this substitution may cost two 

affiliated banks approximately $240 

million per year. The total UMRA cost 

is approximately $266 million ($26 

million in compliance related 

expenditures + $240 million in shortfall 

funding). Therefore, consistent with the 

UMRA, the OCC has concluded that the 

final rule will result in private sector 

costs that exceed the threshold for a 

significant regulatory action. When the 

final rule is published in the Federal 

Register, the OCC’s UMRA written 

statement will be available at: http://

www.regulations.gov, Docket ID OCC– 

2014–0029. 

Text of Common Rule 

■ (All agencies) 

PART [ ]—LIQUIDITY RISK 

MEASUREMENT, STANDARDS, AND 

MONITORING 

Subpart K—Net Stable Funding Ratio 

Sec. 

ll.100 Net stable funding ratio. 

ll.101 Determining maturity. 

ll.102 Rules of construction. 

ll.103 Calculation of available stable 

funding amount. 

ll.104 ASF factors. 

ll.105 Calculation of required stable 

funding amount. 

ll.106 RSF factors. 

ll.107 Calculation of NSFR derivatives 

amounts. 

ll.108 Funding related to Covered 

Federal Reserve Facility Funding. 

ll.109 Rules for consolidation. 

Subpart L—Net Stable Funding 

Shortfall 

§ll.110 NSFR shortfall: supervisory 

framework. 

Subpart K—Net Stable Funding Ratio 

§ll.100 Net stable funding ratio. 

(a) Minimum net stable funding ratio 

requirement. A [BANK] must maintain a 

net stable funding ratio that is equal to 

or greater than 1.0 on an ongoing basis 

in accordance with this subpart. 

(b) Calculation of the net stable 

funding ratio. For purposes of this part, 

a [BANK]’s net stable funding ratio 

equals: 

(1) The [BANK]’s available stable 

funding (ASF) amount, calculated 

pursuant to § ll.103, as of the 

calculation date; divided by 

(2) The [BANK]’s required stable 

funding (RSF) amount, calculated 

pursuant to § ll.105, as of the 

calculation date. 

§ll.101 Determining maturity. 

For purposes of calculating its net 

stable funding ratio, including its ASF 

amount and RSF amount, under 

subparts K through N, a [BANK] shall 

assume each of the following: 

(a) With respect to any NSFR liability, 

the NSFR liability matures according to 

§ ll.31(a)(1) of this part without 

regard to whether the NSFR liability is 

subject to § ll.32; 

(b) With respect to an asset, the asset 

matures according to §ll.31(a)(2) of 

this part without regard to whether the 

asset is subject to §ll.33 of this part; 

(c) With respect to an NSFR liability 

or asset that is perpetual, the NSFR 

liability or asset matures one year or 

more after the calculation date; 

(d) With respect to an NSFR liability 

or asset that has an open maturity, the 

NSFR liability or asset matures on the 

first calendar day after the calculation 

date, except that in the case of a 

deferred tax liability, the NSFR liability 

matures on the first calendar day after 

the calculation date on which the 

deferred tax liability could be realized; 

and 

(e) With respect to any principal 

payment of an NSFR liability or asset, 

such as an amortizing loan, that is due 

prior to the maturity of the NSFR 

liability or asset, the payment matures 

on the date on which it is contractually 

due. 

§ll.102 Rules of construction. 

(a) Balance-sheet metric. Unless 

otherwise provided in this subpart, an 

NSFR regulatory capital element, NSFR 

liability, or asset that is not included on 

a [BANK]’s balance sheet is not assigned 

an RSF factor or ASF factor, as 

applicable; and an NSFR regulatory 

capital element, NSFR liability, or asset 

that is included on a [BANK]’s balance 

sheet is assigned an RSF factor or ASF 

factor, as applicable. 

(b) Netting of certain transactions. 

Where a [BANK] has secured lending 

transactions, secured funding 

transactions, or asset exchanges with the 

same counterparty and has offset the 

gross value of receivables due from the 

counterparty under the transactions by 

the gross value of payables under the 

transactions due to the counterparty, the 

receivables or payables associated with 

the offsetting transactions that are not 

included on the [BANK]’s balance sheet 

are treated as if they were included on 

the [BANK]’s balance sheet with 

carrying values, unless the criteria in 

[§ ll.10(c)(4)(ii)(E)(1) through (3) of 

the AGENCY SUPPLEMENTARY 

LEVERAGE RATIO RULE] are met. 

(c) Treatment of Securities Received 

in an Asset Exchange by a Securities 

Lender. Where a [BANK] receives a 

security in an asset exchange, acts as a 

securities lender, includes the carrying 

value of the received security on its 

balance sheet, and has not 

rehypothecated the security received: 

(1) The security received by the 

[BANK] is not assigned an RSF factor; 

and 

(2) The obligation to return the 

security received by the [BANK] is not 

assigned an ASF factor. 

§ll.103 Calculation of available stable 

funding amount. 

A [BANK]’s ASF amount equals the 

sum of the carrying values of the 

[BANK]’s NSFR regulatory capital 

elements and NSFR liabilities, in each 

case multiplied by the ASF factor 

applicable in § ll.104 or § ll.107(c) 

and consolidated in accordance with 

§ ll.109. 

§ll.104 ASF factors. 

(a) NSFR regulatory capital elements 

and NSFR liabilities assigned a 100 

percent ASF factor. An NSFR regulatory 

capital element or NSFR liability of a 

[BANK] is assigned a 100 percent ASF 

factor if it is one of the following: 

(1) An NSFR regulatory capital 

element; or 

(2) An NSFR liability that has a 

maturity of one year or more from the 

calculation date, is not described in 

paragraph (d)(9) of this section, and is 

not a retail deposit or brokered deposit 

provided by a retail customer or 

counterparty. 

(b) NSFR liabilities assigned a 95 

percent ASF factor. An NSFR liability of 

a [BANK] is assigned a 95 percent ASF 

factor if it is one of the following: 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9203 

(1) A stable retail deposit (regardless 

of maturity or collateralization) held at 

the [BANK]; or 

(2) A sweep deposit that: 

(i) Is deposited in accordance with a 

contract between the retail customer or 

counterparty and the [BANK], a 

controlled subsidiary of the [BANK], or 

a company that is a controlled 

subsidiary of the same top-tier company 

of which the [BANK] is a controlled 

subsidiary; 

(ii) Is entirely covered by deposit 

insurance; and 

(iii) The [BANK] demonstrates to the 

satisfaction of the [AGENCY] that a 

withdrawal of such deposit is highly 

unlikely to occur during a liquidity 

stress event. 

(c) NSFR liabilities assigned a 90 

percent ASF factor. An NSFR liability of 

a [BANK] is assigned a 90 percent ASF 

factor if it is funding provided by a 

retail customer or counterparty that is: 

(1) A retail deposit (regardless of 

maturity or collateralization) other than 

a stable retail deposit or brokered 

deposit; 

(2) A brokered reciprocal deposit 

where the entire amount is covered by 

deposit insurance; 

(3) A sweep deposit that is deposited 

in accordance with a contract between 

the retail customer or counterparty and 

the [BANK], a controlled subsidiary of 

the [BANK], or a company that is a 

controlled subsidiary of the same toptier company of which the [BANK] is a 

controlled subsidiary, where the sweep 

deposit does not meet the requirements 

of paragraph (b)(2) of this section; or 

(4) A brokered deposit that is not a 

brokered reciprocal deposit or a sweep 

deposit, that is not held in a 

transactional account, and that matures 

one year or more from the calculation 

date. 

(d) NSFR liabilities assigned a 50 

percent ASF factor. An NSFR liability of 

a [BANK] is assigned a 50 percent ASF 

factor if it is one of the following: 

(1) Unsecured wholesale funding that: 

(i) Is not provided by a financial 

sector entity, a consolidated subsidiary 

of a financial sector entity, or a central 

bank; 

(ii) Matures less than one year from 

the calculation date; and 

(iii) Is not a security issued by the 

[BANK] or an operational deposit 

placed at the [BANK]; 

(2) A secured funding transaction 

with the following characteristics: 

(i) The counterparty is not a financial 

sector entity, a consolidated subsidiary 

of a financial sector entity, or a central 

bank; 

(ii) The secured funding transaction 

matures less than one year from the 

calculation date; and 

(iii) The secured funding transaction 

is not a collateralized deposit that is an 

operational deposit placed at the 

[BANK]; 

(3) Unsecured wholesale funding that: 

(i) Is provided by a financial sector 

entity, a consolidated subsidiary of a 

financial sector entity, or a central bank; 

(ii) Matures six months or more, but 

less than one year, from the calculation 

date; and 

(iii) Is not a security issued by the 

[BANK] or an operational deposit; 

(4) A secured funding transaction 

with the following characteristics: 

(i) The counterparty is a financial 

sector entity, a consolidated subsidiary 

of a financial sector entity, or a central 

bank; 

(ii) The secured funding transaction 

matures six months or more, but less 

than one year, from the calculation date; 

and 

(iii) The secured funding transaction 

is not a collateralized deposit that is an 

operational deposit; 

(5) A security issued by the [BANK] 

that matures six months or more, but 

less than one year, from the calculation 

date; 

(6) An operational deposit placed at 

the [BANK]; 

(7) A brokered deposit provided by a 

retail customer or counterparty that is 

not described in paragraphs (c) or (e)(2) 

of this section; 

(8) A sweep deposit provided by a 

retail customer or counterparty that is 

not described in paragraphs (b) or (c) of 

this section; 

(9) An NSFR liability owed to a retail 

customer or counterparty that is not a 

deposit and is not a security issued by 

the [BANK]; or 

(10) Any other NSFR liability that 

matures six months or more, but less 

than one year, from the calculation date 

and is not described in paragraphs (a) 

through (c) or (d)(1) through (d)(9) of 

this section. 

(e) NSFR liabilities assigned a zero 

percent ASF factor. An NSFR liability of 

a [BANK] is assigned a zero percent ASF 

factor if it is one of the following: 

(1) A trade date payable that results 

from a purchase by the [BANK] of a 

financial instrument, foreign currency, 

or commodity that is contractually 

required to settle within the lesser of the 

market standard settlement period for 

the particular transaction and five 

business days from the date of the sale; 

(2) A brokered deposit provided by a 

retail customer or counterparty that is 

not a brokered reciprocal deposit or 

sweep deposit, is not held in a 

transactional account, and matures less 

than six months from the calculation 

date; 

(3) A security issued by the [BANK] 

that matures less than six months from 

the calculation date; 

(4) An NSFR liability with the 

following characteristics: 

(i) The counterparty is a financial 

sector entity, a consolidated subsidiary 

of a financial sector entity, or a central 

bank; 

(ii) The NSFR liability matures less 

than six months from the calculation 

date or has an open maturity; and 

(iii) The NSFR liability is not a 

security issued by the [BANK] or an 

operational deposit placed at the 

[BANK]; or 

(5) Any other NSFR liability that 

matures less than six months from the 

calculation date and is not described in 

paragraphs (a) through (d) or (e)(1) 

through (4) of this section. 

§ll.105 Calculation of required stable 

funding amount. 

(a) Required stable funding amount. A 

[BANK]’s RSF amount equals the 

[BANK’s] required stable funding 

adjustment percentage as determined 

under paragraph (b) of this section 

multiplied by the sum of: 

(1) The carrying values of a [BANK]’s 

assets (other than amounts included in 

the calculation of the derivatives RSF 

amount pursuant to §ll.107(b)) and 

the undrawn amounts of a [BANK]’s 

credit and liquidity facilities, in each 

case multiplied by the RSF factors 

applicable in § ll.106; and 

(2) The [BANK]’s derivatives RSF 

amount calculated pursuant to 

§ ll.107(b). 

(b) Required stable funding 

adjustment percentage. A [BANK’s] 

required stable funding adjustment 

percentage is determined pursuant to 

Table 1 to this paragraph (b). 

TABLE 1 TO PARAGRAPH (b)—REQUIRED STABLE FUNDING ADJUSTMENT PERCENTAGES

Required stable funding adjustment percentage Percent 

Global systemically important BHC or GSIB depository institution ..................................................................................................... 100 

Category II [BANK] .............................................................................................................................................................................. 100 


khammond on DSKJM1Z7X2PROD with RULES2
9204 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

TABLE 1 TO PARAGRAPH (b)—REQUIRED STABLE FUNDING ADJUSTMENT PERCENTAGES—Continued 

Required stable funding adjustment percentage Percent 

Category III [BANK] with $75 billion or more in average weighted short-term wholesale funding and Category III [BANK] that is a

consolidated subsidiary of such a [BANK] ....................................................................................................................................... 100 

Category III [BANK] with less than $75 billion in average weighted short-term wholesale funding and any Category III [BANK] 

that is a consolidated subsidiary of such a Category III [BANK] .................................................................................................... 85 

Category IV [BANK] with $50 billion or more in average weighted short-term wholesale funding .................................................... 70 

(c) Transition into a different required 

stable funding adjustment percentage. (1) A 

[BANK] whose required stable funding 

adjustment percentage increases from a lower 

to a higher required stable funding 

adjustment percentage may continue to use 

its previous lower required stable funding 

adjustment percentage until the first day of 

the third calendar quarter after the required 

stable funding adjustment percentage 

increases. 

(2) A [BANK] whose required stable 

funding adjustment percentage decreases 

from a higher to a lower required stable 

funding adjustment percentage must 

continue to use its previous higher required 

stable funding adjustment percentage until 

the first day of the first calendar quarter after 

the required stable funding adjustment 

percentage decreases. 

§ll.106 RSF factors. 

(a) Unencumbered assets and 

commitments. All assets and undrawn 

amounts under credit and liquidity 

facilities, unless otherwise provided in 

§ ll.107(b) relating to derivative 

transactions or paragraphs (b) through 

(d) of this section, are assigned RSF 

factors as follows: 

(1) Unencumbered assets assigned a 

zero percent RSF factor. An asset of a 

[BANK] is assigned a zero percent RSF 

factor if it is one of the following: 

(i) Currency and coin; 

(ii) A cash item in the process of 

collection; 

(iii) A Reserve Bank balance or other 

claim on a Reserve Bank that matures 

less than six months from the 

calculation date; 

(iv) A claim on a foreign central bank 

that matures less than six months from 

the calculation date; 

(v) A trade date receivable due to the 

[BANK] resulting from the [BANK]’s 

sale of a financial instrument, foreign 

currency, or commodity that is required 

to settle no later than the market 

standard, without extension, for the 

particular transaction, and that has yet 

to settle but is not more than five 

business days past the scheduled 

settlement date; 

(vi) Any other level 1 liquid asset not 

described in paragraphs (a)(1)(i) through 

(a)(1)(v) of this section; or 

(vii) A secured lending transaction 

with the following characteristics: 

(A) The secured lending transaction 

matures less than six months from the 

calculation date; 

(B) The secured lending transaction is 

secured by level 1 liquid assets; 

(C) The borrower is a financial sector 

entity or a consolidated subsidiary 

thereof; and 

(D) The [BANK] retains the right to 

rehypothecate the collateral provided by 

the counterparty for the duration of the 

secured lending transaction. 

(2) Unencumbered assets and 

commitments assigned a 5 percent RSF 

factor. An undrawn amount of a 

committed credit facility or committed 

liquidity facility extended by a [BANK] 

is assigned a 5 percent RSF factor. For 

the purposes of this paragraph (a)(2), the 

undrawn amount of a committed credit 

facility or committed liquidity facility is 

the entire unused amount of the facility 

that could be drawn upon within one 

year of the calculation date under the 

governing agreement. 

(3) Unencumbered assets assigned a 

15 percent RSF factor. An asset of a 

[BANK] is assigned a 15 percent RSF 

factor if it is one of the following: 

(i) A level 2A liquid asset; or 

(ii) A secured lending transaction or 

unsecured wholesale lending with the 

following characteristics: 

(A) The asset matures less than six 

months from the calculation date; 

(B) The borrower is a financial sector 

entity or a consolidated subsidiary 

thereof; and 

(C) The asset is not described in 

paragraph (a)(1)(vii) of this section and 

is not an operational deposit described 

in paragraph (a)(4)(iii) of this section. 

(4) Unencumbered assets assigned a 

50 percent RSF factor. An asset of a 

[BANK] is assigned a 50 percent RSF 

factor if it is one of the following: 

(i) A level 2B liquid asset; 

(ii) A secured lending transaction or 

unsecured wholesale lending with the 

following characteristics: 

(A) The asset matures six months or 

more, but less than one year, from the 

calculation date; 

(B) The borrower is a financial sector 

entity, a consolidated subsidiary 

thereof, or a central bank; and 

(C) The asset is not an operational 

deposit described in paragraph (a)(4)(iii) 

of this section; 

(iii) An operational deposit placed by 

the [BANK] at a financial sector entity 

or a consolidated subsidiary thereof; or 

(iv) An asset that is not described in 

paragraphs (a)(1) through (a)(3) or 

(a)(4)(i) through (a)(4)(iii) of this section 

that matures less than one year from the 

calculation date, including: 

(A) A secured lending transaction or 

unsecured wholesale lending where the 

borrower is a wholesale customer or 

counterparty that is not a financial 

sector entity, a consolidated subsidiary 

thereof, or a central bank; or 

(B) Lending to a retail customer or 

counterparty. 

(5) Unencumbered assets assigned a 

65 percent RSF factor. An asset of a 

[BANK] is assigned a 65 percent RSF 

factor if it is one of the following: 

(i) A retail mortgage that matures one 

year or more from the calculation date 

and is assigned a risk weight of no 

greater than 50 percent under subpart D 

of [AGENCY CAPITAL REGULATION]; 

or 

(ii) A secured lending transaction, 

unsecured wholesale lending, or 

lending to a retail customer or 

counterparty with the following 

characteristics: 

(A) The asset is not described in 

paragraphs (a)(1) through (a)(5)(i) of this 

section; 

(B) The borrower is not a financial 

sector entity or a consolidated 

subsidiary thereof; 

(C) The asset matures one year or 

more from the calculation date; and 

(D) The asset is assigned a risk weight 

of no greater than 20 percent under 

subpart D of [AGENCY CAPITAL 

REGULATION]. 

(6) Unencumbered assets assigned an 

85 percent RSF factor. An asset of a 

[BANK] is assigned an 85 percent RSF 

factor if it is one of the following: 

(i) A retail mortgage that matures one 

year or more from the calculation date 

and is assigned a risk weight of greater 

than 50 percent under subpart D of 

[AGENCY CAPITAL REGULATION]; 

(ii) A secured lending transaction, 

unsecured wholesale lending, or 

lending to a retail customer or 

counterparty with the following 

characteristics: 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9205 

(A) The asset is not described in 

paragraphs (a)(1) through (a)(6)(i) of this 

section; 

(B) The borrower is not a financial 

sector entity or a consolidated 

subsidiary thereof; 

(C) The asset matures one year or 

more from the calculation date; and 

(D) The asset is assigned a risk weight 

of greater than 20 percent under subpart 

D of [AGENCY CAPITAL 

REGULATION]; 

(iii) A publicly traded common equity 

share that is not HQLA; 

(iv) A security, other than a publicly 

traded common equity share, that 

matures one year or more from the 

calculation date and is not HQLA; or 

(v) A commodity for which derivative 

transactions are traded on a U.S. board 

of trade or trading facility designated as 

a contract market under sections 5 and 

6 of the Commodity Exchange Act (7 

U.S.C. 7 and 8) or on a U.S. swap 

execution facility registered under 

section 5h of the Commodity Exchange 

Act (7 U.S.C. 7b–3) or on another 

exchange, whether located in the United 

States or in a jurisdiction outside of the 

United States. 

(7) Unencumbered assets assigned a 

100 percent RSF factor. An asset of a 

[BANK] is assigned a 100 percent RSF 

factor if it is not described in paragraphs 

(a)(1) through (a)(6) of this section, 

including a secured lending transaction 

or unsecured wholesale lending where 

the borrower is a financial sector entity 

or a consolidated subsidiary thereof and 

that matures one year or more from the 

calculation date. 

(b) Nonperforming assets. An RSF 

factor of 100 percent is assigned to any 

asset that is past due by more than 90 

days or nonaccrual. 

(c) Encumbered assets. An 

encumbered asset, unless otherwise 

provided in § ll.107(b) relating to 

derivative transactions, is assigned an 

RSF factor as follows: 

(1)(i) Encumbered assets with less 

than six months remaining in the 

encumbrance period. For an 

encumbered asset with less than six 

months remaining in the encumbrance 

period, the same RSF factor is assigned 

to the asset as would be assigned if the 

asset were not encumbered. 

(ii) Encumbered assets with six 

months or more, but less than one year, 

remaining in the encumbrance period. 

For an encumbered asset with six 

months or more, but less than one year, 

remaining in the encumbrance period: 

(A) If the asset would be assigned an 

RSF factor of 50 percent or less under 

paragraphs (a)(1) through (a)(4) of this 

section if the asset were not 

encumbered, an RSF factor of 50 percent 

is assigned to the asset. 

(B) If the asset would be assigned an 

RSF factor of greater than 50 percent 

under paragraphs (a)(5) through (a)(7) of 

this section if the asset were not 

encumbered, the same RSF factor is 

assigned to the asset as would be 

assigned if it were not encumbered. 

(iii) Encumbered assets with one year 

or more remaining in the encumbrance 

period. For an encumbered asset with 

one year or more remaining in the 

encumbrance period, an RSF factor of 

100 percent is assigned to the asset. 

(2) Assets encumbered for period 

longer than remaining maturity. If an 

asset is encumbered for an encumbrance 

period longer than the asset’s maturity, 

the asset is assigned an RSF factor under 

paragraph (c)(1) of this section based on 

the length of the encumbrance period. 

(3) Segregated account assets. An 

asset held in a segregated account 

maintained pursuant to statutory or 

regulatory requirements for the 

protection of customer assets is not 

considered encumbered for purposes of 

this paragraph solely because such asset 

is held in the segregated account. 

(d) Off-balance sheet rehypothecated 

assets. When an NSFR liability of a 

[BANK] is secured by an off-balance 

sheet asset or results from the [BANK] 

selling an off-balance sheet asset (for 

instance, in the case of a short sale), 

other than an off-balance sheet asset 

received by the [BANK] as variation 

margin under a derivative transaction: 

(1) If the [BANK] received the offbalance sheet asset under a lending 

transaction, an RSF factor is assigned to 

the lending transaction as if it were 

encumbered for the longer of: 

(i) The remaining maturity of the 

NSFR liability; and 

(ii) Any other encumbrance period 

applicable to the lending transaction; 

(2) If the [BANK] received the offbalance sheet asset under an asset 

exchange, an RSF factor is assigned to 

the asset provided by the [BANK] in the 

asset exchange as if the provided asset 

were encumbered for the longer of: 

(i) The remaining maturity of the 

NSFR liability; and 

(ii) Any other encumbrance period 

applicable to the provided asset; or 

(3) If the [BANK] did not receive the 

off-balance sheet asset under a lending 

transaction or asset exchange, an RSF 

factor is assigned to the on-balance 

sheet asset resulting from the 

rehypothecation of the off-balance sheet 

asset as if the on-balance sheet asset 

were encumbered for the longer of: 

(i) The remaining maturity of the 

NSFR liability; and 

(ii) Any other encumbrance period 

applicable to the transaction through 

which the off-balance sheet asset was 

received. 

§ll.107 Calculation of NSFR derivatives 

amounts. 

(a) General requirement. A [BANK] 

must calculate its derivatives RSF 

amount and certain components of its 

ASF amount relating to the [BANK]’s 

derivative transactions (which includes 

cleared derivative transactions of a 

customer with respect to which the 

[BANK] is acting as agent for the 

customer that are included on the 

[BANK]’s balance sheet under GAAP) in 

accordance with this section. 

(b) Calculation of required stable 

funding amount relating to derivative 

transactions. A [BANK]’s derivatives 

RSF amount equals the sum of: 

(1) Current derivative transaction 

values. The [BANK]’s NSFR derivatives 

asset amount, as calculated under 

paragraph (d)(1) of this section, 

multiplied by an RSF factor of 100 

percent; 

(2) Variation margin provided. The 

carrying value of variation margin 

provided by the [BANK] under each 

derivative transaction not subject to a 

qualifying master netting agreement and 

each QMNA netting set, to the extent 

the variation margin reduces the 

[BANK]’s derivatives liability value 

under the derivative transaction or 

QMNA netting set, as calculated under 

paragraph (f)(2) of this section, 

multiplied by an RSF factor of zero 

percent; 

(3) Excess variation margin provided. 

The carrying value of variation margin 

provided by the [BANK] under each 

derivative transaction not subject to a 

qualifying master netting agreement and 

each QMNA netting set in excess of the 

amount described in paragraph (b)(2) of 

this section for each derivative 

transaction or QMNA netting set, 

multiplied by the RSF factor assigned to 

each asset comprising the variation 

margin pursuant to §ll.106; 

(4) Variation margin received. The 

carrying value of variation margin 

received by the [BANK], multiplied by 

the RSF factor assigned to each asset 

comprising the variation margin 

pursuant to § ll.106; 

(5) Potential valuation changes. (i) An 

amount equal to 5 percent of the sum of 

the gross derivative values of the 

[BANK] that are liabilities, as calculated 

under paragraph (b)(5)(ii) of this section, 

for each of the [BANK]’s derivative 

transactions not subject to a qualifying 

master netting agreement and each of its 

QMNA netting sets, multiplied by an 

RSF factor of 100 percent; 


khammond on DSKJM1Z7X2PROD with RULES2
9206 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

(ii) For purposes of paragraph (5)(i) of 

this section, the gross derivative value 

of a derivative transaction not subject to 

a qualifying master netting agreement or 

of a QMNA netting set is equal to the 

value to the [BANK], calculated as if no 

variation margin had been exchanged 

and no settlement payments had been 

made based on changes in the value of 

the derivative transaction or QMNA 

netting set. 

(6) Contributions to central 

counterparty mutualized loss sharing 

arrangements. The fair value of a 

[BANK]’s contribution to a central 

counterparty’s mutualized loss sharing 

arrangement (regardless of whether the 

contribution is included on the 

[BANK]’s balance sheet), multiplied by 

an RSF factor of 85 percent; and 

(7) Initial margin provided. The fair 

value of initial margin provided by the 

[BANK] for derivative transactions 

(regardless of whether the initial margin 

is included on the [BANK]’s balance 

sheet), which does not include initial 

margin provided by the [BANK] for 

cleared derivative transactions with 

respect to which the [BANK] is acting as 

agent for a customer and the [BANK] 

does not guarantee the obligations of the 

customer’s counterparty to the customer 

under the derivative transaction (such 

initial margin would be assigned an RSF 

factor pursuant to §ll.106 to the 

extent the initial margin is included on 

the [BANK]’s balance sheet), multiplied 

by an RSF factor equal to the higher of 

85 percent or the RSF factor assigned to 

each asset comprising the initial margin 

pursuant to § ll.106. 

(c) Calculation of available stable 

funding amount relating to derivative 

transactions. The following amounts of 

a [BANK] are assigned a zero percent 

ASF factor: 

(1) The [BANK]’s NSFR derivatives 

liability amount, as calculated under 

paragraph (d)(2) of this section; and 

(2) The carrying value of NSFR 

liabilities in the form of an obligation to 

return initial margin or variation margin 

received by the [BANK]. 

(d) Calculation of NSFR derivatives 

asset or liability amount. 

(1) A [BANK]’s NSFR derivatives asset 

amount is the greater of: 

(i) Zero; and 

(ii) The [BANK]’s total derivatives 

asset amount, as calculated under 

paragraph (e)(1) of this section, less the 

[BANK]’s total derivatives liability 

amount, as calculated under paragraph 

(e)(2) of this section. 

(2) A [BANK]’s NSFR derivatives 

liability amount is the greater of: 

(i) Zero; and 

(ii) The [BANK]’s total derivatives 

liability amount, as calculated under 

paragraph (e)(2) of this section, less the 

[BANK]’s total derivatives asset amount, 

as calculated under paragraph (e)(1) of 

this section. 

(e) Calculation of total derivatives 

asset and liability amounts. 

(1) A [BANK]’s total derivatives asset 

amount is the sum of the [BANK]’s 

derivatives asset values, as calculated 

under paragraph (f)(1) of this section, for 

each derivative transaction not subject 

to a qualifying master netting agreement 

and each QMNA netting set. 

(2) A [BANK]’s total derivatives 

liability amount is the sum of the 

[BANK]’s derivatives liability values, as 

calculated under paragraph (f)(2) of this 

section, for each derivative transaction 

not subject to a qualifying master 

netting agreement and each QMNA 

netting set. 

(f) Calculation of derivatives asset and 

liability values. For each derivative 

transaction not subject to a qualifying 

master netting agreement and each 

QMNA netting set: 

(1) The derivatives asset value is 

equal to the asset value to the [BANK], 

after taking into account: 

(i) Any variation margin received by 

the [BANK] that is in the form of cash 

and meets the following conditions: 

(A) The variation margin is not 

segregated; 

(B) The variation margin is received 

in connection with a derivative 

transaction that is governed by a QMNA 

or other contract between the 

counterparties to the derivative 

transaction, which stipulates that the 

counterparties agree to settle any 

payment obligations on a net basis, 

taking into account any variation margin 

received or provided; 

(C) The variation margin is calculated 

and transferred on a daily basis based 

on mark-to-fair value of the derivative 

contract; and 

(D) The variation margin is in a 

currency specified as an acceptable 

currency to settle obligations in the 

relevant governing contract; and 

(ii) Any variation margin received by 

the [BANK] that is in the form of level 

1 liquid assets and meets the conditions 

of paragraph (f)(1)(i) of this section 

provided the [BANK] retains the right to 

rehypothecate the asset for the duration 

of time that the asset is posted as 

variation margin to the [BANK]; or 

(2) The derivatives liability value is 

equal to the liability value of the 

[BANK], after taking into account any 

variation margin provided by the 

[BANK]. 

§ll.108 Funding related to Covered 

Federal Reserve Facility Funding. 

(a) Treatment of Covered Federal 

Reserve Facility Funding. 

Notwithstanding any other section of 

this part and except as provided in 

paragraph (b) of this section, available 

stable funding amounts and required 

stable funding amounts related to 

Covered Federal Reserve Facility 

Funding and the assets securing 

Covered Federal Reserve Facility 

Funding are excluded from the 

calculation of a [BANK]’s net stable 

funding ratio calculated under 

§ ll.100(b). 

(b) Exception. To the extent the 

Covered Federal Reserve Facility 

Funding is secured by securities, debt 

obligations, or other instruments issued 

by the [BANK] or one of its consolidated 

subsidiaries, the Covered Federal 

Reserve Facility Funding and assets 

securing the Covered Federal Reserve 

Facility Funding are not subject to 

paragraph (a) of this section and the 

available stable funding amount and 

required stable funding amount must be 

included in the [BANK]’s net stable 

funding ratio calculated under 

§ ll.100(b). 

§ll.109 Rules for consolidation. 

(a) Consolidated subsidiary available 

stable funding amount. For available 

stable funding of a legal entity that is a 

consolidated subsidiary of a [BANK], 

including a consolidated subsidiary 

organized under the laws of a foreign 

jurisdiction, the [BANK] may include 

the available stable funding of the 

consolidated subsidiary in its ASF 

amount up to: 

(1) The RSF amount of the 

consolidated subsidiary, as calculated 

by the [BANK] for the [BANK]’s net 

stable funding ratio under this part; plus 

(2) Any amount in excess of the RSF 

amount of the consolidated subsidiary, 

as calculated by the [BANK] for the 

[BANK]’s net stable funding ratio under 

this part, to the extent the consolidated 

subsidiary may transfer assets to the 

top-tier [BANK], taking into account 

statutory, regulatory, contractual, or 

supervisory restrictions, such as 

sections 23A and 23B of the Federal 

Reserve Act (12 U.S.C. 371c and 12 

U.S.C. 371c–1) and Regulation W (12 

CFR part 223). 

(b) Required consolidation 

procedures. To the extent a [BANK] 

includes an ASF amount in excess of 

the RSF amount of the consolidated 

subsidiary, the [BANK] must implement 

and maintain written procedures to 

identify and monitor applicable 

statutory, regulatory, contractual, 

supervisory, or other restrictions on 

transferring assets from any of its 

consolidated subsidiaries. These 

procedures must document which types 

of transactions the [BANK] could use to 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9207 

transfer assets from a consolidated 

subsidiary to the [BANK] and how these 

types of transactions comply with 

applicable statutory, regulatory, 

contractual, supervisory, or other 

restrictions. 

Subpart L—Net Stable Funding 

Shortfall 

§ll.110 NSFR shortfall: Supervisory 

framework. 

(a) Notification requirements. A 

[BANK] must notify the [AGENCY] no 

later than 10 business days, or such 

other period as the [AGENCY] may 

otherwise require by written notice, 

following the date that any event has 

occurred that would cause or has caused 

the [BANK]’s net stable funding ratio to 

be less than 1.0 as required under 

§ ll.100. 

(b) Liquidity Plan. (1) A [BANK] must 

within 10 business days, or such other 

period as the [AGENCY] may otherwise 

require by written notice, provide to the 

[AGENCY] a plan for achieving a net 

stable funding ratio equal to or greater 

than 1.0 as required under § ll.100 if: 

(i) The [BANK] has or should have 

provided notice, pursuant to 

§ ll.110(a), that the [BANK]’s net 

stable funding ratio is, or will become, 

less than 1.0 as required under 

§ ll.100; 

(ii) The [BANK]’s reports or 

disclosures to the [AGENCY] indicate 

that the [BANK]’s net stable funding 

ratio is less than 1.0 as required under 

§ ll.100; or 

(iii) The [AGENCY] notifies the 

[BANK] in writing that a plan is 

required and provides a reason for 

requiring such a plan. 

(2) The plan must include, as 

applicable: 

(i) An assessment of the [BANK]’s 

liquidity profile; 

(ii) The actions the [BANK] has taken 

and will take to achieve a net stable 

funding ratio equal to or greater than 1.0 

as required under §ll.100, including: 

(A) A plan for adjusting the [BANK]’s 

liquidity profile; 

(B) A plan for remediating any 

operational or management issues that 

contributed to noncompliance with 

subpart K of this part; and 

(iii) An estimated time frame for 

achieving full compliance with 

§ ll.100. 

(3) The [BANK] must report to the 

[AGENCY] at least monthly, or such 

other frequency as required by the 

[AGENCY], on progress to achieve full 

compliance with § ll.100. 

(c) Supervisory and enforcement 

actions. The [AGENCY] may, at its 

discretion, take additional supervisory 

or enforcement actions to address 

noncompliance with the minimum net 

stable funding ratio and other 

requirements of subparts K through N of 

this part (see also §ll.2(c)). 

[End of Proposed Common Rule Text] 

List of Subjects 

12 CFR Part 50 

Administrative practice and 

procedure, Banks, Banking, Liquidity, 

Reporting and recordkeeping 

requirements, Savings associations. 

12 CFR Part 249 

Administrative practice and 

procedure, Banks, Banking, Federal 

Reserve System, Holding companies, 

Liquidity, Reporting and recordkeeping 

requirements. 

12 CFR Part 329 

Administrative practice and 

procedure, Banks, Banking, Federal 

Deposit Insurance Corporation, FDIC, 

Liquidity, Reporting and recordkeeping 

requirements, Savings associations. 

Adoption of the Common Rule Text 

The proposed adoption of the 

common rules by the agencies, as 

modified by agency-specific text, is set 

forth below: 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

12 CFR Chapter I 

Authority and Issuance 

For the reasons set forth in the 

common preamble, part 50 of chapter I 

of title 12 of the Code of Federal 

Regulations is amended as follows: 

PART 50—LIQUIDITY RISK 

MEASUREMENT STANDARDS 

■ 1. The authority citation for part 50 

continues to read as follows: 

Authority: 12 U.S.C. 1 et seq., 93a, 481, 

1818, 1828, and 1462 et seq. 

■ 2. Amend § 50.1 by revising 

paragraphs (a) and (b)(1) introductory 

text to read as follows: 

§ 50.1 Purpose and applicability. 

(a) Purpose. This part establishes a 

minimum liquidity standard and a 

minimum stable funding standard for 

certain national banks and Federal 

savings associations on a consolidated 

basis, as set forth herein. 

(b) Applicability. (1) A national bank 

or Federal savings association is subject 

to the minimum liquidity standard, 

minimum stable funding standard, and 

other requirements of this part if: 

* * * * * 

■ 3. Amend § 50.2 by redesignating 

paragraph (b) as paragraph (c), adding 

new paragraph (b), and revising newly 

redesignated paragraph (c) to read as 

follows: 

§ 50.2 Reservation of authority. 

* * * * * 

(b) The OCC may require a national 

bank or Federal savings association to 

maintain an amount of available stable 

funding greater than otherwise required 

under this part, or to take any other 

measure to improve the national bank’s 

or Federal savings association’s stable 

funding, if the OCC determines that the 

national bank’s or Federal savings 

association’s stable funding 

requirements as calculated under this 

part are not commensurate with the 

national bank’s or Federal savings 

association’s funding risks. In making 

determinations under this section, the 

OCC will apply notice and response 

procedures as set forth in 12 CFR 3.404. 

(c) Nothing in this part limits the 

authority of the OCC under any other 

provision of law or regulation to take 

supervisory or enforcement action, 

including action to address unsafe or 

unsound practices or conditions, 

deficient liquidity levels, deficient 

stable funding levels, or violations of 

law. 

■ 4. Amend § 50.3 by: 

■ a. Removing the definition for 

‘‘Brokered sweep deposit’’, ‘‘Covered 

nonbank company’’, and ‘‘Reciprocal 

brokered deposit’’; 

■ b. Adding definitions for ‘‘Brokered 

reciprocal deposit’’, ‘‘Carrying value’’, 

‘‘Encumbered’’, ‘‘NSFR liability’’, 

‘‘NSFR regulatory capital element’’, 

‘‘QMNA netting set’’, ‘‘Sweep deposit’’, 

‘‘Unconditionally cancelable’’, and 

‘‘Unsecured wholesale lending’’; and 

■ c. Revising definitions for ‘‘Brokered 

deposit’’, ‘‘Calculation date’’, 

‘‘Collateralized deposit’’, ‘‘Committed’’, 

‘‘Operational deposit’’, ‘‘Secured 

funding transaction’’, ‘‘Secured lending 

transaction’’, and ‘‘Unsecured wholesale 

funding.’’ 

The additions and revisions, in 

alphabetical order, read as follows: 

§ 50.3 Definitions. 

* * * * * 

Brokered deposit means any deposit 

held at the national bank or Federal 

savings association that is obtained, 

directly or indirectly, from or through 

the mediation or assistance of a deposit 

broker as that term is defined in section 

29 of the Federal Deposit Insurance Act 


khammond on DSKJM1Z7X2PROD with RULES2
9208 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

(12 U.S.C. 1831f(g)) and the Federal 

Deposit Insurance Corporation’s 

regulations. 

Brokered reciprocal deposit means a 

brokered deposit that a national bank or 

Federal savings association receives 

through a deposit placement network on 

a reciprocal basis, such that: 

(1) For any deposit received, the 

national bank or Federal savings 

association (as agent for the depositors) 

places the same amount with other 

depository institutions through the 

network; and 

(2) Each member of the network sets 

the interest rate to be paid on the entire 

amount of funds it places with other 

network members. 

Calculation date means, for subparts 

B through J of this part, any date on 

which a national bank or Federal 

savings association calculates its 

liquidity coverage ratio under § 50.10, 

and for subparts K through M of this 

part, any date on which a national bank 

or Federal savings association calculates 

its net stable funding ratio under 

§ 50.100. 

* * * * * 

Carrying value means, with respect to 

an asset, NSFR regulatory capital 

element, or NSFR liability, the value on 

the balance sheet of the national bank or 

Federal savings association, each as 

determined in accordance with GAAP. 

* * * * * 

Collateralized deposit means: 

(1) A deposit of a public sector entity 

held at the national bank or Federal 

savings association that is required to be 

secured under applicable law by a lien 

on assets owned by the national bank or 

Federal savings association and that 

gives the depositor, as holder of the lien, 

priority over the assets in the event the 

national bank or Federal savings 

association enters into receivership, 

bankruptcy, insolvency, liquidation, 

resolution, or similar proceeding; 

(2) A deposit of a fiduciary account 

awaiting investment or distribution held 

at the national bank or Federal savings 

association for which the national bank 

or Federal savings association is a 

fiduciary and is required under 12 CFR 

9.10(b) (national banks) or 12 CFR 

150.300 through 150.320 (Federal 

savings associations) to set aside assets 

owned by the national bank or Federal 

savings association as security, which 

gives the depositor priority over the 

assets in the event the national bank or 

Federal savings association enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding; or 

(3) A deposit of a fiduciary account 

awaiting investment or distribution held 

at the national bank or Federal savings 

association for which the national 

bank’s or Federal savings association’s 

affiliated insured depository institution 

is a fiduciary and where the national 

bank or Federal savings association 

under 12 CFR 9.10(c) (national banks), 

12 CFR 150.310 (Federal savings 

associations), or applicable state law 

(state member and nonmember banks, 

and state savings associations) has set 

aside assets owned by the national bank 

or Federal savings association as 

security, which gives the depositor 

priority over the assets in the event the 

national bank or Federal savings 

association enters into receivership, 

bankruptcy, insolvency, liquidation, 

resolution, or similar proceeding. 

Committed means, with respect to a 

credit or liquidity facility, that under 

the terms of the facility, it is not 

unconditionally cancelable. 

* * * * * 

Encumbered means, with respect to 

an asset, that the asset: 

(1) Is subject to legal, regulatory, 

contractual, or other restriction on the 

ability of the national bank or Federal 

savings association to monetize the 

asset; or 

(2) Is pledged, explicitly or implicitly, 

to secure or to provide credit 

enhancement to any transaction, not 

including when the asset is pledged to 

a central bank or a U.S. governmentsponsored enterprise where: 

(i) Potential credit secured by the 

asset is not currently extended to the 

national bank or Federal savings 

association or its consolidated 

subsidiaries; and 

(ii) The pledged asset is not required 

to support access to the payment 

services of a central bank. 

* * * * * 

NSFR liability means any liability or 

equity reported on a national bank’s or 

Federal savings association’s balance 

sheet that is not an NSFR regulatory 

capital element. 

NSFR regulatory capital element 

means any capital element included in 

a national bank’s or Federal savings 

association’s common equity tier 1 

capital, additional tier 1 capital, and tier 

2 capital, in each case as defined in 12 

CFR 3.20, prior to application of capital 

adjustments or deductions as set forth in 

12 CFR 3.22, excluding any debt or 

equity instrument that does not meet the 

criteria for additional tier 1 or tier 2 

capital instruments in 12 CFR 3.22 and 

is being phased out of tier 1 capital or 

tier 2 capital pursuant to subpart G of 

12 CFR part 3. 

Operational deposit means short-term 

unsecured wholesale funding that is a 

deposit, unsecured wholesale lending 

that is a deposit, or a collateralized 

deposit, in each case that meets the 

requirements of § 50.4(b) with respect to 

that deposit and is necessary for the 

provision of operational services as an 

independent third-party intermediary, 

agent, or administrator to the wholesale 

customer or counterparty providing the 

deposit. 

* * * * * 

QMNA netting set means a group of 

derivative transactions with a single 

counterparty that is subject to a 

qualifying master netting agreement and 

is netted under the qualifying master 

netting agreement. 

* * * * * 

Secured funding transaction means 

any funding transaction that is subject 

to a legally binding agreement that gives 

rise to a cash obligation of the national 

bank or Federal savings association to a 

wholesale customer or counterparty that 

is secured under applicable law by a 

lien on securities or loans provided by 

the national bank or Federal savings 

association, which gives the wholesale 

customer or counterparty, as holder of 

the lien, priority over the securities or 

loans in the event the national bank or 

Federal savings association enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. Secured funding 

transactions include repurchase 

transactions, securities lending 

transactions, other secured loans, and 

borrowings from a Federal Reserve 

Bank. Secured funding transactions do 

not include securities. 

Secured lending transaction means 

any lending transaction that is subject to 

a legally binding agreement that gives 

rise to a cash obligation of a wholesale 

customer or counterparty to the national 

bank or Federal savings association that 

is secured under applicable law by a 

lien on securities or loans provided by 

the wholesale customer or counterparty, 

which gives the national bank or 

Federal savings association, as holder of 

the lien, priority over the securities or 

loans in the event the counterparty 

enters into receivership, bankruptcy, 

insolvency, liquidation, resolution, or 

similar proceeding. Secured lending 

transactions include reverse repurchase 

transactions and securities borrowing 

transactions. Secured lending 

transactions do not include securities. 

* * * * * 

Sweep deposit means a deposit held 

at the national bank or Federal savings 

association by a customer or 

counterparty through a contractual 

feature that automatically transfers to 

the national bank or Federal savings 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9209 

association from another regulated 

financial company at the close of each 

business day amounts identified under 

the agreement governing the account 

from which the amount is being 

transferred. 

* * * * * 

Unconditionally cancelable means, 

with respect to a credit or liquidity 

facility, that a national bank or Federal 

savings association may, at any time, 

with or without cause, refuse to extend 

credit under the facility (to the extent 

permitted under applicable law). 

Unsecured wholesale funding means a 

liability or general obligation of the 

national bank or Federal savings 

association to a wholesale customer or 

counterparty that is not a secured 

funding transaction. Unsecured 

wholesale funding includes wholesale 

deposits. Unsecured wholesale funding 

does not include asset exchanges. 

Unsecured wholesale lending means a 

liability or general obligation of a 

wholesale customer or counterparty to 

the national bank or Federal savings 

association that is not a secured lending 

transaction or a security. Unsecured 

wholesale lending does not include 

asset exchanges. 

* * * * * 

■ 5. Amend § 50.22 by revising 

paragraph (b)(1) to read as follows: 

§ 50.22 Requirements for eligible highquality liquid assets. 

* * * * * 

(b) * * * 

(1) The assets are not encumbered. 

* * * * * 

■ 6. In § 50.30, amend paragraph (b)(3) 

to read as follows: 

§ 50.30 Total net cash outflow amount. 

* * * * * 

(b) * * * 

(3) Other than the transactions 

identified in § 50.32(h)(2), (h)(5), or (j) 

or § 50.33(d) or (f), the maturity of 

which is determined under § 50.31(a), 

transactions that have an open maturity 

are not included in the calculation of 

the maturity mismatch add-on. 

* * * * * 

■ 7. In § 50.31, amend paragraphs (a)(1) 

introductory text, (a)(2) introductory 

text, and (a)(4) to read as follows: 

§ 50.31 Determining maturity. 

(a) * * * 

(1) With respect to an instrument or 

transaction subject to § 50.32, on the 

earliest possible contractual maturity 

date or the earliest possible date the 

transaction could occur, taking into 

account any option that could accelerate 

the maturity date or the date of the 

transaction, except that when 

considering the earliest possible 

contractual maturity date or the earliest 

possible date the transaction could 

occur, the national bank or Federal 

savings association should exclude any 

contingent options that are triggered 

only by regulatory actions or changes in 

law or regulation, as follows: 

* * * * * 

(2) With respect to an instrument or 

transaction subject to § 50.33, on the 

latest possible contractual maturity date 

or the latest possible date the 

transaction could occur, taking into 

account any option that could extend 

the maturity date or the date of the 

transaction, except that when 

considering the latest possible 

contractual maturity date or the latest 

possible date the transaction could 

occur, the national bank or Federal 

savings association may exclude any 

contingent options that are triggered 

only by regulatory actions or changes in 

law or regulation, as follows: 

* * * * * 

(4) With respect to a transaction that 

has an open maturity, is not an 

operational deposit, and is subject to the 

provisions of § 50.32(h)(2), (h)(5), (j), or 

(k) or § 50.33(d) or (f), the maturity date 

is the first calendar day after the 

calculation date. Any other transaction 

that has an open maturity and is subject 

to the provisions of § 50.32 shall be 

considered to mature within 30 calendar 

days of the calculation date. 

* * * * * 

§ 50.32 [Amended] 

■ 8. Amend § 50.32 by: 

■ a. Removing the phrase ‘‘reciprocal 

brokered deposits’’ and adding the 

phrase ‘‘brokered reciprocal deposits’’ 

in its place wherever it appears. 

■ b. Removing the phrase ‘‘brokered 

sweep deposits’’ and adding the phrase 

‘‘sweep deposits’’ in its place wherever 

it appears. 

* * * * * 

Subpart G through J [Added and 

Reserved] 

■ 9. Add and reserve subparts G through 

J to part 50. 

Subparts K and L [Added] 

■ 10. Amend part 50 by adding subparts 

K and L as set forth at the end of the 

common preamble. 

Subparts K and L [Amended] 

■ 11. Amend subparts K and L of part 

50 by: 

■ a. Removing ‘‘[AGENCY]’’ and adding 

‘‘OCC’’ in its place wherever it appears. 

■ b. Removing ‘‘[AGENCY CAPITAL 

REGULATION]’’ and adding ‘‘12 CFR 

part 3’’ in its place wherever it appears. 

■ c. Removing ‘‘[§ ll.10(c)(4)(ii)(E)(1) 

through (3) of the AGENCY 

SUPPLEMENTARY LEVERAGE RATIO 

RULE]’’ and adding ‘‘12 CFR 

3.10(c)(2)(v)(A) through (C)’’ in its place 

wherever it appears. 

■ d. Removing ‘‘[BANK]’s’’ and adding 

‘‘national bank’s or Federal savings 

association’s’’ in its place wherever it 

appears. 

■ e. Removing ‘‘[BANK]’’ and adding 

‘‘national bank or Federal savings 

association’’ in its place wherever it 

appears. 

■ f. Amending § 50.105 by revising 

paragraph (b) to read as follows: 

§ 50.105 Calculation of required stable 

funding amount. 

* * * * * 

(b) Required stable funding 

adjustment percentage. A national 

bank’s or Federal savings association’s 

required stable funding adjustment 

percentage is determined pursuant to 

Table 1 to this paragraph (b). 

TABLE 1 TO PARAGRAPH (b)—REQUIRED STABLE FUNDING ADJUSTMENT PERCENTAGES

GSIB depository institution that is a national bank or Federal savings association ........................................................................... 100 

Category II national bank or Federal savings association .................................................................................................................. 100 

Category III national bank or Federal savings association that: ......................................................................................................... 100 

(1) Is a consolidated subsidiary of (a) a covered depository institution holding company or U.S. intermediate holding company 

identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution 

that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III national bank or Federal savings association in this part, in each case with $75 billion or more in average weighted short-term wholesale funding; or 


khammond on DSKJM1Z7X2PROD with RULES2
9210 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

TABLE 1 TO PARAGRAPH (b)—REQUIRED STABLE FUNDING ADJUSTMENT PERCENTAGES—Continued 

(2) Has $75 billion or more in average weighted short-term wholesale funding and is not a consolidated subsidiary of (a) a covered depository institution holding company or U.S. intermediate holding company identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III national bank or Federal savings association in this part. 

Category III national bank or Federal savings association that: ......................................................................................................... 85 

(1) Is a consolidated subsidiary of (a) a covered depository institution holding company or U.S. intermediate holding company 

identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution 

that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III national bank or Federal savings association in this part, in each case with less than $75 billion in average weighted short-term wholesale funding; or 

(2) Has less than $75 billion in average weighted short-term wholesale funding and is not a consolidated subsidiary of (a) a 

covered depository institution holding company or U.S. intermediate holding company identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III national bank or Federal savings association in this part. 

■ 12. Amend part 50 by adding subpart 

M to read as follows: 

Subpart M—Transitions 

§ 50.120 Transitions. 

(a) Initial application. (1) A national 

bank or Federal savings association that 

initially becomes subject to the 

minimum net stable funding 

requirement under § 50.1(b)(1)(i) after 

July 1, 2021, must comply with the 

requirements of subparts K through M of 

this part beginning on the first day of 

the third calendar quarter after which 

the national bank or Federal savings 

association becomes subject to this part. 

(2) A national bank or Federal savings 

association that becomes subject to the 

minimum net stable funding 

requirement under § 50.1(b)(1)(ii) must 

comply with the requirements of 

subparts K through M of this part 

subject to a transition period specified 

by the OCC. 

(b) Transition to a different required 

stable funding adjustment percentage. 

(1) A national bank or Federal savings 

association whose required stable 

funding adjustment percentage changes 

is subject to the transition periods as set 

forth in § 50.105(c). 

(2) A national bank or Federal savings 

association institution that is no longer 

subject to the minimum stable funding 

requirement of this part pursuant to 

§ 50.1(b)(1)(i) based on the size of total 

consolidated assets, cross-jurisdictional 

activity, total nonbank assets, weighted 

short-term wholesale funding, or offbalance sheet exposure calculated in 

accordance with the Call Report, or 

instructions to the FR Y–9LP, the FR Y– 

15, or equivalent reporting form, as 

applicable, for each of the four most 

recent calendar quarters may cease 

compliance with the requirements of 

subparts K through M of this part as of 

the first day of the first calendar quarter 

after it is no longer subject to § 50.1(b). 

(c) Reservation of authority. The OCC 

may extend or accelerate any 

compliance date of this part if the OCC 

determines such extension or 

acceleration is appropriate. In 

determining whether an extension or 

acceleration is appropriate, the OCC 

will consider the effect of the 

modification on financial stability, the 

period of time for which the 

modification would be necessary to 

facilitate compliance with the 

requirements of subparts K through M of 

this part, and the actions the national 

bank or Federal savings association is 

taking to come into compliance with the 

requirements of subparts K through M of 

this part. 

Board of Governors of the Federal 

Reserve System 

12 CFR Chapter II 

Authority and Issuance 

For the reasons set forth in the 

common preamble, part 249 of chapter 

II of title 12 of the Code of Federal 

Regulations is amended as follows: 

PART 249—LIQUIDITY RISK 

MEASUREMENT, STANDARDS, AND 

MONITORING (REGULATION WW) 

■ 13. The authority citation for part 249 

continues to read as follows: 

Authority: 12 U.S.C. 248(a), 321–338a, 

481–486, 1467a(g)(1), 1818, 1828, 1831p–1, 

1831o–1, 1844(b), 5365, 5366, 5368. 

■ 14. Revise the heading for part 249 as 

set forth above. 

■ 15. Revise § 249.1 to read as follows: 

§ 249.1 Purpose and applicability. 

(a) Purpose. This part establishes a 

minimum liquidity standard and a 

minimum stable funding standard for 

certain Board-regulated institutions on a 

consolidated basis, as set forth herein. 

(b) Applicability. (1) A Boardregulated institution is subject to the 

minimum liquidity standard and a 

minimum stable funding standard, and 

other requirements of this part if: 

(i) It is a: 

(A) Global systemically important 

BHC; 

(B) GSIB depository institution; 

(C) Category II Board-regulated 

institution; 

(D) Category III Board-regulated 

institution; or 

(E) Category IV Board-regulated 

institution with $50 billion or more in 

average weighted short-term wholesale 

funding; 

(ii) It is a covered nonbank company; 

or 

(iii) The Board has determined that 

application of this part is appropriate in 

light of the Board-regulated institution’s 

asset size, level of complexity, risk 

profile, scope of operations, affiliation 

with foreign or domestic covered 

entities, or risk to the financial system. 

(2) This part does not apply to: 

(i) A bridge financial company as 

defined in 12 U.S.C. 5381(a)(3), or a 

subsidiary of a bridge financial 

company; or 

(ii) A new depository institution or a 

bridge depository institution, as defined 

in 12 U.S.C. 1813(i). 

(3) In making a determination under 

paragraph (b)(1)(iii) of this section, the 

Board will apply, as appropriate, notice 

and response procedures in the same 

manner and to the same extent as the 

notice and response procedures set forth 

in 12 CFR 263.202. 

(c) Covered nonbank companies. The 

Board will establish a minimum 

liquidity standard and minimum stable 

funding standard and other 

requirements for a designated company 

under this part by rule or order. In 

establishing such standards, the Board 

will consider the factors set forth in 

sections 165(a)(2) and (b)(3) of the 

Dodd-Frank Act and may tailor the 

application of the requirements of this 

part to the designated company based 

on the nature, scope, size, scale, 

concentration, interconnectedness, mix 

of the activities of the designated 

company, or any other risk-related 

factor that the Board determines is 

appropriate. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9211 

■ 16. Amend § 249.2, by revising 

paragraph (b) and adding paragraph (c) 

to read as follows: 

§ 249.2 Reservation of authority. 

* * * * * 

(b) The Board may require a Boardregulated institution to maintain an 

amount of available stable funding 

greater than otherwise required under 

this part, or to take any other measure 

to improve the Board-regulated 

institution’s stable funding, if the Board 

determines that the Board-regulated 

institution’s stable funding 

requirements as calculated under this 

part are not commensurate with the 

Board-regulated institution’s funding 

risks. In making determinations under 

this section, the Board will apply notice 

and response procedures as set forth in 

12 CFR 263.202. 

(c) Nothing in this part limits the 

authority of the Board under any other 

provision of law or regulation to take 

supervisory or enforcement action, 

including action to address unsafe or 

unsound practices or conditions, 

deficient liquidity levels, deficient 

stable funding levels, or violations of 

law. 

■ 17. Amend § 249.3 by: 

■ a. Adding the definitions for 

‘‘Brokered reciprocal deposit’’, 

‘‘Carrying value’’, ‘‘Encumbered’’, 

‘‘NSFR liability’’, ‘‘NSFR regulatory 

capital element’’, ‘‘QMNA netting set’’, 

‘‘Sweep deposit’’, ‘‘Unconditionally 

cancelable’’, and ‘‘Unsecured wholesale 

lending’’. 

■ b. Revising the definitions for 

‘‘Brokered deposit’’, ‘‘Calculation date’’, 

‘‘Collateralized deposit’’, ‘‘Committed’’, 

‘‘Covered nonbank company’’, 

‘‘Operational deposit’’, ‘‘Secured 

funding transaction’’, ‘‘Secured lending 

transaction’’, and ‘‘Unsecured 

wholesale funding’’. 

■ c. Removing the definitions for 

‘‘Reciprocal brokered deposit’’ and 

‘‘Brokered sweep deposit’’. 

The additions and revisions, in 

alphabetical order, read as follows: 

§ 249.3 Definitions. 

* * * * * 

Brokered deposit means any deposit 

held at the Board-regulated institution 

that is obtained, directly or indirectly, 

from or through the mediation or 

assistance of a deposit broker as that 

term is defined in section 29 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1831f(g)) and the Federal Deposit 

Insurance Corporation’s regulations. 

Brokered reciprocal deposit means a 

brokered deposit that a Board-regulated 

institution receives through a deposit 

placement network on a reciprocal 

basis, such that: 

(1) For any deposit received, the 

Board-regulated institution (as agent for 

the depositors) places the same amount 

with other depository institutions 

through the network; and 

(2) Each member of the network sets 

the interest rate to be paid on the entire 

amount of funds it places with other 

network members. 

Calculation date means, for subparts 

B through J of this part, any date on 

which a Board-regulated institution 

calculates its liquidity coverage ratio 

under § 249.10, and for subparts K 

through N of this part, any date on 

which a Board-regulated institution 

calculates its net stable funding ratio 

under § 249.100. 

* * * * * 

Carrying value means, with respect to 

an asset, NSFR regulatory capital 

element, or NSFR liability, the value on 

the balance sheet of the Board-regulated 

institution, each as determined in 

accordance with GAAP. 

* * * * * 

Collateralized deposit means: 

(1) A deposit of a public sector entity 

held at the Board-regulated institution 

that is required to be secured under 

applicable law by a lien on assets 

owned by the Board-regulated 

institution and that gives the depositor, 

as holder of the lien, priority over the 

assets in the event the Board-regulated 

institution enters into receivership, 

bankruptcy, insolvency, liquidation, 

resolution, or similar proceeding; 

(2) A deposit of a fiduciary account 

awaiting investment or distribution held 

at the Board-regulated institution for 

which the Board-regulated institution is 

a fiduciary and is required under 12 

CFR 9.10(b) (national banks), 12 CFR 

150.300 through 150.320 (Federal 

savings associations), or applicable state 

law (state member and nonmember 

banks, and state savings associations) to 

set aside assets owned by the Boardregulated institution as security, which 

gives the depositor priority over the 

assets in the event the Board-regulated 

institution enters into receivership, 

bankruptcy, insolvency, liquidation, 

resolution, or similar proceeding; or 

(3) A deposit of a fiduciary account 

awaiting investment or distribution held 

at the Board-regulated institution for 

which the Board-regulated institution’s 

affiliated insured depository institution 

is a fiduciary and where the Boardregulated institution under 12 CFR 

9.10(c) (national banks), 12 CFR 150.310 

(Federal savings associations), or 

applicable state law (state member and 

nonmember banks, state savings 

associations) has set aside assets owned 

by the Board-regulated institution as 

security, which gives the depositor 

priority over the assets in the event the 

Board-regulated institution enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. 

Committed means, with respect to a 

credit or liquidity facility, that under 

the terms of the facility, it is not 

unconditionally cancelable. 

* * * * * 

Covered nonbank company means a 

designated company that the Board of 

Governors of the Federal Reserve 

System has required by separate rule or 

order to comply with the requirements 

of 12 CFR part 249. 

* * * * * 

Encumbered means, with respect to 

an asset, that the asset: 

(1) Is subject to legal, regulatory, 

contractual, or other restriction on the 

ability of the Board-regulated institution 

to monetize the asset; or 

(2) Is pledged, explicitly or implicitly, 

to secure or to provide credit 

enhancement to any transaction, not 

including when the asset is pledged to 

a central bank or a U.S. governmentsponsored enterprise where: 

(i) Potential credit secured by the 

asset is not currently extended to the 

Board-regulated institution or its 

consolidated subsidiaries; and 

(ii) The pledged asset is not required 

to support access to the payment 

services of a central bank. 

* * * * * 

NSFR liability means any liability or 

equity reported on a Board-regulated 

institution’s balance sheet that is not an 

NSFR regulatory capital element. 

NSFR regulatory capital element 

means any capital element included in 

a Board-regulated institution’s common 

equity tier 1 capital, additional tier 1 

capital, and tier 2 capital, in each case 

as defined in § 217.20 of Regulation Q 

(12 CFR part 217), prior to application 

of capital adjustments or deductions as 

set forth in § 217.22 of Regulation Q (12 

CFR part 217), excluding any debt or 

equity instrument that does not meet the 

criteria for additional tier 1 or tier 2 

capital instruments in § 217.22 of 

Regulation Q (12 CFR part 217) and is 

being phased out of tier 1 capital or tier 

2 capital pursuant to subpart G of 

Regulation Q (12 CFR part 217). 

Operational deposit means short-term 

unsecured wholesale funding that is a 

deposit, unsecured wholesale lending 

that is a deposit, or a collateralized 

deposit, in each case that meets the 

requirements of § 249.4(b) with respect 

to that deposit and is necessary for the 


khammond on DSKJM1Z7X2PROD with RULES2
9212 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

provision of operational services as an 

independent third-party intermediary, 

agent, or administrator to the wholesale 

customer or counterparty providing the 

deposit. 

* * * * * 

QMNA netting set means a group of 

derivative transactions with a single 

counterparty that is subject to a 

qualifying master netting agreement and 

is netted under the qualifying master 

netting agreement. 

* * * * * 

Secured funding transaction means 

any funding transaction that is subject 

to a legally binding agreement that gives 

rise to a cash obligation of the Boardregulated institution to a wholesale 

customer or counterparty that is secured 

under applicable law by a lien on 

securities or loans provided by the 

Board-regulated institution, which gives 

the wholesale customer or counterparty, 

as holder of the lien, priority over the 

securities or loans in the event the 

Board-regulated institution enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. Secured funding 

transactions include repurchase 

transactions, securities lending 

transactions, other secured loans, and 

borrowings from a Federal Reserve 

Bank. Secured funding transactions do 

not include securities. 

Secured lending transaction means 

any lending transaction that is subject to 

a legally binding agreement that gives 

rise to a cash obligation of a wholesale 

customer or counterparty to the Boardregulated institution that is secured 

under applicable law by a lien on 

securities or loans provided by the 

wholesale customer or counterparty, 

which gives the Board-regulated 

institution, as holder of the lien, priority 

over the securities or loans in the event 

the counterparty enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. Secured lending 

transactions include reverse repurchase 

transactions and securities borrowing 

transactions. Secured lending 

transactions do not include securities. 

* * * * * 

Sweep deposit means a deposit held 

at the Board-regulated institution by a 

customer or counterparty through a 

contractual feature that automatically 

transfers to the Board-regulated 

institution from another regulated 

financial company at the close of each 

business day amounts identified under 

the agreement governing the account 

from which the amount is being 

transferred. 

* * * * * 

Unconditionally cancelable means, 

with respect to a credit or liquidity 

facility, that a Board-regulated 

institution may, at any time, with or 

without cause, refuse to extend credit 

under the facility (to the extent 

permitted under applicable law). 

Unsecured wholesale funding means a 

liability or general obligation of the 

Board-regulated institution to a 

wholesale customer or counterparty that 

is not a secured funding transaction. 

Unsecured wholesale funding includes 

wholesale deposits. Unsecured 

wholesale funding does not include 

asset exchanges. 

Unsecured wholesale lending means a 

liability or general obligation of a 

wholesale customer or counterparty to 

the Board-regulated institution that is 

not a secured lending transaction or a 

security. Unsecured wholesale lending 

does not include asset exchanges. 

* * * * * 

■ 18. Amend § 249.22 by revising 

paragraph (b)(1) to read as follows: 

§ 249.22 Requirements for eligible highquality liquid assets. 

* * * * * 

(b) * * * 

(1) The assets are not encumbered. 

* * * * * 

■ 19. In § 249.30, revise paragraph (b)(3) 

to read as follows: 

§ 249.30 Total net cash outflow amount. 

(b) * * * 

(3) Other than the transactions 

identified in § 249.32(h)(2), (h)(5), or (j) 

or § 249.33(d) or (f), the maturity of 

which is determined under § 249.31(a), 

transactions that have an open maturity 

are not included in the calculation of 

the maturity mismatch add-on. 

* * * * * 

■ 20. In § 249.31, revise paragraphs 

(a)(1) introductory text, (a)(2) 

introductory text, and (a)(4) to read as 

follows: 

§ 249.31 Determining maturity. 

(a) * * * 

(1) With respect to an instrument or 

transaction subject to § 249.32, on the 

earliest possible contractual maturity 

date or the earliest possible date the 

transaction could occur, taking into 

account any option that could accelerate 

the maturity date or the date of the 

transaction, except that when 

considering the earliest possible 

contractual maturity date or the earliest 

possible date the transaction could 

occur, the Board-regulated institution 

should exclude any contingent options 

that are triggered only by regulatory 

actions or changes in law or regulation, 

as follows: 

* * * * * 

(2) With respect to an instrument or 

transaction subject to § 249.33, on the 

latest possible contractual maturity date 

or the latest possible date the 

transaction could occur, taking into 

account any option that could extend 

the maturity date or the date of the 

transaction, except that when 

considering the latest possible 

contractual maturity date or the latest 

possible date the transaction could 

occur, the Board-regulated institution 

may exclude any contingent options 

that are triggered only by regulatory 

actions or changes in law or regulation, 

as follows: 

* * * * * 

(4) With respect to a transaction that 

has an open maturity, is not an 

operational deposit, and is subject to the 

provisions of § 249.32(h)(2), (h)(5), (j), or 

(k) or § 249.33(d) or (f), the maturity 

date is the first calendar day after the 

calculation date. Any other transaction 

that has an open maturity and is subject 

to the provisions of § 249.32 shall be 

considered to mature within 30 calendar 

days of the calculation date. 

* * * * * 

§ 249.32 [Amended] 

■ 21. Amend § 249.32 by: 

■ a. Removing the phrase ‘‘reciprocal 

brokered deposits’’ and adding the 

phrase ‘‘brokered reciprocal deposits’’ 

in its place wherever it appears. 

■ b. Removing the phrase ‘‘brokered 

sweep deposits’’ and adding the phrase 

‘‘sweep deposits’’ in its place wherever 

it appears. 

Subparts K and L [Added] 

■ 22. Amend part 249 by adding 

subparts K and L as set forth at the end 

of the common preamble. 

Subparts K and L [Amended] 

■ 23. Amend subparts K and L of part 

249 by: 

■ a. Removing ‘‘[AGENCY]’’ and adding 

‘‘Board’’ in its place wherever it 

appears. 

■ b. Removing ‘‘[AGENCY CAPITAL 

REGULATION]’’ and adding 

‘‘Regulation Q (12 CFR part 217)’’ in its 

place wherever it appears. 

■ c. Removing ‘‘[§ ll.10(c)(4)(ii)(E)(1) 

through (3) of the AGENCY 

SUPPLEMENTARY LEVERAGE RATIO 

RULE]’’ and adding ‘‘12 CFR 

217.10(c)(2)(v)(A) through (C)’’ in its 

place wherever it appears. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9213 

■ d. Removing ‘‘[BANK]’’ and adding 

‘‘Board-regulated institution’’ in its 

place wherever it appears. 

■ e. Removing ‘‘[BANK]’s’’ and adding 

‘‘Board-regulated institution’s’’ in its 

place wherever it appears. 

■ 24. Amend part 249 by adding 

subparts M and N to read as follows: 

Subpart M—Transitions. 

§ 249.120 Transitions. 

(a) Initial application. (1) A Boardregulated institution that initially 

becomes subject to the minimum net 

stable funding requirement under 

§ 249.1(b)(1)(i) or (ii) after July 1, 2021, 

must comply with the requirements of 

subparts K through N of this part 

beginning on the first day of the third 

calendar quarter after which the Boardregulated institution becomes subject to 

this part. 

(2) A Board-regulated institution that 

becomes subject to the minimum net 

stable funding requirement under 

§ 249.1(b)(1)(iii) must comply with the 

requirements of subparts K through N of 

this part subject to a transition period 

specified by the Board. 

(b) Transition to a different required 

stable funding adjustment percentage. 

(1) A Board-regulated institution whose 

required stable funding adjustment 

percentage changes is subject to the 

transition periods as set forth in 

§ 249.105(c). 

(2) A Board-regulated institution that 

is no longer subject to the minimum 

stable funding requirement of this part 

pursuant to § 249.1(b)(1)(i) or (ii) based 

on the size of total consolidated assets, 

cross-jurisdictional activity, total 

nonbank assets, weighted short-term 

wholesale funding, or off-balance sheet 

exposure calculated in accordance with 

the Call Report, or instructions to the FR 

Y–9LP, the FR Y–15, or equivalent 

reporting form, as applicable, for each of 

the four most recent calendar quarters 

may cease compliance with the 

requirements of subparts K through N of 

this part as of the first day of the first 

calendar quarter after it is no longer 

subject to § 249.1(b). 

(c) Reservation of authority. The 

Board may extend or accelerate any 

compliance date of this part if the Board 

determines such extension or 

acceleration is appropriate. In 

determining whether an extension or 

acceleration is appropriate, the Board 

will consider the effect of the 

modification on financial stability, the 

period of time for which the 

modification would be necessary to 

facilitate compliance with the 

requirements of subparts K through N of 

this part, and the actions the Boardregulated institution is taking to come 

into compliance with the requirements 

of subparts K through N of this part. 

Subpart N—NSFR Public Disclosure 

§ 249.130 Timing, method, and retention of 

disclosures. 

(a) Applicability. A covered 

depository institution holding company, 

U.S. intermediate holding company, or 

covered nonbank company that is 

subject to the minimum stable funding 

requirement in § 249.100 of this part 

must publicly disclose the information 

required under this subpart. 

(b) Timing of disclosure. (1) A covered 

depository institution holding company, 

U.S. intermediate holding company, or 

covered nonbank company that is 

subject to the minimum stable funding 

requirement in § 249.100 of this part 

must provide timely public disclosures 

every second and fourth calendar 

quarter of all of the information required 

under this subpart for each of the two 

immediately preceding calendar 

quarters. 

(2) A covered depository institution 

holding company, U.S. intermediate 

holding company, or covered nonbank 

holding company that is subject to this 

subpart must provide the disclosures 

required by this subpart beginning with 

the first calendar quarter that includes 

the date that is 18 months after the 

covered depository institution holding 

company, U.S. intermediate holding 

company, or covered nonbank company 

first became subject to the minimum 

stable funding requirement in § 249.100 

of this part. 

(c) Disclosure method. A covered 

depository institution holding company, 

U.S. intermediate holding company, or 

covered nonbank company must 

publicly disclose, in a direct and 

prominent manner, the information 

required under this subpart on its public 

internet site or in its public financial or 

other public regulatory reports. 

(d) Availability. The disclosures 

provided under this subpart must 

remain publicly available for at least 

five years after the initial disclosure 

date. 

§ 249.131 Disclosure requirements. 

(a) General. A covered depository 

institution holding company, U.S. 

intermediate holding company, or 

covered nonbank company must 

publicly disclose the information 

required by this subpart in the format 

provided in Table 1 to this paragraph: 

BILLING CODE P 


khammond on DSKJM1Z7X2PROD with RULES2
9214 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 


khammond on DSKJM1Z7X2PROD with RULES2ER11FE21.000</GPH>
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9215 


khammond on DSKJM1Z7X2PROD with RULES2ER11FE21.001</GPH>
9216 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

BILLING CODE C 

(b) Calculation of disclosed average 

amounts—(1) General. (i) A covered 

depository institution holding company, 

U.S. intermediate holding company, or 

covered nonbank company must 

calculate its disclosed amounts: 

(A) On a consolidated basis and 

presented in millions of U.S. dollars or 

as a percentage, as applicable; and 

(B) As simple averages of daily 

amounts for each calendar quarter. 

(ii) A covered depository institution 

holding company, U.S. intermediate 

holding company, or covered nonbank 

company must disclose the beginning 

date and end date for each calendar 

quarter. 

(2) Calculation of unweighted 

amounts. (i) For each component of a 

covered depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s ASF amount calculation, 

other than the NSFR derivatives liability 

amount and total derivatives liability 

amount, the ‘‘unweighted amount’’ 

means the sum of the carrying values of 

the covered depository institution 

holding company’s, U.S. intermediate 

holding company’s, or covered nonbank 

company’s NSFR regulatory capital 

elements and NSFR liabilities, as 

applicable, determined before applying 

the appropriate ASF factors, and 

subdivided into the following maturity 

categories, as applicable: Open maturity; 

less than six months after the 

calculation date; six months or more, 

but less than one year, after the 

calculation date; one year or more after 

the calculation date; and perpetual. 

(ii) For each component of a covered 

depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s RSF amount calculation, 

other than amounts included in 

paragraphs (c)(2)(xvi) through (xix) of 

this section, the ‘‘unweighted amount’’ 

means the sum of the carrying values of 

the covered depository institution 

holding company’s, U.S. intermediate 

holding company’s, or covered nonbank 

company’s assets and undrawn amounts 

of committed credit facilities and 

committed liquidity facilities extended 

by the covered depository institution 

holding company, or U.S. intermediate 

holding company, or covered nonbank 

company, as applicable, determined 

before applying the appropriate RSF 

factors, and subdivided by maturity into 

the following maturity categories, as 

applicable: Open maturity; less than six 

months after the calculation date; six 

months or more, but less than one year, 


khammond on DSKJM1Z7X2PROD with RULES2ER11FE21.002</GPH>
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9217 

after the calculation date; one year or 

more after the calculation date; and 

perpetual. 

(3) Calculation of weighted amounts. 

(i) For each component of a covered 

depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s ASF amount calculation, 

other than the NSFR derivatives liability 

amount and total derivatives liability 

amount, the ‘‘weighted amount’’ means 

the sum of the carrying values of the 

covered depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s NSFR regulatory capital 

elements and NSFR liabilities, as 

applicable, multiplied by the 

appropriate ASF factors. 

(ii) For each component of a covered 

depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s RSF amount calculation, 

other than amounts included in 

paragraphs (c)(2)(xvi) through (xix) of 

this section, the ‘‘weighted amount’’ 

means the sum of the carrying values of 

the covered depository institution 

holding company’s, U.S. intermediate 

holding company’s, or covered nonbank 

company’s assets and undrawn amounts 

of committed credit facilities and 

committed liquidity facilities extended 

by the covered depository institution 

holding company, U.S. intermediate 

holding company, or covered nonbank 

company, multiplied by the appropriate 

RSF factors. 

(c) Quantitative disclosures. A 

covered depository institution holding 

company, U.S. intermediate holding 

company, or covered nonbank company 

must disclose all of the information 

required under Table 1 to paragraph (a) 

of this section including: 

(1) Disclosures of ASF amount 

calculations: 

(i) The sum of the average weighted 

amounts and, for each applicable 

maturity category, the sum of the 

average unweighted amounts of 

paragraphs (c)(1)(ii) and (iii) of this 

section (row 1); 

(ii) The average weighted amount and, 

for each applicable maturity category, 

the average unweighted amount of 

NSFR regulatory capital elements 

described in § 249.104(a)(1) (row 2); 

(iii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of securities described in 

§§ 249.104(a)(2), 249.104(d)(5), and 

249.104(e)(3) (row 3); 

(iv) The sum of the average weighted 

amounts and, for each applicable 

maturity category, the sum of the 

average unweighted amounts of 

paragraphs (c)(1)(v) through (viii) of this 

section (row 4); 

(v) The average weighted amount and, 

for each applicable maturity category, 

the average unweighted amount of 

stable retail deposits and sweep 

deposits held at the covered depository 

institution holding company, U.S. 

intermediate holding company, or 

covered nonbank company described in 

§ 249.104(b) (row 5); 

(vi) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of retail deposits other than 

stable retail deposits or brokered 

deposits, described in § 249.104(c)(1) 

(row 6); 

(vii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of sweep deposits, brokered 

reciprocal deposits, and brokered 

deposits provided by a retail customer 

or counterparty described in 

§§ 249.104(c)(2), 249.104(c)(3), 

249.104(c)(4), 249.104(d)(7), 

249.104(d)(8) and 249.104(e)(2) (row 7); 

(viii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of other funding provided by a 

retail customer or counterparty 

described in § 249.104(d)(9) (row 8); 

(ix) The sum of the average weighted 

amounts and, for each applicable 

maturity category, the sum of the 

average unweighted amounts of 

paragraphs (c)(1)(x) and (xi) of this 

section (row 9); 

(x) The average weighted amount and, 

for each applicable maturity category, 

the average unweighted amount of 

operational deposits placed at the 

covered depository institution holding 

company, U.S. intermediate holding 

company, or covered nonbank company 

described in § 249.104(d)(6) (row 10); 

(xi) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of other wholesale funding 

described in §§ 249.104(a)(2), 

249.104(d)(1), 249.104(d)(2), 

249.104(d)(3), 249.104(d)(4), 

249.104(d)(10), and 249.104(e)(4) (row 

11); 

(xii) In the ‘‘unweighted’’ cell, the 

average amount of the NSFR derivatives 

liability amount described in 

§ 249.107(d)(2) (row 12); 

(xiii) In the ‘‘unweighted’’ cell, the 

average amount of the total derivatives 

liability amount described in 

§ 249.107(e)(2) (row 13); 

(xiv) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of all other liabilities not 

included in amounts disclosed under 

paragraphs (c)(1)(i) through (xiii) of this 

section (row 14); 

(xv) The average amount of the ASF 

amount described in § 249.103 (row 15); 

(2) Disclosures of RSF amount 

calculations, including to reflect any 

encumbrances under §§ 249.106(c) and 

249.106(d): 

(i) The sum of the average weighted 

amounts and the sum of the average 

unweighted amounts of paragraphs 

(c)(2)(ii) through (iv) of this section (row 

16); 

(ii) The average weighted amount and, 

for each applicable maturity category, 

the average unweighted amount of level 

1 liquid assets described in 

§§ 249.106(a)(1) (row 17); 

(iii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of level 2A liquid assets 

described in § 249.106(a)(3)(i) (row 18); 

(iv) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of level 2B liquid assets 

described in § 249.106(a)(4)(i) (row 19); 

(v) The average weighted amount and, 

for each applicable maturity category, 

the average unweighted amount of 

assets described in § 249.106(a)(1), other 

than level 1 liquid assets included in 

amounts disclosed under paragraph 

(c)(2)(ii) of this section or secured 

lending transactions included in 

amounts disclosed under paragraph 

(c)(2)(viii) of this section (row 20); 

(vi) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of operational deposits placed 

at financial sector entities or 

consolidated subsidiaries thereof 

described in § 249.106(a)(4)(iii) (row 

21); 

(vii) The sum of the average weighted 

amounts and, for each applicable 

maturity category, the sum of the 

average unweighted amounts of 

paragraphs (c)(2)(viii), (ix), (x), (xii), and 

(xiv) of this section (row 22); 

(viii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of secured lending transactions 

where the borrower is a financial sector 

entity or a consolidated subsidiary of a 

financial sector entity and the secured 

lending transaction is secured by level 

1 liquid assets, described in 

§§ 249.106(a)(1)(vii), 249.106(a)(3)(ii), 

249.106(a)(4)(ii), and 249.106(a)(7) (row 

23); 

(ix) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 


khammond on DSKJM1Z7X2PROD with RULES2
9218 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

amount of secured lending transactions 

that are secured by assets other than 

level 1 liquid assets and unsecured 

wholesale lending, in each case where 

the borrower is a financial sector entity 

or a consolidated subsidiary of a 

financial sector entity, described in 

§§ 249.106(a)(3)(ii), 249.106(a)(4)(ii), 

and 249.106(a)(7) (row 24); 

(x) The average weighted amount and, 

for each applicable maturity category, 

the average unweighted amount of 

secured lending transactions and 

unsecured wholesale lending to 

wholesale customers or counterparties 

that are not financial sector entities or 

consolidated subsidiaries thereof, and 

lending to retail customers and 

counterparties other than retail 

mortgages, described in 

§§ 249.106(a)(4)(iv), 249.106(a)(5)(ii), 

and 249.106(a)(6)(ii) (row 25); 

(xi) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of secured lending transactions, 

unsecured wholesale lending, and 

lending to retail customers or 

counterparties that are assigned a risk 

weight of no greater than 20 percent 

under subpart D of Regulation Q (12 

CFR part 217) described in 

§§ 249.106(a)(4)(ii), 249.106(a)(4)(iv), 

and 249.106(a)(5)(ii) (row 26); 

(xii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of retail mortgages described in 

§§ 249.106(a)(4)(iv), 249.106(a)(5)(i), and 

249.106(a)(6)(i) (row 27); 

(xiii) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of retail mortgages assigned a 

risk weight of no greater than 50 percent 

under subpart D of Regulation Q (12 

CFR part 217) described in 

§§ 249.106(a)(4)(iv) and 249.106(a)(5)(i) 

(row 28); 

(xiv) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of publicly traded common 

equity shares and other securities that 

are not HQLA and are not 

nonperforming assets described in 

§§ 249.106(a)(6)(iii), and 

249.106(a)(6)(iv) (row 29); 

(xv) The average weighted amount 

and average unweighted amount of 

commodities described in 

§§ 249.106(a)(6)(v) and 249.106(a)(7) 

(row 30); 

(xvi) The average unweighted amount 

and average weighted amount of the 

sum of (A) assets contributed by the 

covered depository institution holding 

company to a central counterparty’s 

mutualized loss-sharing arrangement 

described in § 249.107(b)(6) (in which 

case the ‘‘unweighted amount’’ shall 

equal the fair value and the ‘‘weighted 

amount’’ shall equal the unweighted 

amount multiplied by 85 percent) and 

(B) assets provided as initial margin by 

the covered depository institution 

holding company, U.S. intermediate 

holding company, or covered nonbank 

company for derivative transactions 

described in § 249.107(b)(7) (in which 

case the ‘‘unweighted amount’’ shall 

equal the fair value and the ‘‘weighted 

amount’’ shall equal the unweighted 

amount multiplied by the higher of 85 

percent or the RSF factor assigned to the 

asset pursuant to § 249.106) (row 31); 

(xvii) In the ‘‘unweighted’’ cell, the 

covered depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s average amount of the NSFR 

derivatives asset amount under 

§ 249.107(d)(1) and in the ‘‘weighted’’ 

cell, the covered depository institution 

holding company’s, U.S. intermediate 

holding company’s, or covered nonbank 

company’s average amount of the NSFR 

derivatives asset amount under 

§ 249.107(d)(1) multiplied by 100 

percent (row 32); 

(xviii) In the ‘‘unweighted’’ cell, the 

covered depository institution holding 

company’s, U.S. intermediate holding 

company’s, or covered nonbank 

company’s average amount of the total 

derivatives asset amount described in 

§ 249.107(e)(1) (row 33); 

(xix) (A) In the ‘‘unweighted’’ cell, the 

average amount of the sum of the gross 

derivative liability values of the covered 

depository institution holding company, 

U.S. intermediate holding company, or 

covered nonbank company that are 

liabilities for each of its derivative 

transactions not subject to a qualifying 

master netting agreement and each of its 

QMNA netting sets, described in 

§ 249.107(b)(5), and (B) in the 

‘‘weighted’’ cell, such sum multiplied 

by 5 percent, as described in 

§ 249.107(b)(5) (row 34); 

(xx) The average weighted amount 

and, for each applicable maturity 

category, the average unweighted 

amount of all other asset amounts not 

included in amounts disclosed under 

paragraphs (c)(2)(i) through (xix) of this 

section, including nonperforming assets 

(row 35); 

(xxi) The average weighted and 

unweighted amount of undrawn credit 

and liquidity facilities described in 

§ 249.106(a)(2) (row 36); 

(xxii) The average amount of the RSF 

amount as calculated in § 249.105(a) 

prior to the application of the applicable 

required stable funding adjustment 

percentage in § 249.105(b) (row 37); 

(xxiii) The applicable required stable 

funding adjustment percentage 

described in Table 1 to § 249.105(b) 

(row 38); 

(xxiv) The average amount of the RSF 

amount as calculated under § 249.105 

(row 39); 

(3) The average of the net stable 

funding ratios as calculated under 

§ 249.100(b) (row 40); 

(d) Qualitative disclosures. (1) A 

covered depository institution holding 

company, U.S. intermediate holding 

company, or covered nonbank company 

must provide a qualitative discussion of 

the factors that have a significant effect 

on its net stable funding ratio, which 

may include the following: 

(i) The main drivers of the net stable 

funding ratio; 

(ii) Changes in the net stable funding 

ratio results over time and the causes of 

such changes (for example, changes in 

strategies and circumstances); 

(iii) Concentrations of funding sources 

and changes in funding structure; or 

(iv) Concentrations of available and 

required stable funding within a 

covered company’s corporate structure 

(for example, across legal entities). 

(2) If a covered depository institution 

holding company, U.S. intermediate 

holding company, or covered nonbank 

company subject to this subpart believes 

that the qualitative discussion required 

in paragraph (d)(1) of this section would 

prejudice seriously its position by 

resulting in public disclosure of specific 

commercial or financial information 

that is either proprietary or confidential 

in nature, the covered depository 

institution holding company, U.S. 

intermediate holding company, or 

covered nonbank company is not 

required to include those specific items 

in its qualitative discussion, but must 

provide more general information about 

the items that had a significant effect on 

its net stable funding ratio, together 

with the fact that, and the reason why, 

more specific information was not 

discussed. 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

12 CFR Chapter III 

Authority and Issuance 

For the reasons set forth in the 

common preamble, part 329 of chapter 

III of title 12 of the Code of Federal 

Regulations is amended as follows: 

PART 329—LIQUIDITY RISK 

MEASUREMENT STANDARDS 

■ 25. The authority citation for part 329 

continues to read as follows: 

Authority: 12 U.S.C. 1815, 1816, 1818, 

1819, 1828, 1831p–1, 5412. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9219 

■ 26. Amend § 329.1 by revising 

paragraphs (a) and (b)(1) introductory 

text to read as follows: 

§ 329.1 Purpose and applicability. 

(a) Purpose. This part establishes a 

minimum liquidity standard and a 

minimum stable funding standard for 

certain FDIC-supervised institutions on 

a consolidated basis, as set forth herein. 

(b) * * * 

(1) An FDIC-supervised institution is 

subject to the minimum liquidity 

standard, minimum stable funding 

standard, and other requirements of this 

part if: 

* * * * * 

■ 27. Amend § 329.2 by revising 

paragraph (b) and adding paragraph (c) 

to read as follows: 

§ 329.2 Reservation of authority. 

* * * * * 

(b) The FDIC may require an FDICsupervised institution to maintain an 

amount of available stable funding 

greater than otherwise required under 

this part, or to take any other measure 

to improve the FDIC-supervised 

institution’s stable funding, if the FDIC 

determines that the FDIC-supervised 

institution’s stable funding 

requirements as calculated under this 

part are not commensurate with the 

FDIC-supervised institution’s funding 

risks. In making determinations under 

this section, the FDIC will apply notice 

and response procedures as set forth in 

12 CFR 324.5. 

(c) Nothing in this part limits the 

authority of the FDIC under any other 

provision of law or regulation to take 

supervisory or enforcement action, 

including action to address unsafe or 

unsound practices or conditions, 

deficient liquidity levels, deficient 

stable funding levels, or violations of 

law. 

■ 28. Amend § 329.3 by: 

■ a. Removing the definitions for 

‘‘Brokered sweep deposit’’, ‘‘Covered 

nonbank company’’, and ‘‘Reciprocal 

brokered deposit’’; 

■ b. Adding definitions for ‘‘Brokered 

reciprocal deposit’’, ‘‘Carrying value’’, 

‘‘Encumbered’’, ‘‘NSFR liability’’, 

‘‘NSFR regulatory capital element’’, 

‘‘QMNA netting set’’, ‘‘Sweep deposit’’, 

‘‘Unconditionally cancelable’’, and 

‘‘Unsecured wholesale lending’’; and 

■ c. Revising definitions for ‘‘Brokered 

deposit’’, ‘‘Calculation date’’, 

‘‘Collateralized deposit’’, ‘‘Committed’’, 

‘‘Operational deposit’’, ‘‘Secured 

funding transaction’’, ‘‘Secured lending 

transaction’’, and ‘‘Unsecured wholesale 

funding.’’ 

The additions and revisions, in 

alphabetical order, read as follows: 

§ 329.3 Definitions. 

* * * * * 

Brokered deposit means any deposit 

held at the FDIC-supervised institution 

that is obtained, directly or indirectly, 

from or through the mediation or 

assistance of a deposit broker as that 

term is defined in section 29 of the 

Federal Deposit Insurance Act (12 

U.S.C. 1831f(g)) and the Federal Deposit 

Insurance Corporation’s regulations. 

Brokered reciprocal deposit means a 

brokered deposit that an FDICsupervised institution receives through 

a deposit placement network on a 

reciprocal basis, such that: 

(1) For any deposit received, the 

FDIC-supervised institution (as agent for 

the depositors) places the same amount 

with other depository institutions 

through the network; and 

(2) Each member of the network sets 

the interest rate to be paid on the entire 

amount of funds it places with other 

network members. 

Calculation date means, for subparts 

B through J of this part, any date on 

which an FDIC-supervised institution 

calculates its liquidity coverage ratio 

under § 329.10, and for subparts K 

through M of this part, any date on 

which an FDIC-supervised institution 

calculates its net stable funding ratio 

under § 329.100. 

* * * * * 

Carrying value means, with respect to 

an asset, NSFR regulatory capital 

element, or NSFR liability, the value on 

the balance sheet of the FDICsupervised institution, each as 

determined in accordance with GAAP. 

* * * * * 

Collateralized deposit means: 

(1) A deposit of a public sector entity 

held at the FDIC-supervised institution 

that is required to be secured under 

applicable law by a lien on assets 

owned by the FDIC-supervised 

institution and that gives the depositor, 

as holder of the lien, priority over the 

assets in the event the FDIC-supervised 

institution enters into receivership, 

bankruptcy, insolvency, liquidation, 

resolution, or similar proceeding; 

(2) A deposit of a fiduciary account 

awaiting investment or distribution held 

at the FDIC-supervised institution for 

which the FDIC-supervised institution 

is a fiduciary and is required under 

applicable state law to set aside assets 

owned by the FDIC-supervised 

institution as security, which gives the 

depositor priority over the assets in the 

event the FDIC-supervised institution 

enters into receivership, bankruptcy, 

insolvency, liquidation, resolution, or 

similar proceeding; or 

(3) A deposit of a fiduciary account 

awaiting investment or distribution held 

at the FDIC-supervised institution for 

which the FDIC-supervised institution’s 

affiliated insured depository institution 

is a fiduciary and where the FDICsupervised institution under 12 CFR 

9.10(c) (national banks), 12 CFR 150.310 

(Federal savings associations), or 

applicable state law (state member and 

nonmember banks, and state savings 

associations) has set aside assets owned 

by the FDIC-supervised institution as 

security, which gives the depositor 

priority over the assets in the event the 

FDIC-supervised institution enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. 

Committed means, with respect to a 

credit or liquidity facility, that under 

the terms of the facility, it is not 

unconditionally cancelable. 

* * * * * 

Encumbered means, with respect to 

an asset, that the asset: 

(1) Is subject to legal, regulatory, 

contractual, or other restriction on the 

ability of the FDIC-supervised 

institution to monetize the asset; or 

(2) Is pledged, explicitly or implicitly, 

to secure or to provide credit 

enhancement to any transaction, not 

including when the asset is pledged to 

a central bank or a U.S. governmentsponsored enterprise where: 

(i) Potential credit secured by the 

asset is not currently extended to the 

FDIC-supervised institution or its 

consolidated subsidiaries; and 

(ii) The pledged asset is not required 

to support access to the payment 

services of a central bank. 

* * * * * 

NSFR liability means any liability or 

equity reported on an FDIC-supervised 

institution’s balance sheet that is not an 

NSFR regulatory capital element. 

NSFR regulatory capital element 

means any capital element included in 

an FDIC-supervised institution’s 

common equity tier 1 capital, additional 

tier 1 capital, and tier 2 capital, in each 

case as defined in 12 CFR 324.20, prior 

to application of capital adjustments or 

deductions as set forth in 12 CFR 

324.22, excluding any debt or equity 

instrument that does not meet the 

criteria for additional tier 1 or tier 2 

capital instruments in 12 CFR 324.22 

and is being phased out of tier 1 capital 

or tier 2 capital pursuant to subpart G 

of 12 CFR part 324. 

Operational deposit means short-term 

unsecured wholesale funding that is a 

deposit, unsecured wholesale lending 

that is a deposit, or a collateralized 

deposit, in each case that meets the 

requirements of § 329.4(b) with respect 

to that deposit and is necessary for the 


khammond on DSKJM1Z7X2PROD with RULES2
9220 Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 

provision of operational services as an 

independent third-party intermediary, 

agent, or administrator to the wholesale 

customer or counterparty providing the 

deposit. 

* * * * * 

QMNA netting set means a group of 

derivative transactions with a single 

counterparty that is subject to a 

qualifying master netting agreement and 

is netted under the qualifying master 

netting agreement. 

* * * * * 

Secured funding transaction means 

any funding transaction that is subject 

to a legally binding agreement that gives 

rise to a cash obligation of the FDICsupervised institution to a wholesale 

customer or counterparty that is secured 

under applicable law by a lien on 

securities or loans provided by the 

FDIC-supervised institution, which 

gives the wholesale customer or 

counterparty, as holder of the lien, 

priority over the securities or loans in 

the event the FDIC-supervised 

institution enters into receivership, 

bankruptcy, insolvency, liquidation, 

resolution, or similar proceeding. 

Secured funding transactions include 

repurchase transactions, securities 

lending transactions, other secured 

loans, and borrowings from a Federal 

Reserve Bank. Secured funding 

transactions do not include securities. 

Secured lending transaction means 

any lending transaction that is subject to 

a legally binding agreement that gives 

rise to a cash obligation of a wholesale 

customer or counterparty to the FDICsupervised institution that is secured 

under applicable law by a lien on 

securities or loans provided by the 

wholesale customer or counterparty, 

which gives the FDIC-supervised 

institution, as holder of the lien, priority 

over the securities or loans in the event 

the counterparty enters into 

receivership, bankruptcy, insolvency, 

liquidation, resolution, or similar 

proceeding. Secured lending 

transactions include reverse repurchase 

transactions and securities borrowing 

transactions. Secured lending 

transactions do not include securities. 

* * * * * 

Sweep deposit means a deposit held 

at the FDIC-supervised institution by a 

customer or counterparty through a 

contractual feature that automatically 

transfers to the FDIC-supervised 

institution from another regulated 

financial company at the close of each 

business day amounts identified under 

the agreement governing the account 

from which the amount is being 

transferred. 

* * * * * 

Unconditionally cancelable means, 

with respect to a credit or liquidity 

facility, that an FDIC-supervised 

institution may, at any time, with or 

without cause, refuse to extend credit 

under the facility (to the extent 

permitted under applicable law). 

Unsecured wholesale funding means a 

liability or general obligation of the 

FDIC-supervised institution to a 

wholesale customer or counterparty that 

is not a secured funding transaction. 

Unsecured wholesale funding includes 

wholesale deposits. Unsecured 

wholesale funding does not include 

asset exchanges. 

Unsecured wholesale lending means a 

liability or general obligation of a 

wholesale customer or counterparty to 

the FDIC-supervised institution that is 

not a secured lending transaction or a 

security. Unsecured wholesale lending 

does not include asset exchanges. 

* * * * * 

■ 29. Amend § 329.22, by revising 

paragraph (b)(1) to read as follows: 

§ 329.22 Requirements for eligible highquality liquid assets. 

* * * * * 

(b) * * * 

(1) The assets are not encumbered. 

* * * * * 

■ 30. Amend § 329.30, by revising 

paragraph (b)(3) to read as follows: 

§ 329.30 Total net cash outflow amount. 

* * * * * 

(b) * * * 

(3) Other than the transactions 

identified in § 329.32(h)(2), (h)(5), or (j) 

or § 329.33(d) or (f), the maturity of 

which is determined under § 329.31(a), 

transactions that have an open maturity 

are not included in the calculation of 

the maturity mismatch add-on. 

* * * * * 

■ 31. Amend § 329.31, by revising 

paragraphs (a)(1) introductory text, 

(a)(2) introductory text, and (a)(4) to 

read as follows: 

§ 329.31 Determining maturity. 

(a) * * * 

(1) With respect to an instrument or 

transaction subject to § 329.32, on the 

earliest possible contractual maturity 

date or the earliest possible date the 

transaction could occur, taking into 

account any option that could accelerate 

the maturity date or the date of the 

transaction, except that when 

considering the earliest possible 

contractual maturity date or the earliest 

possible date the transaction could 

occur, the FDIC-supervised institution 

should exclude any contingent options 

that are triggered only by regulatory 

actions or changes in law or regulation, 

as follows: 

* * * * * 

(2) With respect to an instrument or 

transaction subject to § 329.33, on the 

latest possible contractual maturity date 

or the latest possible date the 

transaction could occur, taking into 

account any option that could extend 

the maturity date or the date of the 

transaction, except that when 

considering the latest possible 

contractual maturity date or the latest 

possible date the transaction could 

occur, the FDIC-supervised institution 

may exclude any contingent options 

that are triggered only by regulatory 

actions or changes in law or regulation, 

as follows: 

* * * * * 

(4) With respect to a transaction that 

has an open maturity, is not an 

operational deposit, and is subject to the 

provisions of § 329.32(h)(2), (h)(5), (j), or 

(k) or § 329.33(d) or (f), the maturity 

date is the first calendar day after the 

calculation date. Any other transaction 

that has an open maturity and is subject 

to the provisions of § 329.32 shall be 

considered to mature within 30 calendar 

days of the calculation date. 

* * * * * 

§ 329.32 [Amended] 

■ 32. Amend § 329.32 by: 

■ a. Removing the phrase ‘‘reciprocal 

brokered deposits’’ and adding the 

phrase ‘‘brokered reciprocal deposits’’ 

in its place wherever it appears. 

■ b. Removing the phrase ‘‘brokered 

sweep deposits’’ and adding the phrase 

‘‘sweep deposits’’ in its place wherever 

it appears. 

Subparts G through J [Added and 

Reserved] 

■ 33. Add and reserve subparts G 

through J to part 329. 

Subparts K and L [Added] 

■ 34. Amend part 329 by adding 

subparts K and L as set forth at the end 

of the common preamble. 

Subparts K and L [Amended] 

■ 35. Subparts K and L to part 329 are 

amended by: 

■ a. Removing ‘‘[AGENCY]’’ and adding 

‘‘FDIC’’ in its place wherever it appears. 

■ b. Removing ‘‘[AGENCY CAPITAL 

REGULATION]’’ and adding ‘‘12 CFR 

part 324’’ in its place wherever it 

appears. 

■ c. Removing ‘‘A [BANK]’’ and adding 

‘‘An FDIC-supervised institution’’ in its 

place wherever it appears. 


khammond on DSKJM1Z7X2PROD with RULES2
Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations 9221 

■ d. Removing ‘‘a [BANK]’’ and add ‘‘an 

FDIC-supervised institution’’ in its place 

wherever it appears. 

■ e. Removing ‘‘[BANK]’’ and adding 

‘‘FDIC-supervised institution’’ in its 

place wherever it appears. 

■ f. Removing ‘‘[§ ll.10(c)(4)(ii)(E)(1) 

through (3) of the AGENCY 

SUPPLEMENTARY LEVERAGE RATIO 

RULE]’’ and adding ‘‘12 CFR 

324.10(c)(2)(v)(A) through (C)’’ in its 

place wherever it appears. 

■ g. Amending § 329.105, by revising 

paragraph (b) to read as follows: 

§ 329.105 Calculation of required stable 

funding amount. 

* * * * * 

(b) Required stable funding 

adjustment percentage. An FDICsupervised institution’s required stable 

funding adjustment percentage is 

determined pursuant to Table 1 to this 

paragraph (b). 

TABLE 1 TO PARAGRAPH (b)—REQUIRED STABLE FUNDING ADJUSTMENT PERCENTAGES

GSIB depository institution supervised by the FDIC ........................................................................................................................... 100 

Category II FDIC-supervised institution ............................................................................................................................................... 100 

Category III FDIC-supervised institution that: ..................................................................................................................................... 100 

(1) Is a consolidated subsidiary of (a) a covered depository institution holding company or U.S. intermediate holding company 

identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution 

that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III FDIC-supervised institution in 

this part, in each case with $75 billion or more in average weighted short-term wholesale funding; or 

(2) Has $75 billion or more in average weighted short-term wholesale funding and is not a consolidated subsidiary of (a) a covered depository institution holding company or U.S. intermediate holding company identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III FDIC-supervised institution in this part. 

Category III FDIC-supervised institution that: ..................................................................................................................................... 85 

(1) Is a consolidated subsidiary of (a) a covered depository institution holding company or U.S. intermediate holding company 

identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution 

that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III FDIC-supervised institution in 

this part, in each case with less than $75 billion in average weighted short-term wholesale funding; or 

(2) Has less than $75 billion in average weighted short-term wholesale funding and is not a consolidated subsidiary of (a) a 

covered depository institution holding company or U.S. intermediate holding company identified as a Category III banking organization pursuant to 12 CFR 252.5 or 12 CFR 238.10 or (b) a depository institution that meets the criteria set forth in paragraphs (2)(ii)(A) and (B) of the definition of Category III FDIC-supervised institution in this part. 

■ 36. Amend part 329 by adding subpart 

M to read as follows: 

Subpart M—Transitions 

§ 329.120 Transitions. 

(a) Initial application. (1) An FDICsupervised institution that initially 

becomes subject to the minimum net 

stable funding requirement under 

§ 329.1(b)(1)(i) after July 1, 2021, must 

comply with the requirements of 

subparts K through M of this part 

beginning on the first day of the third 

calendar quarter after which the FDICsupervised institution becomes subject 

to this part. 

(2) An FDIC-supervised institution 

that becomes subject to the minimum 

net stable funding requirement under 

§ 329.1(b)(1)(ii) must comply with the 

requirements of subparts K through M of 

this part subject to a transition period 

specified by the FDIC. 

(b) Transition to a different required 

stable funding adjustment percentage. 

(1) An FDIC-supervised institution 

whose required stable funding 

adjustment percentage changes is 

subject to the transition periods as set 

forth in § 329.105(c). 

(2) An FDIC-supervised institution 

that is no longer subject to the minimum 

stable funding requirement of this part 

pursuant to § 329.1(b)(1)(i) based on the 

size of total consolidated assets, crossjurisdictional activity, total nonbank 

assets, weighted short-term wholesale 

funding, or off-balance sheet exposure 

calculated in accordance with the Call 

Report, or instructions to the FR Y–9LP, 

the FR Y–15, or equivalent reporting 

form, as applicable, for each of the four 

most recent calendar quarters may cease 

compliance with the requirements of 

subparts K through M of this part as of 

the first day of the first calendar quarter 

after it is no longer subject to § 329.1(b). 

(c) Reservation of authority. The FDIC 

may extend or accelerate any 

compliance date of this part if the FDIC 

determines such extension or 

acceleration is appropriate. In 

determining whether an extension or 

acceleration is appropriate, the FDIC 

will consider the effect of the 

modification on financial stability, the 

period of time for which the 

modification would be necessary to 

facilitate compliance with the 

requirements of subparts K through M of 

this part, and the actions the FDICsupervised institution is taking to come 

into compliance with the requirements 

of subparts K through M of this part. 

Brian P. Brooks, 

Acting Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System. 

Ann Misback, 

Secretary of the Board, 

Federal Deposit Insurance Corporation. 

By order of the Board of Directors. 

Dated at Washington, DC, on October 20, 

2020. 

James P. Sheesley, 

Assistant Executive Secretary. 

[FR Doc. 2020–26546 Filed 2–4–21; 4:15 pm] 

BILLING CODE P 


khammond on DSKJM1Z7X2PROD with RULES2