Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules 34645 

1 86 FR 26189 (May 13, 2021). 

1The Federal banking regulatory agencies include 

the Office of the Comptroller of the Currency, Board 

of Governors of the Federal Reserve System 

(hereafter Federal Reserve Board), and the Federal 

Deposit Insurance Corporation. See ‘‘Liquidity 

Coverage Ratio: Liquidity Risk Measurement 

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

‘‘Net Stable Funding Ratio: Liquidity Risk 

Measurement Standards and Disclosure 

Requirements,’’ 86 FR 9120 (February 11, 2021). 

2Basel III was published in December 2010 and 

revised in June 2011. The text is available at http:// 

www.bis.org/publ/bcbs189.htm. The BCBS was 

established in 1974 by central banks with bank 

supervisory authorities in major industrial 

countries. The BCBS develops banking guidelines 

and recommends them for adoption by member 

countries and others. BCBS documents are available 

at https://www.bis.org/. The FCA does not have 

representation on the Basel Committee, as do the 

FBRAs, and is not required by law to follow the 

Basel standards. The Basel III Liquidity Coverage 

Ratio and liquidity risk monitoring tools document 

was published in January 2013 and the Net stable 

funding ratio document was published in October 

2014. 

clarify that the requirement that each 

debit card transaction must be able to be 

processed on at least two unaffiliated 

payment card networks applies to cardnot-present transactions, clarify the 

requirements that Regulation II imposes 

on debit card issuers to ensure that at 

least two unaffiliated payment card 

networks have been enabled for debit 

card transactions, and standardize and 

clarify the use of certain terminology.1

The proposal provided for a comment 

period ending on July 12, 2021. Since 

the publication of the proposal, the 

Board has received comments 

requesting a 30-day extension of the 

comment period. An extension of the 

comment period will provide additional 

opportunity for interested parties to 

analyze the proposal and prepare and 

submit comments. Therefore, the Board 

is extending the end of the comment 

period for the proposal from July 12, 

2021 to August 11, 2021. 

By order of the Board of Governors of the 

Federal Reserve System, acting through the 

Secretary of the Board under delegated 

authority. 

Ann E. Misback, 

Secretary of the Board. 

[FR Doc. 2021–13533 Filed 6–29–21; 8:45 am] 

BILLING CODE P 

FARM CREDIT ADMINISTRATION 

12 CFR Part 615 

RIN 3052–AD44 

Bank Liquidity Reserve 

AGENCY: Farm Credit Administration. 

ACTION: Advance notice of proposed 

rulemaking. 

SUMMARY: The Farm Credit 

Administration (FCA, we, our) is 

contemplating revising its liquidity 

regulations so Farm Credit System (FCS 

or System) banks can better withstand 

crises that adversely impact liquidity 

and pose a risk to their viability. FCA 

is considering whether to amend our 

existing liquidity regulatory framework. 

We are seeking comments from the 

public on how to amend or restructure 

our liquidity regulations. 

DATES: Please send us your comments 

on or before September 28, 2021. 

ADDRESSES: For accuracy and efficiency 

reasons, please submit comments by 

email or through FCA’s website. We do 

not accept comments submitted by 

facsimiles (fax), as faxes are difficult for 

us to process and achieve compliance 

with section 508 of the Rehabilitation 

Act of 1973. Please do not submit your 

comment multiple times via different 

methods. You may submit comments by 

any of the following methods: 

• Email: Send us an email at regcomm@fca.gov. 

• FCA website: http://www.fca.gov. 

Click inside the ‘‘I want to . . .’’ field 

near the top of the page; select 

‘‘comment on a pending regulation’’ 

from the dropdown menu; and click 

‘‘Go.’’ This takes you to an electronic 

public comment form. 

• Mail: Kevin J. Kramp, Director, 

Office of Regulatory Policy, Farm Credit 

Administration, 1501 Farm Credit Drive, 

McLean, VA 22102–5090. 

You may review copies of comments 

we receive on our website at http://

www.fca.gov. Once you are on the 

website, click inside the ‘‘I want to 

. . .’’ field near the top of the page; 

select ‘‘find comments on a pending 

regulation’’ from the dropdown menu; 

and click ‘‘Go.’’ This will take you to the 

Comment Letters page where you can 

select the regulation for which you 

would like to read the public comments. 

We will show your comments as 

submitted, including any supporting 

data provided, but for technical reasons 

we may omit items such as logos and 

special characters. Identifying 

information that you provide, such as 

phone numbers and addresses, will be 

publicly available. However, we will 

attempt to remove email addresses to 

help reduce internet spam. You may 

also review comments at our office in 

McLean, Virginia. Please call us at (703) 

883–4056 or email us at reg-comm@

fca.gov to make an appointment. 

FOR FURTHER INFORMATION CONTACT:

Technical information: Ryan Leist, 

LeistR@fca.gov, Senior Accountant, or 

Jeremy R. Edelstein, EdelsteinJ@fca.gov, 

Associate Director, Finance and Capital 

Markets Team, Office of Regulatory 

Policy, Farm Credit Administration, 

McLean, VA 22102–5090, (703) 883– 

4414, TTY (703) 883–4056, or 

ORPMailbox@fca.gov; 

or 

Legal information: Richard Katz, 

KatzR@fca.gov, Senior Counsel, Office 

of General Counsel, Farm Credit 

Administration, McLean, VA 22102– 

5090, (703) 883–4020, TTY (703) 883– 

4056. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Introduction 

A. Objectives of the Advance Notice of 

Proposed Rulemaking 

B. Background on System Liquidity 

II. Recent Updates to System Liquidity 

Regulations 

III. Potential Areas for Improvement 

IV. Request for Comments 

A. Existing FCA Liquidity Regulations 

B. Applicability of the Liquidity Coverage 

Ratio and Net Stable Funding Ratio 

C. Other Comments Requested 

I. Introduction 

A. Objectives of the Advance Notice of 

Proposed Rulemaking 

FCA’s purpose in this Advance Notice 

of Proposed Rulemaking is to gather 

public input to: 

• Ensure that each FCS bank operates 

under a comprehensive liquidity 

framework, so it consistently maintains 

adequate liquidity to cover all of its 

potential obligations, including 

unfunded commitments and other 

material contingent liabilities, under 

stressful conditions; 

• Assess if, and to what extent, the 

Basel III International framework for 

liquidity risk measurement, standards 

and monitoring (hereafter ‘‘Basel III 

Liquidity Framework’’), issued by the 

Basel Committee on Banking 

Supervision (BCBS), and regulations of 

the Federal banking regulatory agencies 

(FRBAs) implementing this framework 

for banking organizations should 

influence revisions to FCA’s existing 

liquidity framework; 1

• Determine if the Basel III Liquidity 

Framework is appropriate for FCS 

banks, and evaluate the impacts of 

augmenting FCA’s existing liquidity 

framework to incorporate appropriate 

aspects of the Basel III Liquidity 

Framework and the FBRAs’ 

implementation of the framework; 2 and 

• Determine the respective costs and 

benefits of updating FCA’s liquidity 

framework for FCS banks. 

B. Background on System Liquidity 

In 1916, Congress created the System 

to provide permanent, stable, affordable, 


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34646 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules 

3Number of institutions as of January 1, 2021. 

The Federal Agricultural Mortgage Corporation 

(Farmer Mac), which is also a System institution, 

has authority to operate secondary markets for 

agricultural real estate mortgage loans, rural 

housing mortgage loans, and rural utility 

cooperative loans. The FCA has a separate set of 

liquidity regulations that apply to Farmer Mac. This 

Advance Notice of Proposed Rulemaking does not 

affect Farmer Mac, and the use of the term ‘‘System 

institution’’ in this preamble does not include 

Farmer Mac. 

4The Funding Corporation is established 

pursuant to section 4.9 of the Farm Credit Act of 

1971, as amended, and is owned by all Farm Credit 

banks. 

5The agricultural credit bank lends to, and 

provides other financial services to farmer-owned 

cooperatives, rural utilities (electric and 

telecommunications), and rural water and waste 

water disposal systems. It also finances U.S. 

agricultural exports and imports, and provides 

international banking services to cooperatives and 

other eligible borrowers. The agricultural credit 

bank operates a Farm Credit Bank subsidiary. 

6 12 U.S.C. 2001–2279cc. The Act is available at 

www.fca.gov under ‘‘Laws and regulations,’’ and 

‘‘Statutes.’’ 

7See 78 FR 23438 (April 18, 2013), as corrected 

by 78 FR 26701 (May 8, 2013). In addition, 

technical, non-substantive revisions to the terms 

‘‘Government-sponsored enterprise (GSE)’’ and 

‘‘U.S. Government agency’’ were made in 2018 (83 

FR 27486 (June 12, 2018)). 

8See 76 FR 80817 (December 27, 2011). 

9See ‘‘Principles for Sound Liquidity Risk 

Management and Supervision.’’ September 2008; 

and ‘‘Basel III: International framework for liquidity 

risk measurement, standards and monitoring.’’ 

December 2010. 

10See supra footnote 7. 

11See 79 FR 61440 (October 10, 2014). 

and reliable sources of credit and 

related services to American agricultural 

and aquatic producers. The System 

currently consists of 3 Farm Credit 

Banks, 1 agricultural credit bank, 66 

agricultural credit associations, 1 

Federal land credit association, service 

corporations, and the Federal Farm 

Credit Banks Funding Corporation 

(Funding Corporation).3 Farm Credit 

banks (which include both the Farm 

Credit Banks and the agricultural credit 

bank) issue System-wide consolidated 

debt obligations in the capital markets 

through the Funding Corporation,4

which enable the System to extend 

short-, intermediate-, and long-term 

credit and related services to farmers, 

ranchers, aquatic producers and 

harvesters, their cooperatives, rural 

utilities, exporters of agricultural 

commodities products, and capital 

equipment, farm-related businesses, and 

certain rural homeowners.5 The 

System’s enabling statute is the Farm 

Credit Act of 1971, as amended (Act).6

In many respects, the FCS is different 

from other lenders. In contrast to most 

commercial banks and other financial 

institutions, the System lends primarily 

to agriculture and other eligible 

borrowers in rural areas. Unlike most 

other lenders, FCS banks and 

associations are cooperatives that are 

owned and controlled by their memberborrowers. Their common equity is not 

publicly traded. The System also funds 

its operations differently than most 

commercial lenders. FCS banks and 

associations are not depository 

institutions, and for this reason, Systemwide debt securities, not deposits, are 

the System’s primary source for funding 

loans to agricultural producers, their 

cooperatives, and other eligible 

borrowers. Although section 4.2(a) of 

the Act authorizes FCS banks to borrow 

from commercial banks and other 

lending institutions, lines of credit with 

such lenders are only used as a 

secondary source of liquidity. 

As a government-sponsored enterprise 

(GSE), the System depends on 

continuing access to the capital markets 

to obtain the funds necessary to extend 

credit to agriculture, aquaculture, rural 

utilities, and rural housing in both good 

and bad economic times. If access to the 

capital markets becomes impeded for 

any reason, FCS banks must have 

enough readily available funds and 

assets that can be quickly converted into 

cash to continue operations and pay 

maturing obligations. Unlike 

commercial banks, the System does not 

have a lender of last resort and does not 

have a guaranteed line of credit from the 

U.S. Treasury or the Federal Reserve. 

As part of our ongoing efforts to 

ensure the FCS banks have sufficient 

liquidity to fund operations in the event 

of market disruptions, and in light of 

updated guidance and regulations 

published by the BCBS and FBRAs, we 

are soliciting comments on the best 

ways to enhance FCA’s existing 

liquidity framework. 

II. Recent Updates to System Liquidity 

Regulations 

FCA regulations governing System 

banks’ liquidity were last substantially 

updated in 2013 in response to the 2008 

financial crisis.7 FCA proposed 

amendments to its liquidity 

requirements in 2011 to improve the 

quality of liquidity and bolster the 

ability of the System banks to fund their 

operations during times of economic, 

financial, or market adversity.8 At the 

time, FCA considered the Basel III 

Liquidity Framework that was 

published in September 2008 and 

December 2010,9 but decided not to 

adopt the Basel III liquidity ratios. The 

final rule incorporated the liquidity 

coverage principles of Basel III as 

appropriate to the System, improved the 

System’s ability to withstand market 

disruptions by strengthening liquidity 

management practices at Farm Credit 

banks, and enhanced the liquidity of 

assets in their liquidity reserves. The 

objectives of our 2013 liquidity final 

rule 10 were to: 

• Improve the capacity of FCS banks 

to pay their obligations and fund their 

operations by maintaining adequate 

liquidity to withstand various market 

disruptions and adverse economic or 

financial conditions; 

• Strengthen liquidity management at 

all FCS banks; 

• Enhance the liquidity of assets that 

System banks hold in their liquidity 

reserves; 

• Require FCS banks to maintain a 

three-tiered liquidity reserve. The first 

tier of the liquidity reserve must consist 

of a sufficient amount of cash and cashlike instruments to cover each bank’s 

financial obligations for 15 days. The 

second and third tiers of the liquidity 

reserve must contain cash and highly 

liquid instruments that are sufficient to 

cover the bank’s obligations for the next 

15 and subsequent 60 days, 

respectively; 

• Establish a supplemental liquidity 

buffer that a bank can draw upon during 

an emergency and is sufficient to cover 

the bank’s liquidity needs beyond 90 

days; and 

• Strengthen each bank’s Contingency 

Funding Plan (CFP). 

As explained in the preamble to the 

2013 final rule, the amendments to 

§ 615.5134 incorporated many of the 

principles that the BCBS and the FBRAs 

have articulated on liquidity 

management because many of these 

fundamental concepts apply to all 

financial institutions, including FCS 

banks. The comprehensive supervisory 

approach developed by the BCBS and 

the FBRAs effectively strengthens both 

the liquidity reserves and the liquidity 

risk management practices at regulated 

financial institutions. 

FCA’s update created three levels of 

liquid assets (levels 1, 2, and 3) which 

are similar to, but not exactly the same 

as, the three levels of high-quality liquid 

assets (HQLA) established in the Basel 

III Liquidity Framework (levels 1, 2a, 

and 2b) and used in the Liquidity 

Coverage Ratio (LCR).11 In addition, 

FCA’s framework adopted core concepts 

of the FBRA’s rules, including the 

supplemental liquidity buffer, specific 

policies and internal controls that 

combat liquidity risk, and CFPs based in 

part on the results of liquidity stress 

tests. 

The Basel III Liquidity Framework is 

not the only basis for the existing 

liquidity regulation. The regulation was 

also based upon the System’s own 

initiatives to improve liquidity 


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Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules 34647 

12See 12 U.S.C. 2277a–10(a)(1); Section 5.61(a)(1) 

of the Act. 

13On September 24, 2013, FCSIC entered into an 

agreement with the FFB, a U.S. government 

corporation subject to the supervision and direction 

of the U.S. Treasury. 

14An ‘‘exigent market circumstance’’ is a broad 

disruption across U.S. credit markets that originates 

external to and independent of the Farm Credit 

System. 

15The agreement provides for a short-term 

revolving credit facility of up to $10 billion, is 

renewable annually and terminates on September 

30, 2021, unless otherwise further extended. 

16The FCA has broad authority under various 

provisions of the Act to supervise and regulate 

liquidity management at FCS banks. Section 5.17(a) 

of the Act authorizes the FCA to: (1) Approve the 

issuance of FCS debt securities under section 4.2(c) 

and (d) of the Act; (2) establish standards regarding 

loan security requirements at FCS institutions, and 

regulate the borrowing, repayment, and transfer of 

funds between System institutions; (3) prescribe 

rules and regulations necessary or appropriate for 

carrying out the Act; and (4) exercise its statutory 

enforcement powers for the purpose of ensuring the 

safety and soundness of System institutions. 

17See 79 FR 61440 (October 10, 2014). 

18See 81 FR 35124 (June 1, 2016). 

19See 86 FR 9120 (February 11, 2021). The final 

rule will become effective on July 1, 2021. 

20See BCBS, ‘‘Basel III: The Liquidity Coverage 

Ratio and liquidity risk monitoring tools’’ (January 

2013). 

21See BCBS, ‘‘Basel III: The net stable funding 

ratio’’ (October 2014). 

22See Proclamation 9994, ‘‘Declaring a National 

Emergency Concerning the Novel Coronavirus 

Disease COVID–19 Outbreak,’’ 85 FR 15337 (March 

18, 2020). 

management as well as the FCA’s 

experiences from examining liquidity 

risk management at Farm Credit banks 

and the Funding Corporation. In this 

context, the regulation implemented the 

best practices available for liquidity 

management at FCS banks at the time. 

The Farm Credit System Insurance 

Corporation (FCSIC) may use its 

Insurance Fund as a backup source of 

liquidity for System banks through its 

assistance authorities.12 Additionally, 

subsequent to FCA adopting the rule, 

FCSIC entered into an agreement with 

the Federal Financing Bank (FFB) for a 

$10 billion line of credit.13 Pursuant to 

this agreement, the FFB may advance 

funds to FCSIC when exigent market 

circumstances 14 make it extremely 

doubtful that: The Funding Corporation 

can issue new System-wide debt 

obligations to repay maturing 

obligations; and one or more insured 

System banks will be able to pay 

maturing debt obligations without 

selling available liquidity reserve assets 

at a material loss. If necessary, FCSIC 

would use the funds advanced by the 

FFB to increase amounts in its 

Insurance Fund to provide assistance to 

the System banks until market 

conditions improve.15

The decision whether to provide 

assistance, including seeking funds from 

the FFB, is at the discretion of FCSIC, 

and each funding obligation of the FFB 

is subject to various terms and 

conditions and, as a result, there can be 

no assurance that funding would be 

available if needed by the System. This 

FCSIC–FFB revolving credit facility is 

subject to annual renewal. Additionally, 

the agreement only applies during 

exigent market circumstances, and can 

only be used if the amount needed to 

repay maturing System-wide insured 

debt obligations will exceed available 

Insurance Fund reserves. As such, FCA 

does not consider potential FCSIC 

assistance, including additional 

amounts available through its agreement 

with the FFB, when determining 

liquidity requirements or completing 

examinations of liquidity and related 

management practices at FCS 

institutions. 

FCA has closely monitored how the 

FBRAs have adjusted Basel III and 

applied it to the institutions they 

supervise since 2013. In response to 

these developments and more recent 

adverse market conditions, FCA 

believes it is appropriate to consider 

updates to the existing FCA liquidity 

framework.16

III. Potential Areas for Improvement 

Our current liquidity regulation 

§ 615.5134, which we finalized in 2013, 

responded to the 2008 financial crisis. 

More specifically, this regulation 

improves the System’s liquidity 

management and bolsters the ability of 

the System banks to fund their 

operations during times of economic, 

financial, or market adversity. At the 

time, FCA considered the Basel III 

Liquidity Framework and how to tailor 

it to the unique circumstances of System 

banks. The FBRAs had not yet enacted 

regulations that implemented Basel III, 

and we decided it would be premature 

for FCA to adopt the LCR and the Net 

Stable Funding Ratio (NSFR) for System 

banks. FCA’s existing regulation has 

achieved FCA’s objectives by ensuring 

that System banks have a satisfactory 

liquidity framework. Yet, the time has 

come for FCA to revisit these issues and 

decide how best to strengthen and 

update § 615.5134 so System banks are 

in a better position to respond to 

emerging risks and constantly changing 

market conditions. 

Between 2013 and 2020, the BCBS 

and FBRAs issued new guidance and 

regulations to improve the liquidity 

framework for the banking sector. The 

new regulations included the LCR that 

was finalized in 2014 17 and the NSFR, 

which was proposed in 2016 18 and 

finalized in November 2020.19 The 

LCR20 focuses on short-term liquidity 

risk from severe market stresses and the 

NSFR21 promotes stable funding 

structures over a one-year horizon. The 

NSFR is designed to act as a 

complement to the LCR to mitigate the 

risks of banking organizations 

supporting their assets with 

insufficiently stable funding. The LCR 

applies to large banking organizations 

and does not apply to community 

banking and savings associations. When 

the final NSFR rule becomes effective 

on July 1, 2021, it too will apply to large 

banking organizations, but not 

community banks and small saving 

associations. 

The Basel III Liquidity Framework 

encourages regulated entities to account 

for unfunded commitments and other 

contingent obligations in their liquidity 

reserve calculations, and for this reason, 

its concepts are relevant to this 

rulemaking and the maintenance of 

adequate liquidity at FCS banks. After 

careful consideration of the comments 

received on the 2011 liquidity proposed 

rule, FCA decided not to incorporate 

unfunded commitments into the 

existing regulation, however, FCA stated 

it may address unfunded commitments 

at a later time. As a result, FCA’s 

liquidity reserve requirement does not 

capture funds held or unfunded 

commitments on retail loans or on the 

direct note. While these unfunded 

commitments are generally captured as 

part of the liquidity stress tests 

incorporated into a bank’s CFP, the CFP 

in the existing rule gives System banks 

considerable discretion to determine the 

cash flow assumptions and discount 

factors used to determine the amount of 

liquidity reserves they should hold for 

these potential cash outflows. 

Modifying FCA’s liquidity reserve 

requirement to capture unfunded 

commitments or adopting an LCR/NSFR 

framework may promote stronger 

liquidity profiles at System banks by 

improving how liquidity is measured 

and reported. Furthermore, this 

modification would help ensure that a 

System bank has enough liquidity to 

meet its unfunded commitments during 

a liquidity crisis. 

The containment measures adopted in 

early 2020 in response to COVID–19 

slowed economic activity in the United 

States.22 Financial conditions tightened 

markedly in March and April 2020 and 

sudden disruptions in financial markets 

put increasing liquidity pressure on 

certain credit markets. In response to 

the pandemic, the Federal Reserve 

Board established a number of funding, 

credit, liquidity, and loan facilities to 

provide liquidity to the financial 


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34648 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules 

23Section 1101 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act amended 

section 13(3) of the Federal Reserve Act, 12 U.S.C. 

343(3), to allow the Federal Reserve Board, in 

consultation with the Secretary of the Treasury, to 

establish by regulation, policies and procedures that 

would govern emergency lending under a program 

or facility for the purpose of providing liquidity to 

the financial system. Under section 13(3) of the 

Federal Reserve Act, as amended, the Federal 

Reserve Board must establish procedures that 

prohibit insolvent and failing entities from 

borrowing under the emergency program or facility. 

See Public Law 11–203, title XI, sec. 1101(a), 124 

Stat. 2113 (Jul. 21, 2010). 

24To provide liquidity to small business lenders 

and the broader credit markets and to help stabilize 

the financial system, the Federal Reserve Board has 

created the PPP Liquidity Facility using its 

authority under section 13(3) of the Federal Reserve 

Act. 

25See FCA’s Supplement to the January 5, 2021, 

FCA Informational Memorandum: Guidance for 

System Institutions Affected by the COVID–19 

Pandemic: Regulatory Capital Requirements for PPP 

Loans. 

26See § 614.4125(d). 

27Under section 2.2(12) of the Act, direct lender 

associations may borrow money from their affiliated 

Farm Credit bank, and with the approval of their 

funding banks, may borrow from and issue notes or 

other obligations to any commercial bank or 

financial institution. 

28OFI means any entity referred to in section 

1.7(b)(1)(B) of the Act. 

29See § 614.4540(b) which specifies the criteria 

for assured access for certain OFIs. 

30The Tier 1/Tier 2 Capital framework regulation 

requires that System banks hold capital against this 

unfunded wholesale commitment due to the risk 

presented. See § 628.33 and preamble discussion— 

81 FR 49737 (July 28, 2016). 

31See 79 FR 61440, 61444 (October 10, 2014). 

Examples include those shocks that would result in: 

(1) A partial loss of unsecured wholesale funding 

capacity; (2) a partial loss of secured, short-term 

financing with certain collateral and counterparties; 

(3) losses from derivative positions and the 

collateral supporting those positions; (4) 

unscheduled draws on committed credit and 

liquidity facilities that a covered company has 

provided to its customers; and (5) other shocks that 

affect outflows linked to structured financing 

transactions and mortgages. 

system.23 One of these programs, the 

Paycheck Protection Program (PPP) 

Liquidity Facility, was directly available 

to System institutions, while other 

facilities indirectly increased the 

liquidity of System institutions’ assets 

held in their liquidity reserves.24 FCA 

provided System institutions with 

guidance to manage the challenges 

associated with the COVID–19 

pandemic, including certain regulatory 

capital relief for PPP loans and PPP 

loans pledged to the PPP Liquidity 

Facility.25 Throughout the market 

turbulence in early 2020, System banks 

maintained satisfactory liquidity 

reserves, however; the market 

conditions caused by COVID–19 

provided FCA the opportunity to 

observe the existing liquidity framework 

under adverse market conditions. 

Based on these developments, FCA is 

considering whether changes to our 

liquidity regulations are appropriate or 

needed. 

IV. Request for Comments 

We request and encourage any 

interested person(s) to submit comments 

on the following questions and ask that 

you support your comments with 

relevant data, analysis, or other 

information. We remind commenters 

that comments, data, and other 

information submitted in support of a 

comment, will be available to the public 

through our website. 

We have organized our questions into 

the following categories: (A) Existing 

FCA Liquidity Regulations and (B) 

Applicability of the LCR and NSFR. 

A. Existing FCA Liquidity Regulations 

Unfunded Commitments of FCS Banks 

Each FCS bank has its own unique 

circumstances and risk profile and, 

therefore, exposure to unfunded 

commitments and other contingent 

obligations varies within the FCS. As 

part of each System bank’s general 

financing agreement (GFA) with its 

affiliated associations, System banks 

have an unfunded commitment to each 

affiliated association that is a possible 

outflow of liquidity. The unfunded 

commitment amount is the difference 

between the association’s maximum 

credit limit with the System bank under 

the GFA or promissory note 26 and the 

amount the association has borrowed 

from the System bank. 

The GFA permits a System bank to 

terminate an association’s loan or to 

refuse to make additional disbursements 

in the event of default. The Act 

prohibits an association from borrowing 

from commercial banks or other 

financial institutions without its 

funding bank’s approval.27 We believe 

there may be merit in incorporating 

these possible outflows for the bank’s 

unfunded commitment to its affiliated 

associations into the existing liquidity 

reserve requirement because the 

associations are fully dependent on the 

bank for funding its operations so it can 

fulfill its mission. 

System banks also have unfunded 

commitments or other material 

contingent liabilities to other financing 

institutions (OFIs) that increase 

liquidity risk.28 System banks are 

required to provide funding, or provide 

similar financial assistance to any 

creditworthy OFI that meets certain 

requirements.29 Although the GFAs 

with OFIs may permit a System bank to 

refuse to make additional disbursements 

in the event of default, a System bank 

would likely be required to give prior 

notice to cancel unfunded commitments 

to OFIs. As part of their GFA with OFIs, 

System banks can be legally obligated to 

fund these commitments. These types of 

outflows may include retail funding, 

contractual settlements related to 

derivative transactions, pledging 

collateral, or other off-balance sheet 

commitments. 

FCS banks may also have outstanding 

lines of credit to retail borrowers who 

may draw funds to meet their seasonal, 

business, or liquidity needs. A line of 

credit may be used as a liquidity facility 

to function as an undrawn backup that 

would be utilized to refinance debt 

obligations of a borrower in situations 

where the borrower is unable to rollover 

that debt in financial markets. 

Alternatively, credit facilities provide a 

line of credit for borrower’s general 

corporate or working capital purposes. 

These lines of credit to retail borrowers 

may or may not be unconditionally 

cancellable. A sudden surge in borrower 

demand for funds under these lines may 

increase demands on the bank’s 

liquidity at a time when market access 

is becoming impeded. These unfunded 

commitments potentially expose both 

FCS banks and associations to 

significant safety and soundness risks.30

To incorporate consideration of these 

unfunded commitments, the liquidity 

rules of the FBRAs apply a multiplier or 

‘‘factor’’ to the gross notional amount to 

reflect assumptions on how exposures 

will result in ‘‘cash outflows.’’ These 

factors are multiplied by the total 

amount of each outflow item to 

determine the regulatory outflow 

amount. The factor applied is 

dependent on the type of exposure, and 

is consistent with the Basel III Liquidity 

Framework and the FBRAs’ evaluation 

of relevant supervisory information. The 

factors applied consider the potential 

impact of idiosyncratic and market-wide 

shocks.31

While unfunded commitments at 

System banks should be analyzed in the 

CFP, banks have significant discretion 

about the assumptions (i.e., factor) 

applied. For example, to reflect varying 

drawdown assumptions System banks 

may apply a factor, similar to the factors 

applied in the FBRAs’ rules, to notional 

amounts outstanding. A higher factor 

reflects a higher drawdown potential of 

the undrawn portion of these 

commitments and results in a higher 

liquidity requirement in the CFP. For 

example, a $10 billion exposure at a 10 

percent factor would add only $1 billion 

to the discounted outflows, while a 40 

percent factor would add $4 billion to 

the outflows. 


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32Sections 1.5(6) and 2.2(13) of the Act authorize 

institutions to accept advance payments. 

To evaluate this further, we are 

seeking comment to determine if we 

should incorporate unfunded 

commitments into the existing FCA 

liquidity framework and what type of 

factor would be appropriate to capture 

the drawdown risks. 

1. How should FCA incorporate the 

liquidity risk of unfunded commitments 

on affiliated associations’ direct notes 

into the System banks’ liquidity reserve 

requirement? 

a. Should drawdown factors be 

applied to unfunded commitments? 

b. If so, what would be an appropriate 

factor to apply to the direct note 

unfunded commitments? 

2. How should FCA incorporate the 

liquidity risk of unfunded commitments 

to OFIs into the System banks’ liquidity 

reserve requirement? 

a. Should drawdown factors be 

applied to unfunded commitments? 

b. If so, what would be an appropriate 

factor to apply to OFI unfunded 

commitments? 

c. Does the liquidity risk of unfunded 

commitments to OFIs pose a different 

risk than unfunded commitments to 

affiliated associations’ direct notes? If 

so, how should FCA incorporate this 

risk into the liquidity reserve 

requirement? 

3. How should FCA incorporate the 

liquidity risk of unfunded commitments 

to bank retail borrowers into the System 

banks’ liquidity reserve requirement? 

a. What would be an appropriate 

factor to apply to retail borrower 

unfunded commitments? 

b. Should unfunded commitments to 

retail borrowers that are not 

unconditionally cancellable be treated 

differently from those that are 

unconditionally cancellable? Please 

explain why. 

c. Should we consider applying 

different factors to differentiate the risk 

between retail credit and liquidity 

facilities for such retail borrowers? 

Association Lines of Credit to Retail 

Borrowers 

FCS associations often have 

outstanding lines of credit to retail 

borrowers who may draw funds to meet 

their seasonal or other business needs. 

Associations can be legally obligated to 

fund these commitments and would 

generally rely on their System bank for 

funding under the GFA. A sudden surge 

in borrower demand for funds under 

these lines may increase demands on 

the bank’s liquidity at a time when 

market access is becoming impeded. 

More specifically, during periods of 

economic or market uncertainty, retail 

borrowers may desire to increase their 

cash holdings to cover operating and 

business expenses and accordingly, 

draw from their operating lines. As 

System banks are ultimately responsible 

to fund associations, we are seeking 

comment to determine if a revised 

liquidity requirement should ‘‘lookthrough’’ System banks to consider each 

association’s unfunded commitment to 

retail borrowers as a potential outflow 

item. 

4. How should FCA incorporate the 

risk of unfunded commitments from 

association retail borrowers for the 

funding banks’ liquidity reserve 

requirement? 

a. What would be an appropriate 

factor for System banks to apply to 

association unfunded commitments? 

b. Should unfunded commitments at 

associations that are not 

unconditionally cancellable be treated 

differently from those that are 

unconditionally cancellable? Please 

explain why. 

c. If so, should we consider applying 

a different factor to differentiate the risk 

between credit and liquidity facilities 

for association retail borrowers? 

d. Should FCA incorporate the 

liquidity risk of unfunded commitments 

to association retail borrowers through a 

‘‘look through’’ approach or using the 

direct note unfunded commitment 

amount? 

Voluntary Advance Conditional 

Payment Accounts 

Section 614.4175 allows memberborrowers to make voluntary advance 

conditional payments (VACP) on their 

loans and allows institutions to set up 

involuntary payment accounts for funds 

held to be used for insurance premiums, 

taxes, and other reasons.32 VACP (where 

the advanced payment is not 

compulsory) accounts have the potential 

to expose the System to additional 

liquidity risk in a crisis. More 

specifically, some VACP accounts may 

be structured so that System memberborrowers may withdraw funds at their 

request (although prior notice for 

withdrawals may be required). A 

sudden surge in member-borrower 

draws from VACP accounts held at 

associations would increase the funding 

required from the bank to the 

association. This sudden increase in 

funding may increase demands on the 

bank’s liquidity at a time when market 

access is becoming impeded. To 

evaluate this further, we are seeking 

comment on how we should mitigate 

the risk VACP accounts pose to the 

liquidity of System banks. 

5. How should FCA incorporate the 

liquidity risk of VACP accounts at 

associations into the funding banks’ 

liquidity reserve requirement? 

a. What would be an appropriate 

factor to apply to these VACP accounts? 

b. If different factors should apply to 

different types of VACP accounts, please 

specify. 

Continuously Redeemable Perpetual 

Preferred Stock 

Some System associations have issued 

continuously redeemable perpetual 

preferred stock (typically called Harvest 

Stock or H Stock) to their members who 

wish to invest and participate in their 

cooperative beyond the minimum 

member-borrower stock purchase. H 

Stock is an at-risk investment; it is 

issued without a stated maturity and is 

retireable only at the discretion of the 

institution’s board. A common feature of 

H stock is that the issuing association 

will redeem it upon the request of the 

holder only if the association is in 

compliance with its regulatory capital 

requirements. Because of this feature, 

FCA considers the stock to be 

continuously redeemable. Some 

associations reduce the operational 

hurdles to redeeming H stock by 

delegating the board’s authority to retire 

such stock to management provided 

certain board-approved minimum 

regulatory capital ratios are maintained. 

FCA has determined that holders 

reasonably expect the institution to 

redeem the stock shortly after they make 

a request. A sudden surge in memberborrower redemptions of H Stock held 

at associations would increase the 

funding from System bank to its 

associations. This sudden increase in 

funding may increase demands on the 

bank’s liquidity at a time when market 

access is becoming impeded. To 

evaluate this further, we are seeking 

comment on how we should mitigate 

the risk H Stock poses to the liquidity 

of System banks. 

6. How should FCA incorporate the 

liquidity risk of H Stock redemptions at 

associations into the funding banks’ 

liquidity reserve requirement? What 

would be an appropriate factor to apply 

to H Stock? 

Cash Inflows 

As discussed above, modifying FCA’s 

liquidity reserve requirement to capture 

potential cash outflows, including 

unfunded commitments, may promote a 

stronger liquidity profile at System 

banks. To improve how liquidity is 

measured and reported, we are also 

considering incorporating cash inflows 

into the liquidity reserve requirement. 

FCA’s existing liquidity regulation, 


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34650 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules 

33The discounts applied to the assets held for 

liquidity in FCA’s regulations approximate the cost 

of liquidating investments over a short period of 

time during adverse situations. The mechanism of 

discounting assets is designed to accurately reflect 

true market conditions. For example, FCA 

regulations assign only a minimal discount to 

investments that are less sensitive to interest rate 

fluctuations because they are exposed to less price 

risk. Conversely, the discount for long-term fixed 

rate instruments is higher because they expose FCS 

banks to greater market risk. 

34See FDIC’s Liquidity Risk Management 

Standards. Inflow amounts are defined at 12 CFR 

329.33. 

35Assets held in the supplemental liquidity 

buffer are not subject to the marketability standard 

in § 615.5134(d). However, a System bank must be 

able to liquidate any qualified eligible investment 

in its supplemental liquidity buffer within the 

liquidity policy timeframe established by the bank’s 

liquidity policy at no less than 80 percent of its 

book value. Assets having a market value of less 

than 80 percent of their book value at any time must 

be removed from the supplemental buffer. See 

§ 615.5134(e). 

36FCA defined money market instruments to 

include short-term instruments such as (1) Federal 

funds, (2) negotiable certificates of deposit, (3) 

bankers’ acceptances, (4) commercial paper, (5) 

non-callable term Federal funds (6) Eurodollar time 

deposits, (7) master notes, and (8) repurchase 

agreements collateralized by eligible investments as 

money market instruments. 83 FR 27486, 27489 

(June 12, 2018). Of the seven items, the FBRAs only 

allow Federal funds to be included in Level 1 

HQLA. See supra footnote 1. Federal funds 

represent a small amount of the System’s cash and 

liquidity included in Level 1 money market 

instruments. 

37See SEC, ‘‘Money Market Fund Reform; 

Amendments to Form PF,’’ 79 FR 47736 (August 14, 

2014). 

§ 615.5134, does not consider how 

expected cash inflows would affect the 

bank’s liquidity reserve requirement. 

Outside of CFP stress analysis 

(discussed below), FCA’s existing 

liquidity framework views the 

discounted market value of assets held 

in the liquidity reserve and 

supplemental buffer as the only source 

of liquidity during a liquidity event.33

However, in a liquidity event, certain 

borrowers will still be making payments 

on their loans, allowing money to flow 

into the institution that can be used to 

support ongoing operations. Cash 

inflows from sources other than the 

liquidity reserve typically include 

payments from wholesale and retail 

borrowers and coupon and scheduled 

principal payments from securities not 

included in the liquidity reserve.34

The CFP requirement at § 615.5134(f) 

allows System banks to consider inflows 

when analyzing how much contingent 

liquidity they must hold under a 30-day 

acute stress scenario. However, for the 

purposes of the CFP, System banks have 

considerable discretion to determine the 

assumptions pertaining to the amount of 

inflows that will offset potential 

outflows. To evaluate this further, we 

are seeking comment to determine if we 

should incorporate inflows into the 

existing FCA liquidity framework. 

7. How should FCA incorporate the 

uncertainty of cash inflows into System 

banks’ liquidity reserve requirements? 

8. What would be an appropriate 

discount percentage to apply to the 

different types of inflows (such as 

payments from wholesale and retail 

borrowers, payments from securities not 

included in the liquidity reserve)? 

9. What type of operational changes 

(such as data elements, general ledger 

requirements, and systems) would be 

required to accurately capture inflow 

and outflow information to calculate 

liquidity ratios on a daily or monthly 

basis? 

Stability of a Bank’s Balance Sheet 

The amount of liquid assets that a 

bank must maintain is generally a 

function of the stability of its funding 

structure, the risk characteristics of the 

balance sheet, and the adequacy of its 

liquidity risk measurement program. 

System banks provide funding to their 

affiliated associations through the direct 

note which is a significant portion of the 

bank’s assets. The bank’s direct note 

assets are impacted by the funding and 

liquidity demands of their affiliated 

associations. However, System banks 

directly control the mix of funding for 

these assets, as well as the risk 

characteristics of other assets acquired. 

System banks issue System-wide debt 

securities as the primary source for 

funding loans and investments. As part 

of the examination process, FCA 

evaluates how each bank’s debt 

structure helps limit liquidity risks. For 

example, if a bank funds its balance 

sheet wholly with short-term debt, the 

resulting large amounts of debt maturing 

each week would cause the bank to be 

vulnerable to market disruptions and 

liquidity risk. Therefore, debt maturities 

should be structured in a manner that 

they are extended and align with the 

tenor and composition of the bank’s 

assets. In addition, debt maturities 

should ensure longer-term stable 

funding. 

FCA’s existing liquidity framework 

does not directly address the stability of 

a bank’s balance sheet and does not 

require compliance with specific debt 

structure ratios. To evaluate this further, 

we are seeking comment to determine if 

we should add requirements regarding 

the structure of a bank’s balance sheet 

into the existing FCA liquidity 

framework. 

10. How should FCA amend its 

liquidity regulations to strengthen the 

stability of the balance sheet structure at 

FCS banks? 

11. Under what circumstances might 

it be appropriate for FCA’s liquidity 

framework to better address funding 

methods such as discount notes and 

short funding? 

Marketability of the Supplemental 

Liquidity Buffer 

Currently, investments held in a 

bank’s liquidity reserve must be 

marketable in accordance with the 

criteria in § 615.5134(d). However, 

investments held in the supplemental 

liquidity buffer are not subject to the 

same marketability standard.35 Thus, 

there is the potential that the 

supplemental liquidity buffer may 

include investments that are not 

marketable or liquid under certain 

circumstances. To evaluate this further, 

we are seeking comment to determine if 

we should hold investments in the 

supplemental liquidity buffer to the 

same or similar marketability standards 

as assets in the liquidity reserve. 

12. Should FCA apply the criteria for 

‘‘marketable’’ investments in 

§ 615.5134(d) to assets that FCS banks 

hold in their supplemental liquidity 

buffer? If yes, why? If no, what criteria 

should FCA adopt to address its 

concerns about the liquidity and 

marketability of assets in the 

supplemental liquidity buffers of FCS 

banks when access to the markets are 

becoming impeded, and why? 

Money Market Instruments and 

Diversified Investment Funds 

The existing liquidity framework 

allows certain money market 

instruments and diversified investment 

funds to be included as Level 1 reserves 

at § 615.5134(b). The FBRAs decided 

not to include similar instruments in the 

LCR’s HQLA framework, such as mutual 

funds and money market funds.36 The 

FBRAs stated that certain underlying 

investments of the investment 

companies may include high-quality 

assets, however, similar to securities 

issued by many companies in the 

financial sector, shares of investment 

companies have been prone to lose 

value and become less liquid during 

periods of severe market stress or an 

idiosyncratic event involving the fund’s 

sponsor. Additionally, Securities and 

Exchange Commission (SEC) rules 

regarding money market funds may also 

impose some barriers on investors’ 

ability to withdraw all their funds 

during a period of stress.37

Certain money market instruments 

exhibited liquidity stress during the 

2008 financial crisis and the economic 

shock in March 2020 caused by the 


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38See 79 FR 61440, 61465 (October 10, 2014) and 

Financial Stability Board’s ‘‘COVID–19 Pandemic: 

Financial Stability Impact and Policy Responses; 

Report submitted to the G20.’’ November 17, 2020. 39Both CP and CD are included in FCA’s 

definition of money market instruments. 40See SEC’s Division of Economic and Risk 

Analysis ‘‘U.S. Credit Markets Interconnectedness 

and the Effects of the COVID–19 Economic Shock.’’ 

October 2020. 

41See § 615.5133(f)(3)(iii). 

42System banks can purchase certain municipal 

securities and corporate bonds under 

§ 615.5140(a)(1)(ii)(A)—non-convertible senior debt 

securities. 

43 Investments such as publicly traded common 

equity, certain corporate debt securities, and certain 

other securities are included in the LCR but are not 

eligible investments under § 615.5140. 

44See Bank for International Settlements Bulletin 

No 14 ‘‘US dollar funding markets during the 

Covid–19 crisis—the money market fund turmoil.’’ 

May 12, 2020. 

45See § 615.5134(f). 

COVID–19 pandemic.38 For example, in 

March 2020, Commercial paper (CP) and 

Certificate of deposit (CD) markets both 

became stressed.39 Under normal 

market conditions, secondary trading 

volume in CP and CD markets is limited 

as most investors purchase and hold 

these short-dated instruments to 

maturity. However, in March 2020, as 

some market participants, including 

money market mutual funds and others, 

may have sought secondary trading, 

they experienced a ‘‘frozen market.’’ For 

liquidity purposes, both secondary 

trading and new issuances of CP and CD 

halted for a period of time during the 

pandemic.40

FCA’s existing definition of 

‘‘marketable’’ in § 615.5134(d) makes an 

exception for money market 

instruments. Specifically, 

§ 615.5134(d)(4) exempts money market 

instruments from the requirement that 

investments in the liquidity reserve 

must be easily bought and sold in active 

and sizeable markets without 

significantly affecting prices. 

Additionally, money market 

instruments are not subject to FCA’s 

investment portfolio diversification 

requirements and are not limited in the 

liquidity reserve requirement.41 To 

evaluate the type of instruments and 

definitions allowed under the FCA 

liquidity framework, we are seeking 

comment to determine if we should 

align the instruments in FCA’s liquidity 

reserve requirement with the FBRAs 

HQLA framework. 

13. Given the risks of money market 

instruments and diversified investment 

funds and that the FBRAs do not 

consider these instruments to be high 

quality liquid assets, why should FCA 

continue to permit these instruments to 

be included in an FCS bank’s liquidity 

reserve? If you believe that we should 

continue to allow money market 

instruments and diversified investment 

funds in the liquidity reserve 

requirement, how could FCA mitigate 

the risks they pose? 

14. What factors should FCA consider 

in evaluating the risk of money market 

instruments and diversified investment 

funds in the context of the total 

liquidity reserve requirement? 

15. Should FCA consider limiting 

money market instruments and 

diversified investment funds included 

in specific levels in the liquidity reserve 

to mitigate concentration risk? Please 

explain your reasoning. 

FCA’s Liquidity Reserve and HighQuality Liquid Assets in Liquidity 

Coverage Ratio 

The FBRAs’ HQLA allowed in the 

LCR differ from liquid assets allowed in 

FCA’s liquidity regulation. FCA’s 

regulation allows certain instruments to 

qualify as liquid assets even though they 

are excluded from the LCR, such as 

investment company shares (mutual 

funds and money market funds). 

However, the LCR allows certain 

instruments to be included in HQLA 

that are excluded from FCA’s liquidity 

regulation, such as municipal 

obligations and certain corporate 

bonds.42 There are also certain 

instruments in HQLA that System banks 

do not have the authority to purchase.43

FCA’s regulation also differentiates 

liquid assets by tenor while the LCR 

does not. Additionally, the LCR applies 

more substantial discounts or ‘‘haircuts’’ 

to HQLA than FCA’s liquidity 

regulation applies to the same assets. 

The FRBAs also limit certain assets to 

a percentage of the total eligible HQLA 

amount, whereas FCA does not. To 

evaluate this further, we are seeking 

comment to determine if we should 

consider aligning FCA’s existing 

requirements for liquid assets with the 

LCR’s HQLA. 

16. Should FCA consider expanding 

the instruments eligible under the 

liquidity reserve to more closely align 

with the HQLA framework of the 

FBRAs? If so, which instruments should 

be considered and how would including 

the instruments add strength to the 

existing liquidity framework? 

17. Should FCA consider reviewing 

tenor requirements in its existing 

liquidity regulations? If so, which 

instruments should be considered and 

how would the requirements add 

strength to the existing liquidity 

framework? 

18. Should FCA consider changing 

discount values assigned to assets held 

for liquidity to more closely align with 

those applied under the LCR’s HQLA 

framework? 

19. Should FCA consider limiting 

certain assets included in the liquidity 

reserve to mitigate concentration risk? If 

so, what assets should be limited and 

what percent should they be allowed to 

count towards the reserve requirement? 

Liquidity and COVID–19 

FCS banks withstood the recent 

economic and financial turmoil from 

COVID–19 with their liquidity intact. 

However, both the FCA and FCS 

continue to gain insights into the effects 

that sudden and severe stress have on 

liquidity at individual FCS institutions 

and in the entire financial system. For 

example, in March of 2020, financial 

markets experienced a ‘‘flight to cash’’ 

where demand for cash and the highest 

quality cash like instruments 

dramatically increased, while demand 

(and thus prices) for less liquid 

instruments declined.44 System banks 

are required to adopt a CFP to ensure 

sources of liquidity are sufficient to 

fund normal operations under a variety 

of stress events.45 Such stress events 

include, but are not limited to market 

disruptions, rapid increase in loan 

demand, unexpected draws on 

unfunded commitments, difficulties in 

renewing or replacing funding with 

desired terms and structures, 

requirements to pledge collateral with 

counterparties, and reduced market 

access. 

As addressed above, we are reviewing 

our regulatory and supervisory 

approaches towards liquidity so that 

System institutions are in a better 

position to withstand whatever future 

crises may arise. As part of our ongoing 

efforts to limit the adverse effect of 

rapidly changing economic, financial, 

and market conditions on the liquidity 

of any FCS bank, we are seeking 

comment to determine if we should 

make updates to our regulations to 

better prepare for future liquidity crises. 

20. How should FCA further 

incorporate the demand for cash and 

highly liquid U.S. Treasury securities 

during times of crisis into the System 

banks liquidity reserve requirement? 

21. What type of updates should FCA 

consider to the CFP requirements in 

§ 615.5134(f)? 

B. Applicability of the Liquidity 

Coverage Ratio and Net Stable Funding 

Ratio 

System Banks and the LCR and NSFR 

For the reasons discussed above, the 

FCA is exploring whether, and to what 

extent, the LCR and NSFR should apply 

to System banks now that the FBRAs 


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34652 Federal Register / Vol. 86, No. 123 / Wednesday, June 30, 2021 / Proposed Rules 

46Credit and liquidity facility are defined at 12 

CFR 329.3. A credit facility is a legally binding 

agreement to extend funds at a future date and 

generally includes working capital facilities (e.g., 

revolving line of credit used for general corporate 

or working capital purposes). A liquidity facility is 

a legally binding agreement to extend funds for 

purposes of refinancing the debt of a counterparty 

when it is unable to obtain a primary or anticipated 

source of funding. If a facility has characteristics of 

both credit and liquidity facilities, the facility must 

be classified as a liquidity facility. 

47See 79 FR 61440, 61485 (October 10, 2014). 

48Other GSEs currently include the Federal Home 

Loan Mortgage Corporation, the Federal National 

Mortgage Association, and the Federal Home Loan 

Bank System. As noted in footnote 3, supra, Farmer 

Mac is a GSE that has a charter to operate a 

secondary market for certain types of loans 

originated by retail lenders. Farmer Mac is not a 

cooperative. Instead, it is a stockholder-owned, 

federally chartered corporation. 

issued final rules implementing the 

Basel III Liquidity Framework in the 

United States. More specifically, we are 

evaluating whether it is feasible to 

adjust the LCR and NSFR to the 

System’s cooperative and nondepository structures and its mission as 

a GSE, and we are seeking your input. 

In the alternative, we are considering 

whether to incorporate specific 

elements of the LCR and NSFR into our 

liquidity regulation, and we are 

interested in your ideas about how to do 

so. 

22. What core principles would be 

most important in FCA’s consideration 

of the Basel III Liquidity Framework? 

How relevant is the Basel III Liquidity 

Framework to the cooperative and nondepository structure of the FCS? 

23. To what extent should FCA 

propose a similar rule to the FBRA’s 

LCR and NSFR? 

a. Should FCA completely replace its 

existing liquidity regulations with an 

LCR and NSFR framework or only 

augment existing regulations with 

certain elements of the LCR and NSFR 

framework? If so, please explain. 

b. What specific modifications, if any, 

should FCA consider making to the LCR 

and NSFR ratios for application to 

System banks, and why? 

c. If FCA proposed to incorporate the 

LCR and NSFR ratios as part of the CFP 

requirement in § 615.5134(f), what types 

of modifications would be necessary to 

include elements of the ratios, without 

being redundant or overly burdensome? 

24. If the FCA closely aligned the LCR 

and NSFR to the FBRA’s regulations, 

and made only narrow modification to 

accommodate the System’s unique 

structure, would the results enable FCS 

banks to better withstand liquidity 

crises, or in the alternative, prove too 

costly or burdensome? Please explain. 

25. How would the implementation of 

an LCR and NSFR impact the System’s 

funding structure, lending activities, or 

use of discount notes? 

Outflows to Credit Facilities 

The LCR requires covered institutions 

to hold liquidity against the undrawn 

amount of a committed credit facility to 

a borrower. The outflow factor applied 

to this undrawn amount depends on the 

type of credit facility (credit or liquidity 

facility) 46 and the type of borrower 

(financial sector entity or non-financial 

sector entity). The direct notes from 

System banks to System associations 

under the GFAs are credit facilities, not 

liquidity facilities. Unfunded 

commitments on a credit facility to a 

financial sector entity have a 40 percent 

factor, while the same commitment to a 

non-financial sector entity only have a 

10 percent factor. Financial sector 

entities typically have shorter-term 

funding structures and higher 

correlations of drawing down 

commitments during times of stress 

which support a higher factor when 

compared to non-financial sector 

entities.47 A higher factor results in a 

higher liquidity requirement under the 

LCR. 

The FBRAs’ LCR regulation defines a 

financial sector entity to include a 

regulated financial company, but 

specifically excludes GSEs. The FCS is 

a cooperative system of financial 

institutions that the FCA charters and 

regulates in accordance with the Act. 

System associations lend directly to and 

provide certain financially-related 

services to eligible borrowers. The 

System’s lending activities to retail 

borrowers, and its structure are different 

than the activities and structure of other 

GSEs excluded from the FBRAs’ 

definition of a financial sector entity.48

Unlike the other GSEs, most FCS 

institutions lend directly to retail 

borrowers in a manner that is 

substantially similar to lenders that the 

FBRAs define as financial sector 

entities. To evaluate this further, we are 

seeking comment to determine if we 

propose an LCR, should FCA treat 

System institutions as financial sector 

entities and apply the relevant factor 

under the FBRAs’ definition. 

26. If FCA proposes an LCR, should 

FCA treat System institutions as 

financial sector entities and apply a 40 

percent factor to the unfunded portion 

of the associations’ direct note 

commitments? 

a. If so, what supports FCA treating 

System institutions as financial sector 

entities and applying a 40 percent factor 

on the unfunded commitments System 

banks have to associations? 

b. If not, what supports FCA treating 

System institutions as non-financial 

sector entities and applying a 10 percent 

factor on the unfunded commitments 

System banks have to associations? 

System Bank Member Investment Bonds 

Two System banks offer investment 

bonds to their member-borrowers and 

other specified individuals, such as 

bank employees (Member Investment 

Bonds). Both programs are similar in 

that each bank offers overnight or shortterm, uninsured bonds to the bank’s 

members and other specified 

individuals. Member Investment Bonds 

are structured so that holders may 

redeem funds at their request (although 

prior notice for withdrawals may be 

required). Given their short maturity, a 

holder’s investment may be 

continuously rolled over until they 

provide notice to redeem the 

investment, which may be at any time. 

Member Investment Bonds present a 

liquidity demand similar to maturing 

System bonds. Accordingly, FCA treats 

Member Investment Bonds and 

maturing System bonds the same under 

the existing liquidity rules. Under the 

LCR, there are several different outflow 

categories that Member Investment 

Bonds could fall into. To evaluate this 

further, we are seeking comment to 

determine if we propose an LCR, what 

the most appropriate factor for these 

investment bonds would be. 

27. If FCA proposes an LCR, what 

would be an appropriate factor to apply 

to the Member Investment Bonds and 

why? 

Voluntary Advance Conditional 

Payment Accounts 

As discussed above, FCA regulation 

§ 614.4175 allows member-borrowers to 

make VACP on their loans and allows 

institutions to set up involuntary 

payment accounts for funds held to be 

used for insurance premiums, taxes, and 

other reasons. A sudden surge in 

member-borrower draws from VACP 

accounts held at associations would 

increase the funding required from the 

System bank to the affiliated association 

at a time when market access is 

becoming impeded. To evaluate this 

further, we are seeking comment to 

determine if we propose an LCR, what 

the most appropriate factor for these 

VACP accounts would be. 

28. If FCA proposes an LCR, given the 

uniqueness of VACP accounts and the 

ability of member-borrowers to 

withdraw certain VACP account funds 

at their request, what would be an 

appropriate factor? 

29. If different factors should apply to 

different VACP accounts, please specify. 


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49For 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 shortterm funding and lending mismatches. 

50See 86 FR 9120 (February 11, 2021). See supra 

footnote 19. 

High Quality Liquid Assets in LCR 

As discussed above, the FBRAs’ 

HQLA allowed in the LCR differ from 

liquid assets allowed in FCA’s liquidity 

regulation. To evaluate this further, we 

are seeking comment to determine if we 

propose an LCR, should FCA consider 

aligning FCA’s liquid assets with the 

LCR’s HQLA. 

30. If FCA proposes an LCR, should 

we replace the current list of eligible 

instruments for the liquidity reserve 

with a list that is more closely aligned 

to the FBRA’s HQLA instrument list 

(excluding common equities)? Please 

explain. 

a. Should FCA’s liquidity regulation 

continue to allow FCS banks to hold in 

their liquidity reserve instruments that 

are currently excluded from the FBRA’s 

HLQA list? Which instruments and 

why? 

b. Should FCA allow FCS banks to 

hold in their liquidity reserves 

instruments that are included in the 

FBRAs HLQA list, but are currently 

excluded from FCA’s liquidity 

regulation? Which instruments and 

why? 

Net Stable Funding Ratio Applicability 

The BCBS introduced the NSFR to 

require banks to maintain a stable 

funding profile to reduce the likelihood 

that disruptions in a bank’s regular 

sources of funding will erode its 

liquidity position that may increase its 

risk of failure. Furthermore, during 

periods of financial stress, financial 

institutions without stable funding 

sources may be forced to monetize 

assets in order to meet their obligations, 

which may drive down asset prices and 

compound liquidity issues. The NSFR 

implements a standardized quantitative 

metric designed to limit maturity 

mismatches and applies favorable 

factors to a commercial bank’s primary 

funding source—deposits. The NSFR 

requires a bank to maintain an amount 

of available stable funding (ASF) that is 

not less than the amount of its required 

stable funding (RSF) on an ongoing 

basis. ASF and RSF are calculated based 

on the liquidity characteristics of a 

bank’s assets, derivative exposures, 

commitments, liabilities, and equity 

over a one-year time horizon. 

The NSFR and its corresponding 

factors adopted by the FBRAs were 

established to measure and maintain the 

stability of the funding profiles of 

banking organizations that rely 

primarily on deposits. In contrast, FCS 

banks issue System-wide debt securities 

as the primary source for funding its 

operations. The System would 

potentially need to modify its funding 

structure to meet an NSFR by 

incorporating more long-term debt 

issuances. To evaluate this further, we 

are seeking comment to determine if the 

NSFR is applicable to the System’s 

funding structure, authorities, and 

mission. 

31. What core principles would be 

most important in FCA’s consideration 

of the NSFR? How does the cooperative 

and non-depository structure of the 

System relate to the NSFR? 

32. How could NSFR metrics replace 

any existing regulations, to ensure 

System banks have sufficiently stable 

liabilities (and regulatory capital) to 

support their assets and commitments 

over a one-year time horizon? 

33. Is it beneficial or detrimental to 

replace existing regulations with NSFR 

metrics and why? 

Other Considerations 

The 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 FBRAs and their 

international counterparts in the BCBS 

considered a number of possible 

funding metrics.49 The Basel guidance 

and FBRA’s NSFR regulation 

incorporated consideration of these and 

other funding risks.50

34. What other approaches or 

methodologies to measuring and 

regulating liquidity not discussed above 

should FCA consider and why? 

C. Other Comments Requested 

We welcome comments on every 

aspect of this advance notice of 

proposed rulemaking. We encourage 

any interested person(s) to identify and 

raise issues pertaining to other aspects 

of the liquidity framework for FCS 

banks and associations that we did not 

address in this ANPRM. Please 

designate such comments as ‘‘Other 

Relevant Issues.’’ 

* * * * * 

Dated: June 10, 2021. 

Dale Aultman, 

Secretary, Farm Credit Administration Board. 

[FR Doc. 2021–13556 Filed 6–29–21; 8:45 am] 

BILLING CODE 6705–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2021–0504; Project 

Identifier AD–2020–01380–T] 

RIN 2120–AA64 

Airworthiness Directives; The Boeing 

Company Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of proposed rulemaking 

(NPRM). 

SUMMARY: The FAA proposes to 

supersede Airworthiness Directive (AD) 

2019–03–26, which applies to certain 

The Boeing Company Model 737–600, 

–700, –700C, –800, –900, and –900ER 

series airplanes. AD 2019–03–26 

requires modifying the passenger 

service units (PSUs) and life vest panels 

by replacing the existing inboard 

lanyard and installing two new lanyards 

on the outboard edge of the PSUs and 

life vest panels; measuring the distance 

between the hooks of the torsion spring 

of the lanyard assembly; replacing 

discrepant lanyard assemblies; and reidentifying serviceable lanyard 

assemblies. Since the FAA issued AD 

2019–03–26, it has been determined that 

certain airplanes are listed in the wrong 

configuration and certain PSUs have not 

been correctly re-identified. This 

proposed AD would retain the 

requirements of AD 2019–03–26, and, 

for certain airplanes, would require an 

inspection to determine if the reidentified PSU part number is correct, 

and further re-identification if 

necessary. The FAA is proposing this 

AD to address the unsafe condition on 

these products. 

DATES: The FAA must receive comments 

on this proposed AD by August 16, 

2021. 

ADDRESSES: You may send comments, 

using the procedures found in 14 CFR 

11.43 and 11.45, by any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

https://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 202–493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, 

M–30, West Building Ground Floor, 

Room W12–140, 1200 New Jersey 

Avenue SE, Washington, DC 20590. 

• Hand Delivery: Deliver to Mail 

address above between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 


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