Significant Revisions to Liquidity Coverage Ratio Expected to Reduce Burden on Banking Organizations

On January 7, 2013, the Basel Committee on Banking Supervision released highly-anticipated revised rules (the “2013 Rules”) governing the Liquidity Coverage Ratio (the “LCR”) included in the Basel III framework finalized in December 2010. The LCR is intended to improve short-term resilience to liquidity risk by requiring banking organizations to hold high quality liquid assets (“HQLA”) that can be quickly and easily monetized to cover their liquidity needs over a 30-day liquidity stress scenario. The LCR requires banking organizations to maintain a ratio of HQLA to “total net cash outflows over the next 30 calendar days” of 100%, except in periods of stress. The 2013 Rules provide important relief to banking organizations by both expanding the definition HQLA (effectively increasing a banking organization’s LCR numerator) and reducing the outflow rates that must be applied to certain deposits and liquidity facilities (effectively decreasing its LCR denominator). This memorandum provides a high-level overview of the LCR revisions and their expected impact on banking organizations.