Friday March 20 2020
News Source: Fund Regulation
Focus: U.S. Money Market Funds
On 19th March 2020, the federal bank regulatory agencies announced an interim final rule to ensure that financial institutions will be able to effectively use a liquidity facility recently launched by the Federal Reserve Board to support the flow of credit to households and businesses,
The Board launched the Money Market Mutual Fund Liquidity Facility, to enhance the liquidity and functioning of money markets and to support the economy.
The new rules provide liquidity to the money market sector to help stabilize the financial system, the federal Reserve Bank of Boston will extend non-recourse loans to eligible financial institutions to purchase certain types of assets from money market mutual funds (MMFs). To facilitate this Federal Reserve lending program, the Board, OCC and FDIC (together, the agencies) are adopting
The interim final rule allows banking organizations to neutralize the regulatory capital effects of participating in the program. This treatment would extend to the community bank leverage ratio.
The rule is effective immediately and comments will be accepted for 45 days after publication in the Federal Register.
The Interim Final Rule
The agencies’ capital rule requires banking organizations to comply with risk-based and leverage capital requirements, which are expressed as a ratio of regulatory capital to assets. Risk-based requirements are based on risk-weighted assets, whereas leverage requirements are based on a measure of total consolidated assets or total leverage exposure.
The agencies seek comment on all aspects of this interim final rule.
Discuss the advantages and disadvantages of neutralizing the effects of participating in the MMLF on regulatory capital requirements.
How does the proposed approach support the objectives of the facility?
What other steps could be taken to support the objectives of the facility?
How does the proposed approach sufficiently support the objectives of safety and soundness?
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