High-Quality Liquid Assets
Basel III is an international, voluntary regulatory framework developed to respond to the deficiencies in regulation that contributed to the recent financial crisis and addresses banks’ capital requirements, liquidity coverage, and leverage. The Federal Reserve Board (FRB), Office of the Comptroller of Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) established a Liquidity Coverage Ratio (LCR) that requires banking institutions with assets over $10 billion to have an adequate stock of high-quality liquid assets (HQLA) to meet liquidity needs over a short period of time. The LCR requirements differ based on the dollar amount of assets under control by the institution with more HQLA holdings required of larger institutions. Municipal securities are not currently considered HQLA, but a proposed rule by the FRB would include some uninsured investment-grade general obligation municipal securities as HQLA. Additionally, congressional legislation has been introduced that would treat certain municipal securities as HQLA for the purpose of LCR requirements.