(1) General.
(i) A foreign banking organization subject
to this subpart must conduct stress tests to separately assess the
potential impact of liquidity stress scenarios on the cash flows,
liquidity position, profitability, and solvency of:
(A) Its combined U.S. operations as a
whole;
(B) Its U.S. branches and agencies
on an aggregate basis; and
(C) Its
U.S. intermediate holding company, if any.
(ii) Each liquidity stress test required
under this paragraph (a)(1) must use the stress scenarios described
in paragraph (a)(3) of this section and take into account the current
liquidity condition, risks, exposures, strategies, and activities
of the combined U.S. operations.
(iii) The liquidity stress tests required under this paragraph (a)(1)
must take into consideration the balance sheet exposures, off-balance
sheet exposures, size, risk profile, complexity, business lines, organizational
structure and other characteristics of the foreign banking organization
and its combined U.S. operations that affect the liquidity risk profile
of the combined U.S. operations.
(iv) In conducting a liquidity stress test using the scenarios described
in paragraphs (a)(3)(i) and (iii) of this section, the foreign banking
organization must address the potential direct adverse impact of associated
market disruptions on the foreign banking organization’s combined
U.S. operations and the related indirect effect such impact could
have on the combined U.S. operations of the foreign banking organization
and incorporate the potential actions of other market participants
experiencing liquidity stresses under the market disruptions that
would adversely affect the foreign banking organization or its combined
U.S. operations.
(2) Frequency. The foreign banking organization
must perform the liquidity stress tests required under paragraph (a)(1)
of this section according to the frequency specified in paragraph
(a)(2)(i) or (ii) of this section or as directed by the Board:
(i) If the foreign
banking organization is not a Category IV foreign banking organization,
at least monthly; or
(ii) If
the foreign banking organization is a Category IV foreign banking
organization, at least quarterly.
(3) Stress scenarios.
(i) Each liquidity
stress test conducted under paragraph (a)(1) of this section must
include, at a minimum:
(A) A scenario reflecting adverse market conditions;
(B) A scenario reflecting an idiosyncratic
stress event for the U.S. branches/agencies and the U.S. intermediate
holding company, if any; and
(C) A
scenario reflecting combined market and idiosyncratic stresses.
(ii) The foreign
banking organization must incorporate additional liquidity stress
scenarios into its liquidity stress test as appropriate based on the
financial condition, size, complexity, risk profile, scope of operations,
or activities of the combined U.S. operations, the U.S. branches and
agencies, and the U.S. intermediate holding company, as applicable.
The Board may require the foreign banking organization to vary the
underlying assumptions and stress scenarios.
(4) Planning
horizon. Each stress test conducted under paragraph (a)(1) of
this section must include an overnight planning horizon, a 30-day
planning horizon, a 90-day planning horizon, a 1-year planning horizon,
and any other planning horizons that are relevant to the liquidity
risk profile of the combined U.S. operations, the U.S. branches and
agencies, and the U.S. intermediate holding company, if any. For purposes
of this section, a “planning horizon” is the period over which the
relevant stressed projections extend. The foreign banking organization
must use the results of the stress test over the 30-day planning horizon
to calculate the size of the liquidity buffers under paragraph (c)
of this section.
(5) Requirements for assets used as cash-flow sources
in a stress test.
(i) To the extent an asset is used as a cash flow source to offset projected
funding needs during the planning horizon in a liquidity stress test,
the fair market value of the asset must be discounted to reflect any
credit risk and market volatility of the asset.
(ii) Assets used as cash-flow sources
during the planning horizon must be diversified by collateral, counterparty,
borrowing capacity, or other factors associated with the liquidity
risk of the assets.
(iii) A line
of credit does not qualify as a cash flow source for purposes of a
stress test with a planning horizon of 30 days or less. A line of
credit may qualify as a cash flow source for purposes of a stress
test with a planning horizon that exceeds 30 days.
(6) Tailoring. Stress testing must be tailored to, and provide sufficient detail
to reflect, the capital structure, risk profile, complexity, activities,
and size of the combined U.S. operations of the foreign banking organization
and, as appropriate, the foreign banking organization as a whole.
(7) Governance.
(i) Stress test function. A foreign banking
organization subject to this subpart, within its combined U.S. operations
and its enterprise-wide risk management, must establish and maintain
policies and procedures governing its liquidity stress testing practices,
methodologies, and assumptions that provide for the incorporation
of the results of liquidity stress tests in future stress testing
and for the enhancement of stress testing practices over time.
(ii) Controls and oversight. The foreign banking organization must
establish and maintain a system of controls and oversight that is
designed to ensure that its liquidity stress testing processes are
effective in meeting the requirements of this section. The controls
and oversight must ensure that each liquidity stress test appropriately
incorporates conservative assumptions with respect to the stress scenario
in paragraph (a)(3) of this section and other elements of the stress-test
process, taking into consideration the capital structure, risk profile,
complexity, activities, size, and other relevant factors of the combined
U.S. operations. These assumptions must be approved by U.S. chief
risk officer and subject to independent review consistent with the
standards set out in section 252.156(c).
(iii) Management
information systems. The foreign banking organization must maintain
management information systems and data processes sufficient to enable
it to effectively and reliably collect, sort, and aggregate data and
other information related to the liquidity stress testing of its combined
U.S. operations.
(8) Notice and response. If the Board determines
that a foreign banking organization must conduct liquidity stress
tests according to a frequency other than the frequency provided in
paragraphs (a)(2)(i) and (ii) of this section, the Board will notify
the foreign banking organization before the change in frequency takes
effect, and describe the basis for its determination. Within 14 calendar
days of receipt of a notification under this paragraph, the foreign
banking organization may request in writing that the Board reconsider
the requirement. The Board will respond in writing to the organization’s
request for reconsideration prior to requiring the foreign banking
organization to conduct liquidity stress tests according to a frequency
other than the frequency provided in paragraphs (a)(2)(i) and (ii)
of this section.
(1) General. A foreign banking organization
subject to this subpart must maintain a liquidity buffer for its U.S.
intermediate holding company, if any, calculated in accordance with
paragraph (c)(2) of this section, and a separate liquidity buffer
for its U.S. branches and agencies, if any, calculated in accordance
with paragraph (c)(3) of this section.
(2) Calculation of U.S. intermediate holding
company buffer requirement.
(i) The liquidity buffer for the U.S.
intermediate holding company must be sufficient to meet the projected
net stressed cash-flow need over the 30-day planning horizon of a
liquidity stress test conducted in accordance with paragraph (a) of
this section under each scenario set forth in paragraphs (a)(3)(i)
through (iii) of this section.
(ii) Net stressed cash-flow need. The
net stressed cash-flow need for the U.S. intermediate holding company
is equal to the sum of its net external stressed cash-flow need (calculated
pursuant to paragraph (c)(2)(iii) of this section) and its net internal
stressed cash-flow need (calculated pursuant to paragraph (c)(2)(iv)
of this section) over the 30-day planning horizon.
(iii) Net
external stressed cash-flow need calculation. The net external
stressed cash-flow need for a U.S. intermediate holding company equals
the difference between:
(A) The projected amount of cash-flow needs that results from transactions
between the U.S. intermediate holding company and entities that are
not its affiliates; and
(B) The projected
amount of cash-flow sources that results from transactions between
the U.S. intermediate holding company and entities that are not its
affiliates.
(iv) Net internal stressed cash-flow need calculation.
(A) General. The net internal stressed cash-flow
need for the U.S. intermediate holding company equals the greater
of:
(1) The greatest daily cumulative
net intragroup cash-flow need over the 30-day planning horizon as
calculated under paragraph (c)(2)(iv)(B) of this section; and
(2) Zero.
(B) Daily cumulative
net intragroup cash-flow need calculation. The daily cumulative
net intragroup cash-flow need for the U.S. intermediate holding company
for purposes of paragraph (c)(2)(iv)(A) of this section is calculated
as follows:
(1) Daily
cumulative net intragroup cash-flow need. For any given day in
the stress-test horizon, the daily cumulative net intragroup cash-flow
need is a daily cumulative net intragroup cash flow that is greater
than zero.
(2) Daily cumulative net intragroup cash flow. For any given day of the planning horizon, the daily cumulative
net intragroup cash flow equals the sum of the net intragroup cash
flow calculated for that day and the net intragroup cash flow calculated
for each previous day of the stress-test horizon, as calculated in
accordance with paragraph (c)(2)(iv)(C) of this section.
(C) Net intragroup
cash flow. For any given day of the stress-test horizon, the
net intragroup cash flow equals the difference between:
(1)
The amount of cash-flow needs resulting from transactions between
the U.S. intermediate holding company and its affiliates (including
any U.S. branch or U.S. agency) for that day of the planning horizon;
and
(2) The amount of cash-flow
sources resulting from transactions between the U.S. intermediate
holding company and its affiliates (including any U.S. branch or U.S.
agency) for that day of the planning horizon.
(D) Amounts secured
by highly liquid assets. For the purposes of calculating net
intragroup cash flow under this paragraph, the amounts of intragroup cash-flow
needs and intragroup cash-flow sources that are secured by highly
liquid assets (as defined in paragraph (c)(7) of this section) must
be excluded from the calculation.
(3) Calculation
of U.S. branch and agency liquidity buffer requirement.
(i) The liquidity buffer for the
foreign banking organization’s U.S. branches and agencies must be
sufficient to meet the projected net stressed cash-flow need of the
U.S. branches and agencies over the first 14 days of a stress test
with a 30-day planning horizon, conducted in accordance with paragraph
(a) of this section under the scenarios described in paragraphs (a)(3)(i)
through (iii) of this section.
(ii) Net stressed cash-flow need. The
net stressed cash-flow need of the U.S. branches and agencies of a
foreign banking organization is equal to the sum of its net external
stressed cash-flow need (calculated pursuant to paragraph (c)(3)(iii)
of this section) and net internal stressed cash-flow need (calculated
pursuant to paragraph (c)(3)(iv) of this section) over the first 14
days of the 30-day planning horizon.
(iii) Net
external stressed cash-flow need calculation.
(A) The net external stressed cash-flow
need of the U.S. branches and agencies equals the difference between:
(1) The projected amount of cash-flow needs that results from
transactions between the U.S. branches and agencies and entities other
than the foreign bank’s non-U.S. offices and its U.S. and non-U.S.
affiliates; and
(2) The projected
amount of cash-flow sources that results from transactions between
the U.S. branches and agencies and entities other than the foreign
bank’s non-U.S. offices and its U.S. and non-U.S. affiliates.
(iv) Net internal stressed cash-flow need calculation.
(A) General. The net internal stressed cash-flow
need of the U.S. branches and agencies of the foreign banking organization
equals the greater of:
(1) The greatest daily cumulative
net intragroup cash-flow need over the first 14 days of the 30-day
planning horizon, as calculated under paragraph (c)(3)(iv)(B) of this
section; and
(2) Zero.
(B) Daily cumulative
net intragroup cash-flow need calculation. The daily cumulative
net intragroup cash-flow need of the U.S. branches and agencies of
a foreign banking organization for purposes of paragraph (c)(3)(iv)
of this section is calculated as follows:
(1) Daily cumulative net intragroup cash-flow need. For any given day of the stress-test horizon, the daily cumulative
net intragroup cash-flow need of the U.S. branches and agencies means
a daily cumulative net intragroup cash flow that is greater than zero.
(2) Daily cumulative net intragroup cash flow. For any given day
of the planning horizon, the daily cumulative net intragroup cash
flow of the U.S. branches and agencies equals the sum of the net intragroup
cash flow calculated for that day and the net intragroup cash flow
calculated for each previous day of the planning horizon, each as
calculated in accordance with this paragraph (c)(3)(iv)(C) of this
section.
(C) Net intragroup cash flow. For any given
day of the planning horizon, the net intragroup cash flow must equal
the difference between:
(1) The amount of projected cash-flow
needs resulting from transactions between a U.S. branch or U.S. agency
and the foreign bank’s non-U.S. offices and its affiliates; and
(2) The amount of projected cash-flow
sources resulting from transactions between a U.S. branch or U.S.
agency and the foreign bank’s non-U.S. offices and its affiliates.
(D) Amounts secured by highly liquid assets. For the purposes of calculating net intragroup cash flow of the
U.S. branches and agencies under this paragraph, the amounts of intragroup
cash-flow needs and intragroup cash-flow sources that are secured
by highly liquid assets (as defined in paragraph (c)(7) of this section)
must be excluded from the calculation.
(4) Location
of liquidity buffer.
(i) U.S. intermediate
holding companies. A U.S. intermediate holding company must maintain
in accounts in the United States the highly liquid assets comprising
the liquidity buffer required under this section. To the extent that
the assets consist of cash, the cash may not be held in an account
located at a U.S. branch or U.S. agency of the affiliated foreign
banking organization or other affiliate that is not controlled by
the U.S. intermediate holding company.
(ii) U.S.
branches and agencies. The U.S. branches and agencies of a foreign
banking organization must maintain in accounts in the United States
the highly liquid assets comprising the liquidity buffer required
under this section. To the extent that the assets consist of cash,
the cash may not be held in an account located at the foreign banking
organization’s U.S. intermediate holding company or other affiliate.
(7) Asset requirements. The liquidity buffer
required in this section for the U.S. intermediate holding company
or the U.S. branches and agencies must consist of highly liquid assets
that are unencumbered, as set forth below:
(i) Highly
liquid assets. The asset must be a highly liquid asset. For these
purposes, a highly liquid asset includes:
(A) Cash;
(B)
Assets that meet the criteria for high quality liquid assets as defined
in 12 CFR 249.20; or
(C) Any other
asset that the foreign banking organization demonstrates to the satisfaction
of the Board:
(1) Has low credit risk and low market
risk;
(2) Is traded in an active
secondary two-way market that has committed market makers and independent bona fide offers to buy and sell so that a price reasonably related
to the last sales price or current bona fide competitive bid
and offer quotations can be determined within one day and settled
at that price within a reasonable time period conforming with trade
custom; and
(3) Is a type of
asset that investors historically have purchased in periods of financial
market distress during which market liquidity has been impaired.
(ii) Unencumbered. The asset must be unencumbered.
For these purposes, an asset is unencumbered if it:
(A) Is free of legal, regulatory, contractual
or other restrictions on the ability of such company promptly to liquidate,
sell or transfer the asset; and
(B)
Is either:
(1) Not pledged or used to secure
or provide credit enhancement to any transaction; or
(2) Pledged to a central bank or a
U.S. government-sponsored enterprise, to the extent potential credit
secured by the asset is not currently extended by such central bank
or U.S. government-sponsored enterprise or any of its consolidated
subsidiaries.
(iii) Calculating
the amount of a highly liquid asset. In calculating the amount
of a highly liquid asset included in the liquidity buffer, the foreign
banking organization must discount the fair market value of the asset
to reflect any credit risk and market price volatility of the asset.
(iv) Operational requirements. With respect to the liquidity buffer,
the foreign banking organization must:
(A) Establish and implement policies and procedures
that require highly liquid assets comprising the liquidity buffer
to be under the control of the management function in the foreign
banking organization that is charged with managing liquidity risk
of its combined U.S. operations; and
(B) Demonstrate the capability to monetize a highly liquid asset
under each scenario required under section 252.157(a)(3).
(v) Diversification. The liquidity buffer must not contain significant concentrations
of highly liquid assets by issuer, business sector, region, or other
factor related to the foreign banking organization’s risk, except
with respect to cash and securities issued or guaranteed by the United
States, a U.S. government agency, or a U.S. government sponsored enterprise.
