Liquidity Coverage Ratio (“LCR”) Summary

OVERVIEW
Covered institutions must maintain a minimum amount of high quality liquid assets (“HQLAs”) sufficient to satisfy projected net cash outflows over a 30-day measurement period
The Final Rule:
• Defines HQLAs
• Establishes inflow/outflow rates and maturity assumptions that reflect market stress and generally delay inflows and accelerate outflows
• Provides method of calculating total net cash outflows, caps inflows at 75% of outflows, and requires an add-on calculation to address maturity mismatches between outflows and inflows
LCR COVERAGE
Final rule contains two versions of the LCR: (i) full LCR; and (ii) modified LCR
Full LCR:
• Bank Holding Companies (“BHCs”) and Savings and Loan Holding Companies (“SLHCs”) with ≥ $250b in total consolidated assets (“TCA”) or ≥ $10b in on-balance sheet foreign exposures
• Consolidated U.S. depository institution subsidiary of the BHCs and SLHCs with ≥ $10b in TCA
• Any other bank made subject to LCR by its primary regulator
Modified LCR:
• BHCs and SLHCs with ≥ $50b in TCA
Not Subject to LCR:
• U.S. BHCs/SLHCs with < $50b in TCA
• BHCs or SLHCs that are:
ο Grandfathered unitary SLHCs deriving ≥ 50% of total assets or total revenues from activities not financial in nature;
ο Insurance underwriting companies; or
ο Holding ≥ 25% total assets in insurance underwriting subsidiaries
• A bridge financial company and its subsidiaries
• A foreign banking organization that is not otherwise covered
• An entity excluded by its supervisory banking agency
FULL LCR VERSUS MODIFIED LCR
Basic Calculation for LCR:
HQLAs
Total Net Cash Outflows ≥ 100%

Modified LCR:
• Same 30-day liquidity stress scenario
• Same HQLA definition
• Total Net Cash Outflow Amount – same calculation, but for modified LCR:
ο No maturity mismatch add-on (equal to the difference between the net cumulative outflow amount at the end of the 30-day period and the peak net cumulative outflow amount during the
30-day period)
ο Total net cash outflows are multiplied by 70%

1
HQLAs
Classification:
Level 1 assets: Level 2 assets: Level 2A assets: Level 2B assets:
• U.S. Government and U.S. • capped at no more than 40% of • Generally include securities issued • Generally include corporate debt securities, certain publicly traded
Government-guaranteed total HQLAs (including Level 2A (or guaranteed) by a U.S. common equity, and U.S. general obligation municipal securities
securities, balances held at the assets + Level 2B assets) government-sponsored enterprise • A municipal security will only qualify as a Level 2B asset if the security: (i)
Federal Reserve Banks and and certain securities issued (or is both a “general obligation” and “investment grade” municipal security;
foreign central banks, and certain guaranteed) by a sovereign entity or (ii) has a track record as a reliable source of liquidity; and (iii) is liquid and
foreign sovereign debt a multilateral development bank (that readily marketable
• Not subject to haircuts or is not treated as a Level 1 asset) • Subject to a 50% haircut and capped at no more than 15% of total HQLAs
quantitative caps • Subject to a 15% haircut (see additional limits on U.S. general obligation municipal securities)
Equation:
unadjusted excess HQLA
HQLA Amount = Level 1 amount + Level 2A amount + Level 2B amount - greater of amount and adjusted excess
HQLA amount

A covered institution must calculate the amount of HQLAs that exceed the Level 2 and Level 2B caps both before (unadjusted excess HQLA amount) and after (adjusted excess HQLA amount) unwinding
secured funding transactions, secured lending transactions, asset exchanges, and collateralized derivative transactions.
A covered institution is quantitatively limited in the amount of U.S. general obligation municipal securities that can be included within the institution’s Level 2B HQLA amount:
• ≤ 2x average daily trading volume of all U.S. general obligation municipal securities from a single issuer; and
• ≤ 5% of covered institution’s total HQLA Amount

Eligibility:
• Assets must be unencumbered, must not be client pool securities, must be available for transfer without restrictions if held by a consolidated subsidiary, cannot be subject to withdrawal by a
counterparty or beneficial owner, and cannot be designated to cover operational costs
• Operational requirements
ο Must periodically monetize a sample of assets, assets must be under control of liquidity risk management function, value of assets must be reduced by the costs of terminating related
hedging transactions, and there must be policies and procedures to identify and ensure diversity of eligible HQLAs
TRANSITION PERIOD AND FREQUENCY OF CALCULATION
Full LCR: Modified LCR:
• Transition period • Transition period
ο Calendar year 2016 – must maintain 90% LCR ο Calendar year 2016 – must maintain 90% LCR
ο Calendar year 2017 and thereafter – must maintain 100% LCR ο Calendar year 2017 and thereafter – must maintain 100% LCR
• Frequency of calculation • Frequency of calculation
ο All covered institutions must calculate LCR on a daily basis ο Covered institution subject to modified LCR (as of September 30, 2014) must
calculate LCR on a monthly basis
LCR must be calculated at the same time on each calculation day – covered institution must notify its regulator of this time
Note: This is intended to be a summary only of the final U.S. liquidity coverage ratio, or LCR, and does not purport to be a complete discussion of the LCR requirements applicable to U.S. banks. See “Finalized
Liquidity Coverage Ratio,” “Liquidity Coverage Ratio: A Quick Reference,” “LCR – The Fed Takes Tentative Steps to Expand HQLAs” and “Half-Hearted Relief for Munis: The Fed Adopts a Final Rule to Include
Certain Municipal Securities as HQLAs Under the LCR Rule” on our website, www.mofo.com.