MBA Cites Concerns Over Agencies’ Proposed Net Stable Funding Ratio Rule
The Mortgage Bankers Association sent a comment letter to federal agencies, saying a proposed net stable funding ratio rule based on international banking standards is not practical for the U.S. banking system.
The letter to the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency also expresses concern about the confluence of numerous capital and liquidity rules and the combined impact on capital formation and credit availability.
The NSF ratio rule, as intended by the agencies, is a bookend to the liquidity coverage ratio rule, issued by bank regulators several years ago is meant to be a short-term liquidity measure (30 day). The net stable funding ratio is meant to be a longer term measure of liquidity (one year timeframe).
The proposed rule would be applicable to banks with $250 billion or more of consolidated assets or $10 billion or more of on-balance sheet foreign exposure. In addition, regulators are proposing a modified NSF requirement for banks with $50 billion or more (but less than $250 billion) in consolidated assets, referred to as a modified approach.
Under the proposed rule a covered company would measure its weighted equities and liabilities (Available Stable Funding) compared with its Required Stable Funding. For RSF, assets, derivative exposures and commitments are weighted based on their liquidity characteristics over a one year timeframe. The proposed minimum NSF would be an ASF/RSF ratio of at least 1. Under the modified approach, the proposed minimum NSF would be an ASF/RSF ratio of 0.7.MBA’s comment letter criticized the proposed rule because it is modeled after a Basel (international) rule. MBA pointed out that each country’s banking system is unique, and “one size fits all” doesn’t work.
MBA’s letter also expressed concern about the confluence of numerous capital and liquidity rules and the combined impact on capital formation and credit availability.Additionally, the letter discusses treatment of residential mortgages, commercial real estate mortgages, Federal home Loan Bank borrowings, servicing and related escrow deposits, loans to independent mortgage bankers, assets and liabilities consolidated under FAS 167, and derivatives used for hedging.
“MBA highly recommends that, prior to implementing the Proposed Rule, bank regulators conduct a comprehensive study on the impact of the myriad of new rules and constraints on banks and the ultimate impact on credit availability,” the letter said. “While each rule was intended to address a specific regulatory matter, taken as a whole, we are strongly concerned that unintended consequences have been created with the potential to have a chilling effect on capital formation across a variety of sectors including residential, commercial and multifamily real estate.”
