4.6 Regulation YY Liquidity Risk Calculation

The U.S. Federal Reserve issued the Final Rule for Regulation YY, i.e. Enhanced Prudential Standards for Bank Holding Companies and Foreign Banking Organizations, required to be established under Dodd-Frank guidelines. This rule covers requirements around liquidity risk, capital planning, stress testing, risk-based capital, leverage requirements among many others. OFS Liquidity Risk Management covers the liquidity risk related aspects of Regulation YY for both US bank holding companies (BHC) as well as foreign banking organizations (FBO).

As part of Regulation YY, banks are expected to compute their buffer requirement i.e. net cash flow need under stress scenarios across multiple stress horizons. The regulatory stress horizons include overnight, 30 days, 90 days and 1 year. The method of computing net stressed cash flow need differs for US BHCs and FBOs. Additionally, banks are expected to maintain sufficient quantity of buffer assets to meet the buffer requirements under stress conditions. US BHCs and US intermediate holding companies of FBOs are required to main sufficient buffer to cover a 30-day stress scenario while US branches and agencies of FBOs are expected to maintain buffer to cover a 14-day stress scenario.

OFS LRM supports both approaches for computing buffer and buffer requirement thus addressing the needs of both US BHCs and FBOs.