FR4198_20160527_omb

Supporting Statement for the
Funding and Liquidity Risk Management Guidance
(FR 4198; OMB No. 7100-0326)
Summary
The Board of Governors of the Federal Reserve System (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend for three years,
without revision, the mandatory Funding and Liquidity Risk Management Guidance (FR 4198;
OMB No. 7100-0326). The Paperwork Reduction Act (PRA) classifies reporting,
recordkeeping, or disclosure requirements of agency guidance as an “information collection.”1
On March 22, 2010, the Office of the Comptroller of the Currency (OCC), the Office of Thrift
Supervision (OTS), the Board, the Federal Deposit Insurance Corporation (FDIC), and the
National Credit Union Administration (NCUA) (the agencies) published a joint final notice in
the Federal Register implementing guidance titled “Interagency Policy Statement on Funding
and Liquidity Risk Management” (Guidance), effective May 21, 2010.2
The Guidance summarizes the principles of sound liquidity risk management that the
agencies have issued in the past and, where appropriate, brings them into conformance with the
“Principles for Sound Liquidity Risk Management and Supervision” issued by the Basel
Committee on Banking Supervision (BCBS) in September 2008. While the BCBS liquidity
principles primarily focuses on large internationally active financial institutions, the Guidance
emphasizes supervisory expectations for all domestic financial institutions including banks,
thrifts and credit unions.
The agencies3 have identified two sections of the Guidance that fall under the definition
of an information collection. Section 14 states that institutions should consider liquidity costs,
benefits, and risks in strategic planning and budgeting processes. Section 20 requires that
liquidity risk reports provide aggregate information with sufficient supporting detail to enable
management to assess the sensitivity of the institution to changes in market conditions, its own
financial performance, and other important risk factors.
The Board’s total annual burden is estimated to be 727,456 hours for the 5,452 financial
institutions that are likely to be subject to the Guidance.4 There are no required reporting forms
associated with the Guidance.
Background and Justification
The financial market stress experienced in 2007-2009 emphasized the importance of
1

See 44 U.S.C. § 3501 et seq.
See 75 FR 13656 (March 22, 2010).
3
As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the OTS was abolished and its
functions and powers were transferred to the OCC, the FDIC, and the Board. The information collection associated
with the Guidance would be extended by the Board.
4
The Guidance applies to bank holding companies, savings and loan holding companies, state member banks, statelicensed branches and agencies of foreign banks (other than insured branches), and corporations organized or
operating under sections 25 or 25A of the Federal Reserve Act (agreement corporations and Edge corporations).
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good liquidity risk management to the safety and soundness of financial institutions. Supervisors
worked on an international and national level through various groups (e.g., BCBS, Senior
Supervisors Group, Financial Stability Forum) to assess the implications of the current market
conditions on an institution’s assessment of liquidity risk and the supervisor’s approach to
liquidity risk supervision. The industry, through the Institute of International Finance (IIF), also
performed work in the area of liquidity risk and issued guidelines in 2008. Additionally,
supervisors in Europe and Asia have worked on domestic liquidity guidance. This Guidance
applies to all domestic financial institutions, including banks, thrifts, and credit unions. The
Guidance emphasizes the key elements of liquidity risk management already addressed
separately by the agencies, and provides consistent interagency expectations on sound practices
for managing funding and liquidity risk.
The Guidance reiterates the process that institutions should follow to appropriately
identify, measure, monitor, and control their funding and liquidity risk. In particular, the
Guidance re-emphasizes the importance of cash flow projections, diversified funding sources,
stress testing, a cushion of liquid assets, and a formal well-developed contingency funding plan
(CFP) as primary tools for measuring and managing liquidity risk. The agencies expect all
financial institutions5 to manage liquidity risk using processes and systems that are
commensurate with the institution’s complexity, risk profile, and scope of operations. Liquidity
risk management processes and plans should be well documented and available for supervisory
review. Failure to maintain an adequate liquidity risk management process is considered an
unsafe and unsound practice.
Description of Information Collection
An institution’s liquidity management process should be sufficient to meet its daily
funding needs, and cover both expected and unexpected deviations from normal operations.
Accordingly, institutions should have a comprehensive management process for identifying,
measuring, monitoring and controlling liquidity risk. Because of the critical importance to the
viability of the institution, liquidity risk management should be fully integrated into the
institution’s risk management processes. Critical elements of sound liquidity risk management
include:
 Effective corporate governance consisting of oversight by the board of directors and active
involvement by management in an institution’s control of liquidity risk.
 Appropriate strategies, policies, procedures, and limits used to manage and mitigate
liquidity risk.
 Comprehensive liquidity risk measurement and monitoring systems (including assessments
of the current and prospective cash flows or sources and uses of funds) that are
commensurate with the complexity and business activities of the institution.
 Active management of intraday liquidity and collateral.
 An appropriately diverse mix of existing and potential future funding sources.
Unless otherwise indicated, this interagency guidance uses the term “financial institutions” or “institutions” to
include banks, saving associations, credit unions, affiliated holding companies, state and federally chartered U.S.
branches and agencies of foreign banks, and Edge and agreement corporations. Federally-insured credit unions
(FICUs) do not have holding company affiliations and therefore references to holding companies contained within
this guidance are not applicable to FICUs.
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Adequate levels of highly liquid marketable securities free of legal, regulatory, or
operational impediments that can be used to meet liquidity needs in stressful situations.
Comprehensive CFPs that sufficiently address potential adverse liquidity events and
emergency cash flow requirements.
Internal controls and internal audit processes sufficient to determine the adequacy of the
institution’s liquidity risk management process.
Section 14 - Strategic Planning and Budgeting Processes

Section 14 of the Guidance states that institutions should consider liquidity costs,
benefits, and risks in strategic planning and budgeting processes. Documenting these costs,
benefits, and risks is considered to be an information collection. Significant business activities
should be evaluated for liquidity risk exposure as well as profitability. More complex and
sophisticated institutions should incorporate liquidity costs, benefits, and risks in the internal
product pricing, performance measurement, and new product approval process for all material
business lines, products and activities. Incorporating the cost of liquidity into these functions
should align the risk-taking incentives of individual business lines with the liquidity risk
exposure their activities create for the institution as a whole. The quantification and attribution
of liquidity risks should be explicit and transparent at the business line management level and
should include consideration of how liquidity would be affected under stressed conditions.
Section 20 - Liquidity Risk Reports
Section 20 of the Guidance would require that liquidity risk reports provide aggregate
information with sufficient supporting detail to enable management to assess the sensitivity of
the institution to changes in market conditions, its own financial performance, and other
important risk factors. Institutions should also report on the use and availability of government
support, such as lending and guarantee programs, and implications on liquidity positions,
particularly since these programs are generally temporary or reserved as a source for contingent
funding.
Time Schedule for Information Collection
The documentation required by the Guidance is maintained by each institution; therefore,
the documentation is not collected or published by the Federal Reserve System. The
recordkeeping requirements are documented on occasion. Bank examiners verify compliance
with the recordkeeping requirement during examinations.
Legal Status
The Board’s Legal Division has determined that the FR 4198 is authorized based on the
following relevant statutory provisions.
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Section 9(6) of the Federal Reserve Act (12 U.S.C. § 324) requires state member banks to
make reports of condition to their supervising Reserve Bank in such form and containing
such information as the Board may require.

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Section 5(c) of the Bank Holding Company Act (12 U.S.C. § 1844(c)) authorizes the
Board to require a BHC and any subsidiary to submit reports to keep the Board informed
as to its financial condition, and systems for monitoring and controlling financial and
operating risk.
Section 7(c)(2) of the International Banking Act of 1978 (12 U.S.C. § 3105(c)(2))
requires branches and agencies of foreign banking organizations to file reports of
condition with the Board to the same extent and in the same manner as if the branch or
agency were a state member bank.
Section 25A of the Federal Reserve Act (12 U.S.C. § 625) requires Edge and agreement
corporations to make reports to the Board at such time and in such form as it may require.
Section 10(b) of the Home Owners’ Loan Act (12 U.S.C. § 1467a(b)(3)) requires a SLHC
to maintain such books and records as may be prescribe by the Board.

The obligation to comply with these requirements is mandatory. Because the records
required by the Guidance are maintained at the institution, issues of confidentiality are not
expected to arise. Should the documents be obtained by the Board during the course of an
examination, they would be exempt from disclosure under exemption 8 of the Freedom of
Information Act (FOIA) (5 U.S.C. § 552(b)(8)). In addition, some or all of the information may
be “commercial or financial” information protected from disclosure under exemption 4 of FOIA
(5 U.S.C. § 552(b)(4)), under the standards set forth in National Parks and Conservation
Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974).
Consultation Outside the Agency
The interagency working group that developed the Guidance comprises representatives
from the OCC, the FDIC, and the Board. The agencies would consult on any proposed revisions.
On March 15, 2016, the Board published a notice in the Federal Register (81 FR 13791)
requesting public comment for 60 days on the extension, without revision, of the FR 4198. The
comment period for this notice expired on May 16, 2016. The Board did not receive any
comments. On May 27, 2016, the Board published a final notice in the Federal Register
(81 FR 33672).
Estimate of Respondent Burden
The total annual paperwork burden for institutions regulated by the Board is estimated to
be 727,456 hours, as shown in the table below. The Board estimates that compliance with
Section 14 of the Guidance would take large institutions (defined as those with over $100 billion
in assets) 720 hours per year, mid-sized institutions (defined as those with $10 - $100 billion in
assets) 240 hours per year, and small institutions (defined as those with less than $10 billion in
assets) 80 hours per year to comply. For Section 20 of the Guidance, the Board estimates it
would take each institution 4 hours per month to comply. These recordkeeping requirements
represent approximately 5.65 percent of the total Federal Reserve System paperwork burden.

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Number of
respondents6

FR 4198

Annual
frequency

Estimated
average hours
per response

Estimated
annual burden
hours

Section 14 - Strategic
Planning and Budgeting
Processes:
Large institutions

28

1

720

20,160

Mid-sized institutions

73

1

240

17,520

Small institutions

5,351

1

80

428,080

Section 20 - Liquidity
Risk Reports

5,452

12

4

261,696

Total

727,456

The total cost to the public is estimated to be $38,664,286.7
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
Since records are maintained at the financial institutions, the cost to the Federal Reserve
System is negligible.

6

Of these respondents, 4,081 are small entities as defined by the Small Business Administration (i.e entities with
less than $550 million in assets). www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-sizestandards/table-small-business-size-standards.
7
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $17, 45% Financial Managers at
$65, 15% Lawyers at $66, and 10% Chief Executives at $89). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2015, published March 30, 2016 www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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