(a) Operational requirements for eligible HQLA. With respect to each asset that is eligible for inclusion in a national bank‘s or Federal savings association’s HQLA amount, a national bank or Federal savings association must meet all of the following operational requirements:

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(1) The national bank or Federal savings association must demonstrate the operational capability to monetize the HQLA by:

(i) Implementing and maintaining appropriate procedures and systems to monetize any HQLA at any time in accordance with relevant standard settlement periods and procedures; and

(ii) Periodically monetizing a sample of HQLA that reasonably reflects the composition of the national bank’s or Federal savings association’s eligible HQLA, including with respect to asset type, maturity, and counterparty characteristics;

(2) The national bank or Federal savings association must implement policies that require eligible HQLA to be under the control of the management function in the national bank or Federal savings association that is charged with managing liquidity risk, and this management function must evidence its control over the HQLA by either:

(i) Segregating the HQLA from other assets, with the sole intent to use the HQLA as a source of liquidity; or

(ii) Demonstrating the ability to monetize the assets and making the proceeds available to the liquidity management function without conflicting with a business or risk management strategy of the national bank or Federal savings association;

(3) The fair value of the eligible HQLA must be reduced by the outflow amount that would result from the termination of any specific transaction hedging eligible HQLA;

(4) The national bank or Federal savings association must implement and maintain policies and procedures that determine the composition of its eligible HQLA on each calculation date, by:

(i) Identifying its eligible HQLA by legal entity, geographical location, currency, account, or other relevant identifying factors as of the calculation date;

(ii) Determining that eligible HQLA meet the criteria set forth in this section; and

(iii) Ensuring the appropriate diversification of the eligible HQLA by asset type, counterparty, issuer, currency, borrowing capacity, or other factors associated with the liquidity risk of the assets; and

(5) The national bank or Federal savings association must have a documented methodology that results in a consistent treatment for determining that the national bank’s or Federal savings association’s eligible HQLA meet the requirements set forth in this section.

(b) Generally applicable criteria for eligible HQLA. A national bank’s or Federal savings association’s eligible HQLA must meet all of the following criteria:

(1) The assets are not encumbered.

(2) The asset is not:

(i) A client pool security held in a segregated account; or

(ii) An asset received from a secured funding transaction involving client pool securities that were held in a segregated account;

(3) For eligible HQLA held in a legal entity that is a U.S. consolidated subsidiary of a national bank or Federal savings association:

(i) If the U.S. consolidated subsidiary is subject to a minimum liquidity standard under this part, the national bank or Federal savings association may include the eligible HQLA of the U.S. consolidated subsidiary in its HQLA amount up to:

(A) The amount of net cash outflows of the U.S. consolidated subsidiary calculated by the U.S. consolidated subsidiary for its own minimum liquidity standard under this part; plus

(B) Any additional amount of assets, including proceeds from the monetization of assets, that would be available for transfer to the top-tier national bank or Federal savings association during times of stress without statutory, regulatory, contractual, or supervisory restrictions, including sections 23A and 23B of the Federal Reserve Act (12 U.S.C. § 371c and 12 U.S.C. §§ 371c–1) and Regulation W (12 CFR part 223); and

(ii) If the U.S. consolidated subsidiary is not subject to a minimum liquidity standard under this part, the national bank or Federal savings association may include the eligible HQLA of the U.S. consolidated subsidiary in its HQLA amount up to:

(A) The amount of the net cash outflows of the U.S. consolidated subsidiary as of the 30th calendar day after the calculation date, as calculated by the national bank or Federal savings association for the national bank’s or Federal savings association’s minimum liquidity standard under this part; plus

(B) Any additional amount of assets, including proceeds from the monetization of assets, that would be available for transfer to the top-tier national bank or Federal savings association during times of stress without statutory, regulatory, contractual, or supervisory restrictions, including sections 23A and 23B of the Federal Reserve Act (12 U.S.C. § 371c and 12 U.S.C. §§ 371c–1) and Regulation W (12 CFR part 223);

(4) For HQLA held by a consolidated subsidiary of the national bank or Federal savings association that is organized under the laws of a foreign jurisdiction, the national bank or Federal savings association may include the eligible HQLA of the consolidated subsidiary organized under the laws of a foreign jurisdiction in its HQLA amount up to:

(i) The amount of net cash outflows of the consolidated subsidiary as of the 30th calendar day after the calculation date, as calculated by the national bank or Federal savings association for the national bank’s or Federal savings association’s minimum liquidity standard under this part; plus

(ii) Any additional amount of assets that are available for transfer to the top-tier national bank or Federal savings association during times of stress without statutory, regulatory, contractual, or supervisory restrictions;

(5) The national bank or Federal savings association must not include as eligible HQLA any assets, or HQLA resulting from transactions involving an asset that the national bank or Federal savings association received with rehypothecation rights, if the counterparty that provided the asset or the beneficial owner of the asset has a contractual right to withdraw the assets without an obligation to pay more than de minimis remuneration at any time during the 30 calendar days following the calculation date; and

(6) The national bank or Federal savings association has not designated the assets to cover operational costs.

(c) Maintenance of U.S. eligible HQLA. A national bank or Federal savings association is generally expected to maintain as eligible HQLA an amount and type of eligible HQLA in the United States that is sufficient to meet its total net cash outflow amount in the United States under subpart D of this part.

[79 FR 61523, 61538, Oct. 10, 2014, as amended at 86 FR 9209, Feb. 11, 2021]