Recently, attorneys Melanie Fein and Raymond Natter wrote a memo on behalf of Federated Investors to the Board of Governors of the Federal Reserve System entitled, "Regulation YY - Request for Determination that Federated U.S. Treasury Cash Reserves, Federated Treasury Obligations Fund, and Federated Government Obligation Fund are Highly Liquid Assets." They comment, "We are writing on behalf of Federated Investors, Inc. to request a determination by the Board of Governors that shares of the following money market funds sponsored and advised by Federated Investors, Inc. are "highly liquid assets" for purposes of the liquidity buffer required to be maintained by large bank holding companies and foreign banking organizations with U.S. operations under sections 252.35(b) and 252.157(c) of Regulation YY: Federated U.S. Treasury Cash Reserves which holds only U.S. Treasury securities; Federated Treasury Obligations Fund which holds only U.S. Treasury securities and repurchase agreements collateralized by such securities; and Federated Government Obligations Fund which holds only U.S. Treasury securities, securities issued or guaranteed by U.S. government agencies and government-sponsored enterprises, and repurchase agreements collateralized by such securities. The Funds are managed by Federated Investors, Inc., one of the largest investment managers in the United States with $376.1 billion in assets under management as of December 31, 2013."
The letter says, "The enclosed memorandum demonstrates how the Funds satisfy the purposes and requirements of the liquidity buffer in Regulation YY. It shows that, because of the Funds' essential features and regulation under the Investment Company Act of 1940, shares of the Funds are among the most highly liquid of assets available in the financial marketplace. It shows that the shares are treated as cash equivalents under generally accepted accounting principles and as highly liquid for a variety of regulatory purposes. Finally, it shows that the Funds are as liquid if not more liquid than many of the other instruments contemplated as highly liquid assets under Regulation YY."
It continues, "Regulation YY contemplates that a covered company will demonstrate to the Board's satisfaction that a particular asset is "highly liquid" for purposes of the liquidity buffer. The regulation does not preclude such a determination based on information provided by the issuer of the asset. We believe a Board determination with respect to the Funds is appropriate in order to broaden the types of liquid assets eligible to be included in the liquidity buffer and to facilitate compliance with the regulation."
Finally, the letter adds, "Based on the information and analysis in the attached memorandum, we respectfully request a determination by the Board that shares of the Funds are "highly liquid assets" eligible to be included in a covered company's liquidity buffer for purposes of Regulation YY. We also request the opportunity to meet with the Board's staff to discuss this matter."
The full memo explains, "The Board of Governors on February 18, 2014, adopted amendments to Regulation YY that establish enhanced prudential standards for bank holding companies with consolidated assets of $50 billion or more and foreign banking organizations with combined U.S. assets of $50 billion or more (referred to herein as "covered companies") pursuant to Section 165 of the Dodd-Frank Act. Among other things, the amended regulation at 12 C.F.R. SS 252.35(b) and 252.157(c) requires such companies to maintain a buffer of unencumbered "highly liquid assets." The regulation defines such assets to include cash, U.S. government and agency securities, and "any other asset" that a covered company demonstrates to the satisfaction of the Board meets certain liquidity requirements."
It tells us, "This memorandum is submitted in support of a request for a determination by the Board that shares of the following money market funds qualify as "highly liquid assets" for purposes of the liquidity buffer requirement in sections 252.35(b) and sections 252.157(c) of Regulation YY: Federated U.S. Treasury Cash Reserves which holds only U.S. Treasury securities; Federated Treasury Obligations Fund which holds only U.S. Treasury securities and repurchase agreements collateralized by such securities; and Federated Government Obligations Fund which holds only U.S. Treasury securities, securities issued or guaranteed by U.S. government agencies and U.S. government-sponsored enterprises, and repurchase agreements collateralized by such securities."
It adds, "Regulation YY, as amended, requires each covered company to maintain a liquidity buffer sufficient to meet its projected net cash-flow needs over a 30-day period under different stress scenarios, effective June 1, 2014. The liquidity buffer must consist of highly liquid assets that are unencumbered."
