European lenders may have to give the Federal Reserve daily updates on almost 100 items, including cash flow, collateral, and unpledged assets, as U.S. regulators assess the threat posed by the continent’s debt crisis.
The so-called 4G reports on liquidity would have to be sent to the Federal Reserve Bank of New York, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. two days after the close of business, according to the documents. A blank copy of the confidential form and its 20 pages of instructions, already in use by U.S. lenders, was obtained by Bloomberg News.
Regulators have held informal talks with some of the largest European lenders about producing the reports as leaders struggle to keep Greece’s debt crisis from spreading to other nations. U.S. Treasury Secretary Timothy F. Geithner and European Central Bank President Jean-Claude Trichet have said failure to resolve the crisis could trigger a cascade of defaults that would destabilize the financial system.
“There is a reason the Fed is asking for this now,” said Sabeth Siddique, former head of credit risk at the Fed’s supervision division, who hadn’t seen the documents. “A daily up-to-date position suggests that they are really monitoring liquidity markets on a systemic basis to understand the potential threats.”
Jack Gutt, a spokesman for the New York Fed, Robert Garsson at the OCC and the FDIC’s Andrew Gray declined to comment. The largest European bank holding companies by assets in the U.S. include units of Deutsche Bank AG, HSBC Holdings Plc and BNP Paribas SA, according to Fed data. Spokesmen for all three had no comment.
The report, called the “Liquidity Monitoring Tool (4G) template,” lists categories such as borrowing from governments and central banks, cash flows, secured and unsecured financing and deposits.
The instructions ask for data about contingencies “that could strain or stress the funding and the liquidity at the reporting institution.” Examples include forced repurchases of bonds, or collateral that creditors might demand if the company’s credit ratings were cut from one to three levels.
Banks would also have to report unpledged assets and set the value by assuming they’d have to take “haircuts,” or reductions in value, based on liquidity, credit and market risks.
Foreign firms would have to detail their U.S. businesses, along with material bank and broker-dealer operations there, according to the instructions. Branch units managed from the U.S., such as international banking facilities or Cayman Islands operations, are also covered.
Lenders may choose to add global statistics “to provide a more comprehensive view of the firm’s liquidity and funding operations,” according to the instructions, which urge banks to avoid “netting of balances” and “exclude any double accounting of assets or liabilities.” The intent probably is to ensure that all hedging positions, long or short, are fully disclosed, said Kevin Petrasic, an attorney in the Washington office of Paul, Hastings, Janofsky & Walker LLP, which represents financial companies.
Preparing the reports “on a daily basis is going to be a difficult challenge,” said Petrasic, who hadn’t seen a copy of the forms. “It’s clearly an additional regulatory burden.”
The largest U.S. banks started providing the report last month, according to a person with knowledge of the matter and who asked for anonymity because the report is confidential. They’ve been pouring resources into building systems for gathering liquidity data since regulators approached banks about the report last year, the person said.
“The industry is questioning whether the supervisors need this amount of information on a continuous daily basis,” said Jim Embersit, an executive director for Ernst & Young LLP in Washington, who hasn’t seen the report. “The industry is also concerned about the transparency and cost-benefit analysis.”