US Federal Banking Agencies Adopt Final Rule Requiring Large Banks to Maintain a Liquidity Coverage Ratio

In September, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System ("Board"), and the Federal Deposit Insurance Corporation ("FDIC," and together, the "Agencies") approved a joint final rule implementing a quantitative liquidity requirement known as the liquidity coverage ratio, or "LCR," for certain banking institutions.¹ The LCR Rule is the first formal, standardized liquidity requirement for US institutions and implements the standard established by the Basel Committee on Banking Supervision for large, internationally active banks.² In a departure from the Basel Committee's framework, however, a modified version of the Rule adopted by the Agencies will apply to certain large banks regardless of whether they are internationally active. Certain firms will need to begin compliance with portions of the LCR Rule as soon as January 1, 2015.

Stated in simple terms, the LCR Rule measures assumed amounts of near-term outflows ("Outflow Amount") of cash from a banking organization, assumed near-term inflows of cash ("Inflow Amount"), and requires the banking organization to hold specific types of "high quality liquid assets" ("HQLAs") in an amount at least as large as the excess of assumed Outflow Amounts above Inflow Amounts. But the rule is anything but simple. It contains elaborate and detailed definitions for each category and applies different haircuts, assumed ratios and caps on the qualifying amounts. The calculations required to determine an institution's LCR are influenced not only by the nature and maturity of the claim or obligation, but also the type of counterparty, claimant or obligor, the nature and amounts of their other relationships with the banking organization, and various other factors.

The rule is rife with ambiguities and internal inconsistencies, as well as inconsistencies with positions on systemic risk voiced by the federal banking agencies in related contexts. Claims of other "financial entities" receive worse Outflow treatment than claims of retail customers or non-financial wholesale entities, while Inflow Amounts anticipated from financial entities receive better treatment under the LCR Rule than those owed to the banking organization by retail customers or non-financial wholesale entities.

The mechanics of the LCR Rule create powerful economic incentives for banks to shift the make-up, contractual terms and duration of their assets, deposits and other liabilities, and the nature of their customers and counterparties, in order to reduce the amount of low-yielding HQLAs they must own.

I.         Purpose and Applicability

The LCR Rule is intended to promote the ability of banking institutions to absorb liquidity shocks during times of financial and economic stress. The policy arguments behind the rule are that overreliance on short-term funding can be a source of systemic risk and lack of liquidity was one of the principal causes of the 2007-2009 Financial Crisis. The standard LCR will be applicable to large, international banking organizations with US$250 billion or more in consolidated assets or US$10 billion or more in total on-balance sheet foreign exposure. The standard LCR will also be applicable to consolidated subsidiary depository institutions of such entities with US$10 billion or more in total consolidated assets. Note that this LCR Rule applies not only to the bank holding company, but also to any consolidated subsidiary bank with total assets of US$10 billion or more, each on a consolidated basis.

In a change from the proposal, the LCR Rule will not automatically apply to nonbank financial institutions that have been designated by the Financial Stability Oversight Council as systemically important ("SIFIs"), or the consolidated subsidiary depository institutions of those companies. Rather than applying the standard LCR to these companies, the Board will apply any liquidity requirements on a tailored basis by order or separate rule.

The Board separately adopted a modified version of the LCR for bank holding companies without significant insurance operations and savings and loan holding companies without significant insurance or commercial operations which have US$50 billion or more in total consolidated assets but would not otherwise be covered by the LCR Rule. This "modified" LCR is intended to be simpler to implement and requires less liquidity and less frequent calculations.

Banking organizations with less than US$50 billion of consolidated assets are not subject to the LCR Rule, but remain subject to interagency requirements on liquidity management.³

II.        The LCR Requirement

The LCR Rule requires covered institutions to maintain an amount of HQLAs no less than 100 percent of its total net cash outflows over a prospective 30-day time horizon. In other words, as of the calculation date, covered institutions must have at least enough HQLA to meet their expected total net cash outflows over a 30-day period. Certain assets included in the HQLA calculation (the numerator of the ratio) are subject to haircuts of up to 50 percent based on the Agencies' views of the ability of those assets to be monetized in a crisis. Similarly, cash flows included in the denominator of the ratio are adjusted according to certain inflow and outflow rates set by the Agencies. 

III.      High-Quality Liquid Assets

A.        Criteria for Each Class of HQLAs

Generally speaking, HQLAs must be immediately convertible into cash in times of stress with little or no loss of value. To determine what asset classes would qualify, the Agencies considered the risk profile of those assets (in particular, whether the assets could be expected to remain liquid across various stress scenarios in a crisis), whether the assets exhibit resilience in market trading during crises (including stable and readily available prices, low bid-ask spreads, high trading volumes, and large and diverse market participants), and whether the assets may be pledged at central banks as collateral. The LCR Rule establishes three categories of HQLAs based on this analysis: Level 1, Level 2A, and Level 2B liquid assets.

Certain of the three types of HQLAs are includable only if they can be deemed "liquid and readily-marketable" as that term is defined under the rule. To meet the definition, an asset must be traded in an active secondary market with at least three committed market makers and a large number of committed non-market maker participants, have timely and observable market prices, and have high trading volumes. Covered institutions must engage in a security-by-security analysis to determine whether particular assets will qualify as "liquid and readily marketable."

In addition, both Level 2A and Level 2B liquid assets must have what the Agencies consider a "proven record as a reliable source of liquidity" during periods of financial and economic stress. For example, to include a security as Level 2A liquid asset, the covered institution must demonstrate that the market price of the security declined by no more than 10 percent, or that the market haircut demanded by counterparties to secured lending or funding transactions that were collateralized by such securities increased by no more than 10 percentage points, during a 30-day stress period.

Level 1 liquid assets are the highest quality and most liquid assets, and will be included in a company's HQLA without haircuts. The following assets are considered Level 1 liquid assets under the LCR Rule:

• Federal Reserve Bank balances in excess of the covered institution's reserve balance requirement under section 204.5 of the Board's Regulation D;
• Foreign withdrawable reserves;
• Securities issued or unconditionally guaranteed by the US Department of the Treasury or other US government agencies;
• Readily marketable securities issued or unconditionally guaranteed by foreign sovereign entities or certain multilateral organizations, as long as they are assigned a 0% risk-weight under the Agencies' risk-based capital rules; and
• Securities issued by sovereign entities that are liquid, readily marketable, and meet certain currency and jurisdictional requirements.

Level 2A liquid assets include certain obligations issued or guaranteed by a US government sponsored enterprise and certain obligations issued or guaranteed by a sovereign entity or multilateral development bank. Level 2A liquid assets must be liquid and readily marketable to be considered HQLAs. The LCR Rule incorporates the Basel Committee's haircut of 15 percent for Level 2A liquid assets, meaning that for purposes of the eligible HQLA calculation, the Level 2A asset amount is 85 percent of the fair value of all Level 2A liquid assets.

Level 2B liquid assets include certain investment-grade corporate debt securities (whether publicly traded or traded in OTC markets) and publicly traded common stock included in the Russell 1000 index. To be considered Level 2B liquid assets, such securities must be liquid and readily marketable. The LCR Rule incorporates the Basel Committee's haircut of 50 percent for Level 2B liquid assets, meaning that for purposes of the eligible HQLA calculation, the Level 2B asset amount is 50 percent of the fair value of all Level 2B liquid assets.

The LCR Rule provides that assets issued by financial sector entities cannot be considered HQLAs due to the potential for these assets to exhibit correlative risk with the entities holding the assets. The term "financial sector entities" includes regulated financial institutions (such as depository institutions, insurance companies, securities holding companies), SEC-registered investment advisers and investment companies, and pension funds, or consolidated subsidiaries of any such company, as well as non-regulated funds, defined under the rule as a "hedge fund" or "private equity fund," whose investment adviser is required to file Form PF with the SEC (although not consolidated subsidiaries of those entities). As in the proposal, the Agencies did not provide a definition of "hedge fund" or "private equity fund."⁴

The Agencies declined to treat as HQLAs several types of assets requested by commenters, including permissible collateral pledged to FHLBs, FHLB lines of credit and unused borrowing commitments, and municipal securities.

Notably, some assets and cash sources may not qualify as HQLAs, but instead may qualify as Inflow Amounts. Because assumed Inflow Amounts are netted against Outflow Amounts (up to 75% of Outflow Amounts) to determine the required amount of HQLAs, however, assets and sources of cash that qualify as Inflow Amounts serve some of the same purposes as HQLAs in allowing a bank to meet the requirements of the LCR Rule.

B.        Limitations on Including Level 2 Assets in the HQLA Amount

The LCR Rule limits the amount of Level 2A liquid assets to no more than 40 percent of a covered institution's HQLA, and limits the amount of Level 2B liquid assets to no more than 15 percent of HQLA. Covered institutions must calculate both adjusted and unadjusted liquid asset amounts, with the adjusted amount accounting for the unwinding of certain secured funding transactions, secured lending transactions, asset exchanges, and collateralized derivatives transactions that would mature within 30 days of the calculation date. They must then apply the caps to both the adjusted and unadjusted Level 2 liquid asset amounts. Through these calculations, covered institutions will obtain their adjusted and unadjusted excess HQLA amounts. The greater of these two amounts must be deducted from the institution's HQLA amount. The dual calculations are an effort by the Agencies to prevent covered institutions from avoiding the caps on Level 2A and Level 2B assets through various short-term transactions.

C.        Operational Requirements and Generally Applicable Criteria for HQLAs

All assets are subject to certain operational requirements and other criteria to be considered "eligible" HQLAs (i.e., HQLAs that may be included in the numerator of a covered institution's LCR).

To be considered "eligible" HQLAs, a covered institution must ensure that the HQLAs are under the control of the institution's liquidity management function. Further, a covered institution must demonstrate that it has the operational capability to monetize the HQLAs it holds as eligible HQLAs by (1) maintaining appropriate policies and procedures, and (2) periodically monetizing a representative sample of its eligible HQLAs. The Agencies have removed a provision, included in the proposed rule, which suggested covered institutions were required to implement policies and procedures to determine the composition of their eligible HQLAs on a daily basis. The final rule simply requires the covered institution to have policies and procedures in place on each calculation date to (1) identify certain characteristics regarding its eligible HQLA, (2) determine that its HQLA continue to qualify as eligible, and (3) determine that the institution's eligible HQLA are appropriately diversified.

In addition, all eligible HQLA must meet certain generally applicable criteria, including:

• The assets must be unencumbered, meaning that they must be free of legal, regulatory, contractual, or other restrictions that would prevent the covered institution from monetizing the asset (although an asset may still be considered unencumbered if it is pledged to a central bank or US government sponsored enterprise to secure unused borrowing capacity);
• The assets may not be client pool securities or related cash;
• HQLAs held by a consolidated subsidiary of a covered institution are includable as eligible HQLAs up to the amount of the subsidiary's net cash outflows, plus any additional amount that could be monetized and transferred to the holding company without statutory, regulatory, contractual, or supervisory restriction;
• Assets received under a re-hypothecation right would not be considered eligible HQLAs if either the counterparty that provided the asset or the beneficial owner has a contractual right to withdraw the asset without remuneration at any time during the 30 days following the calculation date;
• Sufficient eligible HQLAs must be maintained within the United States to meet a covered institution's total US-based net cash outflow amount; and
• Assets designated to cover operational costs will not be includable as eligible HQLAs.

IV.      Total Net Cash Outflow Amount

A covered institution's total net cash outflow amount (the denominator of the LCR) is the amount against which a covered institution must hold eligible HQLAs. In general, covered institutions must begin by determining its predicted Outflow and Inflow Amounts by assigning the standardized outflow and inflow rates established by the Agencies. Next, institutions must engage in a two-step calculation process to determine total net cash outflows. First, the calculated Outflow and Inflow Amounts will be netted, where inflows may not constitute more than 75 percent of outflows.⁵ In effect, this calculation nets cumulative inflows (up to 75% of cumulative outflows) against cumulative outflows on the 30th day after the calculation date, and thus does not take into maturity mismatch during the 30-day period. Next the institution must calculate the "add-on" amount, which, broadly speaking, tracks the difference between the largest single-day maturity mismatch within the 30 calendar day period and the net cumulative outflow amount on the last day of the 30 calendar day period. This calculation only takes into account cash inflows and outflows with set maturity dates, but certain inflows and outflows with no contractual maturity date are deemed to mature on the first calendar day after the calculation date. (This second step eliminates the assumption in the proposed rule that all non-maturity outflows occur on the first day of the 30 calendar day period, which would have negatively impacted many institutions whose receivables tend to come at the end of the calendar month.)

An institution's total net cash outflow is its netted outflow amount from the first step plus its add-on amount from the second step.

A.           Cash Outflow Categories

A covered institution's outflow amount for each category of funding or commitment will be calculated as the outstanding balance multiplied by the applicable outflow rate assigned by the Agencies.⁶ The categories and associated outflow rates are discussed below.

1.            Unsecured retail funding

The LCR Rule treats deposits placed at a covered institution by individuals and certain small businesses as "retail deposits," so long as those deposits are not brokered deposits. The outflow rate for retail deposits deemed "stable" under the LCR Rule (a designation applied to deposits only if the entire amount is covered by deposit insurance and either the depositor holds the amount in a transaction account or the depositor has another established relationship with the covered institution) is 3 percent, while all other such deposits (i.e., partially insured deposits or deposits where the above relationships are not present) are assigned a 10 percent outflow rate. Other retail deposits placed at the covered institution by a third party on behalf of a retail customer or counterparty that are not considered "brokered deposits" under the LCR Rule are assigned an outflow rate of 20 percent if fully insured and the retail customer owns the account and 40 percent if only partially insured or the retail customer does not own the account (e.g., unsecured prepaid cards).

Because the retail funding deposit outflow assumptions are influenced by whether deposits are fully insured, compliance with the LCR Rule will require covered institutions to undergo a substantial coordination and bookkeeping exercise.  Covered institutions will need to track all of the deposits held in the same right and capacity by the client, and to look through custodians who may hold deposits for the benefit of a customer and aggregate those as well.  The exercise will require significant cooperation from custodians.

2.            Structured transactions

Where the covered institution is the sponsor of a structured transaction, the outflow amount would be the greater of (1) 100 percent of the amount of all debt obligations of the issuing entity that mature, and all commitments made by the issuing entity to purchase assets, in the 30 days following the calculation date, or (2) the maximum amount of funding the covered institution may be required to provide to the issuing entity in the 30 days following the calculation date. In their release, the Agencies clarified that, in calculating structured transaction outflows, covered institutions are required to include any outflows attributable to "explicit or implicit obligations to support a structured transaction" of an issuing entity that is not consolidated by the covered institution. In other words, a covered institution will be required to include as outflows certain payments which the institution is under no legal obligation to make if an informal practice of making such payments exists.  This requirement could result in a significant liquidity and cost burden for covered institutions involved in asset securitizations.

3.            Net derivatives

The net derivatives cash outflow amount (subject to a 100 percent outflow rate) is the sum of the payments and collateral that a covered institution would make or deliver to each counterparty under derivative transactions, less the sum of any payments and collateral due from each counterparty, if subject to a valid qualifying master netting agreement. Cash flows arising from foreign currency exchange derivative transactions that involve a full exchange of contractual cash principal amounts in different currencies within a given business day may be reflected in the net derivative cash outflow amount for a covered institution's counterparty as a net amount, regardless of whether those transactions are covered by a qualifying master netting agreement.

4.            Mortgage commitments

A 10 percent outflow rate will apply to all residential mortgage commitments that can be drawn upon in the 30 days following the calculation rate.

5.            Commitments

Outflow rates applied to the undrawn portion of credit and liquidity facilities provided by covered institutions to customers and counterparties which may be drawn upon within 30 calendar days of the calculation date range from zero to 100 percent. The rule assigns more favorable outflow treatment to retail commitments and commitments made to nonfinancial sector entities.⁷

6.            Collateral

Covered institutions are required to recognize outflows related to changes in collateral position as a result, for example, of changes in the financial condition of the institution (which may require the entity to post additional or higher-quality collateral) or changes in the valuation of derivative collateral.  Certain of these changes would have to be recognized at 100 percent, such as excess collateral outflows and contractually obligated outflows.

7.            Brokered deposits for retail customers or counterparties

The Agencies have assigned outflow rates for brokered deposits provided by retail customers or counterparties based on the type of account and whether the full amount of the deposit is covered by FDIC insurance.⁸ The outflow rates are as follows:

• 10 percent on fully insured reciprocal brokered deposits;
• 25 percent on reciprocal brokered deposits that are not fully insured;
• 10 percent on fully insured brokered sweep deposits provided under contract between the institution (or its subsidiaries or affiliates under common control) and its customer or counterparty;
• 25 percent for fully insured brokered sweep deposits⁹ not deposited pursuant to a contract between the institution (or its subsidiaries or affiliates under common control) and its customer or counterparty; and
• 40 percent for brokered sweep deposits that are not fully insured.

All other brokered deposits are assigned outflow amounts based on maturity date, whether the deposit is FDIC insured, and whether the brokered deposits are held in a "transactional account,"¹⁰ as follows:

• 10 percent for all other brokered deposits¹¹ which mature more than 30 days from the calculation date;¹²
• 20 percent for all other brokered deposits held in a transactional account that are fully insured and have no contractual maturity date;
• 40 percent for all other brokered deposits held in a transactional account that are not fully insured and have no contractual maturity date; and
• 100 percent for all other brokered deposits with 30 days or less in remaining contractual maturity, and all other brokered deposits with no contractual maturity and not held in a transactional account.

8.            Unsecured wholesale funding

The Agencies have identified three types of unsecured wholesale funding,¹³ broken down in large part by whether the deposit balances are "operational deposits" (defined as unsecured wholesale funding or collateralized deposits necessary for the covered institution to provide operational services as an independent third-party intermediary, agent, or administrator to the customer or counterparty providing the funding or deposit) and whether the funding is provided by a financial sector entity.¹⁴ The more favorable treatment for operational deposits is in recognition of the fact that such deposits are more likely to remain at a covered institution during stress periods because they are necessary to the receipt of key services such as clearing, custody, and cash management. Based on these factors, the Agencies have assigned outflow rates as follows:

• Unsecured wholesale funding that is not an operational deposit and is not provided by a financial sector entity¹⁵ or its consolidated subsidiaries is assigned a 20 percent outflow rate if fully FDIC insured and the funding is not a brokered deposit, or a 40 percent outflow rate if the funding is not fully FDIC insured or is a brokered deposit.
• Operational deposits other than those held in escrow accounts are assigned a 5 percent outflow rate if fully FDIC insured. Otherwise, operational deposits are assigned a 25 percent outflow rate.
• Other uninsured, unsecured wholesale funding, including funding from a financial sector entity, is assigned a 100 percent outflow rate.¹⁶

9.            Debt securities

Where a covered institution is the primary market maker for its own debt securities, the outflow rate for such funding will be 3 percent for all debt securities that are not structured securities that mature outside of a 30 calendar-day period and 5 percent for all debt securities that are structured debt securities that mature outside of a 30 calendar-day period.

10.         Secured funding and asset exchange

Secured funding transactions that mature within 30 calendar days of the calculation date (which include, among other transactions, repurchase transactions, FHLB advances, loans of collateral to effect customer short positions, and other secured wholesale funding arrangements with Federal Reserve Banks) are assigned outflow rates from zero to 100 percent based on the HQLA categorization of the assets securing the transactions. For example, a transaction secured by money market fund shares will receive a 100 percent outflow rate because money market fund shares do not meet the definition of HQLAs.

The asset exchange outflow rates will range from zero to 100 percent to account for the risk that the covered institution would be required to provide higher-quality assets in return for lower-quality, potentially less liquid, assets.

11.         Foreign central bank borrowing

The outflow rate for borrowings from a foreign central bank will be established by that foreign jurisdiction under its minimum liquidity standard.  To the extent a foreign jurisdiction has not assigned an outflow rate for borrowings from its central bank, the outflow rate for secured funding under U.S. rules will apply.

12.         Other contractual outflows

All other amounts payable within 30 days of the calculation date under applicable contracts are assigned a 100 percent outflow rate.

B.           Total Cash Inflow Amount

The following amounts payable to a covered institution within 30 days after the calculation date are included in the Inflow Amount:

• If greater than zero, the net derivative cash inflow amount, equal to the sum of the net derivative cash inflow amount for each counterparty of the covered institution, less the sum of any payments and collateral that it will make or deliver to each counterparty;
• The retail cash inflow amount, which includes 50 percent of all payments contractually payable to the covered institution from retail customers or counterparties;
• The unsecured wholesale cash inflow amount, which includes 100 percent of all payments payable to the covered institution from financial sector entities, from consolidated subsidiaries thereof, or from central banks, and 50 percent of all payments payable to the covered institution from wholesale customers or counterparties that are not financial sector entities or consolidated subsidiaries thereof, subject to certain qualifications;¹⁷
• The securities cash inflow amount, which includes 100 percent of all contractual payments due to the covered institution on securities it owns that are not eligible HQLA;
• The secured lending and asset exchange cash inflow amount, which includes a range from zero percent to 100 percent of fair value, based on the ability of the covered institution to demand additional or higher-quality collateral or to exchange lower-quality assets for higher-quality assets; and
• The covered institution's broker-dealer's segregated account inflow amount, which is the fair value of all assets released from broker-dealer segregated accounts maintained in accordance with statutory or regulatory requirements for the protection of customer trading assets, subject to certain conditions.

All other cash inflow amounts are assigned a zero percent inflow rate, meaning those amounts will not be counted towards a covered institution's inflows.

Several types of assets must be excluded from a covered institution's total inflows, including amounts held in operational deposits at other regulated financial institutions, amounts the institution expects to receive due to forward sales of mortgage loans or any derivatives that are mortgage commitments, amounts derived from the institution's credit facilities, eligible HQLA amounts or any amount payable based on that asset, nonperforming assets, and payments with no maturity date or maturity dates more than 30 days after the calculation date.

V.        LCR Shortfall

Covered institutions are required to notify their primary federal regulator on any business day when the institution's LCR falls below 100%. Upon notification, the regulator may require the institution to submit a liquidity plan for achieving compliance with the LCR Rule. If a covered institution's LCR falls below 100% for three consecutive business days, the institution must promptly submit a compliance plan to its regulator.

The Agencies may take supervisory or enforcement action at their discretion to address noncompliance with the LCR Rule.

VI.      Modified LCR Requirement

Separately, the Board is also using its authority under Section 165 of the Dodd-Frank Act to apply a modified version of the LCR requirement to certain bank holding companies and savings and loan holding companies with US$50 billion or more in total consolidated assets. The modified LCR requirement will also be based on a 30-day stress period (as opposed to the 21-day stress period contemplated in the proposal). To calculate the denominator (total net cash outflows) of an institution's modified LCR, institutions must net aggregate cash inflows (up to 75 percent of outflows) against aggregate cash outflows and use 70 percent of that net amount as the denominator of the institution's LCR. No maturity mismatch add-on is required. Also, an institution subject to the modified LCR is required to maintain an LCR of 1.0 or greater only on the last business day of the calendar month.

VII.     Transitions

The final rule includes phase-ins for both LCR levels as well as the frequency at which institutions will be required to calculate the LCR. Covered institutions to which the standard LCR is applicable will be required to maintain an LCR of 80 percent beginning January 1, 2015, 90 percent beginning January 1, 2016, and 100 percent as of January 1, 2017. In response to commenter concerns regarding the operational difficulties of calculating the LCR on a daily basis so soon after publication of the rule, the Agencies have also incorporated a transition period for the frequency of calculation of the LCR. As a result, covered depository holding companies with US$700 billion or more in total consolidated assets or US$10 trillion or more in assets under custody (and any consolidated subsidiary of such institution with US$10 billion or more in total consolidated assets) will be required to calculate the LCR on the last business day of each calendar month from January 1, 2015, to June 30, 2015, and on each business day beginning July 1, 2015. All other covered institutions must calculate the LCR on the last day of each calendar month beginning June 1, 2015, and on each business day beginning July 1, 2016.

Banking organizations with consolidated assets under US$250 billion subject to the modified LCR are not required to begin compliance until January 1, 2016, at which point they must maintain an LCR of 90 percent (as the LCR calculations have been modified for these institutions). As of June 1, 2017, these institutions must maintain an LCR of 100 percent (as the LCR calculations have been modified for these institutions). All institutions subject to the modified LCR must calculate the LCR on a monthly basis.

Conclusion

The LCR Rule includes a number of definitional and substantive issues both for institutions subject to the standard LCR as well as the modified LCR. Many banks are already beginning to reconsider their deposit strategies in light of the final rule. Moreover, it is possible that although the modified LCR formally applies only to institutions with US$50 billion or more in total consolidated assets, regulators may begin to view the LCR Rule as a "best practice" for mid-size and community banks as well.

Affected institutions should consult their legal advisors for more information and analysis of the final rule.