Archive for the ‘Financial Regulation’ Category

Key Points From the 2015 Comprehensive Capital Analysis and Review (CCAR)

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 22, 2015 at 9:05 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mike Alix, Steve Pearson, and Armen Meyer.

The 2015 stress test results published on March 11th as part of the Federal Reserve’s (“Fed”) CCAR follow last week’s release of Dodd-Frank Act Stress Test (“DFAST”) results. [1] CCAR differs from DFAST by incorporating the 31 participating bank holding companies’ (“BHC” or “bank”) proposed capital actions and the Fed’s qualitative assessment of BHCs’ capital planning processes. The Fed objected to two foreign BHCs’ capital plans and one US BHC received a “conditional non-objection,” all due to qualitative issues.

…continue reading: Key Points From the 2015 Comprehensive Capital Analysis and Review (CCAR)

Agencies Release New Volcker Rule FAQ

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday March 17, 2015 at 9:18 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Whitney A. Chatterjee, H. Rodgin Cohen, C. Andrew Gerlach, and Eric M. Diamond; the complete publication, including footnotes and appendix, is available here.

On February 27, 2015, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission (collectively, the “Agencies”) provided an important addition to their existing list of Frequently Asked Questions (“FAQs”) addressing the implementation of section 13 of the Bank Holding Company Act of 1956, as amended (the “BHC Act”), commonly known as the “Volcker Rule.”

The Volcker Rule imposes broad prohibitions on proprietary trading and investing in and sponsoring private equity funds, hedge funds and certain other investment vehicles (“covered funds”) by “banking entities” and their affiliates. The Volcker Rule, as implemented by the final rule issued by the Agencies (the “Final Rule”), provides an exemption from the covered fund prohibitions for foreign banking entities’ acquisition or retention of an ownership interest in, or sponsorship of, a covered fund “solely outside of the United States” (the “SOTUS covered fund exemption”).

…continue reading: Agencies Release New Volcker Rule FAQ

Enhancing Prudential Standards in Financial Regulations

Editor’s Note: The following post comes to us from Franklin Allen, Professor of Economics at the University of Pennsylvania and Imperial College London; Itay Goldstein, Professor of Finance at the University of Pennsylvania;
 and Julapa Jagtiani and William Lang, both of the Federal Reserve Bank of Philadelphia.

The recent financial crisis has generated fundamental reforms in the financial regulatory system in the U.S. and internationally. In our paper, Enhancing Prudential Standards in Financial Regulations, which was recently made publicly available on SSRN, we discuss academic research and expert opinions on this vital subject of financial stability and regulatory reforms.

Despite the extensive regulation and supervision of U.S. banking organizations, the U.S. and the world financial systems were shaken by the largest financial crisis since the Great Depression, largely precipitated by events within the U.S. financial system. The new “macroprudential” approach to financial regulations focuses on both the risks arising in financial markets broadly and those risks arising from financial distress at individual financial institutions.

…continue reading: Enhancing Prudential Standards in Financial Regulations

Key Points from 2015 Dodd-Frank Act Stress Test (DFAST)

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 15, 2015 at 9:32 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mike Alix and Steve Pearson.

For the first time all banks passed DFAST this year, but this unfortunately told us nothing about their chances of passing last week’s CCAR qualitative assessment.

The DFAST results published March 5, 2015 are the Federal Reserve’s (Fed) first stress test results released in 2015. On March 11th, the Fed released the more important Comprehensive Capital Analysis and Review (CCAR) results which told us whether the banks passed the Fed’s qualitative and quantitative assessments in order to return more capital to shareholders. [1]

…continue reading: Key Points from 2015 Dodd-Frank Act Stress Test (DFAST)

Financial Market Utilities: Is the System Safer?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 21, 2015 at 9:24 am
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Editor’s Note: The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication.

It has been two and a half years since the Financial Stability Oversight Council (FSOC) designated select financial market utilities (FMUs) as “systemically important.” These entities’ respective primary supervisory agencies have since increased scrutiny of these organizations’ operations and issued rules to enhance their resilience.

As a result, systemically important FMUs (SIFMUs) have been challenged by a significant increase in regulatory on-site presence, data requests, and overall supervisory expectations. Further, they are now subject to heightened and often entirely new regulatory requirements. Given the breadth and evolving nature of these requirements, regulators have prioritized compliance with requirements deemed most critical to the safety and soundness of financial markets. These include certain areas within corporate governance and risk management such as liquidity risk management, participant default management, and recovery and wind-down planning.

…continue reading: Financial Market Utilities: Is the System Safer?

2014 Year-End Review of BSA/AML and Sanctions Developments

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 14, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Elizabeth T. Davy, Jared M. Fishman, Eric J. Kadel Jr., and Jennifer L. Sutton; the complete publication is available here.

This post highlights what we believe to be the most significant developments during 2014 for financial institutions with respect to U.S. Bank Secrecy Act/anti-money laundering (“BSA/AML”) and U.S. sanctions programs, including sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and identifies significant trends. The overarching trend that is likely to continue for the foreseeable future is an intense focus on BSA/AML and sanctions compliance by multiple government agencies, combined with increasing regulatory expectations and significant enforcement actions and penalties.

…continue reading: 2014 Year-End Review of BSA/AML and Sanctions Developments

Acquisition Financing 2015: the Year Behind and the Year Ahead

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday February 4, 2015 at 9:02 am
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Editor’s Note: The following post comes to us from Eric M. Rosof, partner focusing on financing for corporate transactions at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum.

Acquisition financing activity was robust in 2014, as the credit markets accommodated increased demand from rising M&A activity. At over $749 billion, global 2014 M&A loan issuance was up approximately 40 percent year over year, the highest total since before the Great Recession. While the aggregate figures suggest a borrower-friendly market, the actual picture is more nuanced. Investment grade acquirors benefited from a consistently strong financing environment throughout 2014 and finished the year with a flourish (including a $36 billion commitment backing Actavis’ acquisition of Allergan), while leveraged acquirors encountered more volatility, as lenders responded quickly to regulatory changes and market conditions, and both high-yield commitments and debt became more costly.

…continue reading: Acquisition Financing 2015: the Year Behind and the Year Ahead

A Smarter Way to Tax Big Banks

Posted by Mark Roe, Harvard Law School, on Monday February 2, 2015 at 2:24 pm
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Editor’s Note: Mark Roe is the David Berg Professor of Law at Harvard Law School, where he teaches bankruptcy and corporate law. This post is based on an op-ed by Professor Roe and Michael Tröge that was published today in The Wall Street Journal, which can be found here.

In conjunction with his State of the Union address, President Obama reanimated the idea of taxing big banks’ debts to help stabilize the banking industry and prevent future financial crises. The administration argues that the new tax would discourage banks from taking on too much risk by making it “more costly for the biggest financial firms to finance their activities with excessive borrowing.”

The president’s bank-tax proposal is unlikely to gain traction in the new Congress, just as similar proposals from the administration in 2010 and, last year from the now retired Rep. David Camp (R., Mich.), did not move forward. But even if it became law, it wouldn’t put a sizable dent in bank debt. The reason is simple: The existing tax system strongly encourages debt finance and the proposed new tax will not fundamentally change this.

…continue reading: A Smarter Way to Tax Big Banks

FSOC: Are Asset Managers’ Products and Activities Creating Systemic Risk?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday January 31, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Debevoise & Plimpton LLP and is based on a Debevoise & Plimpton Client Update.

In connection with its ongoing evaluation of the asset management industry, the U.S. Financial Stability Oversight Council (the “FSOC”) recently issued a notice seeking public comment (the “Notice”) on whether asset management products and activities may pose potential risks to U.S. financial stability. [1] Specifically, the FSOC seeks comment on the systemic risks posed by: (1) liquidity and redemption practices; (2) use of leverage; (3) operational functions; and (4) resolution, i.e., the extent to which the failure or closure of an asset manager, investment vehicle or an affiliate could have an adverse impact on financial markets or the economy. Comments on the Notice must be submitted by February 23, 2015; and we are working with several clients to prepare and submit such comments. This post summarizes some of the FSOC’s key concerns and questions outlined in the Notice.

…continue reading: FSOC: Are Asset Managers’ Products and Activities Creating Systemic Risk?

The M&A Landscape: Financial Institutions Rediscovering Themselves

Editor’s Note: Edward Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy, Lawrence S. MakowJeannemarie O’Brien, Nicholas G. Demmo, and David E. Shapiro.

The year 2014 was marked by accelerating mergers and acquisitions activity in the financial institutions space and by several distinct trends. Institutions continued to adapt to the changed regulatory environment, as several important rule proposals and releases brought the ultimate contours of that environment into clearer focus. Profitability pressures continued for traditional businesses. And, as investors continue to seek yield in a low-rate world, shareholder activism notably proliferated. Continued improvement in the economy brought new opportunities into sight and ramped up private equity activity in the financial services sector. Cutting across all of these trends, technological changes, and associated business challenges, continued to reshape firms’ strategic playbooks.

Early indications suggest the M&A activity trend continuing into 2015. In the opening days of the new year, City National agreed to merge with Royal Bank of Canada. The largest bank holding company merger since the financial crisis, at $5.4 billion, the City National deal signals the continuing recovery of the U.S. market from post-crisis distressed deal terms, transaction motivations and negotiating positions. City National is widely considered to be among the strongest franchises in the U.S. It maintained its position of strength and financial performance throughout the financial crisis—as evidenced by the 2.6x multiple of deal price to tangible book value to be paid to City National shareholders. The merger is also a significant vote of confidence by RBC in the outlook for the U.S. banking market and in particular for the type of clientele served by City National. RBC will be reentering retail and commercial banking in the U.S. with 75 branches and $32 billion in assets, and a franchise that is highly complementary to its existing strong U.S. asset management presence.

…continue reading: The M&A Landscape: Financial Institutions Rediscovering Themselves

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