On September 29, 2014, the Financial Stability Board (the “FSB”) published a consultative document concerning cross-border recognition of resolution actions and the removal of impediments to the resolution of globally active, systemically important financial institutions (the “Consultative Document”). The Consultative Document encourages jurisdictions to include in their statutory frameworks seven elements that would enable prompt effect to be given to foreign resolution actions. In addition, due to a recognized gap between the various national legal resolution regimes that are currently in place and those recommended by the FSB, the Consultative Document sets forth two “contractual solutions”—that is, resolution-related arrangements to be implemented as a matter of contract among the private parties involved—to address two underlying substantive issues that the FSB considers critical for orderly cross-border resolution, namely:
Posts Tagged ‘Andrew Gladin’
On March 20, 2014, the Federal Reserve announced the summary results of the Dodd-Frank Act 2014 supervisory stress tests for the 30 largest U.S. banking organizations. The results demonstrate the sharply enhanced capital strength and resiliency of the U.S. banking system. Under an “extreme stress scenario”, these U.S. banking organizations could absorb an extraordinary downturn in “pre-provision net revenues” and an unprecedented level of loan losses and still maintain capital levels well above minimum regulatory requirements and almost 40% above the actual capital ratios in 2009.
On February 18, 2014, the Board of Governors of the Federal Reserve System (the “FRB”) approved a final rule (the “Final Rule”) implementing certain of the “enhanced prudential standards” mandated by Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Dodd-Frank”). The Final Rule applies the enhanced prudential standards to (i) U.S. bank holding companies (“U.S. BHCs”) with $50 billion (and in some cases, $10 billion) or more in total consolidated assets and (ii) foreign banking organizations (“FBOs”) with (x) a U.S. banking presence, through branches, agencies or depository institution subsidiaries, and (y) depending on the standard, certain designated amounts of assets worldwide, in the United States or in U.S. non-branch assets. The Final Rule’s provisions are the most significant, detailed and prescriptive for the largest U.S. BHCs and the FBOs with the largest U.S. presence—those with $50 billion or more in total consolidated assets and, in the case of FBOs, particularly (and with increasing stringency) for FBOs with combined U.S. assets of $50 billion or more or U.S. non-branch assets of $50 billion or more.
Last Friday, the Federal Reserve issued its summary instructions and guidance (the “CCAR 2014 Instructions”) for the supervisory 2014 Comprehensive Capital Analysis and Review program (“CCAR 2014”) applicable to bank holding companies with $50 billion or more of total consolidated assets (“Covered BHCs”). Eighteen Covered BHCs will be participating in CCAR for the fourth consecutive year in 2014. An additional 12 institutions will be participating in a full CCAR for the first time during this 2013─2014 cycle.
CCAR 2014 is being conducted under the Federal Reserve’s capital plan rule, which requires the submission and supervisory review of a Covered BHC’s capital plan under stressed conditions (the “Capital Plan Rule”). The Federal Reserve recently amended the Capital Plan Rule to clarify how Covered BHCs must incorporate the new Common Equity Tier 1 measure (“CET1”) and methodology for calculating risk-weighted assets from the recently adopted U.S. Basel III-based final capital rules into their capital plan submissions and Dodd-Frank stress tests for the 2013–2014 cycle. Under the Capital Plan Rule and CCAR 2014, a Covered BHC’s capital plan is evaluated by the Federal Reserve on both quantitative (that is, whether the Covered BHC can meet applicable numerical regulatory capital minimums and a Tier 1 common ratio of at least five percent) and qualitative grounds.
The Basel Committee on Banking Supervision (the “BCBS”)  recently issued a revised framework (the “Revised G-SIB Framework”) for assessing a common equity surcharge on certain designated global systemically important banks (“G-SIBs”)  that updates and replaces the framework for assessing the G-SIB capital surcharge issued by the BCBS in November 2011 (the “Prior G-SIB Framework”).  The Revised G-SIB Framework largely maintains the Prior G-SIB Framework’s indicator-based approach for determining when a capital surcharge will be applied and does not change the calibration of the surcharge. However, the Revised G-SIB Framework makes several noteworthy changes to, and clarifies important aspects of, the Prior G-SIB Framework, including:
On December 17, 2012, the staff of the Federal Reserve issued a Supervision and Regulation (“SR”) letter describing the Federal Reserve’s new framework for consolidated supervision of large financial institutions. SR letters address significant policy and procedural matters related to the Federal Reserve’s supervisory responsibilities.
Under the new framework, the Federal Reserve’s primary supervisory objectives for large financial institutions will be (1) to enhance resiliency of an institution to lower the probability of its failure or its becoming unable to serve as a financial intermediary, and (2) to reduce the impact on the financial system and the broader economy of an institution’s failure or material weakness. These objectives are meant to conform to key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, such as enhanced prudential standards for large financial institutions. Although the Federal Reserve has not previously stated these objectives as its primary supervisory objectives, and the new framework formally integrates areas such as corporate governance and compensation that Federal Reserve staff has been focused on since the financial crisis, changes in specific supervisory expectations are limited. Changes include greater emphasis on recovery planning in the case of financial or operational weakness, and on orderly resolution planning, as required by the Dodd-Frank Act. The Federal Reserve will also engage in greater “macroprudential” supervision to detect systemic risks.
The new framework applies to the largest and most complex financial institutions subject to consolidated Federal Reserve supervision, including nonbank financial companies designated by the Financial Stability Oversight Council for supervision by the Federal Reserve; other domestic bank and savings and loan holding companies with consolidated assets of $50 billion or more; and other foreign banking organizations with combined assets of U.S. operations of $50 billion or more.
On November 9, 2012, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued instructions and guidance for:
- the Comprehensive Capital Analysis and Review program for 2013 (“CCAR 2013”) applicable to the 19 bank holding companies (“BHCs”) with total assets of $50 billion or more that were previously subject to CCAR and the Supervisory Capital Assessment Program (“SCAP”); and
- the Capital Plan Review program for 2013 (“CapPR 2013”) applicable to an additional 11 BHCs with total assets of $50 billion or more that were not subject to prior CCARs or SCAP, but were subject to CapPR in 2012.
CCAR 2013 and CapPR 2013 are both being conducted under the Federal Reserve’s previously adopted Capital Plan Rule. In addition, elements of CCAR 2013 are being implemented in conjunction with the Federal Reserve’s newly finalized Stress Test Rules adopted pursuant to the separate stress test requirements of sections 165(i)(1) and (2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The following is an outline of certain notable aspects of the CCAR 2013, CapPR 2013 and their respective instructions.
In certain instances, the instructions and guidance for CCAR 2013 and CapPR 2013 contain new provisions, while in others, the new instructions are largely congruous with procedures for previous CCAR and CapPR iterations. Important aspects of CCAR 2013 instructions include:
The Federal banking agencies have recently issued three notices of proposed rulemaking (and applicable related guidance) in connection with the implementation of Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Section 939A generally requires that all Federal agencies remove from their regulations references to and requirements of reliance on credit ratings and replace them with appropriate alternatives for evaluating creditworthiness.
Market Risk Capital NPR:
The Office of the Comptroller of the Currency (the “OCC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (the “FDIC” and, together with the Federal Reserve and the OCC, the “agencies”) issued a joint notice of proposed rulemaking (the “Market Risk Capital NPR”) concerning their market risk capital rules applicable to certain U.S. banking organizations with significant trading operations by proposing standards of creditworthiness to be used in place of credit ratings when calculating the specific risk capital requirements for covered debt and securitization positions, including the following: