Posts Tagged ‘Capital requirements’

G-SIB Capital: A Look to 2015

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday January 17, 2015 at 9:00 am
  • Print
  • email
  • Twitter
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 Dan Ryan, Kevin Clarke, Roozbeh Alavi, and Armen Meyer. The complete publication, including appendix, is available here.

On December 9, 2014, the Federal Reserve Board (FRB) issued a long-awaited proposal to impose additional capital requirements on the US’s global systemically important banks (G-SIBs). The proposal implements the Basel Committee on Banking Supervision’s (BCBS) G-SIB capital surcharge framework that was finalized in 2011, but also proposes changes to BCBS’s calculation methodology resulting in significantly higher surcharges for US G-SIBs compared with their global peers.

The proposal, which we expect will be finalized in 2015, requires US G-SIBs to hold additional capital (Common Equity Tier 1 (CET1) as a percentage of Risk Weighted Assets (RWA)) equal to the greater of the amount calculated under two methods. The first method is consistent with BCBS’s framework, and calculates the amount of extra capital to be held based on the G-SIB’s size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity. The second method is introduced by the US proposal, and uses similar inputs but replaces the substitutability element with a measure based on a G-SIB’s reliance on short-term wholesale funding (STWF).

…continue reading: G-SIB Capital: A Look to 2015

Ten Key Points from the FSB’s TLAC Ratio

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday January 9, 2015 at 9:00 am
  • Print
  • email
  • Twitter
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 Mr. Ryan, Kevin Clarke, Roozbeh Alavi, and Dan Weiss. The complete publication, including appendix, is available here.

On November 10th, the Financial Stability Board (FSB) issued a long-awaited consultative document that defined a global standard for minimum amounts of Total Loss Absorbency Capacity (TLAC) to be held by Global Systemically Important Banks (G-SIBs). TLAC is meant to ensure that G-SIBs have the loss absorbing and recapitalization capacity so that, in and immediately following resolution, critical functions can continue without requiring taxpayer support or threatening financial stability.

The FSB’s document requires a G-SIB to hold a minimum amount of regulatory capital (Tier 1 and Tier 2) plus long term unsecured debt that together are at least 16-20% [1] of its risk weighted assets (RWA), i.e., at least twice the minimum Basel III total regulatory capital ratio of 8%. In addition, the amount of a firm’s regulatory capital and unsecured long term debt cannot be less than 6% of its leverage exposure, i.e., at least twice the Basel III leverage ratio. In addition to this “Pillar 1” requirement, TLAC would also include a subjective component (called “Pillar 2”) to be assessed for each firm individually, based on qualitative firm-specific risks that take into account the firm’s recovery and resolution plans, systemic footprint, risk profile, and other factors.

…continue reading: Ten Key Points from the FSB’s TLAC Ratio

Basel III Framework: The Net Stable Funding Ratio

Editor’s Note: Barnabas Reynolds is head of the global Financial Institutions Advisory & Financial Regulatory Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication by Mr. Reynolds and Azad Ali. The complete publication, including annex, is available here.

A key element of the Basel III framework aims to ensure the maintenance and stability of funding and liquidity profiles of banks’ balance sheets. Two liquidity standards, the “net stable funding ratio” and a “liquidity coverage ratio”, were introduced in the Basel III framework to achieve this aim. Final standards on the net stable funding ratio have recently been released. Despite the implementation date of January 2018, banking institutions are considering the full impact of these measures on all aspects of their businesses now.

…continue reading: Basel III Framework: The Net Stable Funding Ratio

Basel Committee Adopts Net Stable Funding Ratio

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday December 13, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Debevoise & Plimpton LLP and is based on the introduction to a Debevoise & Plimpton Client Update; the full publication is available here.

On October 31, 2014, the Basel Committee on Banking Supervision (the “Basel Committee”) released the final Net Stable Funding Ratio (the “NSFR”) framework, which requires banking organizations to maintain stable funding (in the form of various types of liabilities and capital) for their assets and certain off-balance sheet activities. The NSFR finalizes a proposal first published by the Basel Committee in December of 2010 and later revised in January of 2014. Particularly given the historical trend as between the Basel Committee and U.S. banking agency implementation and in line with its Halloween release, it has left many wondering: Is it a trick or a treat?

…continue reading: Basel Committee Adopts Net Stable Funding Ratio

Operational Risk Capital: Nowhere to Hide

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday November 22, 2014 at 10:39 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from PricewaterhouseCoopers LLP and is based on a PwC publication by Dietmar Serbee, Helene Katz, and Geoffrey Allbutt; the complete publication, including appendix and footnotes, is available here.

The Basel Committee on Banking Supervision (BCBS) last month proposed revisions to its operational risk capital framework. The proposal sets out a new standardized approach (SA) to replace both the basic indicator approach (BIA) and the standardized approach (TSA) for calculating operational risk capital. In our view, four key points are worth highlighting with respect to the proposal and its possible implications:
…continue reading: Operational Risk Capital: Nowhere to Hide

Bank Capital Plans and Stress Tests

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday November 18, 2014 at 9:12 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication authored by H. Rodgin Cohen, Andrew R. Gladin, Mark J. Welshimer, and Lauren A. Wansor.

On October 16, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) issued its summary instructions and guidance [1] (the “CCAR 2015 Instructions”) for its supervisory Comprehensive Capital Analysis and Review program for 2015 (“CCAR 2015”) applicable to bank holding companies with $50 billion or more of total consolidated assets (“Covered BHCs”). Thirty-one institutions will participate in CCAR 2015, including the 30 Covered BHCs [2] that participated in CCAR in 2014, as well as one institution that is new to the program. [3]

…continue reading: Bank Capital Plans and Stress Tests

Shadow Banking and Bank Capital Regulation

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday October 27, 2014 at 9:17 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Guillaume Plantin, Professor of Finance at the Toulouse School of Economics.

The term “shadow banking system” refers to the institutions that do not hold a banking license, but perform the basic functions of banks by refinancing loans to the economy with the issuance of money-like liabilities. Roughly speaking, licensed banks refinance the loans that they hold on their balance sheets with deposits or interbank borrowing, whereas the shadow banking system refinances securities backed by loan portfolios with quasi-deposits such as money market funds shares.

…continue reading: Shadow Banking and Bank Capital Regulation

How Do Bank Regulators Determine Capital Adequacy Requirements?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday October 15, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Eric Posner, Kirkland & Ellis Distinguished Service Professor of Law and Aaron Director Research Scholar at the University of Chicago.

The incentive to take socially costly financial risks is inherent in banking: because of the interconnected nature of banking, one bank’s failure can increase the risk of failure of another bank even if they do not have a contractual relationship. If numerous banks collapse, the sudden withdrawal of credit from the economy hurts third parties who depend on loans to finance consumption and investment. The perverse incentive to take financial risk is further aggravated by underpriced government-supplied insurance and the government’s readiness to play the role of lender of last resort.

…continue reading: How Do Bank Regulators Determine Capital Adequacy Requirements?

US Basel III Supplementary Leverage Ratio

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday October 5, 2014 at 9:00 am
  • Print
  • email
  • Twitter
Editor’s Note: The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, attorneys in the Financial Institutions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum; the full publication, including diagrams, tables, and flowcharts, is available here.

The U.S. banking agencies have finalized revisions to the denominator of the supplementary leverage ratio (SLR), which include a number of key changes and clarifications to their April 2014 proposal. The SLR represents the U.S. implementation of the Basel III leverage ratio.

Under the U.S. banking agencies’ SLR framework, advanced approaches firms must maintain a minimum SLR of 3%, while the 8 U.S. bank holding companies that have been identified as global systemically important banks (U.S. G-SIBs) and their U.S. insured depository institution subsidiaries are subject to enhanced SLR standards (eSLR).

…continue reading: US Basel III Supplementary Leverage Ratio

US Regulatory Outlook: The Beginning of the End

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday August 4, 2014 at 9:23 am
  • Print
  • email
  • Twitter
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. The complete publication, including appendix and footnotes, is available here.

Regulatory delay is now the established norm, which continues to leave banks unsure about how to prepare for pending rulemakings and execute on strategic initiatives. With the “Too Big To Fail” (TBTF) debate about to hit the headlines again when the Government Accountability Office releases its long-awaited TBTF report, the rhetoric calling for the completion of these outstanding rules will once more sharpen.

This rhetoric should not be confused with reality, however. At about this time last summer, Treasury Secretary Lew stated that TBTF would be addressed by the end of 2013—a goal that resulted in heightened stress testing expectations and a vague final Volcker Rule in December, but little more. Since then, the slow progress has continued, with only two key rulemakings completed so far this year: the finalization of Enhanced Prudential Standards for large bank holding companies (BHCs) and a heightened supplementary leverage ratio for the eight largest BHCs (i.e., US G-SIBs).

…continue reading: US Regulatory Outlook: The Beginning of the End

Next Page »
 
  •  » A "Web Winner" by The Philadelphia Inquirer
  •  » A "Top Blog" by LexisNexis
  •  » A "10 out of 10" by the American Association of Law Librarians Blog
  •  » A source for "insight into the latest developments" by Directorship Magazine