On March 26, the Basel Committee on Banking Supervision (“Basel Committee”) published a Consultative Document in which it proposes a revised supervisory framework for measuring and controlling large counterparty exposures (“Proposal,” or “Exposure Framework”) of systemically important financial institutions (“SIFIs”). Comments on the Proposal are due by June 28, 2013.

…continue reading: Basel Committee Proposes to Double Down on Counterparty Exposure Limits

On April 3, the Federal Reserve Board (“Board”) published a final rule (“Rule”) specifying when a financial company that may be made subject to systemic regulation under Title I of the Dodd-Frank Wall Street Accountability and Consumer Protection Act (“Dodd-Frank Act”) is “predominantly engaged in financial activities” for purposes of being designated for systemic regulation under the Dodd-Frank Act. The Rule is effective on May 6, 2013.

As discussed below, the net effect of the Rule would be to expand the types of activities that might qualify as financial activities for purposes of applying the “predominantly engaged” test, and thus broaden the population of large nonbank firms that might be designated as systemically important financial firms, under the Dodd-Frank Act. Accordingly, large nonbank financial firms should pay close attention to the Rule’s requirements and its potential impact on them.

…continue reading: Federal Reserve Board Approves Final Rule for Nonbank Firms

In 2013, banking organizations, securities firms, insurance companies, and other participants in the financial services industry should stop to consider how the implementation of the Dodd-Frank Act has unfolded and to plan for new compliance duties that will or are likely to take effect. Regulators likewise would be advised to take a step back themselves and consider how implementation has proceeded. The incoming 113th Congress will certainly debate possible changes to Dodd-Frank, although the prospects for substantive follow-up legislation, corrective or otherwise, are uncertain at best.

This booklet broadly reviews the critical developments under Dodd-Frank that occurred during the second half of 2012 and considers how and what events may occur, as well as what trends may emerge in 2013. This is not an exhaustive review of all of the Dodd-Frank issues, but we have tried to identify those issues with important consequences for the financial services industry.

…continue reading: Dodd-Frank Implementation: Navigating the Road Ahead

On October 19, 2012, the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation (“FDIC”) and the Federal Reserve Board (“Board”) approved final rules, which were proposed for comment in January of this year, [1] implementing the Dodd-Frank Act’s company-run stress testing requirements for all insured depository institutions with total consolidated assets of $10 billion or more. [2] In addition, the Board has simultaneously published final stress-testing rules, covering the Dodd-Frank Act’s requirements for Board-run and
company-run stress-testing requirements for banking organizations with more than $50 billion in total consolidated assets. [3]

Most of the changes between the proposed rules and the final rules involve the procedures and timelines, rather than the substance, of the required stress-testing. Highlights of the regulatory actions include:

…continue reading: Final Rules from the Federal Banking Agencies

If timing is everything, this is not an auspicious time to argue against the Volcker Rule, given the recent London trading and investment misadventures of JPMorgan Chase. Predictably, there has been a hue and cry over this situation, and the bank regulators will be under heavy political pressure to toughen the Volcker Rule. In turn, the regulatory agencies probably will stiffen the Volcker Rule’s implementing regulations when they are adopted later this year (perhaps). For that reason, now is a good time to take a critical look at the Volcker Rule’s utility in improving regulatory oversight and preventing future financial crises.

In fact, the Volcker Rule continues to exist in a parallel universe that has little relation either to the recent financial crisis, the functional realities of the modern financial markets, or to the ongoing efforts to strengthen our financial system. Nothing that JPMorgan Chase, or any other too-big-to-fail bank, has or has not done changes that essential fact. Here is why:

…continue reading: The Parallel Universe of the Volcker Rule

Yesterday, the Basel Committee on Banking Supervision published its Compilation of Capital Disclosure Requirements (“Disclosure Rules”) setting forth a uniform scheme for Basel II banks to disclose the composition of their regulatory capital. These rules are intended to be implemented by national supervisors by June 30, 2013, and affected banks will be expected to comply with all but one of the new requirements for any balance sheet financial statements published after that date. One fully phased-in requirement, a “common disclosure template,” becomes effective on and after January 1, 2018.

In announcing these rules, the Basel Committee noted that the financial crisis revealed the difficulties that market participants and national supervisors had in their efforts to undertake detailed assessments of banks’ capital positions and make cross-jurisdictional comparisons, as a result of “insufficiently detailed disclosure” by banks and a lack of consistency in reporting between banks and across jurisdictions. The Disclosure Rules are intended to address these perceived disclosure deficiencies, and promote uniform and meaningful capital disclosures within and across national jurisdictions.

Basel II banks in the United States can expect future banking agency rulemaking to implement the Disclosure Rules. These rules presumably will be integrated with the disclosure provisions in the new capital and resolution planning regulations. Review of yesterday’s announcement should not be limited to Basel II banks in the United States, however; as with other Basel standards, the Disclosure Rules may lead to new disclosure requirements for a large number of non-Basel II banks in the U.S.

…continue reading: New Basel Disclosure Rules