Posts Tagged ‘Dwight Smith’

Dodd-Frank Implementation: Navigating the Road Ahead

Editor’s Note: Dwight C. Smith is a partner at Morrison & Foerster LLP focusing on bank regulatory matters. This post is based on the introduction of a Morrison & Foerster booklet edited by Mr. Smith, Charles Horn, and Anna Pinedo; the full publication is available here.

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

FDIC and Bank of England Release White Paper

Posted by Dwight C. Smith, Morrison & Foerster LLP, on Wednesday January 9, 2013 at 9:44 am
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Editor’s Note: Dwight C. Smith is a partner at Morrison & Foerster LLP focusing on bank regulatory matters. This post is based on a Morrison & Foerster client alert by Mr. Smith and Jeremy Jennings-Mares.

On December 10, 2012, the Federal Deposit Insurance Corporation (“FDIC”) and the Bank of England released a white paper, Resolving Globally Active, Systemically Important, Financial Institutions, [1] describing how each would resolve a materially distressed or failing financial institution that is globally active and systemically important (“G-SIFI”) in order to maintain the G-SIFI’s ongoing and viable operations, and contain any threats to financial stability. The paper reflects the work of U.S. and UK authorities [2] in developing resolution strategies for the failure of G-SIFIs in accordance with standards developed by the Financial Stability Board, [3] but does not go into detail on the strategic options that may be available.

The white paper warrants the close attention of G-SIFIs and their stakeholders, particularly their unsecured debtholders. The paper memorializes the consensus view of the FDIC and the Bank of England that a top-down or single-point-of-entry approach is the preferred (although not the sole) method of resolving a G-SIFI. [4] This approach could transform certain unsecured debt into equity or convertible debt and should cause G-SIFIs to review their organizational structure. Also of interest are the FDIC’s and Bank of England’s perspectives on the critical powers and preconditions for a successful resolution and what legislative or regulatory changes may be necessary.

…continue reading: FDIC and Bank of England Release White Paper

Money Market Funds: FSOC Proposes Reforms

Posted by Dwight C. Smith, Morrison & Foerster LLP, on Sunday December 9, 2012 at 10:11 am
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Editor’s Note: Dwight C. Smith is a partner at Morrison & Foerster LLP focusing on bank regulatory matters. This post is based on a Morrison & Foerster client alert by Jay Baris.

On November 13, 2012, the Financial Stability Oversight Council (FSOC), faced with a Securities and Exchange Commission (SEC) that has been deadlocked over whether or how to address concerns about money market funds (MMFs), voted unanimously to propose three MMF reforms. The vote was the FSOC’s first exercise of its power under section 120 of the Dodd-Frank Act to recommend heightened regulatory standards to financial regulatory agencies. If finalized, today’s proposal will result in a recommendation that the SEC act on at least one of the reforms. [1]

Last August, SEC Chairman Mary Schapiro, in a controversial decision, tabled proposed rulemaking on MMFs because of the lack of support from three Commissioners of the SEC. In a letter sent in late September, Treasury Secretary Timothy Geithner urged the FSOC members at their November meeting to take up MMF reform through their section 120 powers. According to Secretary Geithner at today’s meeting, the FSOC’s decision was taken on the recommendation of Chairman Schapiro.

The proposal from the FSOC presents three options for MMF reform, two of which were before the SEC in August, and requests public comment during the 60 days following publication of the proposal in the Federal Register. The FSOC does not regard the three options as mutually exclusive and thus could recommend more than one to the SEC. The three options are as follows:

…continue reading: Money Market Funds: FSOC Proposes Reforms

Regulatory Capital: January 1, 2013 Deadline Eased

Posted by Dwight C. Smith, Morrison & Foerster LLP, on Friday November 16, 2012 at 8:56 am
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Editor’s Note: Dwight C. Smith is a partner at Morrison & Foerster LLP focusing on bank regulatory matters. This post is based on a Morrison & Foerster client alert by Mr. Smith.

The three federal bank regulatory agencies announced [1] that their proposed new capital rules based on Basel III (and other Basel standards) [2] would not take effect on January 1, 2013, a date previously proposed apparently in order to adhere to international consensus. The announcement was overdue. The comment period for the three proposed capital rules ended only a few weeks ago on October 22, 2012. The agencies received hundreds of comments that they will have to digest in order to finalize the rules, making implementation on January 1, 2013, a practical impossibility.

January 1, 2013, was set by international agreement as the effective date for new Basel-based rules in all countries. The United States will not be the only jurisdiction to miss this deadline. The Basel Committee on Banking Supervision (the “BCBS”) released preliminary reviews of the implementation of Basel III in the European Union, the United States, and Japan. Only Japan has new rules in place. The European Parliament is expected to take up its version of the new rules, colloquially known as CRD IV, on November 20, 2012, in plenary session. If Parliament approves CRD IV, it will go to the European Council for review. Finalization, accordingly, will take several months.

The announcement leaves two questions that the agencies did not answer.

…continue reading: Regulatory Capital: January 1, 2013 Deadline Eased

Final Rules from the Federal Banking Agencies

Posted by Dwight C. Smith, Morrison & Foerster LLP, on Sunday November 11, 2012 at 10:59 am
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Editor’s Note: The following post comes to us from Dwight Smith, partner focusing on bank regulatory matters at Morrison & Foerster LLP, and is based on a Morrison & Foerster memorandum by Mr. Smith and Charles Horn.

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

Regulatory Capital Estimation Tool: Observations

Posted by Dwight C. Smith, Morrison & Foerster LLP, on Tuesday October 16, 2012 at 8:56 am
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Editor’s Note: Dwight C. Smith is a partner at Morrison & Foerster LLP focusing on bank regulatory matters. This post is based on a Morrison & Foerster client alert by Mr. Smith.

On September 24, 2012, the federal banking agencies released the “Regulatory Capital Estimation Tool,” intended to help community banking and thrift organizations estimate the overall impact on their capital levels of the proposed revisions to the U.S. regulatory capital rules that were published this past summer. [1]

The tool will serve at least two purposes. The resulting estimates should provide a new source of quantitative information for a bank’s capital planning. They should also spur an assessment of the impact of the proposed rules and how the bank might provide a meaningful comment on the proposed rules. The comment period expires three weeks from today, on October 22, 2012. [2] The tool involves two of the three regulatory capital rules that the agencies proposed in June 2012: the Basel III Proposal, which addresses capital components and capital ratios, and the Standardized Approach Proposal, which sets forth risk weights for different asset classes. [3]

…continue reading: Regulatory Capital Estimation Tool: Observations

The Parallel Universe of the Volcker Rule

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday July 29, 2012 at 8:17 am
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Editor’s Note: The following post comes to us from Charles Horn and Dwight Smith, partners focusing on bank regulatory matters at Morrison & Foerster LLP.

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

The Volcker Rule’s Impact on Foreign Banking Organizations

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday July 22, 2012 at 8:27 am
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Editor’s Note: The following post comes to us from Dwight C. Smith, partner focusing on bank regulatory matters at Morrison & Foerster LLP, and is based on a Morrison & Foerster memorandum.

The Volcker Rule, as embodied in the Dodd-Frank Act and reflected in proposed regulations, generally prohibits “banking entities” from engaging in proprietary trading and from investing in or sponsoring private equity and hedge funds. [1] These “banking entities” include foreign banks that maintain branches or agencies in the U.S. or that own U.S. banks or commercial lending companies in the United States. These banks, as well as their parent holding companies, are referred to in U.S. regulations as “foreign banking organizations,” or “FBOs,” and we will use this term throughout this paper. [2] This bulletin evaluates how Volcker, as construed by proposed regulations, impacts the proprietary trading and investment fund-related activities of FBOs outside the United States.

Generally, the Dodd-Frank Act exempts proprietary trading by FBOs that is conducted solely outside the United States, and, provided that no ownership interest in a fund is offered or sold in the United States, investment fund-related activities by FBOs conducted solely outside the United States. The exemptions are available under the Dodd-Frank Act for FBOs (or their affiliates) not controlled by U.S.-based banking entities as long as the activities in question are conducted consistent with the exemption accorded FBOs for activities conducted outside the United States pursuant to Sections 4(c)(9 ) or 4(c)(13) of the Bank Holding Company Act. Accordingly, the exemptions are not available for activities conducted by the U.S. branches or agencies of FBOs, or by U.S. banks or U.S. commercial lending companies owned by FBOs.

…continue reading: The Volcker Rule’s Impact on Foreign Banking Organizations

New Basel Disclosure Rules

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday July 16, 2012 at 10:12 am
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Editor’s Note: The following post comes to us from Charles Horn and Dwight Smith, partners focusing on bank regulatory matters at Morrison & Foerster LLP, and is based on a Morrison & Foerster memorandum by Mr. Horn and Mr. Smith.

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

New Dodd-Frank Regulatory Framework for Thrift Institutions

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday January 17, 2012 at 10:06 am
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Editor’s Note: The following post comes to us from Dwight C. Smith, partner focusing on bank regulatory matters at Morrison & Foerster LLP, and is based on the executive summary of a Morrison & Foerster publication, Thrift Institutions After Dodd-Frank: The New Regulatory Framework, which is available in full here.

On July 21, 2011, thrift institutions entered a new regulatory structure, with the transfer of regulatory responsibility for these institutions from the Office of Thrift Supervision (“OTS”) to the other federal banking agencies and with other changes under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank” or the “Act”). [1] Dodd-Frank and related reforms, including new international capital standards, will, over time, shape the operations of savings and loan holding companies (“SLHCs”) and their subsidiary thrifts. For the most part, the changes will bring the thrift and bank charters closer together, and SLHCs will be treated nearly the same as bank holding companies (“BHCs”). Reinforcing the similarity in treatment are various amendments Dodd-Frank has made to the same provisions in the thrift statute and the banking statutes. Some important distinctions nevertheless will remain, including a slightly greater range of activities for thrift institutions and the qualified thrift lender test.

…continue reading: New Dodd-Frank Regulatory Framework for Thrift Institutions

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