On September 3, 2014, U.S. banking regulators re-proposed margin, capital and segregation requirements applicable to swap entities  for uncleared swaps.  The new proposed rules modify significantly the regulators’ original 2011 proposal in light of the Basel Committee on Banking Supervision’s and the International Organization of Securities Commissions’ (“BCBS/IOSCO”) issuance of their 2013 final policy framework on margin requirements for uncleared derivatives and the comments received on the original proposal. The revised proposal:
Posts Tagged ‘FDIC’
[On September 10, 2014], 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 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, commonly known as the “Volcker Rule.”
On June 10, 2014, 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 (collectively, the “Banking Agencies”) and the Securities and Exchange Commission (the “SEC”) released substantially identical Frequently Asked Questions (“FAQs”) addressing six topics regarding the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”
In a comment letter and supporting paper to the FDIC on its single-point-of-entry (SPOE) resolution concept release, Karen Shaw Petrou, managing partner of Federal Financial Analytics, argues that SPOE is conceptually sound and statutorily robust. However, progress to date on orderly liquidation has been so cautious as to cloud the credibility of assertions that the largest U.S. financial institutions, especially the biggest banks, are no longer too big to fail (“TBTF”). Crafting a new resolution regime is of course a complex undertaking that benefits from as much consensus as possible. However, if definitive action is not quickly taken on a policy construct for single-point-of-entry resolutions resolving high-level questions about its practicality and functionality under stress, markets will revert to TBTF expectations that renew market distortions, place undue competitive pressure on small firms, and stoke systemic risk. Even more dangerous, the FDIC may not be ready when systemic risk strikes again.
Questions addressed in detail in the paper and Ms. Petrou’s answers to them are summarized below:
Federal Deposit Insurance Corporation (FDIC) litigation activity associated with failed financial institutions increased significantly in 2013, according to Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions—February 2014, a new report by Cornerstone Research. The FDIC filed 40 director and officer (D&O) lawsuits in 2013, compared with 26 in 2012, a 54 percent increase.
The surge in FDIC D&O lawsuits stems from the high number of financial institution failures in 2009 and 2010. Of the 140 financial institutions that failed in 2009, the directors and officers of 64 (or 46 percent) either have been the subject of an FDIC lawsuit or settled claims with the FDIC prior to the filing of a lawsuit. Of the 157 institutions that failed in 2010, 53 (or 34 percent) have either been the subject of a lawsuit or have settled with the FDIC.
Earlier this evening [January 14, 2014], the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency (the “OCC”), Federal Deposit Insurance Corporation (such three agencies together, the “Banking Agencies”), Securities and Exchange Commission, and Commodity Futures Trading Commission (the “CFTC” and, collectively, the “Agencies”) issued an interim final rule (the “Interim Final Rule”) regarding the treatment of certain collateralized debt obligations backed by trust preferred securities (“TruPS-backed CDOs”) under the final rule (the “Final Rule”) implementing Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), commonly known as the “Volcker Rule.” The Volcker Rule imposes broad restrictions on proprietary trading and investing in and sponsoring private equity and hedge funds (“covered funds”) by banking organizations and their affiliates.
On December 10, 2013, the Federal Deposit Insurance Corporation (the “FDIC”) proposed for public comment a notice (the “Notice”) describing its “Single Point of Entry” (“SPOE”) strategy for resolving systemically important financial institutions (“SIFIs”) in default or in danger of default under the orderly liquidation authority granted by Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The Notice follows the FDIC’s endorsement of the SPOE model in its joint paper issued with the Bank of England last year.
These Davis Polk flowcharts are designed to assist banking entities in identifying permissible and impermissible covered fund activities, investments and relationships under the final regulations implementing the Volcker Rule, issued by the Federal Reserve, FDIC, OCC, SEC and CFTC on December 10, 2013.
The flowcharts graphically map the key elements of the covered fund provisions in the final regulations. An introduction to the new covered funds compliance requirements will also be available soon as a standalone module and in a single combined document.
These Davis Polk flowcharts are designed to assist banking entities in identifying permissible and impermissible proprietary trading activities under the final regulations implementing the Volcker Rule, issued by the Federal Reserve, FDIC, OCC, SEC and CFTC on December 10, 2013. An introduction to the new compliance requirements is also included.
To make our summary and analysis of the final rules more user-friendly, these flowcharts graphically map the key restrictions on covered trading activities in lieu of a traditional law firm memo.
On August 28, 2013, a consortium of U.S. banking, housing and securities regulators (the “Agencies”)  re-proposed the joint regulations (the “Re-Proposed Rules”), to implement Section 15G of the Securities Exchange Act of 1934. Section 15G requires the Agencies to prescribe joint regulations to require “any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells or conveys to a third party.”  This has popularly been referred to as a “skin in the game” requirement intended to align the interests of those originating or aggregating loans with the interests of investors in securitizations of those loans. The Re-Proposed Rules are the Agencies’ second attempt at rulemaking under Section 15G, the first coming with proposed joint regulations released on April 14, 2011 (the “Initial Proposed Rules”). 
Both the Initial Proposed Rules and the Re-Proposed Rules would generally require a “securitizer” to retain at least 5 percent of the credit risk associated with the assets backing a securitization transaction, subject to various exemptions and offsets. The Initial Proposed Rules prescribed some basic forms of risk-retention that could be used in any type of securitization, as well as some forms of risk-retention that would apply only to specific types of securitizations (such as those involving revolving asset master trusts, which are common to credit-card and automobile floorplan securitization, CMBS transactions, certain federal agency securities issuances, and ABCP conduits).  The Re-Proposed Rules appear to be dramatically simpler than the Initial Proposed Rules and address many of the more significant issues presented by the Initial Proposed Rules. Nevertheless, the Re-Proposed Rules present a number of issues of their own.