Posts Tagged ‘Financial institutions’

Financial Market Utilities: Is the System Safer?

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 21, 2015 at 9:24 am
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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.

It has been two and a half years since the Financial Stability Oversight Council (FSOC) designated select financial market utilities (FMUs) as “systemically important.” These entities’ respective primary supervisory agencies have since increased scrutiny of these organizations’ operations and issued rules to enhance their resilience.

As a result, systemically important FMUs (SIFMUs) have been challenged by a significant increase in regulatory on-site presence, data requests, and overall supervisory expectations. Further, they are now subject to heightened and often entirely new regulatory requirements. Given the breadth and evolving nature of these requirements, regulators have prioritized compliance with requirements deemed most critical to the safety and soundness of financial markets. These include certain areas within corporate governance and risk management such as liquidity risk management, participant default management, and recovery and wind-down planning.

…continue reading: Financial Market Utilities: Is the System Safer?

2014 Year-End Review of BSA/AML and Sanctions Developments

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 14, 2015 at 9:00 am
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Editor’s Note: The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Elizabeth T. Davy, Jared M. Fishman, Eric J. Kadel Jr., and Jennifer L. Sutton; the complete publication is available here.

This post highlights what we believe to be the most significant developments during 2014 for financial institutions with respect to U.S. Bank Secrecy Act/anti-money laundering (“BSA/AML”) and U.S. sanctions programs, including sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), and identifies significant trends. The overarching trend that is likely to continue for the foreseeable future is an intense focus on BSA/AML and sanctions compliance by multiple government agencies, combined with increasing regulatory expectations and significant enforcement actions and penalties.

…continue reading: 2014 Year-End Review of BSA/AML and Sanctions Developments

SEC Proposes Increased Thresholds for Exchange Act Registration

Posted by David S. Huntington, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on Sunday February 1, 2015 at 9:00 am
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Editor’s Note: David Huntington is a partner in the Capital Markets and Securities Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memorandum.

In December 2014, the SEC proposed rules under the Jumpstart Our Business Startups Act (the “JOBS Act”) that reflect new, higher thresholds for registration under the Securities Exchange Act of 1934 (the “Exchange Act”). The SEC also proposed rules that would implement higher thresholds for termination of registration and suspension of reporting for banks and bank holding companies and savings and loan holding companies. In addition, the SEC has proposed to revise the definition of “held of record” in Exchange Act Rule 12g5-1 to exclude certain securities held by persons who received them pursuant to employee compensation plans and to establish a non-exclusive safe harbor for determining whether securities are “held of record” for purposes of registration under Exchange Act Section 12(g).

…continue reading: SEC Proposes Increased Thresholds for Exchange Act Registration

The M&A Landscape: Financial Institutions Rediscovering Themselves

Editor’s Note: Edward Herlihy is a partner and co-chairman of the Executive Committee at Wachtell, Lipton, Rosen & Katz. The following post is based on a Wachtell Lipton memorandum by Mr. Herlihy, Lawrence S. MakowJeannemarie O’Brien, Nicholas G. Demmo, and David E. Shapiro.

The year 2014 was marked by accelerating mergers and acquisitions activity in the financial institutions space and by several distinct trends. Institutions continued to adapt to the changed regulatory environment, as several important rule proposals and releases brought the ultimate contours of that environment into clearer focus. Profitability pressures continued for traditional businesses. And, as investors continue to seek yield in a low-rate world, shareholder activism notably proliferated. Continued improvement in the economy brought new opportunities into sight and ramped up private equity activity in the financial services sector. Cutting across all of these trends, technological changes, and associated business challenges, continued to reshape firms’ strategic playbooks.

Early indications suggest the M&A activity trend continuing into 2015. In the opening days of the new year, City National agreed to merge with Royal Bank of Canada. The largest bank holding company merger since the financial crisis, at $5.4 billion, the City National deal signals the continuing recovery of the U.S. market from post-crisis distressed deal terms, transaction motivations and negotiating positions. City National is widely considered to be among the strongest franchises in the U.S. It maintained its position of strength and financial performance throughout the financial crisis—as evidenced by the 2.6x multiple of deal price to tangible book value to be paid to City National shareholders. The merger is also a significant vote of confidence by RBC in the outlook for the U.S. banking market and in particular for the type of clientele served by City National. RBC will be reentering retail and commercial banking in the U.S. with 75 branches and $32 billion in assets, and a franchise that is highly complementary to its existing strong U.S. asset management presence.

…continue reading: The M&A Landscape: Financial Institutions Rediscovering Themselves

Key Points from Congress’s Roll-Back of the Swaps Push-Out

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday January 11, 2015 at 9:00 am
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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, Armen Meyer, and David Kim.

On December 13, 2014, the US Senate passed an appropriations bill for the President’s signature that included a provision to roll back much of Dodd-Frank’s section 716 (i.e., the Swaps Push-Out). The initial version of the Swaps Push-Out was proposed by Senator Blanche Lincoln (Democrat of Arkansas) in 2010, during her re-election campaign, and would have prohibited bank swap dealers from receiving federal assistance from the FDIC or from the discount window of the Federal Reserve. After intense negotiation in the last days of congressional debate on Dodd-Frank, Lincoln’s version was substantially narrowed to only prohibit banks from dealing in swaps that were viewed by Congress as the most risky.

The Swaps Push-Out that ultimately passed as part of Dodd-Frank prohibited bank swap dealers (with access to FDIC insurance or the discount window) from dealing in certain swaps (or security-based swaps), including most credit default swaps (CDS), equity swaps, and many commodity swaps. Swaps related to rates, currencies, or underlying assets that national banks may hold (e.g., loans) were allowed to remain in the bank, as were swaps used for hedging or similar risk mitigation activities.

…continue reading: Key Points from Congress’s Roll-Back of the Swaps Push-Out

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.

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New ISDA Protocol Limits Buy-Side Remedies in Financial Institution Failure

Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday December 14, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Stephen D. Adams, associate in the investment management and hedge funds practice groups at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Mr. Adams, Leigh R. Fraser, Anna Lawry, and Molly Moore.

The ISDA 2014 Resolution Stay Protocol, published on November 12, 2014, by the International Swaps and Derivatives Association, Inc. (ISDA), [1] represents a significant shift in the terms of the over-the-counter derivatives market. It will require adhering parties to relinquish termination rights that have long been part of bankruptcy “safe harbors” for derivatives contracts under bankruptcy and insolvency regimes in many jurisdictions. While buy-side market participants are not required to adhere to the Protocol at this time, future regulations will likely have the effect of compelling market participants to agree to its terms. This change will impact institutional investors, hedge funds, mutual funds, sovereign wealth funds, and other buy-side market participants who enter into over-the-counter derivatives transactions with financial institutions.

Among the key features of the Protocol are the following:

…continue reading: New ISDA Protocol Limits Buy-Side Remedies in Financial Institution Failure

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
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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

International Banking Regulators Reinforce Board Responsibilities for Risk Oversight and Governance Culture

Editor’s Note: Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update authored by Ms. Gregory, George W. Madison, and Connie M. Friesen; the complete publication, including footnotes, is available here.

In October 2014, the Basel Committee on Banking Supervision of the Bank for International Settlements issued its consultative Guidelines [on] Corporate governance principles for banks (the “2014 Principles”). The 2014 Principles revise the Committee’s 2010 Principles for enhancing corporate governance (the “2010 Principles”), in which the Committee reflected on the lessons learned by many central banks and national bank supervisors from the global financial crisis of 2008-09, in particular with regard to risk governance practices and supervisory oversight at banks. The 2014 Principles also incorporate corporate governance developments in the financial services industry since the 2010 Principles, including the Financial Stability Board’s 2013 series of peer reviews and resulting peer review recommendations. The comment period for the 2014 Principles expires on January 9, 2015.

This post highlights certain themes in the 2014 Principles and identifies recent comments by U.S. banking regulators that indicate that supervised financial institutions can expect new regulations to address some of these themes.

…continue reading: International Banking Regulators Reinforce Board Responsibilities for Risk Oversight and Governance Culture

Global Banks at a Strategic Crossroad

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday November 28, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Rakhi Kumar, Head of Corporate Governance at State Street Global Advisors, and is based on an SSgA publication; the complete publication, including appendix, is available here.

In Q1 and early Q2 2014, SSgA actively engaged with 15 global banks ahead of the proxy voting season. These engagements were conducted jointly with members of SSgA’s investment and governance teams. Our engagement addressed specific governance issues at each bank and also encompassed a wider discussion on the changing regulatory landscape and its impact on business strategy, capital requirements, operations and risk management, and the bank’s global footprint. Below we have provided the perspectives and insights gleaned from our engagement activities with banks this year.

…continue reading: Global Banks at a Strategic Crossroad

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