FRB, FDIC issue proposed additional and consolidated guidance for 2019 GSIB resolution plans

On Friday, June 29, the Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation (collectively, “the Agencies”) issued proposed updated resolution planning guidance to the eight largest and complex US Banking Institutions (“GSIBs” or “firms”) in relation to how the GSIBs should develop their next iteration of the 165 (d) Resolution Plans1 which are due July 1, 2019.2 The GSIBs last submitted their 165(d) Resolution Plans in July 2017.

This proposed guidance is intended to be supplementary to the specific feedback guidance issued in December 2017,3 where the Agencies noted that firms have made progress on enhancing resolvability, including eight areas of common progress, but emphasized further action is needed to address certain shortcomings for four firms, and identified improvement areas for all GSIBs. From the proposed guidance issuance date in the Federal Register, the interested parties and the public have 60 days to provide feedback to the Agencies on the proposed guidance.
Continue reading “FRB, FDIC issue proposed additional and consolidated guidance for 2019 GSIB resolution plans”

CCAR: A mixed story of surprises and more work to do

The Federal Reserve (“Fed”) released the results of its Comprehensive Capital Analysis and Review (CCAR) for 2018 on June 28.  The results cover 35 bank holding companies (BHCs) and Intermediate Holding Companies (IHCs1) subject to the capital planning and stress test rule.  In addition to the stress test results, the conclusions on the adequacy of the capital planning process for the 18 systemic and complex firms subject to the qualitative portion of the review are also provided.2

Key Facts:

  • The Fed objected to one firm, Deutsche Bank USA, on qualitative grounds, and granted conditional non- objections for three firms, Goldman Sachs, Morgan Stanley and State Street.
  • A record number of firms, six, adjusted their dividend or stock buy-back requests to avoid objection, the so-called mulligan, exceeding the prior record of four firms making adjustments in 2015 (see below).
  • Capital planning internal controls in many instances continue to fall below the Federal Reserve’s supervisory expectations.

The prior week’s release of the Dodd-Frank Act Stress Test (DFAST) results provided more detailed information on the Fed’s stress test.  Compared to CCAR, those results exclude buybacks and capital issuances and hold past common dividends constant.  A link to our take on the DFAST results can be found here.

Continue reading “CCAR: A mixed story of surprises and more work to do”

Federal Reserve Board announces final rule to establish SCCL for US BHCs and FBOs – do you know your counterparty exposure?

On June 14, 2018, the Federal Reserve Board (FRB) unanimously voted to pass the final rule to establish single-counterparty credit limits (SCCL) for covered large US bank holding companies (BHCs) and foreign banking organizations (FBOs). The final rule, which aims to limit the amount of exposure that large banks can maintain with a single counterparty, is generally aligned with the proposed rule issued in March 2016. Also, the rule represents the first instance of the FRB applying the new enhanced prudential standard (EPS) thresholds to specific classes of institutions as prescribed in the recently passed regulatory relief legislation (S.2155, Economic Growth, Regulatory Reform, and Consumer Protection Act).1

Continue reading “Federal Reserve Board announces final rule to establish SCCL for US BHCs and FBOs – do you know your counterparty exposure?”

Key highlights of the Volcker Rule proposal

On May 30, 2018, the Federal Reserve Board approved a 373 page notice of proposed rulemaking (the “proposal”) to amend the regulations implementing the Volcker Rule (the Rule), a centerpiece of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The proposal aims to simplify and tailor the compliance requirements of the Rule, which was finalized back in December 2013 to prevent banks from engaging in proprietary trading and from owning hedge funds or private equity funds. The proposed changes were jointly developed and approved by the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), the Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC).

Continue reading “Key highlights of the Volcker Rule proposal”

Bipartisan financial services regulatory relief legislation (S.2155) signed into law, would amend key Dodd-Frank thresholds

On May 24, 2018, the bipartisan banking act S. 2155 (the “Economic Growth, Regulatory Relief, and Consumer Protection Act”) has officially been signed into law. The Act, which marks the most significant changes to the Dodd-Frank Act since its enactment in 2010, was cleared by the House of Representatives on May 22, 2018, by a vote of 258 to 159.

Most notably, the Act would raise the statutory asset thresholds related to the imposition of enhanced prudential standards (EPS) and the Dodd-Frank Act stress tests (DFAST):

Continue reading “Bipartisan financial services regulatory relief legislation (S.2155) signed into law, would amend key Dodd-Frank thresholds”

Senate passes financial services regulatory reform bill, would amend key Dodd-Frank thresholds

On March 14, 2018, the Senate passed, by a vote of 67 to 31, S. 2155 (the “Economic Growth, Regulatory Relief, and Consumer Protection Act”), which marks the most significant changes to the Dodd-Frank Act since its enactment in 2010.

Most notably, the bill would raise the statutory asset thresholds related to the imposition of enhanced prudential standards (EPS) and the Dodd-Frank Act stress tests (DFAST):

  • EPS – The threshold would be raised from $50 billion to $250 billion, though the Federal Reserve Board (FRB) would retain the authority to impose EPS on banks with between $100 billion and $250 billion in assets.
  • DFAST – The threshold for the FRB’s annual supervisory stress test would be raised from $50 billion to $250 billion and the threshold for the company-run stress test would be raised from $10 billion to $250 billion, though the FRB would be required to conduct a separate, periodic supervisory stress test of banks with between $100 billion and $250 billion in assets.

Below are several key takeaways with respect to the bill’s potential impact on regulatory thresholds.

Continue reading “Senate passes financial services regulatory reform bill, would amend key Dodd-Frank thresholds”

FRB, FDIC provide resolution plan feedback to 19 FBOs, tailor supervisory expectations

On August 8, 2017, the Federal Reserve Board (FRB) and Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) extended, from December 31, 2017 to December 31, 2018, the resolution plan deadline for 21 firms, including 19 foreign banking organizations (FBOs).

On January 29, 2018, the agencies issued firm-specific feedback to these 19 FBOs based on their last resolution plans filed in 2015.1 Although the feedback letters do not identify any deficiencies or shortcomings with respect to the 2015 plans,2 they outline key supervisory expectations that must be met as the FBOs prepare to file their next plans.

FBOs with US IHCs

Eight of the 19 FBOs were required to establish US intermediate holding companies (IHCs) as of July 1, 2016.3 Accordingly, these FBOs are required to describe any changes they have made to their resolution plan resulting from the implementation of the IHC requirement.

Continue reading “FRB, FDIC provide resolution plan feedback to 19 FBOs, tailor supervisory expectations”

FRB finalizes US risk committee, home country stress testing certifications for FBOs

More than two years after issuing its proposal, the Federal Reserve Board (FRB) finalized1 changes to the FR Y-7 (Annual Report of Foreign Banking Organizations) with respect to the US risk committee and home country stress testing certification requirements for foreign banking organizations (FBOs).

The changes are effective beginning with the reports submitted on or after March 1, 2018.

For more information on the reporting requirements, please click here.

Continue reading “FRB finalizes US risk committee, home country stress testing certifications for FBOs”

Is your resolution plan enough?

Enhancing the second line of defense framework

Over the past several years, the Federal Reserve Board (FRB) and the Federal Deposit Insurance Corporation (FDIC) (collectively, “the Agencies”) have shifted their focus on resolution planning, now emphasizing the capabilities that banks must demonstrate in order to have a credible plan. Through their feedback letters to institutions, guidance, and FAQs, it is evident that the Agencies are emphasizing plan execution rather than conceptual strategy.

Banks’ first lines of defense (FLOD) should demonstrate that they can execute the plan to the Agencies. By using the second lines of defense (SLOD) to review controls, manage internal testing, and provide credible challenge, banks may be able to reduce the chances of the Agencies finding a firm’s plan “non-credible.” Ultimately, banks should demonstrate that required actions are replicable in order to reduce exposure to agency criticism.

One key to success? Accurate and precise data. Banks have the opportunity to leverage data to improve resolution planning processes continuously, which captures data that demonstrates they can execute their preferred resolution strategy. That same data can be used to improve efficiencies and avoid potential identified shortfalls or deficiencies.

By embracing resolution planning’s complexity, banks can accelerate their performance to lead the industry and better navigate resolution planning challenges, especially as changes occur.

Continue reading “Is your resolution plan enough?”

Regulatory reporting: Revisions to Call Report and other related reports

The Federal Financial Institutions Examination Council (FFIEC) recently announced significant changes to bank regulatory reporting requirements (including the “Call Report”) that are expected to result in reduced reporting burden.  The changes originated in December 2014, when the FFIEC launched an initiative to reduce burdens associated with the Call Report. Since then, the FFIEC and its member agencies—the Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), and National Credit Union Administration (NCUA)—have taken several actions to meet this goal, including the creation of a new streamlined Call Report for smaller institutions (FFIEC 051) that took effect with the March 31, 2017 report date.

The goals underlying this initiative coincide with a focus on simplifying, rationalizing, and recalibrating aspects of the regulatory framework, including regulatory reporting.  In support of the burden efforts, the Treasury Department urged regulators to “streamline current regulatory reporting requirements for all community financial institutions” by focusing their efforts on the applicability of each line item.1

Below is an overview of three recent developments with respect to the Call Report,2 the FFIEC 002 (Report of Assets and Liabilities of US Branches and Agencies of Foreign Banks) and FFIEC 002S (Report of Assets and Liabilities of a Non-US Branch that is Managed or Controlled by a US Branch of Agency of a Foreign (Non-US) Bank),3 and the FR Y-9C (Consolidated Financial Statements of Holding Companies), as well as the key takeaways for covered institutions.4

Continue reading “Regulatory reporting: Revisions to Call Report and other related reports”