On October 31, 2018, the Board of Governors of the Federal Reserve System (“Board”) released two draft notices of proposed rulemaking (“NPRs”) to tailor its enhanced prudential standards (“EPS”) in accordance with Section 401 of the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”).
One NPR, issued by only the Board, would tailor the application of EPS relating to capital stress testing; risk management; liquidity risk management, liquidity stress testing, and liquidity buffer requirements; and single-counterparty credit limits to U.S. bank holding companies (“BHCs”) and apply EPS as tailored to covered savings and loan holding companies (“SLHCs”). The other NPR, a joint proposal with the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Corporation (“FDIC”), would tailor requirements under the agencies’ regulatory capital rules, the liquidity coverage ratio (“LCR”) rules, and proposed net stable funding ratio (“NSFR”) rules. At the Board’s open meeting, Governor Brainard voted against the NPRs, saying in her prepared remarks that the proposals go beyond the provisions of EGRRCPA.
The proposals would establish a revised framework for applying EPS to large U.S. banking organizations, with four categories that reflect the different risks of covered firms in each category:
- Category IV Firms: $100-$250 billion in total assets and does not meet Category I, II or III standards.
- Category III Firms: $250 billion-$700 billion in total assets or $100 billion-$250 billion in total assets with $75 billion or more of a risk-based indicator (weighted short-term wholesale funding, nonbank assets, or off-balance sheet exposure), and does not meet Category I or II standards.
- Category II Firms: $700 billion or more in total assets or cross-jurisdictional activity of $75 billion or more, and does not meet Category I standard.
- Category I Firms: U.S. global systemically important BHCs. Continue Reading