Capital Requirements

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On September 30, 2020, the Federal Reserve released a proposal to update its capital planning requirements in a number of respects, including to integrate the capital plan rule with the Federal Reserve’s October 2019 final rules tailoring its enhanced prudential standards.  The proposal would make the following notable changes:

  • Replacement of Company-Run Stress Testing for

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On May 15, 2020, the federal banking agencies issued an interim final rule to permit depository institutions to exclude from their supplementary leverage ratio (“SLR”) denominators through March 31, 2021 the balance sheet value of U.S. Treasury securities and funds on deposit at a Federal Reserve Bank, subject to restrictions on capital distributions.  The interim final rule complements a similar interim final rule that the Federal Reserve issued in April, which excluded the same set of assets from the SLR denominator of bank holding companies, savings and loan holding companies, and intermediate holding companies of foreign banking organizations subject to the SLR (the “Holdco Rule”).
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Continue Reading Temporary SLR Relief Extended to Banks, With Condition

Today, March 23, 2020, the Federal Reserve issued an interim final rule that revises the definition of “eligible retained income” for purposes of the total loss-absorbing capacity (“TLAC”) buffer requirements that apply to global systemically important banking organizations (“G-SIBs”).  The rule amends the “eligible retained income” definition in the same manner as the federal banking agencies’ interim final rule of March 17, 2020, which, as we summarized previously, revised that definition for purposes of the regulatory capital rules that apply to all U.S. banking organizations.
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Continue Reading Federal Reserve Eases Application of TLAC Buffer

Today, March 20, 2020, the Federal Reserve announced that it has amended the terms of its recently announced Money Market Mutual Fund Liquidity Facility (“MMLF”) so as to accept certain U.S. municipal short-term debt as eligible collateral and allow additional types of funds to sell eligible collateral to participating borrowers.  The expansion is intended to support the flow of credit to the economy by taking steps to enhance the liquidity and functioning of crucial state and municipal money markets.
Continue Reading Federal Reserve to Accept U.S. Municipal Short-Term Debt as Eligible Collateral Under Expanded MMLF Program

Yesterday, on March 18, 2020, the Board of Governors of the Federal Reserve System (“Board”) announced the creation of a Money Market Mutual Fund Liquidity Facility (“MMLF”) to provide liquidity support to money market mutual funds (“MMMFs”) by facilitating their sale of certain assets in order to meet redemption requests.  Under the MMLF, the Federal…

Yesterday, on Sunday, March 15, 2020, in response to the COVID-19 pandemic’s impact on U.S. and global economic activity, the Federal Reserve’s Federal Open Market Committee (“FOMC”) cut the target range of the federal funds rate to 0 to 1/4 percent until such time as the FOMC is “confident that the economy has weathered recent…

The federal banking agencies issued a final rule today that permits banking organizations not subject to the advanced approaches capital rules to adopt simplifications to the calculation of their regulatory capital beginning January 1, 2020, rather than April 1, 2020 as was originally finalized in July 2019.
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Continue Reading Federal Banking Agencies Permit First Quarter 2020 Adoption of Capital Simplifications Rule

On April 2, 2019, the federal banking agencies proposed a rule that would require large banking organizations to deduct from their regulatory capital certain investments in total loss-absorbing capacity (“TLAC”) debt issued by global systemically important banking organizations (“G-SIBs”) rather than to risk-weight such investments as is currently done.  The rule is intended to reduce interconnectedness in the financial system by discouraging (but not prohibiting) banking organizations from investing in G-SIBs’ debt, and therefore has important implications for the marketability and liquidity of debt instruments that G-SIBs are required to issue under the Federal Reserve’s TLAC requirements.

In a chart accompanying this blog post, we have compared the key parameters of the interagency proposal to the deduction requirements included in the Federal Reserve’s 2015 TLAC proposal and the Basel Committee’s 2016 final standard.  Comments on the interagency proposal are due June 7, 2019.…

Continue Reading Federal Banking Agencies Propose TLAC Deduction Standard

On March 29, 2019, the board of the FDIC approved a notice of proposed rulemaking that would revise the supplementary leverage ratio (“SLR”) to exclude certain deposits placed at central banks from custodial banks’ SLR denominators, implementing section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”).  The OCC and Federal Reserve are expected to adopt substantially identical proposals.
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Continue Reading Agencies to Revise SLR to Exclude Custodial Deposits at Central Banks

In a November 9, 2018 speech, Federal Reserve Vice Chairman for Supervision Randal K. Quarles outlined potential adjustments to the revisions to the capital planning regime that the Federal Reserve proposed in April 2018.  Governor Quarles also said he will ask the Federal Reserve to exempt banks with less than $250 billion in assets from the Comprehensive Capital Analysis and Review (“CCAR”) quantitative assessment and supervisory stress testing in 2019 in order to facilitate capital planning moving to a biennial exercise for such banks.

Governor Quarles emphasized that the adjustments “are not intended to alter materially the overall level of capital in the system or the stringency of the regime.”  However, the cumulative impact of the changes outlined in his speech would be to ease the implementation of the SCB and streamline CCAR and capital planning.…

Continue Reading Capital Planning Framework to Continue its Evolution