On July 9, 2019, the federal banking agencies released a final rule to simplify aspects of the regulatory capital rules for banking organizations that are not “advanced approaches” banking organizations, i.e., those with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. Initially proposed in September 2017 as part of the agencies’ ongoing efforts to meaningfully reduce regulatory burden on small and mid-sized banking organizations, the final rule is intended to simplify and clarify certain aspects of the capital rules, and in particular the capital treatment of mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interests. Importantly, the Board of Governors of the Federal Reserve System (“Board”) also used the rulemaking as an opportunity to streamline an important aspect of its regulatory framework by permitting bank holding companies, savings and loan holding companies, and state member banks of all sizes to redeem or repurchase their common stock without obtaining formal, prior regulatory approval under most circumstances.
Continue Reading Federal Reserve Rationalizes Stock Buyback Rules
G-SIB Surcharge
Agencies to Revise SLR to Exclude Custodial Deposits at Central Banks
By Randy Benjenk on
Posted in Capital, Rulemakings
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
Basel Committee Proposes Use of Short-Term Wholesale Funding Indicator in G-SIB Surcharge Methodology
By Randy Benjenk on
Posted in Capital, Regulatory Agencies
On March 30, 2017, the Basel Committee on Banking Supervision (“BCBS”) issued a consultative document to revise the methodology it uses to measure the systemic importance of internationally active banks. The BCBS methodology incorporates various quantitative indicators of a bank’s “Cross-Jurisdictional Activity,” “Size,” “Interconnectedness,” “Substitutability,” and “Complexity” to arrive at a single score of each internationally active bank’s systemic importance. The Financial Stability Board uses the BCBS methodology to identify global systemically important banks (“G-SIBs”) and categorize G-SIBs into different capital “buckets” by which national supervisors are to impose escalating capital surcharges.
Of particular note, the BCBS proposal seeks comment on whether the G-SIB assessment methodology should incorporate a measure of a bank’s reliance on short-term wholesale funding (“STWF”). In the United States, the Federal Reserve has already incorporated a STWF factor into its G-SIB surcharge rule by introducing a “method 2” for calculating each U.S. G-SIB’s score and capital bucket. (The Federal Reserve’s “method 1” is based on the BCBS standard.) The scores of U.S. G-SIBs are generally significantly higher under the Federal Reserve’s method 2 than under its method 1 and the BCBS methodology.…