On November 6, 2020, the Board of Governors of the Federal Reserve System (the “FRB”) announced that, beginning in 2021, its Large Institution Supervision Coordinating Committee (“LISCC”) supervisory program will apply only to Category I firms as defined in the FRB’s tailoring framework.  This change will have the effect of removing three foreign banking organizations (“FBOs”) with U.S. operations from the LISCC portfolio.  Going forward, only U.S. firms that are designated as global systemically important banks (“U.S. G-SIBs”) will be included in the LISCC portfolio.
Continue Reading Federal Reserve’s LISCC Program to Apply Only to U.S. G-SIBs

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.

Continue Reading Federal Reserve Eases Application of TLAC Buffer

On October 22, 2019, the U.S. Government Accountability Office (“GAO”) issued two letters concluding that three Federal Reserve Supervision and Regulation letters, SR 12-17: Consolidated Supervision Framework for Large Financial Institutions, SR 14-8: Consolidated Recovery Planning for Certain Large Domestic Bank Holding Companies, and SR 11-7: Guidance on Model Risk Management, are “rules” under the Congressional Review Act (“CRA”) and therefore must be submitted to Congress and the Comptroller General for review before they can take effect.  The GAO letters respond to requests made by several senators for determinations of whether the three SR letters, as well as SR 15-7: Governance Structure of the Large Institution Supervision Coordinating Committee (LISCC) Supervisory Program, are rules under the CRA.  The GAO concluded that SR 15-7 is not a rule under the CRA.

Continue Reading GAO Concludes Three SR Letters Are Rules Under Congressional Review Act

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.

Continue Reading Agencies to Revise SLR to Exclude Custodial Deposits at Central Banks

On March 6, 2019, the Federal Reserve issued a final rule to exempt from the qualitative component of the Comprehensive Capital Analysis and Review (“CCAR”) exercise large firms that have participated in CCAR for four consecutive years and have passed the final year’s qualitative component without objection.  The final rule serves to provide an immediate exemption for all domestic bank holding companies currently subject to CCAR, and to phase out the qualitative objection for U.S. intermediate holding companies of foreign banks (“IHCs”).

Continue Reading Federal Reserve Eliminates CCAR’s Qualitative Objection for Most Firms

On Tuesday October 2, leaders of the federal prudential regulators testified before the Senate Committee on Banking, Housing, and Urban Affairs (“Banking Committee”) on their agencies’ efforts to implement the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA” or the “Act”). All of the regulators expressed support for the goals of EGRRCPA, particularly with respect to tailoring regulations, and highlighted the steps being taken to implement the law.

The witnesses at the hearing were: Joseph Otting, Comptroller, Office of the Comptroller of the Currency (“OCC”); Randal Quarles, Vice Chairman for Supervision, Board of Governors of the Federal Reserve System (“FRB”); Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation (“FDIC”); and J. Mark McWatters, Chairman, National Credit Union Administration (“NCUA”).

This post summarizes below, as highlighted in the witnesses’ testimony:

  • some of the key steps these agencies have taken to implement the Act, which include the release of a number of proposed and interim final rules; and
  • the steps the agencies intend to take next, including tailoring enhanced prudential standards for larger bank holding companies (“BHCs”).


Continue Reading After Senate Banking Committee Testimony, Where Does Dodd-Frank Reform Stand?

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.

Continue Reading Basel Committee Proposes Use of Short-Term Wholesale Funding Indicator in G-SIB Surcharge Methodology