Supervisory Ratings

On December 7, 2017, the Federal Reserve announced that it will eliminate the use of the Strength of Support Assessment (or “SOSA” rating) as a supervisory tool.  The SOSA rating measures the extent to which a foreign banking organization (“FBO”) is in a position to provide support to its U.S. branches, agencies, and subsidiary banks, by assessing internal and external factors such as home country risk.  The Federal Reserve currently uses the SOSA rating solely to calculate an FBO’s net debit cap for purposes of daylight overdraft capacity at a Federal Reserve Bank and to determine an FBO’s eligibility for discount window loans.  Accordingly, on December 11, 2017, the Federal Reserve issued a proposal to amend its Payments System Risk Policy to eliminate reliance on an FBO’s SOSA rating to calculating its net debit cap.  The proposal would also eliminate reliance on an FBO’s status as a financial holding company (“FHC”) to determine its net debit cap.

Continue Reading Federal Reserve Eliminates SOSA Rating and Proposes New Standards for FBO Daylight Overdraft Capacity

The U.S. Court of Appeals for the Seventh Circuit recently issued a rare decision on a bank’s ability to challenge its supervisory ratings—in this case, its Federal Deposit Insurance Company (“FDIC”) Capital, Assets, Management, Earnings, Liquidity and Sensitivity (“CAMELS”) rating—in court.  See Builders Bank v. FDIC, — F.3d —, 2017 WL 237585 (7th Cir. 2017) (Easterbrook, J.).  The ruling affirmed that, while certain components of supervisory ratings may be committed to agency discretion and therefore not subject to judicial review in the normal course, other components may be reviewable under standard principles of administrative law.

Continue Reading Seventh Circuit Holds Open a Narrow Path for Challenging Bank Supervisory Ratings