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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 December 3, 2018, the National Risk Committee (“NRC”) of the Office of the Comptroller of the Currency (“OCC”) released its Semiannual Risk Perspective for Fall 2018. The report analyzes the condition of the federal banking system using data reported by national banks and federal savings associations as of June 30, 2018. The analysis covers five main areas: banks’ operating environment, bank performance, emerging risks, trends related to key risks, and supervisory actions. In addition to these usual areas, the Fall 2018 report included a special supplement discussing risks related to the easing of credit underwriting standards. A brief summary of each of these areas follows.
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Continue Reading OCC Risk Report Trumpets Strong Bank Performance, But Warns of Emerging Risks

On July 16, 2018, the Financial Stability Board (“FSB”) issued a report to the G20 Ministers of Finance and Central Bank Governors summarizing the work that the FSB and other international standard-setting bodies have undertaken regarding crypto-assets.  The FSB notably reported that it has developed a framework for monitoring financial stability risks related to crypto-assets, including proposed metrics based largely on public sources.  The FSB also acknowledged that crypto-assets and crypto-asset platforms do not pose a material risk to global financial stability at this time.
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Continue Reading FSB Develops Framework for Monitoring Crypto Risks

The Financial Stability Oversight Council (“FSOC”) has announced that on Thursday, April 12, 2018, it will consider a “potential application” from a bank holding company or its successor to be de-designated as a systemically important financial institution under section 117 of the Dodd-Frank Act.

Sometimes known as the “Hotel California” provision,[1] section 117 of Dodd-Frank provides that any institution that was a bank holding company with $50 billion or more in total consolidated assets as of January 1, 2010, participated in the Capital Purchase Program of the Troubled Asset Relief Program, and ceases to be a bank holding company, will presumptively be treated as a nonbank systemically important financial institution (“nonbank SIFI”) and continue to be supervised and regulated by the Federal Reserve.  Such an institution may appeal its designation as a nonbank SIFI to FSOC, which may grant the appeal by a vote of two-thirds or more of its voting members, including an affirmative vote by the Chairperson (the Secretary of the Treasury).…

Continue Reading FSOC to Consider First Case Under Dodd-Frank’s Hotel California Provision

On March 24, 2017, the Federal Reserve Board and the Federal Deposit Insurance Corporation (the “Agencies”) jointly announced that they had completed their evaluation of  the resolution plans submitted by 16 domestic banks, primarily regional banks, in December 2015, as required by the Dodd-Frank Act. The Agencies did not determine that any of the  16 plans were incomplete or not credible but identified several shortcomings in one bank’s plan around liquidity, the transfer of uninsured and foreign deposits, and shared services, which must be satisfactorily addressed in the bank’s December 2017 plan. The remaining 15 banks will be entitled to submit plans with more limited information in December 2017.
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Continue Reading Federal Agencies Complete Evaluation of Resolution Plans of 16 Domestic and Four Foreign Banks