Weil partners Peter King, Arnold Buessemaker, and Sylvia Mayer co-authored an article regarding the European Commission’s long-awaited proposed directive on bank resolution and recovery planning. The authors discuss the key aspects of the proposed directive as well as the challenges and opportunities the directive presents to European Union banks and their counterparties.
On 14 June 2012, the UK government published a White Paper giving details of its proposals for banking reform in the UK, which closely follow the recommendations of the Independent Commission on Banking chaired by Sir John Vickers (the “Vickers report”). As Vickers suggested, the UK is proposing to introduce a requirement for banks to “ring fence” certain retail activities and separate them from investment banking activities. This “ring fence” is effectively the UK’s version of the Volcker rule.
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On June 7, 2012 the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Fed), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the Agencies) released revisions to their market risk capital rules in a final rule titled Risk-Based Capital Guidelines: Market Risk. The rule, which implements certain revisions made by the Basel Committee on Banking Supervision (BCBS) to its market risk framework between 2005 and 2010, requires large banking organizations to adjust their capital requirements to better capture the market risk in their trading activities. Consistent with certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the final rule does not include aspects of the BCBS’s market risk framework that rely on credit ratings and instead includes alternative standards for calculating standardized specific capital requirements for debt and securitization positions. The rule applies to banks with aggregate trading assets and trading liabilities equal to at least 10 percent of total assets or at least $1 billion dollars. [click to continue…]
Alert: International Financial Regulation
Early this morning, the UK’s Independent Commission on Banking (“ICB”), chaired by Sir John Vickers, issued its final report on the reform of British banking. The ICB largely reiterated the measures first outlined in its interim report in April and summarized in a previous Alert. Whilst banks may not be initially rushing to relocate overseas, there is no doubt implementation of the ICB’s conclusions will be expensive (estimated at around £6 billion annually). The ICB believes that incremental benefits will exceed costs by “a very large margin,” a view perhaps not widely held as London’s FTSE 100 reportedly fell by over 2.3% in early trading following the report’s release, with bank shares the biggest fallers. The ICB’s challenge was twofold. As well as creating a more stable and competitive basis for UK banking, it was also tasked with ensuring an “effective and efficient” banking service to safeguard retail deposits. The report notes the global events and goals to which the UK is subject and recognizes that part of the challenge is reconciling the UK’s position as an international financial centre with stable banking in the UK. It remains to be seen whether the report will lead to enhancement or divestment of the UK’s reputation as a pre-eminent financial centre.
The report proposes a combination of measures requiring structural reform and greater capital/other loss-absorbing capacity. The ICB intends risks associated with banking should not …
On 6 January, DG Internal Markets and Services, as consultants for the European Commission, published a Working Document on its technical proposals for a European crisis management regime to deal with bank failures. Although much concerns a new supervisory structure, there are features which will be of direct interest to investors and creditors, most notably those on write down or conversion of bank debt (the “bail-in” proposals).
A summary of the main provisions is set out below, including a more detailed summary of the options for the bail-in proposals and their pros and cons as identified by Commission services. The proposals are open to comment and discussion; interested parties have until 3 March 2011 to respond. The Commission envisages that draft legislation will be published by summer 2011.