Prudential Regulation

On April 18, 2012, the Commodity Futures Trading Commission (the “CFTC”) and the Securities Exchange Commission (the “SEC,” and together with the CFTC, the “Commissions”) adopted the much-anticipated joint final rules further defining “swap dealer,” “major swap participant,” “security-based swap dealer,” and “major security-based swap participant” under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

The final rules are largely consistent with the Commissions’ proposed rules, which were published in the Federal Register on December 21, 2010, with a few significant differences.  For example, the final rules raised the de minimis exemption threshold for the swap dealer and security-based swap dealer definition considerably and also removed from the de minimis exemption the limits on the number of swaps or security-based swaps that a person can enter into during a 12-month period and the number of counterparties with which the person can enter into such swaps or security-based swaps during a 12-month period.  The final rules also provided the ratio for the “highly leveraged” definition used in the third alternative test for determining whether a person is a major swap participant (“MSP”) or major security-based swap participant (“MSSP”).  Another significant change from the proposed rules is the addition to the final rules of a safe harbor from the MSP/MSSP definition and the related tests.  These changes and more are discussed in further detail below. [click to continue…]

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 three notices of proposed rulemaking (NPRs) that suggest comprehensive revisions to the Agencies’ regulatory capital framework to incorporate the international Basel III standards and Basel capital framework as well as implement certain relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).  To make it easier to understand the Agencies’ objectives, the overall proposal is divided into three separate NPRs: (1) Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, Transition Provisions, and Prompt Corrective Action (Basel III NPR); (2) Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets; Market Discipline and Disclosure Requirements (Standardized Approach NPR); and (3) Regulatory Capital Rules: Advanced Approaches Risk-based Capital Rule; Market Risk Capital Rule (Advanced Approaches and Market Risk NPR).  Each NPR is summarized below. [click to continue…]

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…]

By Heath Tarbert, Sylvia Mayer and Derrick Cephas

Click here for a PDF of this Weil Alert

Click here for a PDF of the related article A SIFI in Three Easy Steps?  FSOC Approves Final Rule for Nonbank SIFI Designations appearing in The Banking Law Journal, May 2012

On April 3, 2012, the Financial Stability Oversight Council (“FSOC”) voted to approve its long-awaited Final Rule implementing Section 113 of the Dodd-Frank Act, the controversial provision that directs the federal government to identify systemically important financial institutions (“SIFIs”) outside the traditional banking sector that could pose a threat to the U.S. financial system.[1] Once designated by a two-thirds majority of the FSOC (including an affirmative vote of the Treasury Secretary), each “nonbank financial company,” often referred to in short-hand as a “nonbank SIFI,” would be placed under Federal Reserve Board (“Fed”) supervision, as well as become subject to a host of enhanced prudential measures—including capital, liquidity, leverage, stress testing, resolution planning, and risk management requirements. The FSOC’s recent approval of the Final Rule—as well as its accompanying interpretive Guidance[2]—marks the start of an important first step in the application of enhanced SIFI regulation beyond large bank holding companies with assets of $50 billion or greater.[3]

The FSOC issued its Final Rule following consideration of over forty public comments to its Notice of Proposed Rulemaking (the “Proposed Rule”), released in October, 2011.[4]

Overview

The Final Rule establishes a three-step process comprising three individual “stages” by which the FSOC will apply two “Determination Standards” (one based on actual or potential material financial distress and the other based on the nature, scope, size, scale, concentration, interconnectedness or mix of activities) to analyze whether a company may pose a threat to the financial stability of the U.S., along with a six-category analytic framework to determine whether a company should be deemed a nonbank SIFI. In an effort to increase the transparency of the process, the FSOC issued accompanying Guidance providing additional [click to continue…]

April 25, 2012
 
CFPB [Consumer Financial Protection Bureau] Update at RMA’s GCOR VI
 
Cambridge, MA
 

For more information, visit the conference website.

Weil partner Walter Zalenski will speak on the new Consumer Financial Protection Bureau (CFPB), established by the Dodd-Frank Reform Act, at the Risk Management Association’s 6th Annual Governance, Compliance, and Operational Risk Conference (GCOR VI), to be held in Cambridge, Massachusetts on April 25-26, 2012.

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