Systemic Risk Management

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 Sylvia Mayer and Conray Tseng

On May 22, 2012, the Financial Stability Oversight Council (“FSOC”) promulgated hearing procedures (“Procedures”) for, among others, non-bank financial companies and financial market utilities (“FMUs”) to contest the FSOC’s designation of such entities as systemically important.  In addition, the FSOC designated an initial list of FMUs.  The list of designated FMUs has not been disclosed.  Each of the FMUs will be notified of their designation and afforded an opportunity to contest it.  As a result, the Procedures were made effective immediately, but may be modified following a 60 day comment period. There is speculation that an initial list of non-bank financial companies is on the horizon, but timing is unknown.

By way of background, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the FSOC may designate certain non-bank financial companies and FMUs as systemically important, thus subjecting these entities to [click to continue…]

By Heath P. Tarbert and Dimia Fogam

Two federal banking regulators set a new deadline of April 30, 2012 for the comment period for their proposed rules to implement the annual stress test requirements in Section 165 of the Dodd-Frank Act. 

Previously, on January 24, 2012, the Office of the Comptroller of the Currency (“OCC”) proposed a rule to implement section 165(i)(2) that  would require any national bank or federal thrift with total consolidated assets exceeding $10 billion (“Covered Institutions”) to conduct an annual stress test.  A week prior, the Federal Deposit Insurance Corporation (“FDIC”) released its own proposed stress testing rule for FDIC-insured state nonmember banks and thrifts with total consolidated assets of more than $10 billion dollars (“Covered Banks”). The OCC and FDIC proposed rules are “consistent and comparable” as required by Section 165(i)(2), and each direct Covered Institutions and Covered Banks respectively to assess the potential impact of economic conditions on their capital—taking into account their current condition along with corresponding risks, exposures, strategies, and activities. Every year, after being provided with at least three scenarios (including “baseline,” “adverse,” and “severely adverse”) at some point in the Autumn,  Covered Institutions and Covered Banks will have until January 5 of the subsequent year to [click to continue…]

Weil’s Marcia L. Goldstein, Heath P. Tarbert, and Kathlene M. Burke authored a column for The New York Law Journal discussing the recently finalized implementing rule in connection with resolution plans, or “living wills,” concluding that the regulations still leave a substantial degree of uncertainty as to what exactly it will take to ensure a plan is “credible.”

Access Full-Text Article from The New York Law Journal (may require subscription)