The US Board of Governors of the Federal Reserve System approved the application by Goldman Sachs Bank USA under the Bank Merger Act to assume substantially all (approximately $17 billion) of the deposit liabilities and certain assets of GE Capital Bank, a subsidiary of General Electric Corporation, including assets GE Bank uses to manage its online deposit-taking platform. The acquisition was announced in August 2015, and the Federal Reserve Board extended processing of GS Bank’s application in light of numerous public comments that challenged the transaction on various grounds, including that GS is already too big to fail. In approving the transaction, among other findings, the Federal Reserve Board concluded that the transaction would have a negligible impact on the systemic footprint of GS (which has approximately $860 billion in total assets) and would improve the stability of funding available to GS Bank by diversifying its sources of funding.

View the Federal Reserve Board order.  

As part of the Federal Reserve Bank of New York’s Conference on Bank Supervision, senior officials of several US bank regulatory agencies delivered remarks regarding the effectiveness of bank supervision and key components of the bank supervisory process. In the conference’s opening remarks, NY Fed President William Dudley noted the importance of distinguishing between effective and ineffective supervision, particularly given the confidential nature of the bank supervisory process. Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig subsequently noted several critical features of successful oversight of financial institutions including: (i) subjecting commercial banks of all sizes to full-scope examinations, (ii) having regulators require that the largest banks disclose important supervisory findings to allow the public to better understand their financial condition and (iii) recognition by supervisors of their limits and emphasizing that banks hold sufficient capital to backstop management mistakes and bad luck.

View President Dudley’s speech.

View Vice Chairman Hoenig’s speech.   

The Federal Deposit Insurance Corporation adopted a final rule to increase the Deposit Insurance Fund to the statutorily required minimum level of 1.35 percent. Subject to certain minor changes, the rule largely mirrors the proposed rule, which was published for comment in November.

The primary purposes of the DIF are to protect the depositors of insured banks and to resolve failed banks. The Dodd-Frank Act increased the minimum for the DIF reserve ratio, the ratio of the amount in the fund to insured deposits, from 1.15 percent to 1.35 percent and required that the ratio reach that level by September 30, 2020. The reserve ratio at the end of 2015 was 1.11 percent, with a DIF balance of $72.6 billion.

The DIF is funded mainly through quarterly assessments on insured banks. Pursuant to a 2011 FDIC rule, regular assessment rates for all banks will decrease when the reserve ratio reaches 1.15 percent, which the FDIC anticipates will occur in the first half of 2016. Banks with total assets of less than $10 billion will have substantially lower assessment rates under the 2011 rule. The final rule will impose on banks with at least $10 billion in assets a surcharge of 4.5 cents per $100 of their assessment base, after making certain adjustments. The FDIC expects the reserve ratio will likely reach 1.35 percent after approximately two years of payments of the surcharges.

The final rule will become effective on July 1. If the reserve ratio reaches 1.15 percent before that date, surcharges will begin July 1. If the reserve ratio has not reached 1.15 percent by that date, surcharges will begin the first quarter after the reserve ratio reaches 1.15 percent.

View the final rule. 

At an American Bankers’ Association Conference in Washington, DC, US Senate Banking Committee Chairman Richard Shelby and US House of Representatives Financial Services Committee Chairman Jeb Hensarling both raised concerns regarding the current regulatory regime and certain requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, Chairman Shelby addressed the costs and burdens of financial regulation under the Dodd-Frank Act, specifically criticizing the $50 billion threshold for identifying systemically important financial institutions, and noted plans to continue to push his regulatory relief bill, The Financial Regulatory Improvement Act of 2015, through the Senate. Chairman Hensarling also outlined proposed legislation that would reform the Dodd-Frank Act, including eliminating certain Dodd-Frank Act and Basel III requirements for banks that hold higher levels of capital.

View Chairman Shelby’s remarks.

View coverage of Chairman Hensarling’s remarks.   

The US Office of the Comptroller of the Currency issued a notice of proposed rulemaking that would remove outdated or unnecessary provisions of certain OCC rules to reduce the regulatory burden on national banks and federal savings associations subject to the rules. The proposed rulemaking is part of the OCC’s review of its rules required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) every ten years. The proposed rule was developed following outreach to the industry conducted by the OCC individually and in connection with other US banking regulators. The proposed rule would make the following changes to OCC rules, among others: remove notice and approval requirements for certain changes in permanent capital involving national banks; remove certain financial disclosure requirements for national banks and remove certain unnecessary regulatory reporting, accounting and management policy requirements for federal savings associations. The proposed rule is open for comment for 60 days.

View proposed rule. 

The Basel Committee on Banking Supervision launched a proposed consolidated and enhanced framework for Pillar 3 disclosures under Basel III. The Basel Committee announced in June 2014 that it was undertaking a review of Pillar 3.  In January, it issued its revised Pillar 3 disclosure requirements, completing the first phase of the review. 
 

Commission Implementing Regulation was published in the Official Journal of the European Union, which amends the Implementing Technical Standards on supervisory reporting by providing for significant changes to the existing Liquidity Coverage Ratio reporting requirements under the Capital Requirements Regulation. The amending ITS introduce the templates and a large number of new data items necessary following the LCR requirements being implemented for credit institutions in January 2015. The European Banking Authority published its final draft amending ITS in June 2015. The changes include new templates and instructions for banks on capturing and reporting all necessary LCR items. The new templates cover liquid assets, outflows, inflows, collateral swaps and calculation of the LCR. The new instructions will only apply to banks; investment firms will continue to use current instructions and templates, at least for now. The amended ITS on supervisory reporting will apply from September 10, 2016. 

View the amending ITS.

The US Office of Financial Research (OFR) published a working paper using data on the credit default swap (CDS) market to assess the impact of a counterparty default on banks and the financial system as a whole. Using data from the Depository Trust & Clearing Corporation, the paper applies the supervisory scenarios of the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) to CDS markets as a proxy for banks’ trading books. The working paper finds that the indirect effects of the default of a bank’s largest counterparty on the bank’s other counterparties are more significant than the impact on the bank itself. Moreover, the paper finds that, when looking at the financial system as a whole, banks may realize greater losses from the failure of a counterparty shared by the industry when compared to losses from the failure of the individual bank’s largest counterparty. The report concludes that CCAR does not take into account the losses that occur to other counterparties of a banking organization as a result of the default of its largest counterparty, nor does it take into account the large counterparty exposures that exist for the core financial system as a whole.

View working paper.

The European Banking Authority published final draft Implementing Technical Standards to amend the ITS on supervisory reporting under the Capital Requirements Regulation. The amending ITS make changes to the reporting templates and instructions in Annexes I to VII and IX of the ITS on supervisory reporting which cover financial reporting, solvency (own funds requirements), large exposures and losses resulting from lending collateralized by immovable property. Given the scope of the changes, the EBA is proposing to replace entirely the affected annexes. The EBA considers that the amendments are necessary to align the ITS with the answers in the Single Rulebook Q&As, to correct legal references and a few clerical errors. There has been no public consultation on the proposed changes. The amending ITS will need to be approved by the European Commission, European Parliament and Council of the European Union before they can come into effect. The EBA expects that the amendments will be applicable from the December 31, 2016 reporting reference date.

View the amending ITS.

View the revised annexes and the annexes in tracked changes. 

An open letter from Mark Carney, Governor, Bank of England, to Andrew Tyrie, Chairman, Treasury Select Committee, on the effect of UK's EU membership on the Bank of England's statutory objectives was published. The letter was in response to the Committee's request for comment on the recent settlement agreement between the UK and the EU. The letter summarizes the findings that were made in a BoE report and the possible future impact of the settlement agreement. The BoE's primary objectives are monetary and financial stability. The three main areas in which the BoE's objectives are currently effected by EU membership are: (i) it provides dynamism in the UK economy through increased economic and financial openness; (ii) it increases the UK’s exposure to economic and financial shocks from other nations, in particular the EU; and (iii) the BoE is required to implement EU law, regulations and directives in its regulations and policy instruments. Mr Carney concludes that the settlement agreement provides a number of protections and additional tools that would protect the BoE's ability to achieve its statutory objectives. Implementation of the settlement agreement, through changes to various EU regulations and directives, is proposed to take place only if the outcome of the UK referendum on EU membership (so called "Brexit") is a vote to remain. The referendum is scheduled for June 23, 2016.

View the letter.

View the settlement agreement. 

View the report. 

Commission Implementing Regulation was published in the Official Journal of the European Union, which amends the Implementing Technical Standards on supervisory reporting by providing for additional monitoring metrics for liquidity reporting.  Under the Capital Requirements Regulation, banks are subject to liquidity reporting requirements.  To increase effective liquidity supervision, the amended ITS provide for additional monitoring metrics to enhance regulator's view of a bank's liquidity position, proportionate to the nature, scale and complexity of the bank's activities. Additional monitoring metrics to be reported now include those metrics based on the concentration of funding by counterparty and product type and metrics based on the concentration of counterbalancing capacity by issuer or counterparty. In addition, the frequency of reporting can be reduced, depending on the nature of the bank. The amended ITS enters into force on March 25, 2016.

View the Regulation. 

The US Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Securities and Exchange Commission and Commodity Futures Trading Commission (VR Agencies) issued a Frequently Asked Question (FAQ) to clarify the capital treatment of certain collateralized debt obligations backed by trust preferred securities (TruPS CDOs). Specifically, the FAQ clarified that a banking entity is not required to deduct from its tier 1 capital a qualifying TruPS CDO that is retained under section 248.16(a) of the January 2014 interim final rule published by the VR Agencies. The January 2014 interim final rule provides an exemption that would permit a banking entity to retain an interest in, or act as sponsor of, a covered fund that issues TruPS CDOs subject to certain requirements, including that the issuer must have been established prior to May 19, 2010, and the banking entity’s interest must have been acquired on or before December 10, 2013. However, a banking entity would be required to deduct from tier 1 capital its interests in qualifying TruPS CDOs when it acts as a market maker for the interests of such TruPS CDOs and investments in TruPS CDOs that are covered funds but are otherwise not qualifying TruPS CDOs.

View the FAQ.

The US Board of Governors of the Federal Reserve System re-proposed rules that would establish single counterparty credit limits for domestic and foreign bank holding companies, as well as US intermediate holding companies, with $50 billion or more in total consolidated assets. The Federal Reserve also released a quantitative impact study that sets out the conceptual and quantitative foundations for the tighter limits on exposures between systemically important financial institutions. The proposed rule implements section 165(e) of the Dodd-Frank Act which authorizes the Federal Reserve to establish limits on the amount of credit exposure that large domestic banking organizations, foreign banking organizations and US intermediate holding companies (covered institutions) can have to a single unaffiliated counterparty in order to limit the risks in the event of a failure at any such individual firm. The proposed rule builds on earlier proposals for single counterparty credit limits for domestic and foreign banking organizations issued by the Federal Reserve in December 2011 and December 2012 and the Basel Committee on Banking Supervision’s 2014 large exposures framework. Comments on the proposed rule are due by June 3, 2016.

View proposed rule.

View quantitative impact study.

The European Banking Authority launched a consultation on proposed amendments to the Implementing Technical Standards on supervisory reporting to incorporate the new requirements for prudent valuation reporting and supplementary requirements for reporting of credit risk information. Under the Capital Requirements Regulation, firms are subject to requirements on prudent valuation adjustments of fair-valued positions. The Regulatory Technical Standards on prudent valuation came into force on February 16, 2016 and cover the methodology for calculating Additional Valuation Adjustments, consideration to be given to available market data and the simplified and core approaches for the determination of AVA. According to the EBA, the entry into force of the RTS justifies more detailed reporting requirements for prudent valuation than have been required to date. In addition, the EBA is proposing that firms report credit risk on a total level as well as on a country level only. Responses to the consultation are due by March 30, 2016. 

View the EBA consultation paper.
 
View the ITS on supervisory reporting.
 
View the RTS on prudent valuation. 

The Basel Committee on Banking Supervision published proposals to revise the standards for operational risk for internationally active banks. The Basel Committee consulted in 2014 on a revised Standardized Approach to operational risk and simultaneously undertook a review of the Advanced Measurement Approach for operational risk. The Basel Committee is proposing to replace the AMA from the Basel framework as well as the three existing Standardized Approaches with a Standardized Measurement Approach. The new SMA is not based on any modelling and would set a standardized approach for measuring operational risk for regulatory capital purposes which would include risk sensitivity by using a bank's financial statement information and its internal loss experience. The Basel Committee introduced the AMA for operational risk in 2006 as part of the Basel II framework. The AMA allows regulatory capital to be estimated using a range of internal modelling practices subject to approval by the bank's regulator. Comments on the proposals are due by June 3, 2016. The Basel Committee intends to provide further details on the timeline for withdrawal of the AMA and implementation of the SMA during the course of 2016. 

View th consultation paper. 

The US Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued interagency guidance on funds transfer pricing (FTP) practices related to funding risk and contingent liquidity risk for large financial institutions (i.e., domestic institutions with $250 billion or more in assets and foreign institutions with $250 billion or more in US assets). The interagency guidance describes four overarching principles that banks should use to develop, implement and maintain an effective FTP framework: (i) allocate FTP costs and benefits on funding risk and contingent liquidity risk; (ii) have a consistent and transparent FTP framework for identifying and allocating FTP costs and benefits on a timely basis and at a sufficiently granular level, commensurate with the firm’s size, complexity, business activities and overall risk profile; (iii) have a robust FTP governance structure including the production of a report on FTP and oversight from a senior management group and central management function; and (iv) align business incentives with risk management and strategic objectives by incorporating FTP costs and benefits into product pricing, business metrics and new product approval. The guidance notes that an institution’s FTP framework should be adequately tailored to its size, complexity, business activities and overall risk profile.

View interagency guidance.

The European Banking Authority published its report on the functioning of supervisory colleges in 2015. The report sets out the EBA's annual assessment of how well the supervisory colleges have met the action plan for 2015. The EU supervisory colleges make joint decisions on capital, liquidity and recovery plans for EU cross-border banking groups. The EBA considers that, generally, there were significant improvements, particularly when it came to the reorganization of supervisory colleges following the introduction of the Single Supervisory Mechanism in 2014, the frequency of interaction and the quality of supervisory colleges. However, the EBA notes that some areas still require work, such as the joint decision processes, quality of joint decision documents and requests for individual recovery plans outside the joint decision process. The report also includes the EBA's action plan for supervisory colleges in 2016. The plan sets out the focus areas for supervisory colleges which are: on going balance sheet cleaning, reduction of non-performing loans for legacy portfolios, the sustainability of banks' business models, conduct risk and IT risk.
 
View the EBA's Report.

The US Office of the Comptroller of the Currency, the US Board of Governors of the Federal Reserve System and the US Federal Deposit Insurance Corporation jointly issued and requested public comment on interim final rules to implement section 83001 of the Fixing America’s Surface Transportation Act, or FAST Act, which permitted the agencies to expand the on-site examination schedule for qualifying insured depository institutions with less than $1 billion in total assets to once every 18 months from once every 12 months. The interim final rules make parallel changes to the regulations of the federal agencies regarding on-site examination cycles for US branches and agencies of foreign banks with total assets of less than $1 billion. Under the interim final rules, the number of institutions that may qualify for an expanded 18-month examination cycle increased by 617, to close to 5,000 banks and savings associations. In addition, the number of US branches and agencies of foreign banks that may qualify for the 18-month examination cycle increased by 26 branches and agencies to a 89 branches and agencies. The interim final rules are effective on February 29, 2016. Comments on the rules must be received by April 29, 2016.

View the full text of the rules.
 

The US Office of the Comptroller of the Currency published a bulletin summarizing its process for initiating and proceeding with any enforcement action for noncompliance with Bank Secrecy Act compliance program requirements or repeated or uncorrected BSA compliance problems. The OCC bulletin supplements the “Interagency Statement on Enforcement of Bank Secrecy Act/Anti-Money Laundering Requirements” and rescinds OCC Bulletin 2005-45, “Process for Taking Administrative Enforcement Actions Against Banks Based on BSA Violations,” dated December 23, 2005. The revised OCC bulletin describes the OCC’s process for conducting administrative enforcement actions based on BSAcompliance issues, which, in each case, begins with a cease-and-desist order issued by the OCC. Pursuant to the OCC bulletin, the enforcement action process now includes a provision which requires the OCC to give any bank investigated by the OCC for noncompliance with BSA or anti-money laundering requirements an opportunity to respond before the
decision to issue a cease-and-desist order is finalized. In each case, the OCC will notify the Financial Crimes Enforcement Network of all formal and informal enforcement actions.

View the OCC bulletin.
 

The Prudential Regulation Authority and Financial Conduct Authority jointly announced that they will comply with all aspects of the European Banking Authority's Guidelines on Sound Remuneration Policies published in December 2015, save for the approach related to the Bonus Cap. The Bonus Cap approach relates to provisions that establish that the limit on awarding variable remuneration to 100% of fixed remuneration, or 200% with shareholder approval must be applied to all firms subject to the Capital Requirements Directive. The PRA and FCA favor a risk-based approach in the application of the Bonus Cap, which under CRD principles allows for firms to comply in a way that is proportionate and appropriate to the firm's size, internal organisation, nature, scope and complexity of business. As the EBA Guidelines represent an interpretation of the CRD with which the PRA and FCA do not agree, the PRA and FCA will continue to use the current approach which requires smaller firms to determine an appropriate ratio between fixed and variable remuneration. The Guidelines are applicable to banks and investment firms and cover all staff, with particular aspects focusing on staff whose professional activities have a material impact on a firm's risk profile. The Guidelines set out detailed requirements for remuneration policies and related governance arrangements for implementing remuneration policies and apply from January 1, 2017.
 
View the EBA's Guidelines on Sound Remuneration Policies.
 
View the PRA and FCA's joint statement.

The US Office of the Comptroller of the Currency published revisions to its policy for assessing civil money penalties as set forth in its Policies and Procedures Manual. The revised PPM, titled “Civil Money Penalties,” replaces the PPM of the same title issued in June 1993. The revised PPM sets forth the OCC’s policies and procedures when assessing civil money penalties against entities such as institution-affiliated parties, national banks, federal savings associations, federal branches and agencies, and bank service companies and service providers.

View the full text of the OCC PPM.
 

The Prudential Regulation Authority published a final Policy Statement, Supervisory Statement and Rules for the internal governance of branches of non-EEA banks and PRA-designated investment firms. The PRA consulted in 2015 on its proposed changes, which centre around creating a separate PRA Rulebook. These changes follow the split of the Financial Services Authority into the PRA and the FCA, after which the PRA inherited materials from the FSA to create a Rulebook which contains only PRA rules. The new Rules and Supervisory Statement set out how third country branches should comply with PRA requirements for internal governance of third country branches and cover general organizational requirements, responsibility of personnel, skills, knowledge and expertise of individuals, risk control, outsourcing and record keeping. The PRA has also aligned the final Rules and Supervisory Statement with the requirements for third country branches under the Senior Manager and Certification Regimes.  The Rules on internal governance of third country firms will apply from March 7, 2016, the same date from which the SM&CR applies for all firms.
 
View the PRA's Policy Statement.
 
View the PRA's Supervisory Statement.

The Payment Systems Regulator published an interim report following its market review into bank ownership and payment infrastructure competitiveness in the UK. The PSR's motivation to conduct the review stems from its statutory objective to promote competition and innovation in the market for payment systems and the services that the systems provide. The Report outlines the PSR's provisional finding that there is no effective competition in the central payment infrastructure market.

Read More.

The European Banking Authority has launched the next round of EU-wide bank stress tests and released the associated methodology and macroeconomic scenarios for its application. The test will involve a sample of 51 EU banks, covering 70% of the region's banking sector. The purpose of the test is to provide a common analytical framework for supervisors, banks and other market participants to assess and compare the stress of EU banks when faced with economic shocks. The common methodology of the test is to assess solvency and the main types of risk faced by EU banks: credit and securitization, market, sovereign, funding and operational and conduct risk. The adverse scenario posed by the test highlights the most material threats to the stability of the EU banking sector: (i) sudden increased risk compounded by a reduction in secondary market liquidity; (ii) weak profitability prospects; (iii) low nominal growth and rising debt sustainability concerns; and (iv) stress in the growing shadow banking sector fueled by liquidity risk. An EU-wide asset quality review will not be conducted before the 2016 test, as was the case in 2014. National regulators regularly assess asset quality as part of their supervisory work. The EBA has not set a single capital threshold. The EBA expects the results of the stress test to be published in the third quarter of 2016. The results will be used to assist the Supervisory Review and Evaluation Processes when determining appropriate capital resources. National regulators will review the results and determine whether any supervisory measure is necessary to address any capital shortfall. 

View the EBA press release and related documents.

The US Federal Deposit Insurance Corporation issued the “Quarterly Banking Profile” which summarized financial results for the fourth quarter of 2015 for commercial banks and savings institutions insured by the FDIC. As a general matter, FDIC-insured institutions reported aggregated net income of $40.8 billion in the fourth quarter of 2015, an increase of 11.9% (or $4.4 billion) from the previous year. In a statement, FDIC Chairman Martin J. Gruenberg noted that the banking industry improved on both revenue and income from the previous year, but noted that banks should remain vigilant to continued interest-rate risk, credit risk and evolving market conditions.

View more information on the FDIC Quarterly Banking Profile.

View the full text of Chairman Gruenberg’s statement.
 

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency jointly issued interim final rules that will allow certain well-capitalized and well‑managed insured depository institutions with less than $1 billion in total assets to qualify for an 18-month examination cycle, rather than a 12-month cycle. Institutions are considered to be well-capitalized and well-managed if they have a composite examination rating of 1 or 2—the top ratings in the five-point scale indicating the safety and soundness of a bank or savings association. 

The rules are estimated to increase the number of institutions that may qualify for an 18-month examination cycle by approximately 617, to nearly 5,000 insured depository institutions. In addition, the rules increase the number of US branches and agencies of foreign banks that may qualify for an 18-month examination cycle by 26 branches and agencies, to a total of 89. The changes are intended to reduce regulatory compliance costs for smaller institutions, while still maintaining safety and soundness protections. Comments to the rules will be accepted for 60 days from publication in the Federal Register.

View the interim final rules and request for comments. 

The Prudential Regulation Authority published policy statement outlining approach to identifying other systematically important institutions (i.e. institutions that are not classed as globally systematically important financial institutions but whose failure would have a significant negative effect on the UK financial system). The PRA is required to identify O-SIIs pursuant to the Capital Requirements Directive which implements the framework for domestic systemically important institutions developed by the Basel Committee for Banking Supervision.

Read More.

The European Central Bank launched a consultation on its proposed guide to the recognition of institutional protection schemes for prudential purposes. Under the Capital Requirements Regulation an IPS is a contractual or statutory liability arrangement of a group of banks which protects member institutions, in particular, by ensuring their liquidity and solvency. Certain waivers or relaxation of capital requirements are available for IPS member institutions under CRR.  In particular, CRR provides that the ECB may, subject to certain exceptions, allow credit institutions to apply a 0% risk weight to exposures to other counterparties whichare members of the same IPS. The ECB directly supervises the largest Eurozone banks for prudential purposes and overseas the prudential supervision by national regulators of the smaller Eurozone banks. The ECB's proposed guidelines set out how it intends to assess compliance of an IPS and its members with the requirements set out in the CRR. Responses to the consultation should be submitted by April 15, 2016. Once finalized, the final guidelines will be incorporated into the ECB Guide on options and discretions available in Union law (which is currently being finalized).
 
View the proposed guide.
 
View the ECB's consultation webpage.

The US Board of Governors of the Federal Reserve System sent a letter to firms participating in the upcoming Dodd-Frank Act Stress Test (DFAST) and Comprehensive Capital Analysis Review (CCAR) notifying them of certain enhancements to aspects of its operational risk and capital models. Among the enhancements to operational risk models are losses from expenses related to put‑back mortgages, as well as potential costs form unfavorable litigation outcomes. For DFAST 2016, the Federal Reserve Board notes that it will use historically-based loss projections (with two new modifications) using an average of two models, while dropping the loss distribution approach. Changes to capital models include incorporating greater precision in the adjustments to the regulatory capital ratio denominators, as well as modifying assumptions regarding the relationship between mortgage servicing assets and associated deferred tax liabilities.

View the letter.    

The US Federal Deposit Insurance Corporation issued a proposal that would require certain insured depository institutions to maintain certain books and records in order to facilitate the payment of insured deposits to customers in the event such institutions were to fail. The proposed rule applies to insured depositary institutions with a large number of deposit accounts (more than 2 million). Based on current data, 36 insured depository institutions would be covered by the rule. The recordkeeping requirements would require the institutions covered by the rule to maintain complete and accurate data on each depositor and would require such institutions to ensure that their information technology systems have the ability to calculate the amount of insured money for each depositor within 24 hours of a failure. Comments on the proposed rule must be received within 90 days after the date of publication in the Federal Register.

View the text of the FDIC proposed rule.

The US Federal Deposit Insurance Corporation and the US Securities and Exchange Commission jointly issued a proposed rule to implement provisions for the orderly liquidation of covered brokers and dealers as required under Title II of the Dodd Frank Wall Street Reform and Consumer Protection Act. Specifically, Title II provides for federal receivership proceedings of qualifying financial companies, including covered broker-dealers, with the FDIC serving as receiver. The proposed rule defines a covered broker or dealer as any covered financial company that is registered with the SEC as a broker or dealer and is a member of the Securities Investor Protection Corporation. A covered financial company is generally one that is in danger of default and whose failure would have serious adverse effects on US financial stability, as determined by the Secretary of the Treasury. In the case of covered broker dealer, the FDIC will serve as receiver, but the SIPC will serve as trustee. 

Comments on the proposed rule must be received within 60 days after the date of publication in the Federal Register.

View the full text of the proposed rule.

A Commission Implementing Decision was published in the Official Journal of the European Union, updating the list of third countries with equivalent regulatory arrangements in relation to prudential requirements for banks and investment firms for the purpose of the treatment of exposures. The Decision lists the countries whose arrangements for supervision and regulation of banks and investment firms are deemed by the European Commission to be equivalent to the standards of the EU as set out in the Capital Requirements Regulation. The assessments reviewed the supervisory and regulatory arrangements in each country for: (i) banks; (ii) investment firms; and (iii) exchanges. The following nations are now equivalent across all three categories: Australia, Brazil, China, Mexico, Saudi Arabia, Singapore, South Africa and the United States. This Decision will enter into force on March 8, 2016.

View the list of equivalent third countries and territories.

In a speech at the Brookings Institution in Washington, DC, Federal Reserve Bank of Minneapolis President Neel Kashkari argued that banks are still too big to fail and remain a significant, ongoing risk to the US economy. Kashkari noted that the Dodd-Frank Act did not go far enough and that regulators should consider breaking up large banks into smaller entities, turning them into public utilities by forcing them to hold higher levels of capital (as high as 25% of total assets), and taxing leverage throughout the financial system. According to Kashkari, the Minneapolis Fed will launch an initiative to consider transformational options through policy symposiums and policy briefs and create an actionable plan to end too big to fail that will be released by year-end for consideration by legislators, policymakers, and the public.

Kashkari’s predecessor at the Minneapolis Fed, Narayana Kocherlakota, responded to Kashkari’s proposals, noting that such measures, particularly imposing higher capital standards, would have “adverse macroeconomic consequences.”

View Kashkari’s speech.  

View Kocherlakota’s response.  

The European Banking Authority published final draft Implementing Technical Standards on the mapping of assessments by Credit Rating Agencies for securitization positions under the Capital Requirements Regulation. The CRR establishes that the risk weights under the standardized and internal ratings based approach for securitization positions should be based, if applicable, on the credit quality of the positions. This credit quality is determined by reference to the credit ratings of CRAs. The draft ITS determine the mapping between credit ratings and credit quality steps for the allocation of risk weights to External Credit Assessment Institutions' ratings issued on securitizations. The mapping is backed by the results of an impact analysis as well as quantitative considerations. A securitization-specific systematic mapping methodology is also being considered by the EBA and this would be based on the historical performance of securitization ratings. The ITS aim to enhance regulatory harmonization across the EU allowing credit ratings of all registered credit rating agencies to be used for calculating institutions’ capital requirements.
 
View the final draft ITS.

The Commission Implementing Regulation on the disclosure of leverage ratios by financial institutions under the Capital Requirements Regulation was published in the Official Journal of the European Union. The Regulation provides that firms must disclose relevant information concerning leverage ratios in the form of an approved template. Firms will be under an obligation to disclose a breakdown of the leverage ratio total exposure measure, a reconciliation of the leverage ratio for a firm's published financial statements and qualitative information on the risk of excessive leverage and the factors impacting the leverage ratio. The Regulation applies directly across the EU from February 16, 2016.

View the Regulation.

The US Office of the Comptroller of the Currency issued two revised booklets of the Comptroller’s Handbook: the “Country Risk Management” booklet and the “Installment Lending” booklet. Each revised booklet updates and replaces the previous versions of the respective booklets. The “Installment Lending” booklet provides updated guidance to examiners regarding the administration of installment lending practices and the controls and processes necessary to manage the risks associated with those practices as well as updated guidance for assessing the quantity of risk associated with installment lending activities.

The “Country Risk Management” booklet provides updated guidance to examiners regarding country risk management, based on lessons learned from the financial crisis of 2008 as well as the European banking and debt crises. The booklet also updates descriptions of the risks associated with international activities and contains a more detailed discussion of the effects of country risk, cross-border risk and sovereign risk on the OCC’s 8 risk categories (credit, interest rate, liquidity, price, operational, compliance, strategic, and reputation).

View the “Installment Lending” booklet.

View the “Country Risk Management” booklet. 

 

Janet Yellen, the Chair of the US Board of Governors of the Federal Reserve System submitted before Congress the Federal Reserve Board’s semiannual Monetary Policy Report. In her remarks, Chair Yellen discussed the current economic situation and outlook of the US economy since July 2015, including strong gains in the job market along with continued moderate expansion in economic activity. Chair Yellen further discussed monetary policy and emphasized that the Federal Open Market Committee continues to monitor the federal funds rate, but anticipates that economic conditions will warrant only gradual increases in the federal funds rate.

VIew Chair Yellen’s testimony. 
 

Stanley Fischer, the Vice Chairman of the US Board of Governors of the Federal Reserve System gave a speech at a conference sponsored by the Committee on Capital Markets Regulation discussing the function of the Federal Reserve as a lender of last resort in the United States. In his remarks, Vice Chairman Fischer noted that, despite recent developments that have placed limitations on the Federal Reserve’s actions as a lender of last resort, the Federal Reserve, when necessary and appropriate, has the authority to act as lender of last resort in several ways. Vice Chairman Fischer noted that the Federal Reserve retains the power to extend discount window loans, either to individual institutions or more generally in order to address broader financial stresses, to insured depository institutions, including commercial banks, thrift institutions, credit unions, or US branches and agencies of foreign banks.  Further, the Federal Reserve is also permitted, with the approval of the Secretary of the Treasury, to lend to non-bank institutions through the use of broad-based facilities to provide liquidity to financial markets.

View the text of Vice Chairman Fischer's speech.
 

The Federal Deposit Insurance Corporation released the economic scenarios for use by certain covered financial institutions in the 2016 stress tests required under the Dodd-Frank Act. Generally, those financial institutions with total consolidated assets of more than $10 billion are required to conduct stress tests. The released scenarios include key variables that reflect economic activity, such as unemployment, exchange rates, prices, income, interest rates and other economic and financial factors. The FDIC coordinated with the Federal Reserve Board and the OCC, which released the scenarios in late January, in developing and distributing the scenarios. 

View FDIC stress test scenarios.
 

The European Banking Authority published an Opinion on the implementation of the regulatory review of the Internal Ratings-Based approach to calculating risk-weighted exposure amounts for credit risk. The Opinion sets out the general principles and timelines for implementation and aims to provide clarity for national regulators and relevant firms. The EBA has also published a report on the future of the IRB approach. Both the Opinion and Report aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms as well as identify the main drivers of variability in the implementation of IRB models. The IRB framework will be made up of Regulatory Technical Standards and Guidelines which will be introduced in 2016 and 2017 in four phases: (i) the IRB assessment methodology will be introduced in the first quarter of 2016; (ii) a definition of "default" will be introduced by mid-2016; (iii) estimation of risk parameters and treatment of defaulted assets will be introduced by mid-2017; and (iv) credit risk mitigation will be introduced by the end of 2017. The EBA expects that the effective implementation in all areas will be finalized by the end of 2020.
 
View the EBA's Opinion and Report.

The US Board of Governors of the Federal Reserve System extended the comment period to March 21, 2016, for the proposed policy statement describing the Federal Reserve Board’s framework in setting the Countercyclical Capital Buffer. The original deadline for submission of comments was February 19, 2016. The Federal Reserve Board first announced it was soliciting public comment on the proposed policy statement on December 21, 2015. The CCyB is a macro-prudential tool that raises capital requirements on internationally active banking institutions when the risk of above-normal losses in the future is elevated. The proposed policy statement describes various financial-system vulnerabilities as well as issues for Federal Reserve Board consideration in setting the buffer. 

View the proposed policy statement.

View the appendix to the proposed policy statement.

The US Board of Governors of the Federal Reserve System extended the comment period to February 19, 2016, for its proposed rule to strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance. The original deadline for submission of comments was February 1, 2016. The proposed rule requires US Global Systemically Important Banks and the US operations of foreign GSIBs to meet a long-term debt requirement, a “Total Loss-Absorbing Capacity” requirement and a requirement that the parent holding company of a domestic GSIB avoid entering into various financial arrangements that would create obstacles to an orderly resolution. These requirements would strengthen the ability of those banks to withstand financial stress and failure without imposing losses on taxpayers. The proposed rule also includes regulatory capital deductions for firms regulated by the Federal Reserve Board that hold unsecured debt of the parent holding companies of domestic GSIBs.

View the Federal Register notice. 

The Prudential Regulation Authority published final rules amending the Pre-Issuance Notification regime. The PIN regime applies to banks, building societies, insurers and PRA-designated investment firms. Under the amended rules, banks, building societies and PRA-designated investment firms will have to give the PRA one month's notice before issuing a Common Equity Tier 1 instrument and complete the CET1 Compliance Template, which may be used instead of providing a legal opinion on the quality of capital requirement. The advance notification requirement will not apply where certain capital instruments are issued on substantively similar terms to prior issued instruments. Insurers will be required to submit legal opinions for instruments issued, other than ordinary share capital, on the quality of capital requirement and must also provide the PRA with one month's notice prior to amending capital instruments. Insurers will also be subject to certain conditions in the event that they make use of the advance notification exemption for drawdowns from note issuance programs. All relevant firms will be required to submit accounting opinions when issuing Additional Tier 1 Capital instruments or Restricted Tier 1 Capital instruments, as applicable.
 
View the PRA's Policy Statement and final rules.

The Bank of England's Financial Policy Committee published its proposed framework for the UK Systemic Risk Buffer for ring-fenced banks and large building societies (i.e. those that will be subject to the UK ring-fencing rules from 2019 with assets over £25 billion). The SRB, a discretionary buffer under the EU Capital Requirements Directive, aims to mitigate and prevent long-term non-cyclical macro-prudential or systemic risk. 
 
The FPC is proposing that the SRB rate would be calibrated according to a firm's total Risk-Weighted Assets so that firms with RWA: (i) less than £175 billion will have a 0% SRB; (ii) between £175 and £320 billion will have a 1% SRB; (iii) between £320 and £465 billion will have a 1.5% SRB; (iv) between £465 and £610 billion will have a 2% SRB; (v) between £610 and £755 billion will have a 2.5% SRB; and (vi) over £755 billion will have a 3% SRB.
 
Firms subject to the SRB will also be subject to a 3% minimum leverage ratio requirement as well as an additional leverage ratio buffer of 35% of the applicable SRB rate. The Prudential Regulation Authority will apply the SRB to individual firms from 2019, which is when the ring-fencing rules will become applicable. Comments to the consultation are due by April 22, 2016. The FPC intends to finalize the rules by May 31, 2016.
 
View the FPC's consultation paper.

The European Securities and Markets Authority published its Opinion on draft Implementing Technical Standards on Main Indices and Recognized Exchanges under the Capital Requirements Regulation. The Opinion sets out proposed updates to the draft ITS further to requirements under the CRR to define main indices and recognized exchanges. The definitions are required because the terms have been used in the specification of eligible collateral which is used for the calculation of credit risk by banks and investment firms subject to the CRR. ESMA provided the final draft ITS to the Commission in January 2015 for endorsement. The Commission notified ESMA that it intended to endorse the ITS with amendments by adding the Hang Seng Composite Index and the Russell 3000 Index. In ESMA's Opinion, the Hang Seng Composite Index and the Russell 3000 Index should not be added to the list of main equity indices. Instead, ESMA suggests adding the Russell 1000 Index, the Shanghai Shenzhen CSI 300, the S&P BSE 100 Index and the FTSE Nasdaq Dubai UAE 20 Index to that the list. ESMA also undertook a full review of the ITS and suggests replacing the Nikkei 225 with the Nikkei 300 and the NZSE 10 with the S&P NZX 15 Index. ESMA recommends that the European Commission consider amending the current procedure used to update the list of indices and exchanges to a less burdensome and more speedy process, as the long timeframes required to update a legislative instrument such as an ITS are not appropriate for the frequency with which indices or exchanges are created or merged.
 
View the Opinion.

The European Systemic Risk Board published Recommendations and Decisions relating to setting Countercyclical Buffer Rates for exposures to third countries and the assessment of cross-border effects of and voluntary reciprocity for macro-prudential measures. The ESRB is responsible for macro-prudential oversight within the European Union. In respect of CBRs, the ESRB recommends that national designated authorities: (i) inform the ESRB as soon as a third county sets a CBR in excess of 2.5%; (ii) identify material third countries on an annual basis taking into account the ESRB Decision on the assessment of materiality of third countries for recognizing and setting CBRs; and (iii) consider and coordinate on whether a lower CBR should be set for exposures to a third country in the event that the third country authority sets a lower CBR. In respect of the assessment of cross-border effects of macro-prudential measures, the ESRB recommends that national designated authorities: (i) assess the cross-border effects, prior to adoption, of the implementation of their own macro-prudential measures on other Member States and on the Single Market, including the risk of regulatory arbitrage; (ii) reciprocate the macro-prudential measures adopted by other Member States where such reciprocation is recommended by the ESRB; and (iii) notify the ESRB of any macro-prudential measure implemented, including an assessment of the effect of the measure and whether any reciprocation by other Member States may be necessary. The ESRB has also established a website which sets out the CRB rates set by national designated authorities.
 
View the ESRB Recommendations and Decisions.
 
View the CBR rate website.

The US Office of the Comptroller of the Currency released economic and financial market scenarios to be used by certain financial companies, including national banks and federal savings associations with total consolidated assets of more than $10 billion, to conduct upcoming stress tests. The supervisory scenarios include baseline, adverse and severely adverse scenarios, as described in the OCC’s final rules that implement annual stress test requirements under Section 165(i)(2) of the Dodd-Frank Act.

View the OCC press release.

View the 2016 scenario information. 

The US Board of Governors of the Federal Reserve System released supervisory scenarios for the 2016 Comprehensive Capital Analysis and Review and Dodd-Frank Wall Street Reform and Consumer Protection Act stress test exercises. The Federal Reserve Board also issued instructions to firms participating in CCAR. CCAR assesses the capital planning processes and capital adequacy of the largest US-based bank holding companies, including the firms’ planned capital actions. The Dodd-Frank Act stress tests are a forward-looking component to help evaluate whether firms have sufficient capital. Firms are required to use the supervisory scenarios in both the stress tests conducted as part of CCAR and those required by the Dodd-Frank Act. The outcomes are measured under three scenarios: severely adverse, adverse and baseline. This year, CCAR will include 33 bank holding companies with $50 billion or more in total consolidated assets, all of which are required to submit their capital plans and stress testing results to the Federal Reserve Board on or before April 5, 2016. The Federal Reserve Board will announce the results of its supervisory stress tests by June 30, 2016, with the exact date to be announced later.

View the Federal Reserve Board press release.

View the CCAR summary instructions. 

View the Dodd-Frank Act stress exercises.

View the 2016 macro scenario tables. 

 
The European Banking Authority published a letter dated December 18, 2015 addressed to the European Commission in which the EBA requests delays to the dates by which the EBA is required to prepare technical standards and reports under the Capital Requirements Directive, the Capital Requirements Regulation, the EU Bank Recovery and Resolution Directive, the European Market Infrastructure Regulation and the Credit Rating Agencies Regulation. The EBA states that for the most part it has not been able to deliver its mandates according to deadlines due to a persistent shortage in resources and the need to prioritize other workstreams. The EBA invites the Commission to request the EBA to fulfil its mandates  within new time limits.
 
View the EBA's letter.

Regulatory Technical Standards and Implementing Technical Standards on the operational functioning and general conditions for the functioning of colleges of supervisors under the Capital Requirements Directive were published in the Official Journal of the European Union. Colleges bring together different national and European regulatory authorities that supervise a banking group and provide a framework for coordinating and performing supervisory duties within the EU banking sector. The College of Supervisors is established for EEA banks with subsidiaries or significant branches in other EEA countries and includes national regulators from the EU as well as non-EU areas when necessary. The Regulations deal with matters including: (i) the mapping of group institutions; (ii) the designation of members and observers of a college; and (iii) participation in college meetings and activities. The Regulations enter into force on February 17, 2016.
 
View the RTS.
 
View the ITS.