The European Commission published a report on the effect of the revised International Accounting Standard 19 on the volatility of own funds of banks and investment firms. The Capital Requirements Regulation requires the Commission to assess whether the revised IAS 19 and the requirement on firms to deduct defined-benefit pension fund assets from Common Equity Tier 1 items for the purpose of calculating own funds would impact the volatility of the firm's own funds. The Commission has concluded that the potential additional volatility of own funds introduced by the revision of IAS 19 is limited and that the impact due to initial application has been mitigated by the transitional measures included in the CRR. The Commission therefore does not intend to propose amendments to the CRR in this regard.
 
View the report.

A European Central Bank Recommendation on dividend distribution policies for Eurozone banks was published in the Official Journal of the European Union. The recommendation is aimed at significant supervised entities (i.e. significant banks) and significant supervised groups (each as defined in the Single Supervisory Mechanism Framework Regulation) as well as national regulators. Under the SSM Regulation, the ECB is responsible for the direct prudential supervision of significant Eurozone banks. The Recommendation states that banks must use conservative and prudent assumptions when establishing dividend policies so that any applicable capital requirements, for example minimum capital requirements or countercyclical capital and systemic buffers, are still met after any distribution. The recommendation also makes suggestions for different categories of banks paying dividends for the 2015 financial year in 2016: (i) banks that satisfy the applicable capital requirements and have reached their fully loaded (i.e. calculated without applying the transitional provisions as set out in the Capital Requirements Regulation) capital ratios as at December 31, 2015 should distribute net profits in dividends conservatively; (ii) banks that satisfy the applicable capital requirements, but have not reached their fully loaded ratios as at December 31, 2015 should distribute net profits in dividends conservatively and in principle should only pay out dividends if a linear path to the required loaded capital requirements is secured; and (iii) banks that do not satisfy the applicable capital requirements should not distribute dividends. The Recommendation also states that should a bank not be able to comply with the ECB's Recommendation due to a legal obligation to pay out dividends, it should contact its supervisory team immediately.

View the Recommendation.

The European Banking Authority launched a consultation on proposed Guidelines on stress testing and supervisory stress testing. The proposed Guidelines cover: (i) internal stress testing by firms, providing detailed guidance for firms when designing and conducting a stress testing program; (ii) the assessment of firms' stress testing by national regulators with the aim of ensuring convergence in the context of the supervisory review and evaluation process; and (iii) supervisory stress testing. The proposed Guidelines provide common organizational requirements, methodologies and processes for firms performing internal stress tests as part of their risk management processes and common methodologies for national regulators when conducting supervisory stress tests but do not set methodologies for the EBA's stress testing in cooperation with national regulators. Once finalized, the Guidelines will replace the current guidelines issued by the Committee of European Banking Supervisors. The consultation is open until March 18, 2016. The EBA aims to publish the final Guidelines in Q2 2016 and expects that they will apply from Q4 2016.

View the proposed Guidelines.

The European Banking Authority published an Opinion, dated December 16, 2015, addressed to national regulators and the European Commission on the interaction of Pillar 1, Pillar 2 and combined buffer requirements and restrictions on distributions. The EBA considers that national regulators should ensure that the Common Equity Tier 1 capital that is used for calculation of the maximum distributable amount is limited to the amount not used to meet a firm's Pillar 1 and 2 own funds requirements. Also, national regulators should require firms to disclose MDA-relevant capital requirements. The EBA is also of the view that the Commission should review the MDA provisions of the Capital Requirements Directive, aiming to eliminate inconsistencies in the application of the provisions across the EU and should review the prohibition on distribution, in particular, as it relates to Additional Tier 1 instruments when no profits are made in a given year.

View the Opinion.

The European Banking Authority published a report on its analysis and market practice assessment of synthetic securitization in Europe. The report makes recommendations for the European Commission's proposed legislative amendments to the Capital Requirements Regulation and proposed securitization regulation, which provide for the preferential regulatory treatment of simple, transparent and standardized securitizations. The EBA's analysis supports the approach taken by the Commission in its proposed securitization framework, which provides for a different regulatory treatment of on-balance sheet synthetic securitization positions retained by originator banks. The EBA concurs that the proposed framework should not be extended to all synthetic securitizations applicable to all investors across asset types. The EBA recommends that certain criteria be met for eligibility of balance sheet synthetic transactions, including requirements that originator banks should meet to transfer the risk of eligible transactions to public or private investors. In particular, the EBA advises the Commission to consider amending its proposal to include transactions in which private investors provide credit protection in the form of cash. The report follows the EBA's report in July 2015 on a qualifying framework for traditional securitization.

View the report.

View the Commission's proposed securitization framework.

The European Banking Authority published a report, dated December 15, 2015, on the necessity for adding stable funding requirements to the EU regulatory capital requirements framework. The Capital Requirements Regulation requires the EBA to report to the Commission on whether and how it would be appropriate to ensure that banks and investment firms use stable sources of funding and to provide an assessment of the impact of a stable funding requirement on the businesses and risk profiles of firms in the EU, the financial markets, the economy and trade financing, as well as potential methodologies for determining the amount of stable funding available to and required by firms. The mandate was included in the CRR in response to the Basel Committee on Banking Supervision's publication in 2010 of a net stable funding ratio (known as the NSFR) to be put in place by 2018. The NSFR requires firms to maintain a stable funding profile in relation to their assets and off-balance-sheet activities over a period of one year.

Read more.

The Basel Committee on Banking Supervision published its third progress report on the adoption by banks of its Principles for effective risk data aggregation and risk reporting. The Principles must be implemented by global systemically important banks by January 1, 2016, and aim to strengthen risk data aggregation and risk reporting at banks so that risk management and decision-making practices are improved. The report details the progress that G-SIBs have made in order to comply with the Principles. The Basel Committee recommends that: (i) banks and national regulators should continue to promote understanding of the Principles; (ii) national regulators should conduct more in-depth/specialised examinations on data aggregation requirements to evaluate weaknesses; (iii) banks should clearly articulate risk data aggregation and risk reporting expectations, in line with their risk appetite in both normal and stress periods; (iv) banks should have appropriate governance arrangements in place to oversee manual processes; (v) banks should consider reducing the complexity of their systems to meet the data aggregation requirements; (vi) auditors should undertake an independent assessment of each bank's compliance with the Principles in early 2016, reporting any necessary remedial action to the bank's board; and (vii) banks that are unable to comply by the deadline should agree plans to do so with their national regulator. The Basel Committee also recommends that national regulators apply the Principles to domestic systemically important banks (known as D-SIBs) from three years after they have been identified as such.

View the report.

The European Commission published a proposed Regulation which would amend the Capital Requirements Regulation with regards to exemptions for commodity dealers. The CRR currently exempts commodity dealers from large exposures requirements and own fund requirements until December 31, 2017. That date was set on the basis that the Commission would have conducted a review of the prudential regime applicable to commodity dealers and to investment firms by the end of 2015 and, if appropriate, proposed a legislative regime adapted for the risks profile of commodity dealers and investment firms. The Commissions' review is still in progress. The Commission is therefore proposing that the CRR exemptions are extended until December 31, 2020 to allow time for work in this area to be completed and to avoid the need for relevant firms to temporarily comply with the full CRR requirements in 2018 before being subsequently moved to a tailored regime within two to three years.

View the proposed Regulation.

The Regulation setting out Implementing Technical Standards for currencies with constraints on the availability of liquid assets under the Capital Requirements Regulation was published in the Official Journal of the European Union. The CRR sets out a Liquidity Coverage Requirement which requires firms to hold liquid assets to maintain adequate levels of liquidity buffers to face any possible imbalances between liquidity inflows and outflows. The CRR allows firms to apply derogations where justified needs for liquid assets exist owing to the Liquidity Coverage Requirement, which exceed the availability of those liquid assets in certain currencies. The Regulation identifies the Norwegian Krone as a currency with constraints on the availability of liquid assets. The Regulation enters into force on January 5, 2016.

View the Regulation.

The European Banking Authority published final Guidelines on requirements for banks and certain investment firms to have sufficient information about, and to set limits on, their individual and aggregate exposure to shadow banking entities which carry out certain banking-like activities, such as lending, outside a regulated framework. The EBA is mandated to produce the Guidelines under the Capital Requirements Regulation which limits the exposure a firm can have to a single client or group of connected clients (more generally known as limits to large exposures). In order to prepare the Guidelines, the EBA collected data from 148 EU firms on their exposures to shadow banking entities, the results of which are published in a separate report. Both the Report and the Guidelines will help inform the European Commission's report on the appropriateness and impact of imposing such limits, which may be accompanied by a legislative proposal. The EBA Guidelines will apply from January 1, 2017.

View the Guidelines.

View the EBA's report.

The European Banking Authority launched a consultation on proposed draft Regulatory Technical Standards under the Capital Requirements Regulation on the assessment methodology national regulators should use when a firm applies for approval to calculate their own funds requirements using their internal models for one or more risk categories. In particular, the proposed draft RTS cover: (i) the methodology for national regulators to assess whether a firm complies with the requirements to use an Internal Model Approach for market risk; and (ii) the conditions under which national regulators assess the significance of the positions that will be included in the scope of an IMA. The proposed draft RTS are consistent with the RTS on the conditions for assessing materiality of extensions and changes to use market internal models, adopted by the European Commission in June 2015. Comments are due by March 13, 2016.

View the consultation paper.

The Federal Reserve Board published a final rule to revise certain elements of its “Banking Organization Systemic Risk Report” (Form FR Y‑15) that will become effective as of December 31, 2015. However, the new requirement to file the form on a quarterly basis has been extended until June 30, 2016, and the effective date of the new requirements for reporting short‑term wholesale funding (Schedule G) has been extended to December 31, 2016. While the preamble to the final rule notes that reporting requirements for Intermediate Holding Companies that foreign banking organizations are required to designate or establish under Dodd‑Frank Act Section 165 have not yet been proposed, under current requirements IHCs with a US bank subsidiary and $50 billion or more in total consolidated assets would be required to file the FR Y‑15 beginning with the next filing date following its establishment. Commenters requested an extension for IHCs, but the Federal Reserve Board indicated it would invite comment on this issue when reporting requirements for IHCs are proposed.

On December 2, 2015, the Federal Reserve Board proposed certain new line items to its “Annual Report of Foreign Banking Organizations” (Form FR Y‑7) to collect information from foreign banking organizations required to comply with the enhanced prudential standards for foreign banking organizations prescribed by Section 165 of the Dodd‑Frank Act. 

View the The final rule for Form FR Y‑15.

View the proposed revisions to Form FR Y‑7. 

The Implementing Regulation on the extension of the transitional periods for own funds requirements for exposures to CPPs as set out in the Capital Requirements Regulation was published in the Official Journal of the European Union. The Implementing Regulation extends the transitional period for regulatory capital requirements for EU banks’ exposures to CCPs from December 15, 2015 to June 15, 2016. The extension is intended to allow further time for CCPs, both from the EU and from non-EU jurisdictions, to become authorized or recognized under the European Market Infrastructure Regulation. This is linked to the current consultation on margin holding period for exchange-traded derivatives, published by ESMA on December 14, 2015, which should result in technical standards paving the way for recognition in the new year.  The provision aims to minimize disruption to financial markets and to prevent institutions from being penalized through higher own funds requirements during the processes of authorization and recognition of existing CCPs. The Implementing Regulation comes into effect on December 12, 2015.
 
View the Regulation.
 
View ESMA's consultation on margin holding period. 

The European Banking Authority published a consultation paper on draft Guidelines for the collection of information for the Internal Capital Adequacy Assessment Process and the Internal Liquidity Adequacy Assessment Process under the Capital Requirements Directive. The consultation forms part of the Supervisory Review and Evaluation Process and follows on from the criteria and methodologies specified in the EBA Guidelines on common procedures and methodologies for SREP. The Guidelines aim to facilitate the assessment of ICAAP and ILAAP as well as to create a consistent approach to the ICAAP and ILAAP frameworks and to the assessment of reliability of the own capital and liquidity estimates of financial institutions. The draft Guidelines set out, amongst other things, the general criteria for national regulators for the collection of ICAAP and ILAAP information from institutions and will be finalized following the completion of the consultation. The Guidelines are expected to apply from June 30, 2016. Comments are due by March 11, 2016.
 
View the consultation paper.

A Commission Delegated Regulation, in the form of Regulatory Technical Standards, was published setting out criteria for the assessment of intra-group transactions and risk concentrations under the EU Financial Conglomerates Directive. The RTS provide national regulators and coordinators with criteria for assessing whether intra-group transactions and risk concentrations are significant and provide for more harmonized reporting of information by financial conglomerates. The Financial Conglomerates Directive provides for the supplementary prudential supervision on a group-wide basis of groups including banks, insurance undertakings and investment firms which are part of a financial conglomerate which provide services and products in different sectors of the financial markets. The Directive covers, amongst other things, the solvency position and risk concentration at the level of the conglomerate, intra-group transactions, internal risk management processes at conglomerate level and regulations on the fit and proper character of the conglomerate's management.
 
View the Delegated Regulation.

The European Banking Authority published an Opinion and Report on cooperation and information sharing between EU and non-EU national regulators, as required under the Capital Requirements Directive. The EBA identifies areas of improvement and proposes legislative changes to encourage better prudential supervision of international banks and investment firms. The Opinion states that there is a need for more clarity in the equivalence assessment processes of non-EU supervisory and regulatory regimes, confidentiality regimes within and outside supervisory colleges as well as in the supervision of institutions on a consolidated basis. The EBA states that the establishment of clear instructions on equivalence assessments in the CRD and Capital Requirements Regulation would facilitate coordinated and consistent equivalent assessments. The EBA also proposes, amongst other things, to align the CRD with the Bank Recovery and Resolution Directive so that specific references to the status of "observers" are provided for non-EU national regulators that participate in supervisory colleges.

View the Opinion and Report.

The Basel Committee on Banking Supervision published a second consultation on revisions to the Standardized Approach for credit risk. The consultation seeks to address concerns raised during the first consultation which proposed that references to external ratings for exposures to banks and corporates be removed and that those exposures should be assigned risk weights based on two risk drivers. The Basel Committee is therefore proposing that different approaches should be adopted, depending on whether a jurisdiction prohibits the use of external ratings for regulatory purposes. For exposures to banks: (i) in jurisdictions that allow the use of ratings for regulatory purposes, ratings would be the primary source to determine risk weights for rated exposures, subject to due diligence requirements; and (ii) in jurisdictions that do not allow the use of ratings for regulatory purposes and for unrated exposures in all jurisdictions, exposures would be classified into three different buckets, subject to certain criteria being met. The Basel Committee is also proposing revised approaches for exposures to corporates, secured by real estate, multilateral development banks, retail and defaulted exposures and off-balance sheet items. Responses to the consultation are due by March 11, 2016.
 
View the consultation.

The European Banking Authority published a revised list of validation rules for submitting supervisory reporting data. The rules detail the standards and formats that are to be used for submissions of data by national regulators under the Capital Requirements Directive IV. The revised list displays the rules that have been deactivated due to technical issues or incorrectness.
 
View the revised list.

The European Banking Authority published Draft Implementing Technical Standards amending the Implementing Regulation on the supervisory reporting of institutions with regard to financial reporting (known as FINREP). This follows on from the changes made to the International Accounting Standards that were issued in July 2014. The new standards supersede the reporting standard for financial instruments in force in the EU since 2005 and change the way that financial instruments are accounted for. The changes require significant amendments to the FINREP reporting templates and instructions. The new standards will apply to: (i) banks that are required to prepare consolidated financial statements in accordance with International Financial Reporting Standards; (ii) banks that are required to use the IFRS for the determination of own funds; and (iii) certain investment firms. Comments are due by March 8, 2016.
 
View the consultation and related documents.

The Prudential Regulation Authority published a policy statement on the implementation of the UK's Leverage Ratio Framework, providing feedback to responses to its previous consultation paper. The Financial Policy Committee directed the PRA, on July 1, 2015, to implement a UK LRF applying: (i) a minimum leverage requirement of 3% to major UK banks and building societies on a consolidated basis; (ii) a supplementary Leverage Ratio Buffer of 35%; and (iii) a countercyclical LRB of 35% of a firm’s institution-specific countercyclical capital buffer rate.  The PRA’s policy statement applies to PRA-regulated banks and building societies with retail deposits of £50 billion or more. The PRA is implementing the FPC's requirements as proposed, except that it is extending its proposed transition period for daily averaged leveraged ratio requirements by 12 months, ending on December 31, 2017, while maintaining the 12 month transitional period for implementing the daily averaging reporting requirement. This would allow firms additional time to improve the comparability and accuracy of averaged numbers without compromising the monitoring of the UK leverage framework. The PRA has also published supervisory statements on the UK leverage ratio, instructions for completing data items and on the capital requirements for major UK banks and building societies.
 
View the policy statement and supervisory statements.

The Financial Stability Board published a progress report from the Enhanced Disclosure Task Force on the implementation of the EDTF's recommendations for enhancing risk disclosures of banks. The report, which covers 40 global or domestic systemically important banks, includes updates based on 2014 annual reports as well as self-assessments by banks and assessments made by users of financial disclosures. The report states that the self-assessments provided by banks show disclosure of 82% of the information recommended by the EDTF. This represents an increase of 7% from the previous year. The report also states that there are still significant opportunities for banks to improve credit risk disclosures and that credit risk disclosures vary significantly across different countries, with UK banks having the highest implementation rates.
 
View the report.

The US Board of Governors of the Federal Reserve System issued a final rule clarifying the application of the revised capital framework, originally issued in June 2013, to depository institution holding companies that are organized as non-stock entities, such as limited liability companies and partnerships. The final rule illustrates how capital instruments that are issued by firms that are not organized as traditional stock corporations may qualify as regulatory capital under the revised regulatory capital framework. The final rule, which is substantively similar to the proposed rule issued in December 2014, goes into effect January 1, 2016.

Separately, the final rule notes the Federal Reserve Board’s intention to issue separate regulatory capital rules to clarify how (i) depository institution holding companies that are employee stock ownership plans and (ii) savings and loan holding companies that are personal or family trusts, rather than business trusts, in each case, will be treated under the capital rules.

View the text of the final rule.

The European Banking Authority published a report on the administrative penalties for breach of national law implementing the Capital Requirements Directive imposed by Member States and published on an anonymous basis. Under the CRD, Member States must publish details of any administrative penalties imposed for breach of the relevant national law except in certain circumstances where the CRD allows the publication to be anonymous. The EBA is required to report on any divergences between member states in their approach to the publication of penalties on an anonymous basis and in the duration of the publication under national law. The EBA makes the following recommendations: (i) the penalties should be published on a dedicated part of the website to enhance accessibility; (ii) the decision should also be published in English or a summary thereof; and (iii) that the grounds for deciding to publish a decision on an anonymous basis should be disclosed, where appropriate.
 
View the report.

The Bank of England published its Financial Stability Report in which the Financial Policy Committee explains the key risks affecting the UK financial system. The report states that UK banks are now more resilient than they were before the global financial crisis with the result that they are now more willing to make credit available. Risks relating to Greece and its financing needs have fallen significantly since publication of the Bank of England’s Financial Stability Report in July 2015. However, risks originating from advanced economies have moved to emerging market economies and asset prices are deemed to be vulnerable to a crystallization of risks in emerging markets. The FPC states that it is not currently seeking further structural increases in capital requirements for the system as a whole and is also maintaining the UK countercyclical capital buffer rate at 0%. With regards to effective arrangements for bank resolution, the FPC deems that an effective resolution regime has been established in the UK, in part, through ring-fencing, and that new requirements for total loss-absorbing capacity for global systematically important banks will ensure that banks have liabilities that can absorb losses and are able to recapitalize banks in resolution. The report also states that cyber risk continues to be a threat to the UK financial system.

View the report.

The Bank of England published the results of the 2015 UK banking system stress tests. The 2015 stress test was the BoE's second concurrent stress test of the UK banking system and covered seven major UK banks and building societies. The BoE's Financial Policy Committee will not be taking any macroprudential actions on bank capital in response to the results, considering that the banking system is sufficiently capitalised to support the real economy in a severe global stress scenario. The Prudential Regulation Authority determined that the stress test showed that five of the seven participating firms did not have any capital inadequacies (Barclays, HSBC, Lloyds Banking Group, Nationwide Building Society and Santander UK) but that both The Royal Bank of Scotland Group and Standard Chartered had not met their individual capital requirements. However, the PRA had not required those two firms to submit revised capital plans on the basis that certain steps had already been taken by the firms. As per the BoE's Approach to Stress Testing the UK Banking System published in October 2015, the BoE will run its first annual cyclical scenario concurrent stress test in 2015, the results for which will be published in Q4 2016.
 
View the results.

The European Banking Authority published its first annual assessment on the Pillar 3 reports of a sample of European banks for the 2014 financial year. The report evaluates the compliance of banks against the disclosure requirements set out in the Capital Requirements Regulation. The report states there has been an increase in the quality of disclosures, in particular relating to clear disclosure indices and information on risk model parameters. Areas that could be improved further include: (i) the breakdown of capital requirements by exposure classes; (ii) the breakdown of internal ratings-based risk parameters by exposures and geography; and (iii) the assessment of the status, remuneration and asset encumbrance of global systemically important institutions. The report also includes a comparison of the revised Basel Pillar 3 requirements published by the Basel Committee on Banking Supervision in January 2015 against the current disclosure requirements set out in the CRR.
 
View the Report.

The Regulation on Implementing Technical Standards for closely correlated currencies as set out in the Capital Requirements Regulation was published in the Official Journal of the European Union. Closely correlated currencies are currencies that meet specific criteria set out in the CRR, which states that firms may provide lower own funds requirements against foreign exchange risk for positions in relevant closely correlated currencies. The pairs of currencies that meet such criteria are set out in the Annex to the Regulation. The list of closely correlated currencies will be updated yearly.
 
View the Regulation.

​The US Board of Governors of the Federal Reserve System approved a final rule to modify its capital plan and stress testing rules, which would take effect for the 2016 capital plan and stress testing cycle. Largely similar to the proposed rule, the final rule modifies the timing for certain regulatory requirements that have not yet been incorporated into the capital plan and stress testing framework. Firms subject to the supplementary leverage ratio would begin to incorporate it into their 2017 capital plan and stress testing cycle. All firms would continue to use the generally applicable risk-based capital framework for stress-testing exercises. However, firms with at least $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures would continue to be subject to the advanced approaches risk-based capital framework for their regulatory capital ratios. The common equity tier 1 capital requirement in the Federal Reserve Board’s revised regulatory capital rules will be fully phased in over the nine-quarter planning horizon of the 2016 capital plan and stress testing cycles. The final rule eliminates the requirement for firms to calculate a tier 1 common ratio.

View the press release.

View the final rule.

The US Federal Reserve Board announced the implementation of several recommendations to enhance the supervision of large and complex banking organizations. These recommendations followed a comprehensive review of Reserve Bank procedures for supporting sound supervisory decisions as well for resolving differing staff opinions related to the supervision of large and complex organizations. Among other issues, the review identified inconsistencies in practices by Reserve Banks as well as in documentation generated by supervisory teams. The review also noted that a formal process for raising divergent staff views had not been established. As a result, the Operating Committee of the Large Institution Supervision Coordinating Committee (known as LISCC), which coordinates the supervision of the largest, most systemically important financial institutions in the US, will oversee the establishment of minimum operating and documentation standards for all supervisory activities. The Federal Reserve System will also work to develop policies and practices to encourage the exchange of differing staff views on all supervisory matters. Additionally, the Federal Reserve System will be developing a curriculum specifically designed for the supervision of large financial institutions for its examiner commissioning and training program.

View the press release.
​
View the review.

​The US Federal Reserve Board issued a proposed rule that would require large banking organizations to publicly disclose certain measures of their liquidity profile, including, for the first time, quantitative liquidity risk metrics. The proposed rule would require large banking organizations to disclose, on a quarterly basis, their consolidated Liquidity Coverage Ratios based on averages over the prior quarter. In addition, firms would have to disclose their consolidated High-Quality Liquid Asset amounts, organized by HQLA category, as well as their projected net cash outflow amounts, including retail inflows and outflows, derivatives inflows and outflows as well as various other measures. The required disclosures are based generally on a template approved by the Basel Committee on Banking Supervision with enhancements to reflect US implementation of LCR requirements.

View the press release.

View the proposed rule.

The European Commission published a legislative proposal together with a press release on the establishment of a new European Deposit Insurance Scheme. The EDIS would be a euro area-wide insurance scheme for bank deposits, strengthening the EU's economic and monetary union, setting out measures to reduce risk in the banking sector and amending the Single Resolution Mechanism Regulation. The scheme would initially consist of a reinsurance scheme for participating national Deposit Guarantee Schemes in the first three years, after which co-insurance schemes would be put into place for four years, whereby contributions to the EDIS would increase. The EDIS would be funded by contributions made by banks established in the Single Supervisory Mechanism and a full European scheme would be in place by 2024. National schemes would only be able to access EDIS funds if clear conditions are met. The EDIS would encourage national schemes to manage any possible risks cautiously and would be mandatory for member states covered by the SSM. The scheme would also be open to those member states who are not covered by the SSM but who would like to join the Banking Union. National DGSs already provide protection at a national level. The EDIC would back these with a common European scheme.
 
View the press release.
 
View the legislative proposal.

US Federal Deposit Insurance Corporation Chairman, Martin J. Gruenberg, gave a speech at The Clearing House annual conference regarding progress the FDIC has made in implementing the Dodd-Frank Act’s framework for the orderly failure of large, complex, Systemically Important Financial Institutions. With respect to providing feedback to the largest financial institutions on their living will submissions, the Chairman described certain specific actions that firms have been asked to address in their resolution plans, including requiring firms to place a greater focus on reducing the interconnectedness between legal entities and provide greater detail in the public portions of the resolution plans. He also discussed the progress the FDIC has made in: (i) facilitating the orderly resolution of a SIFI under its Title II Orderly Liquidation Authority; and (ii) cross-border coordination on resolution. The Chairman echoed similar remarks made in his speeches at the Peterson Institute for International Economics in May 2015 and at the FDIC Banking Research Conference in September 2015.

View the speech.

The Basel Committee on Banking Supervision published an interim impact analysis of its fundamental review of the trading book. The analysis used data from 44 banks and assesses the impact of the revisions proposed in previous consultations carried out in 2013 and 2014. The analysis found, amongst other things, that: (i) change in market risk capital charges would produce an increase of 4.7% in the overall Basel III minimum capital requirement; (ii) that such change leads to a 2.3% increase when the bank with the largest value of market risk-weighted assets is excluded from the sample; and (iii) in comparison with the current market risk framework, the standard proposed would result in a weighted average increase of 74% in aggregate market risk capital. The Basel Committee expects to finalize the review before the end of 2015.
 
View the analysis.

The European Banking Authority launched a consultation on draft Regulatory Technical Standards to specify additional criteria for preferential treatment in calculating the Liquidity Coverage Requirement for cross-border intragroup liquidity flows, as required under the Capital Requirements Regulation. The CRR observes that there can at times be a need for intra-group financial support in a case where an institution experiences liquidity difficulties and finds itself under conditions of stress. The draft RTS, amongst other things, specify how liquidity providers and receivers can display a low liquidity risk profile, by for example, a liquidity provider monitoring the liquidity position of the receiver on a daily basis. The draft RTS also detail the binding agreements and commitments that are required for credit and liquidity between group entities. Comments on the consultation are due by January 13, 2016.
 
View the consultation and draft RTS.

The European Central Bank announced the outcome of its 2015 Comprehensive Assessment of nine banks - Banque Degroof S.A. (Belgium), Sberbank Europe AG (Austria), Unicredit Slovenia (Slovenia), VTB Bank (Austria) AG (Austria), Novo Banco SA (Portugal), Agence Française de Développement (France), J.P. Morgan Bank Luxembourg S.A. (Luxembourg), Medifin Holding Limited (Malta) and Kuntarahoitus Oyj (Municipality Finance plc) (Finland). All banks that become or will become subject to direct prudential supervision by the ECB under the Single Supervisory Mechanism are subject to a Comprehensive Assessment. Capital shortfalls were identified at five of the nine banks: Agence Française de Développement, Medifin Holding Limited, Novo Banco SA, Sberbank Europe AG and VTB Bank AG. Four of these banks have already covered the shortfall. In addition, certain failings in systems and processes were also identified.  
 
View the announcement and results.

The FDIC updated its Frequently Asked Questions regarding brokered deposits. FDIC regulations typically prohibit the acceptance of brokered deposits by FDIC-insured depository institutions that are not well capitalized. The updated FAQs contain revised responses on various topics relating to identifying, accepting and reporting brokered deposits, including but not limited to: (i) the circumstances under which certain business professionals that refer clients to a bank will be considered deposit brokers; (ii) examples of programs that would not be considered brokered deposit programs; and (iii) situations in which contract and dual employees would not be classified as deposit brokers by the FDIC. The FDIC is soliciting comments on the updated document until December 28, 2015. 

View the FAQs in “Clean” Format.

View the FAQs in “Track Changes” Format.

The Basel Committee on Banking Supervision published a report to the G20 Leaders, providing an update on finalizing its post-crisis reforms, reviewing the work it has carried out to strengthen the international regulatory framework for banks since the global financial crisis. The report states that the Basel Committee has made good progress in finalizing its post-crisis reforms, which include: (i) carrying out a consultation on proposed revisions to the standardized approaches for credit risk, market risk and operational risk as well as on the design of a capital floor based on these standardised approaches; (ii) finalizing the revised Pillar 3 disclosure requirements; and (iii) completing its analysis and monitoring of the drivers of variability of risk-weighted assets in the banking book and trading book. The Basel Committee also published a second report to the G20 Leaders, providing an update on the implementation of Basel III standards since its 2014 progress report to the G20 Leaders. The report states that all member jurisdictions have implemented the Basel III risk-based capital regulations and that almost all member jurisdictions have implemented final rules on the liquidity coverage ratio. Work remains ongoing for the adoption of the Basel III standards for the leverage ratio and the net stable funding ratio. The Basel Committee aims to finalize the remaining core elements of the global bank regulatory reform agenda by the end of 2016.
 
View the reports.

The European Banking Authority published a consultation paper including draft Guidelines on the treatment of Credit Valuation Adjustment risk further to the Supervisory Review and Evaluation Process under the Capital Requirements Regulation. The draft Guidelines implement the recommendations of the EBA's report on CVAs published in February 2015 and aim to form a common and proportionate approach to determine: (i) the materiality of CVA risk for an institution; (ii) material CVA risk under the SREP; and (iii) adequate additional own fund requirements where risks aren't sufficiently covered. The EBA has also published a data collection exercise for a Quantitative Impact Study to ensure the appropriate calibration of threshold values. The Guidelines will be finalized once the consultation process and QIS are complete. National regulators will then have two months from the date of publication of the translated versions of the guidelines on the EBA website to report whether or not they comply with the Guidelines. Comments on the consultation are due by February 12, 2016. It is expected that the data collection exercise will be completed by January 28, 2016.
 
View the consultation paper and draft Guidelines.

The European Banking Authority, European Securities and Markets Authority and European Insurance and Occupational Pensions Authority (known as the Joint Committee of the European Supervisory Authorities) published two final draft Implementing Technical Standards on the mapping of credit assessments to risk weights of External Credit Assessment Institutions under the Capital Requirements Regulation and Solvency II Directive. The ITS aim to ensure sound credit assessments to encourage financial stability in the EU and determine an objective approach for attributing risk weights to the assessment of ECAIs. The final ITS will replace the Committee of European Banking Supervisors' guidelines on the recognition of ECAIs as well as the existing mappings of ECAIs' credit assessments issued by national regulators. The final draft ITS have been submitted to the European Commission for endorsement.
 
View the final draft ITS.

The European Central Bank published a consultation on harmonizing the exercise of Options and Discretions (O&Ds) available to EU member state national supervisory authorities under the Capital Requirements Regulation and Capital Requirements Directive, together known as CRD IV. Alongside the consultation, the ECB also published a draft Regulation on the exercise of O&Ds, a draft Guide on available O&Ds, an Explanatory Note as well as Q&As. An Option can allow a member state or a national regulator to choose how to comply with a given provision of CRD IV, selecting from a range of alternatives set out in such legislation. A Discretion can allow a national regulator or a member state to choose whether or not to apply a certain provision in CRD IV. The aim of the Regulation is to encourage the harmonization of supervision of significant banks in the Euro area, with the aim of safeguarding the financial stability and integration of the EU banking system. Comments on the consultation are due by December 16, 2015.
 
View the consultation and related documents.

The Prudential Regulation Authority published an updated Supervisory Statement on the Internal Ratings Based approaches to credit risk under the Capital Requirements Regulation. This is the approach under which certain banks and investment firms with sophisticated risk management systems are allowed to calculate capital requirements based on internally produced parameters. Amongst other things, expectations that have been superseded by decisions or technical standards adopted by the European Commission have been deleted, including on third country equivalence, and expectations for the notification of changes to IRB rating systems have been amended.
 
View the updated Supervisory Statement. 

The Basel Committee on Banking Supervision published proposals for the capital treatment of simple, transparent and comparable securitizations which will amend the revised securitization framework published in December 2014. The proposals should be read with the criteria for identifying simple, transparent and comparable securitizations released in July 2015 by the Basel Committee and the International Organization for Securities Commissions. The proposals include the additional criteria that a STC securitization would need to meet in order for lower regulatory capital requirements to apply. Asset-backed commercial paper programmes and synthetic securitizations are excluded from the proposals. Responses to the consultation are due by February 5, 2016. The Basel Committee intends to publish the final standard in 2016. The implementation date will take into account that the revised securitization framework is to be implemented by 2018.
 
View the consultation paper.

View the press release.

The European Banking Authority published a consultation paper on draft Implementing Technical Standards for common procedures that national regulators in the EU should use when consulting with each other about prudential assessments for proposed acquisitions and increases of qualifying holdings in credit institutions. The draft ITS set out the proposed process and timeframes for requests of information and includes proposed templates and forms that are to be used by national regulators. Comments on the consultation are due by February 10, 2016.
 
View the consultation paper.

The Basel Committee on Banking Supervision published a consultation paper on Total Loss Absorbing Capacity holdings, setting out the proposed prudential treatment of investments in TLAC-qualifying instruments by both Global Systemically Important Banks and non-G-SIBs that are subject to the Basel Committee's standards. The consultation proposes that banks deduct their holdings of TLAC instruments from their regulatory capital, subject to certain thresholds, and seeks to limit contagion within the financial system, should a G-SIB enter into resolution. The consultation also sets out revisions that are required to the text of Basel III, specifying how G-SIBs must take on board TLAC requirements when calculating regulatory capital buffers. Comments are due by February 12, 2016.

View the consultation paper.

The European Banking Authority published the details of its 2016 EU-wide stress test exercise that will be launched in the first quarter of 2016. The names of the 53 EU banks that will take part in the exercise have been published, of which 39 fall under the jurisdiction of the Single Supervisory Mechanism. The stress test will cover broadly more than 70% of the EU banking sector and will assess the ability of EU banks to meet relevant supervisory capital ratios in the event of adverse economic conditions. The EBA also published its draft methodological note for discussion together with a draft template to be used as part of the stress test exercise.  The results of the stress tests will be published in the third quarter of 2016.

View the press release.

The Financial Stability Board published an updated list of banks identified by the FSB and the Basel Committee on Banking Supervision as Global Systemically Important Banks. The list, which is updated on an annual basis, sets out 30 banks that are considered to be G-SIBs. Compared to the list of G-SIBs identified in 2014, China Construction Bank has been added and Banco Bilbao Vizcaya Argentaria has been removed. The next updated list will be published in 2016.
 
View the list of G-SIBs. 

The US Comptroller of the Currency, Thomas J. Curry, once more discussed the issue of increased credit risk confronting the federal banking system during the Risk Management Associations' Annual Risk Management Conference. He argued that credit quality issues are a rising concern because banks are beginning to increase their risk appetite and are taking on additional credit risk. He notes that credit risk is increasing in two forms: relaxed credit underwriting and increased loan concentrations. In his statement, Comptroller Curry recommended that banks take initiative to address concentration risk on their own and also review more closely their loan loss allowance levels to determine whether it is appropriate in relation to the level of credit risk within the bank's loan portfolio.

View Comptroller Curry's remarks.

The US Board of Governors of the Federal Reserve System proposed a rule, in consultation with the US Federal Deposit Insurance Corporation, requiring the largest US Global Systemically Important Banking Organizations (known as G-SIBs) and the US Intermediate Holding Companies of foreign G-SIBs to maintain a minimum amount of unsecured long-term debt and a minimum amount of “Total Loss-Absorbing Capacity” as a percentage of total risk-weighted assets. Generally, TLAC is intended to increase the resiliency of an organization by providing a significant capital buffer comprised of regulatory capital and certain eligible debt, together with related capital buffers. The long-term debt, once converted to equity, is aimed at absorbing losses and recapitalizing the covered entity's subsidiaries in resolution. There are four major components of the proposed rule: (i) external long-term debt and related TLAC requirements applicable to the top holding company of a US G-SIB; (ii) internal long-term debt and related TLAC requirements applicable to covered US IHCs; (iii) clean holding company requirements; and (iv) regulatory capital deductions applicable to certain investments in long term debt of covered G-SIBs. Additionally, the Federal Reserve Board is requesting comment on internal TLAC requirements for US G-SIBs. Once finalized, the rules would apply to 8 US G-SIBs and their related entities as well as IHCs controlled by non-US G-SIBs. Banking organizations covered by the rule would be required to comply with most of the proposed requirements by January 1, 2019. The calibration of the risk-weighted assets component of the external TLAC requirement would be phased in over a three-year period commencing on January 1, 2019.

View the proposed rulemaking.

The Federal Deposit Insurance Corporation issued for public comment a proposal to increase the reserve ratio of the Deposit Insurance Fund to the statutorily required minimum level of 1.35 percent. The Dodd-Frank Wall Street Reform and Consumer Protection Act increased the minimum for the reserve ratio from 1.15 percent to 1.35 percent and required the ratio to reach the new minimum by September 30, 2020. Moreover, the Dodd-Frank Act made this increase the responsibility of large banks with $10 billion or more in total assets. In effect, the proposed rule, if finalized, would impose upon banks a quarterly surcharge of 4.5 cents per $100 of their assessment base, with certain adjustments. It is expected that the surcharges will commence in 2016 and the reserve ratio would reach 1.35 percent following approximately eight quarters of payments of such surcharges (i.e. in advance of the required 2020 date). Comments on the proposed rule will be due 60 days after the rule is published in the Federal Register.

View the proposed rule.

View the FDIC Chairman’s statement.

The European Commission published a consultation on the possible impact of the maximum remuneration ratio rule for variable and fixed remuneration required by the Capital Requirements Directive. The consultation also addresses the overall efficiency of the remuneration rules as set out in the CRD and Capital Requirements Regulation, together known as CRD IV. The consultation aims to obtain views on the remuneration provisions of CRD IV, including on: (i) the efficiency, implementation and enforcement of the principle of proportionality, as well as the identification of any gaps arising from the application of the principle; (ii) compliance with the maximum ratio rule for variable and fixed remuneration as prescribed by the CRD; and (iii) the impact of the maximum ratio rule on competitiveness, financial stability and staff in non-EEA countries. The Commission must report back to the European Parliament and Council by June 30, 2016. Responses are due by January 14, 2016.
 
View the European Commission's consultation page.

View the consultation.