The US House Financial Services Committee announced that it had approved 13 bills, several of which were focused on regulatory reform for financial institutions. Representative Jeb Hensarling noted in an accompanying press release that the Financial Services Committee remains committed to, among other things, reducing regulatory red tape that burdens and affects financial institutions.

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A Commission Delegated Regulation setting out Regulatory Technical Standards for the disclosure of encumbered and unencumbered assets has been published in the Official Journal of the European Union. The RTS supplement the Capital Requirements Regulation by setting out the requirements on firms to disclose balance sheet value per exposure class, broken down by asset quality and the total amount of unencumbered assets on the balance sheet. The final RTS set out the data required to be disclosed, the format and the timing of the disclosure. Additional disclosure requirements are set for larger banks.

The final RTS enter into force on January 2, 2018. The additional disclosure requirements for larger banks will apply from January 2, 2019.

View the final RTS.

The UK Prudential Regulation Authority has published a policy statement setting out final amendments to its supervisory statements on "The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)" and its Statement of Policy "The PRA's methodologies for setting Pillar 2 capital". These changes were proposed in a consultation by the PRA in July 2017, which closed in October 2017. Following feedback to the consultation, the PRA will proceed with the amendments it proposed in July, subject to some minor changes.

Read more.

​The Prudential Regulation Authority has published an updated Supervisory Statement, “The minimum requirement for own funds and eligible liabilities (MREL) - buffers and Threshold Conditions”. The MREL requirement is the EU implementation, in the Bank Recovery and Resolution Directive, of the standard for total loss-absorbing capacity (TLAC) set by the Financial Stability Board.

The updated Supervisory Statement set out the PRA’s expectations on the relationship between the minimum requirement for MREL and both capital and leverage ratio buffers. It follows the PRA’s consultation earlier this year clarifying that it did not intend to create a different buffer requirement from that which is usable in the going-concern regime. The Supervisory Statement also discusses the implications that a breach of MREL would have for the PRA’s consideration of whether a firm is failing, or likely to fail, to satisfy the Threshold Conditions. The PRA has confirmed that it expects firms not to count Common Equity Tier 1 (CET1) capital towards both MREL and the capital buffer requirements.
 
The Supervisory Statement applies to PRA-regulated banks, building societies and PRA-designated investment firms. 

View the updated Supervisory Statement. 

The Board of Governors of the Federal Reserve System announced final plans for the production of three new reference rates regarding overnight repurchase transactions of Treasury Securities. The rates will be produced by the Federal Reserve Bank of New York, in consultation with the US Office of Financial Research. The three rates—Tri-Party General Collateral Rate, Broad General Collateral Rate, and Secured Overnight Financing Rate (SOFR)—are based on transaction-level data from segments of the repurchase market, and were the subject of an August 30, 2017 Federal Reserve Board request for public comment. The three interest rates will be constructed to reflect the cost of short-term secured borrowing in highly liquid and robust markets and each rate will be calculated as a volume-weighted median of transacted rates. The FRBNY intends to begin publishing these rates in the second quarter of 2018.  The Federal Reserve Board also noted that although the Alternative Reference Rates Committee selected (in June 2017) SOFR as its recommended alternative to U.S. Dollar LIBOR, the details of the transition from U.S. Dollar LIBOR are outside the scope of the request for comment and this announcement.

View Federal Reserve Board press release and corresponding notice.

The Federal Reserve Board announced a suite of proposals intended to increase the transparency of its stress testing program. One key aspect of the proposals is intended to increase transparency in the modeling used by the Federal Reserve Board to estimate hypothetical losses in its stress testing, including in the Comprehensive Capital Analysis and Review (CCAR). Specifically, the Federal Reserve Board will make available certain information available to the public that has previously not been released: (i) a range of loss rates, estimated using the Federal Reserve Board's models, for loans held by CCAR firms; (ii) portfolios of hypothetical loans with loss rates estimated by the Federal Reserve Board's models; and (iii) more detailed descriptions of the Federal Reserve Board's models, such as certain equations and key variables that influence the results of those models. The Federal Reserve Board is also seeking comments on a proposed “Stress Testing Policy Statement” that would increase transparency around the development, implementation, and validation of models used by the Federal Reserve Board in its CCAR and Dodd-Frank Act Stress Test (DFAST) processes. Finally, the Federal Reserve Board proposed modifications to its framework regarding annual hypothetical economic scenarios. Specifically, the proposal will clarify when the Federal Reserve Board may make changes to certain factors used in the framework, including changes to the unemployment rate and house price index.

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A Commission Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to CCPs set out in the Capital Requirements Regulation and European Markets Infrastructure Regulation has been published in the Official Journal of the European Union. Thirty-two third country CCPs have been recognized by the European Securities and Markets Authority to date. However, there are still third country CCPs that are awaiting recognition status. Without an extension of the transitional periods, banks and investment firms in the EU (or which are subject to consolidated supervision in the EU) would need to increase their own funds requirements for their exposures to those CCPs that are not yet recognized. The Implementing Regulation extends the transitional period to June 15, 2018.

The proposals to amend the CRR include an amendment to these transitional provisions. The proposed amendment would remove the need for the European Commission to continuously extend the transitional period by basing the transitional deadline instead on the timing of an application for recognition by a third country CCP.

View the Implementing Regulation.

The Basel Committee on Banking Supervision has published a discussion paper on the regulatory treatment of sovereign exposures. The discussion paper sets out the issues raised by the Task Force on Sovereign Exposures, which the Basel Committee set up in 2015, and presents potential ideas for addressing those issues. The Basel Committee's view is that all sovereign exposures entail risk but they also play an important role in the banking system, financial markets and broader economy. The suggestions presented in the discussion paper seek to balance the prudential risks with the Basel Committee's mandate to enhance financial stability.

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The Joint Committee of the European Supervisory Authorities has published a final report setting out revised draft Implementing Technical Standards for the assessment of credit quality under the Capital Requirements Regulation. Under the CRR, firms that use the Standardised Approach to credit risk (rather than the internal ratings based approaches or internal models) can use external credit assessments to determine the credit quality of exposures. Credit quality can be determined by reference to the credit assessments of External Credit Assessment Institutions. The corresponding risk weight to which an exposure's credit quality should be mapped to establish the credit risk of that exposure is set out in an Implementing Regulation published in October 2016. ECAIs are defined as credit rating agencies registered or certified in accordance with the Credit Rating Agency Regulation or any central banks issuing ratings that are exempt from the application of the CRA Regulation.

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The European Banking Authority has published a cumulative impact assessment setting out its analysis of the impact of the finalized "Basel III" prudential framework on EU banks.

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The Basel Committee on Banking Supervision has published the last part of the Basel III reforms. The revisions are to the standardized approach and the Internal Ratings-Based approach for credit risk, the Credit Valuation Adjustment risk framework, the leverage ratio framework, including the introduction of a leverage buffer for Global Systemically Important Banks, the operational risk framework and the new output ratio floor. The revised standards will take effect from January 1, 2022 and will be phased in over five years.

The revisions to the standardized approach to credit risk include, among other things, recalibrating the risk weights for rated exposures to banks, a specific risk weight for exposures to small and medium-sized enterprises, a standalone treatment of exposures to project finance, object finance and commodities finance, more risk-sensitive approaches for exposures for residential and commercial real estate, subordinated debt, equity exposures and unrated exposures to banks. There is also a new standalone treatment for covered bonds.

The IRB approach for credit risk has been amended by: (i) removing the option to use the advanced IRB approach for certain asset classes, including for exposures to large and mid-sized corporates, banks and other financial institutions and for exposures to equities; (ii) adopting "input" floors; and (iii) providing more specification of parameter estimation practices to reduce risk-weighted asset variability.

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The Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation announced their joint support for the finalization by the Basel Committee of the “Basel III” agreement on bank capital standards, which were formulated initially in response to the financial crisis. The revised international standards will take effect in January 2022 and will be phased in over five years.  The agencies announced that they will be considering how to best implement these standards in the United States, and that all proposed changes will be effected through the procedures of standard notice-and-comment rulemaking.

View FRB press release on joint-agency announcement.

View FDIC press release on joint-agency announcement.

View OCC press release on joint-agency announcement.

The Prudential Regulation Authority has launched a consultation on model risk management principles for stress testing. The PRA is proposing a set of four principles which are intended to assist firms in developing and implementing policies and procedures to identify, manage and control the risks inherent in the use of stress test models. The principles will be set out in a new Supervisory Statement entitled "Model risk management principles for stress testing", a draft of which is provided in the annex to the consultation paper. The Supervisory Statement would present the PRA's expectations on the model risk management practices firms should adopt when using stress test models.

The four proposed principles are that:
1. Banks have an established definition of a model and maintain a model inventory.
2. Banks have implemented an effective governance framework, policies, procedures and controls to manage their model risk.
3. Banks have implemented a robust model development and implementation process, and ensure appropriate use of models.
4. Banks undertake appropriate model validation and independent review activities to ensure sound model performance and greater understanding of model uncertainties.

Read more.

The Prudential Regulation Authority has published a consultation paper proposing updates to the Pillar 2 reporting requirements. The PRA is proposing a new data item to capture stress testing data currently included in firms' Internal Capital Adequacy Assessment Process documents. The purpose is to enhance transparency and comparability in stress test data provided alongside ICAAP documents and to decrease the operational risks associated with capturing stress test data manually. The PRA is also proposing to reduce the frequency of reporting of the data items in the Reporting Pillar 2 part of the PRA Rulebook for some firms to take a more proportionate approach. In addition, the PRA proposes to consolidate the definition of several reporting parts of the PRA Rulebook into the Glossary.

The proposals are relevant to banks, building societies and PRA-designated investment firms. The proposed changes would impact the PRA rules, the Supervisory Statement on Pillar 2 Reporting (SS32/15) and the Statement of Policy on the PRA's methodologies for setting Pillar 2 capital.

The consultation closes on March 6, 2018. The PRA intends its final policy to take effect from October 1, 2018.

View the consultation paper.

The European Commission has published a Communication on further steps towards completing Europe's Economic and Monetary Union. The Commission is proposing several initiatives. First, the Commission is proposing a regulation to establish a European Monetary Fund. The EMF would replace the existing European Stability Mechanism and would act as a backstop to the Single Resolution Fund. Any support that the EMF provided to the SRF would need to be fully repaid by the Single Resolution Board from its own resources, including contributions from the industry. There are also proposals on new budgetary instruments for a stable euro area within the EU framework, changes to the Common Provisions Regulation, proposals to strengthen the Structural Reform Support Programme and a proposal to establish a European Minister of Economy and Finance. The Communication is supplemented by a proposed roadmap for implementing these steps over the next 18 months. The proposed roadmap indicates the dates by which certain of the Commission's proposed financial services legislation would be finalized. The risk-reduction package (amendments to the Capital Requirements framework and the Bank Recovery and Resolution Directive) would be finalized by mid-2018 and the Capital Markets Union legislative initiatives, including the review of the European Supervisory Authorities and the European Market Infrastructure Regulation, would be finalized by mid-2019.

View the Commission's Communication.

A Commission Implementing Regulation has been published in the Official Journal of the European Union, which amends the Implementing Technical Standards, published in 2014, for the reporting by institutions on own funds and the provision of financial information.

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The US Senate Committee on Banking, Housing & Urban Affairs announced the advancement of S. 2155, the “Economic Growth, Regulatory Relief and Consumer Protection Act.” This legislation was supported by 16 of the Banking Committee’s 23 members, and is intended to ease regulation on credit unions and smaller banks. On the same day, Vice Chairman of the FDIC Thomas Hoenig released a statement in support of the legislation, noting its goal is supporting economic growth, while easing the regulatory burden on smaller, less risky, financial institutions.

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The US OFR released its 2017 annual report to Congress and 2017 financial stability report. In connection with its release of these reports, the OFR notes that it has developed and implemented new vulnerability monitoring and stress index tools, which were used in preparing the OFR’s findings. The OFR reports outline 3 key threats to financial stability. First, the danger that cybersecurity threats pose not only to the financial industry, but also to the broader economy in general. The financial stability report notes that regulators are continuing to develop more robust cybersecurity standards, but that gaps still remain. The second threat discussed in the reports is the orderly resolution of a systemically important financial institution in the event of failure. The reports note that while the current framework makes orderly resolution more feasible, there are shortcomings in the framework with regard to nonbank financial institutions. The reports also highlight the important role that Orderly Liquidation Authority plays in resolution framework. Finally, the third key threat is the evolving structure of financial markets. Specifically the reports highlight the risks posed by lack of substitutes for essential services, such as settlement of US Treasury securities; market fragmentation, and replacing LIBOR with a new reference rate.

View OFR's 2017 Annual Report to Congress.

View OFR's 2017 FS Report.

The US Board of Governors of the Federal Reserve System, and the US Federal Deposit Insurance Corporation sent letters to Representative Blaine Luetkemeyer stating that they are considering seeking public input regarding improvements to the agencies’ Interagency Guidance on Leveraged Lending. Then Acting Comptroller of the US Office of the Comptroller of the Currency sent a similar letter to Representative Luetkemeyer in November. Representative Blaine Luetkemeyer had requested via letter that the agencies discontinue their enforcement of leveraged lending restrictions. The request by Rep. Luetkemeyer was predicated upon an October determination by the U.S. Government Accountability Office that the leverage lending guidance issued by the agencies fell under the Congressional Review Act. Because of this, the guidance may have no effect until it has been submitted to, and reviewed by, Congress.

The Federal Reserve Board issued a notice of proposed rulemaking regarding amendments to Regulation A. The proposed amendments would revise the provisions with regard to the establishment of the primary credit rate at the discount window in a financial emergency. Under the proposal, the primary credit rate in a financial emergency will be the target federal funds rate, or, the top of the target range, if the Federal Open Market Committee has established a target range for the federal funds rate. The Federal Reserve Board also proposes to delete provisions that relate to the use of credit ratings for collateral for extensions of credit under the Term Asset-Backed Securities Loan Facility to reflect the expiration of this program. Comments on the proposal are due on January 8.

View notice of proposed rulemaking.

The US Board of Governors of the Federal Reserve System announced that it voted to maintain the countercyclical capital buffer at its current level of 0%. In coming to this decision, the Federal Reserve Board consulted with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, and followed the framework established in the Federal Reserve Board’s corresponding policy statement.  The countercyclical capital buffer is a tool that can increase financial system resiliency by providing financial institutions with a means to absorb higher losses in times of declining or fluctuating credit conditions.

View press release discussing the Federal Reserve Board’s determination.

The US Senate Committee on Banking, Housing & Urban Affairs held the nomination hearing of Jerome Powell to serve as Chair of the Federal Reserve Board. Governor Powell’s written testimony briefly discussed his background and the Federal Reserve Board’s policy goals of maximum employment and price stability. Governor Powell acknowledged the Federal Reserve Board’s efforts to tailor regulation to a bank’s size and risk profile but stressed, however, that balance must be maintained between easing of regulatory burdens and preserving core regulatory reforms. Senator Sherrod Brown and Mike Crapo each expressed some degree of support for Governor Powell. Senator Crapo spoke briefly about the regulatory burden on the financial industry, especially with regard to smaller community institutions, and referenced bipartisan legislation that has been introduced to alleviate some of these burdens. Senator Brown, on the other hand, cautioned against deregulation, and expressed concerns about the direction of financial regulation under the current Administration.

View Governor Powell’s written testimony.

View Senator Brown’s opening statement.

View Senator Crapo’s opening statement.

Federal Reserve Bank of New York President and CEO William Dudley delivered remarks to attendees of the Evolving Structure of the US Treasury Market: Third Annual Conference. President Dudley’s remarks focused on the four priorities that were outlined in the Joint Staff Report on the Treasury flash event that occurred on October 15, 2014. These priorities include an increased need for collaboration between the public and private sectors with regard to Treasury market structure which will allow for a better understanding of the evolution of the Treasury market. The second priority discussed by President Dudley was increased data transparency regarding activities in the cash market which he argued will promote a robust and safe Treasury market, and allow for more timely response to issues that arise. A third, and related, priority raised by President Dudley is the market practices and risks associated with the Treasury market, noting that the opacity of the clearance and settlement practices can lead to information asymmetry and mispricing of risks. Finally, President Dudley discussed the importance of interagency monitoring of the Treasury market.

View transcript of President Dudley’s remarks.

Keith Noreika, First Deputy Comptroller of the Currency discussed whether bank holding companies are obsolete, a topic he described as both timely and complex. Mr. Noreika, newly relieved of his post as Acting Comptroller, contended that the correct question to be asking is whether bank holding companies are a universally sound practice for all banks, noting that they may inherently be more valuable for large, complex, institutions, as compared to smaller, more traditional banks. He suggested that many of the reasons why bank holding companies were established initially are no longer as large of a concern given the evolution of state and federal laws and regulation. Moreover, he contended that while operating a bank holding company results in very high compliance and regulatory costs, in many instances, the powers granted to banks have expanded, while those granted to bank holding companies have narrowed. Mr. Noreika also noted that while bank holding companies may be a tool for reducing systemic risk, they are not the only tool that can accomplish this end and presented alternatives to the bank holding company construct such as merging the holding company into the bank.

View transcript of Mr. Noreika’s remarks.

The Financial Policy Committee of the Bank of England has published the latest UK Financial Stability Report. The FPC notes that the UK banking system is resilient and that UK banks are stronger than they were 10 years ago. The results of the stress test show that no bank needs to improve its capital position. However, as a result of the stress test, the FPC has decided to raise the UK countercyclical buffer rate from 0.5% to 1% from November 28, 2018. In addition, the Prudential Regulation Committee will set capital buffers for individual banks. The FPC will reconsider the countercyclical buffer rate during the first half of 2018.

The FPC continues to assess the risks posed by Brexit and concludes that Brexit presents a material risk to the provision of financial services to customers in both the UK and the EU. Three main risks are discussed: risks associated with bringing EU legislation into UK law through the Great Repeal Bill, risks to the continuity of outstanding cross-border contracts and risks presented by barriers to cross-border financial services provision.

The FPC considers that the extent and nature of the changes to be brought in through the Great Repeal Bill will depend on the terms of the UK's withdrawal agreement and there is a tight timeframe in which it all needs to be achieved. In addition to the Great Repeal Bill, secondary legislation is needed, and the regulators will need to change their rulebooks. Firms will also need to make changes to comply with the amended legal framework.

Read more. 

The European Banking Authority has repealed these Guidelines, published in 2013, because they have been replaced by Implementing Technical Standards on supervisory reporting of institutions, as amended in the 2016 ITS on supervisory reporting by firms of the liquidity coverage requirement, which became effective in September 2016.

View the EBA's announcement.

A Commission Delegated Regulation amending the Capital Requirements Regulation has been published in the Official Journal of the European Union. Under CRR, for banks investing in covered bonds that meet certain criteria, a preferential risk weight is applied. The amending Regulation makes permanent the derogation previously available to national regulators to waive the own funds requirement for certain covered bonds. The CRR sets a transitional date of December 31, 2017 for the waiver to be available.

The amending Regulation follows the European Banking Authority's recommendations on the EU covered bond framework published in 2014 and the European Commission's subsequent report on capital requirements for covered bonds published in 2015.

Read more.

The Federal Reserve Board, OCC, and the FDIC adopted a final rule, applicable to banking organizations that are not subject to the “advanced approaches” under the US regulatory capital rules. The final rule will extend the 2017 regulatory capital treatment for certain items, including mortgage servicing assets, certain deferred tax assets, certain significant and non-significant investments in the capital of unconsolidated financial institutions, and certain minority interests. Under the final rule, banking organizations that are not subject to the “advanced approaches” capital rules will continue to evaluate these items in accordance with the risk weight and deduction treatment that was applicable in 2017. This extension does not apply to banking organizations that are subject to the “advanced approaches” capital rules, which will continue to be subject to the transition provisions for these items currently established under the regulatory capital rules. The agencies explicitly noted that the final rule was being issued to prevent different rules from taking effect while the agencies consider a broader simplification of the capital rules which the agencies announced that they intended to do as part of the recent review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act. The final rule takes effect on January 1, 2018.

View the final rule.

The Financial Stability Board has published the 2017 list of Global Systemically Important Banks. The list was compiled using end-2016 data and the 2013 assessment methodology designed by the Basel Committee on Banking Supervision. The Basel Committee has proposed a revised assessment framework for G-SIBs but has not yet published the finalized version. The 2013 framework identifies G-SIBs by assessing their contribution to systemic risk and imposes higher capital requirements on G-SIBs to reduce the likelihood of their failure. Identified G-SIBs are placed into buckets based on their score of systemic importance. G-SIBs are also subject to Total Loss Absorbing Capacity requirements, higher resolvability requirements and higher supervisory expectations on risk management, risk data aggregation capabilities, risk governance and internal controls.

The G-SIB list comprises 30 banks. The 2017 list is largely the same as the 2016 list except that the Royal Bank of Canada has been added and Groupe BPCE has been removed.

View the list of G-SIBs.

View the Basel Committee 2013 assessment methodology.

The US Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced changes to their respective regulations under the Community Reinvestment Act. The amendments consist of modifications to the definitions of “home mortgage loan,” and “consumer loan,” to conform to the related amendments made by the Consumer Financial Protection Bureau’s as part of its implementation of the Home Mortgage Disclosure Act in its Regulation C. The amendments make other conforming changes, including removal of reference to the Neighborhood Stabilization Program, and changes to the public file content requirements of these agencies. These amendments were the subject of a joint notice of proposed rulemaking, published on September 20, 2017, and the Agencies finalized them as proposed.  The changes take effect on January 1, 2018.

View the interagency final rule.

The European Banking Authority has published final Guidelines on the application of the Internal Ratings-Based approach, in particular, the estimation of risk parameters for non-defaulted exposures, namely of the probability of default (PD) and the loss given default (LGD), and on the treatment of defaulted assets. The Guidelines should be applied in conjunction with the requirements under the Capital Requirements Regulation and the final draft Regulatory Technical Standards on the assessment methodology for national regulators regarding compliance by firms with the requirements to use the IRB Approach.

The Guidelines aim to address concerns raised over the lack of comparability of capital requirements determined under the IRB approach across firms which the EBA raised in its Opinion and Report on the implementation of the regulatory review of the IRB approach to calculating risk-weighted exposure amounts for credit risk, published in February 2016.

Read more.

The US Board of Governors of the Federal Reserve System announced an extension of the comment period for two significant proposals that are currently out for comment. One proposal concerns guidance on supervisory expectations for boards of directors, and the other concerns a new large financial institution supervisory rating system. The comment period for both proposals had been previously extended through November 30, 2017, but will now remain open through February 15, 2018.

View Proposed Guidance on Supervisory Expectations for Boards of Directors.
View Proposed Large Financial Institution Rating System.

Mike Crapo, chairman of the US Senate Committee on Banking, Housing, and Urban Affairs, introduced the Economic Growth, Regulatory Relief and Consumer Protection Act which would introduce significant financial regulatory reform. Among other things, the bill, which received bipartisan support, would reduce the threshold at which a bank holding company is considered to be a “systemically important financial institution” from $50 billion to $250 billion. The bill also provides other relief for community banks, including setting a leverage ratio of tangible equity to average consolidated assets of between 8% and 10% for banks with less than $10 billion in assets. These same institutions would be exempt from the Volcker Rule. US Senator Sherrod Brown (ranking member of the US Senate Banking Committee) released a statement opposing the bill, cautioning generally against rolling back the protections of Dodd-Frank with little or no perceived benefit to working families. The full Senate Banking Committee is expected to mark up the bill after Thanksgiving.

View full text of the bill.

Two regulations and two decisions of the European Central Bank on systemically important payment systems have been published in the Official Journal of the European Union and will enter into force on December 6, 2017. These regulations and decisions have been made by the ECB in its capacity as supervisor under the Single Supervisory Mechanism for Eurozone banks, following the first comprehensive assessment of SIPS.

The two regulations amend: (i) the ECB Regulation on oversight requirements for SIPS, to make clarifications and amendments deemed necessary for the application of the highest oversight standards; and (ii) the ECB Regulation on the powers of the ECB to impose sanctions, to ensure that sanctions can be effectively imposed for oversight infringements.

The two decisions cover procedural aspects for the ECB to impose corrective measures for non-compliance with the ECB Regulation on oversight requirements and the methodology for calculating sanctions when the oversight requirements are infringed.

View Regulation Amending the Regulation on Oversight Requirements.

View Regulation Amending the Regulation on ECB Sanctions Powers.

View Decision on Procedural Aspects.

View Decision on Sanctions Calculation Methodology.

The US House Financial Services Committee announced that it had approved 23 bills, many of which are focused on financial regulatory reform. In a press release, US House Financial Services Committee Chairman Jeb Hensarling noted that the bills are intended to provide greater capital market access to small business, and relief for community banks and credit units. The 23 bills include a proposed repeal of Title VIII of Dodd-Frank, which gives the Financial Stability Oversight Council the ability to designate payment and clearing organizations as financial market utilities and allows them to have access to the Federal Reserve discount window. Other bills included in the package would improve the living will submission process and stress testing process, including that a bank holding company would only be subject to the Federal Reserve Board’s Comprehensive Capital Analysis and Review process every two years.

View full text of the bills.

Michael Held, Vice President and General Counsel of the Federal Reserve Bank of New York discussed the many lessons learned from the financial crisis and cautioned against the dangers of forgetting these lessons. Mr. Held conceded that although post-crisis reforms and regulations should be reviewed, they should not be repealed at the cost of safety and soundness. Mr. Held discussed the improved resilience of the financial system, including praising the Orderly Liquidation Authority and other post-crisis improvements to the bankruptcy process, as improving cross-border resolution. Mr. Held stressed that financial institutions and regulators need to evolve as systems and risks evolve, in order to be adequately prepared for the next economic downturn.

Read more.

The European Banking Authority has published a report setting out the outcomes of its ongoing peer review exercise into whether its 2014 Guidelines specifying the criteria for the identification of Other Systemically Important Institutions (O-SIIs) have been applied effectively. National regulators from the EU Member States and the supervisory authorities of the three countries of the European Economic Area participated in the peer review exercise. The EBA report concludes that the majority of national regulators are compliant, but notes deviations from the Guidelines in some jurisdictions.

Read more.

The European Banking Authority has published final Guidelines on connected clients under the Capital Requirements Regulation, following two earlier consultations. The Guidelines are intended to replace the "Guidelines on the implementation of the revised large exposures regime" issued in 2009 by the EBA's predecessor, the Committee of European Banking Supervisors.

Read more.

The European Commission has launched a consultation on proposals for statutory prudential backstops to address insufficient provisioning for newly originated loans that turn into non-performing loans. Since the 2007/08 financial crisis, there has been a build-up of NPLs in the EU, which impacts banks' viability and lending capabilities. The Commission is proposing to amend the Capital Requirements Regulation to introduce a requirement for all banks established in the EU to cover incurred and expected losses on newly originated loans that become non-performing. The requirements would be in the form of compulsory and time-bound prudential deductions of NPLs from own funds, and where that minimum coverage requirement is not met, a deduction of the difference between the level of the actual coverage and the minimum coverage from Common Equity Tier 1.

The European Commission has also asked the European Banking Authority to provide technical advice in relation to the Commission's consultation proposals. The advice must provide country-by-country estimates on additional/accelerated capital needs triggered for EU banks by the prudential backstops, taking into account, to the extent possible, expected increases in provisions as a result of the application of International Financial Reporting Standard 9 from January 2018. The advice must also assess the impact of certain design aspects too, including those that are relevant to the functioning, scope design and calibration of statutory prudential backstops. The Commission has requested the EBA to provide its report by November 27, 2017.

The Commission's consultation closes on November 30, 2017.

View the Consultation Paper.

View the consultation page.

View the Commission's request for advice. 

The European Banking Authority has launched a consultation on the draft Regulatory Technical Standards on the methods of prudential consolidation under the Capital Requirements Regulation. The CRR provides that banks, investment firms, financial institutions and, when certain criteria apply, ancillary services undertakings, fall within the scope of the prudential consolidation framework. Banks and investment firms are required to fully consolidate all subsidiaries that are banks, investment firms and financial institutions. Different methods of consolidation, such as proportional consolidation, the equity method or the aggregation method, are allowed as an alternative to full consolidation.

Read more. 

The European Banking Authority has published an Opinion and a Report on financial intermediaries and regulatory perimeter issues under the Capital Requirements Regulation and the Capital Requirements Directive. The Opinion and Report are a result of the EBA's up-to-date analysis of issues relating to non-bank financial intermediaries (referred to by the EBA as other financial intermediaries or OFIs) and the scope of EU-level and national prudential regulation. The Opinion and the Report provides the EBA's assessment of the use of the exemptions for certain entities from the CRDIV requirements, national approaches to prudential supervision of OFIs, the ambiguities around the definitions of "ancillary services undertaking" and "financial institution" in CRR and the need to update the list of activities that are part of the EU passporting regime.

The Opinion sets out the EBA's view on issues arising under the EU capital requirements framework that the European Commission, European Parliament and Council of the European Union should consider further in their current deliberations over the proposed amendments to the CRR and CRD.

Read more. 

The European Central Bank has published a Report on the supervision of less significant institutions under the Single Supervisory Mechanism. The SSM is made up of the ECB and national regulators of Eurozone member states, and is responsible for the prudential supervision of all banks in the euro area. The ECB directly supervises the larger firms, classified as significant institutions, and national regulators directly supervise the less significant institutions, subject to the oversight of the ECB. The ECB is also responsible for certain common procedures, such as the granting and withdrawal of authorization and the acquisition of qualifying holdings in SSM firms. The ECB can issue guidelines, regulations or general instructions to the SSM national regulators or even take over the direct supervision of a less significant institution (at its own initiative or at the request of the national regulator).

The ECB's Report discusses the main concerns for less significant institutions, which include competition, and suggests that less significant firms may choose to consolidate businesses to improve profitability. The Report also sets out the steps that the SSM supervisory functions have taken towards harmonizing supervisory approaches to level the playing field, and highlights that the key challenge that needs to be addressed is the use of different accounting systems because that hinders comparability of data between the firms. Finally, the ECB indicates that it is developing specific policy positions and operational guidance on issues relevant to Brexit and the likely relocation of some activities of UK firms moving into the Eurozone.

View the report.

Acting Comptroller of the US Office of the Comptroller of the Currency Keith Noreika questioned the US regulatory requirement for banks to maintain a separation between banking and commerce. Noreika noted that the Glass-Steagall Act was enacted at a time when there were very few banks, distinguishing today’s economy where there are many more banks that are subject to a “robust regulatory regime.” He suggested that preventing commercial firms from engaging in banking activities has concentrated US banking operations in a few large banks. He reiterated a commonly expressed view that the financial crisis demonstrated that the separation of banking and commerce does not make the financial system inherently safer. Noreika also rebuked calls to reinstate the Glass-Steagall Act, challenging the notion that the separation of commercial banking from investment banking in any way serves the best interest of the financial system and economy.

View Acting Comptroller Noreika’s speech.

Randal Quarles made his first public address after being formally sworn in as the new Vice Chairman for Supervision of the US Board of Governors of the Federal Reserve System at The Clearing House’s Annual Conference in New York. Although Quarles’s remarks have not yet been posted publicly, he notably called for taking a "fresh look" at various Dodd-Frank regulatory requirements, including stress testing, living wills and the leverage ratio.  Although he generally did not discuss any specifics, he indicated his support for improving transparency, including seeking input for how to improve the Federal Reserve’s stress testing process. He also expressed support for tailoring regulation to reflect the risks associated with a bank’s activities and not just its size. Specifically, he noted that making adjustments to the $50 billion threshold for enhanced prudential supervision under Section 165 of the Dodd-Frank Act are not dependent on Congressional action.

The European Banking Authority has published a final Report and final Guidelines on the supervision of significant branches. The Capital Requirements Directive and the Bank Recovery and Resolution Directive provide the EU legal framework for the prudential supervision of branches. The Guidelines set out how the consolidating supervisor, the home supervisor and the host supervisor should cooperate to supervise prudentially and assess recovery planning and coordinate monitoring of significant branches requiring intensified supervision. The Guidelines apply to 'significant-plus' branches of EU firms established in another EU member state, not to branches of third-country firms.

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The European Banking Authority has launched a consultation on reviewing three Guidelines with the aim of strengthening the Pillar 2 framework. The consultation covers updates to the following:

1. Guidelines on common procedures and methodology for Supervisory Review and Evaluation Process (SREP Guidelines).

2. Guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines).

3. Guidelines on institutions' stress testing.

The consultation on the three Guidelines is being run in parallel, with feedback on the proposals requested by January 31, 2018.

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The Basel Committee on Banking Supervision has published final guidelines for the identification and management of step-in risk, following consultations in December 2015 and March 2017.

The Basel Committee refers to step-in risk as the risk that a bank may provide financial support to an entity that is under financial stress beyond or without any contractual obligations to do so, to protect itself from any adverse reputational risk that may result from its connection to the entity. The aim of the guidelines is to mitigate potential spillover effects from the shadow banking system to banks. The Basel Committee's work on developing the guidelines is part of the G20 initiative to strengthen the oversight and regulation of the shadow banking system to mitigate systemic risks, in particular risks arising due to banks' interactions with shadow banking entities.

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The European Banking Authority has published an Opinion on issues relating to Brexit where a UK firm seeks to establish an entity within the EU27. The Opinion is addressed to the European Commission, national regulators of member states, the European Central Bank in its role as bank prudential supervisor for entities established in the eurozone and to national regulators in Norway, Lichtenstein and Iceland (as per the EEA Agreement). The Opinion is intended to provide guidance on supervisory expectations and to address regulatory and supervisory arbitrage issues that may arise as firms consider establishing entities within the EU27 before the date of the UK's exit from the EU. The Opinion covers areas such as the authorization process, equivalence access for investment services, internal model approvals, resolution and deposit scheme issues and internal governance and risk management. In particular, the Opinion addresses outsourcing and risk transfers using back-to-back or intragroup transactions. The EBA states that 'letter-box' or 'empty shell' entities do not meet the existing regulatory requirements and that national regulators should assess whether outsourcing is being used solely as a means of obtaining an EU passport. The EBA also considers that a group with a new EU27 entity that uses back-to-back or intragroup transactions to transfer risk must have enough capital, risk management and operational capabilities to absorb any material unhedged or unsecured portfolio in the event of the default of the group entity to which the risks have been transferred.

View the EBA's Opinion.

The European Commission has published a report, addressed to the European Parliament and the Council of the European Union, on the Single Supervisory Mechanism. The Banking Union is made up of the SSM, the Single Resolution Mechanism and the deposit guarantee scheme. The SSM is the first pillar of the Banking Union, which the European Authorities are aiming to complete by the end of 2019. The SSM is made up of the European Central Bank and national regulators of Eurozone Member States, and implements the prudential policy and requirements of all banks in the euro area. The ECB directly supervises the larger firms, classified as significant institutions, and national regulators directly supervise the less significant institutions, subject to the oversight of the ECB.

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The European Commission has published a Communication in which it calls for completion of the Banking Union by 2019 and provides a path on how that could be achieved. The Banking Union is made up of the Single Supervisory Mechanism, the Single Resolution Mechanism and the deposit guarantee scheme. The Communication is addressed to the European Parliament, the Council of the European Union, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions. The Communication sets out the Commission's view on the steps needed to complete the Banking Union.

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