The US Office of the Comptroller of the Currency and the US Federal Deposit Insurance Corporation issued statements providing guidance for examiners with respect to data collection by financial institutions pursuant to Regulation C, which implements the Home Mortgage Disclosure Act. In the statements, both agencies noted the regulatory and compliance challenges financial institutions face due to amendments to Regulation C made by the US Consumer Financial Protection Bureau which took effect on January 1, 2018. To address these challenges, the agencies announced that they will not require resubmission of HMDA data collected in 2018 and reported in 2019 unless there are material errors. The OCC and FDIC further noted that they do not intend to assess any penalties with respect to errors in data that is collected in 2018 and reported in 2019.

View the OCC bulletin.

View the statement by the FDIC.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced an increase in the aggregate loan commitment threshold for an institution to be included in the Shared National Credit program. The agencies noted that the increase from $20 million to $100 million reflects changes in average loan size and adjustments for inflation. In their joint release, the agencies noted that this change will bring regulatory relief to 82 financial institutions, while only nominally reducing the dollar amount of loans evaluated under the Shared National Credit program.

View the joint agency press release.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, and the US Federal Deposit Insurance Corporation announced technical amendments to the asset thresholds used to define small banks and saving associations and intermediate small banks and savings associations under the Community Reinvestment Act. These adjustments, which occur annually, are required under the CRA and based upon changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers. Under the adjusted threshold, a “small institution” will be any institution that had assets of less than $1.252 billion as of December 31 of either of the last two years. The definition of “intermediate small institution” will be updated to include institutions with at least $313 million as of December 31 of each of the last two years, and assets of less than $1.252 billion as of December 31 of either of the last two years. The updated definitions will take effect as of January 1, 2018.

View the Interagency final rule.

The Basel Committee on Banking Supervision has published a proposed technical amendment to the Net Stable Funding Ratio. Consultation on the proposed technical amendment will run for a short 45-day consultation period, under a new procedure adopted by the Basel Committee at its meeting in December 2017.

The proposed technical amendment relates to the treatment of extraordinary monetary policy operations in the NSFR. The amendment proposes to allow reduced required stable funding factors for central bank claims with maturity of more than six months.

Read more.

The European Banking Authority has published its final report on Recommendations on outsourcing by financial institutions to cloud service providers. The EBA has developed the Recommendations on its own initiative as part of its broader work on FinTech, given the increasing importance and popularity of cloud services as an enabling technology used by financial institutions.

The Recommendations are designed to complement the guidelines on outsourcing issued by the EBA's predecessor, the Committee of European Banking Supervisors on December 14, 2006. The Recommendations further specify the CEBS guidelines in five key areas: the security of data and systems; the location of data and data processing; access and audit rights; chain outsourcing; and contingency plans and exit strategies.

The Recommendations are addressed to credit institutions, investment firms and national regulators and will apply from July 1, 2018.

View the EBA Final Report.

Following the summary it published on December 7, 2017, the European Banking Authority has issued its full cumulative impact assessment of the impact of the finalized "Basel III" prudential framework on EU banks.

The finalized Basel III framework, announced on December 7, 2017, includes further elements developed with the overall aim of addressing undue variability in the calculation of risk weighted assets and improving the comparability of banks' capital ratios.

Using December 2015 data, the EBA has conducted an analysis of the impact of the December 2017 revisions on the EU banking system. The EBA's impact assessment outlines, at a high level, the effect of the December 2017 revisions on: (i) minimum required capital; (ii) regulatory capital ratios, leverage ratios and capital shortfalls; and (iii) the extent to which banks are constrained by the different metrics of capital requirement in the revised framework, namely the output floor, the leverage ratio and risk weighted assets.

Read more.

The Basel Committee on Banking Supervision has published proposals on a revised version of the stress testing principles it first published in 2009. The revisions to the principles are the outcome of a review of its current stress testing principles, carried out during 2017.

The proposed new principles have been stated at a higher level than the previous principles, so that the principles can apply across many banks and jurisdictions and so that they are robust to developments in stress testing practices. Overlaps between principles have also been removed, along with some of the descriptive wording accompanying each principle. While the application of the previous set of principles was split between banks and supervisors, it is intended that each of these new "streamlined" principles will apply to both supervisors and banks. Additional considerations for banks and supervisory authorities are set out within each principle.

Comments on all aspects of the proposed new principles are invited by March 23, 2018. Comments should be submitted using an online response form.

View the consultation paper.

View the online response form.

The European Commission has published legislative proposals to amend the EU framework on the prudential supervision of investment firms. The proposals follow the European Banking Authority's Opinion on revising the regime published in September 2017. The aim of the proposals is to tailor the prudential requirements and supervisory arrangements to the risk profile and business models of investment firms.

The Commission's proposals maintain the EBA's recommendation for three different categories of investment firm.

Read more. 

The US House of Representatives voted 288-130 in favor of the Systemic Risk Designation Improvement Act of 2017 (H.R. 3312). The bill, introduced on July 19, 2017 and sponsored by Representative Blaine Luetkemeyer, removes the $50 billion asset-threshold under the Dodd-Frank Act. In place of this automatic designation, certain Dodd-Frank provisions will now apply only to institutions designated as global systemically important bank holding companies and other bank holding companies that have been designated by the US Board of Governors of the Federal Reserve System as warranting enhanced supervision and/or enhanced prudential standards.

View the full text of H.R. 3312.

The European Securities and Markets Authority has issued three consultations on technical standards under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2019, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The STS Regulation requires originators and sponsors to notify ESMA when a securitization meets the STS criteria and ESMA will maintain a list of all such securitizations on its website. The STS Regulation allows (but does not require) originators, sponsors and SSPEs to use third-party firms to assess whether a securitization meets the STS criteria, provided that those firms are authorized by the relevant national regulator.

Read more.

The US Board of Governors of the Federal Reserve System announced publication of a final rule repealing Regulation C. This regulation had been promulgated to implement provisions under the Home Mortgage Disclosure Act. However, pursuant to the Dodd-Frank Act, all rulemaking authority under the HMDA was transferred to the US Consumer Financial Protection Bureau. The CFPB implemented its own Regulation C in 2016, after publishing an interim final rule in 2011. The repeal of the Federal Reserve Board’s Regulation C is effective January 22, 2018. On the same day, the Federal Reserve Board also published a notice of proposed rulemaking and request for public comment regarding revisions to Regulation M, which implements the Consumer Leasing Act. Similar to Regulation C, most, but not all, of the Federal Reserve Board’s rulemaking authority under the CLA was transferred to the CFPB under Dodd-Frank. As such, the Federal Reserve Board’s proposal seeks to tailor Regulation M to reflect only the rulemaking authority under the CLA still vested with the Federal Reserve Board. Comments to the proposal are due March 5, 2018.

View FRB's final rule repealing Regulation C.

View notice of proposed rulemaking regarding Regulation M.

The European Banking Authority has launched a consultation on proposals to amend the Implementing Technical Standards specifying the benchmarking portfolios, templates and definitions to be used as part of the annual benchmarking exercise by those institutions that use internal approaches for market and credit risk.

Feedback gathered by the EBA from institutions and national regulators suggest that changes to the ITS on benchmarking of internal models are needed to provide clearer instructions of reporting requirements, better data validation and more relevant portfolios for which benchmark values can be calculated. The changes proposed by the EBA relate to both market risk and credit risk. Minor changes are also proposed to the reporting templates and instructions, to keep the portfolios up to date and ensure the reported data is relevant for the 2019 assessment.

Comments on the proposals are invited by January 31, 2018. The EBA also plans to hold a public hearing to discuss the proposals on January 23, 2018.

Read more.

The European Banking Authority has published a discussion paper seeking early-stage feedback on potential implementation issues arising from proposed revisions to the Capital Requirements Regulation to incorporate new international standards for counterparty credit risk and market risk. These international standards, developed by the Basel Committee on Banking Supervision, comprise: (i) the SA-CCR framework, a new standardized approach for measuring exposure at default for counterparty credit risk, which will replace both current non-internal models approaches, namely the Current Exposure Method and the Standardised Method; and (ii) the Fundamental Review of the Trading Book framework, which makes a number of revisions and enhancements to the framework for market risk following the fundamental review of the trading book undertaken by the Basel Committee.

The CRR 2 proposal published by the European Commission in December 2016 is still being discussed by the Council of the European Union and the European Parliament as part of the normal EU legislative procedure. However, the EBA has considered its draft mandates under those proposals and identified a number of issues that banks implementing the SA-CCR and/or the FRTB frameworks are likely to face, due to the need to introduce changes to infrastructures, IT systems, data management, pricing models or approximating techniques.

Read more.

The US Board of Governors of the Federal Reserve System announced the finalization of revisions to certain aspects of its Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank Act Stress Test (DFAST) programs.. The Federal Reserve Board had originally requested public comment on modifications to the information collected as part of the FR Y–14A/Q/M reports applicable to bank holding companies with total consolidated assets of $50 billion or more and US intermediate holding companies on June 9, 2017. As finalized, the “global market shock” component of CCAR will now include firms that (i) are not “large and noncomplex firms” under the Federal Reserve Board’s capital plan rule and (ii) that have aggregate trading assets and liabilities of $50 billion or more, or aggregate trading assets and liabilities equal to 10 percent or more of total consolidated assets. Notably, this would include certain US intermediate holding companies of foreign banking organizations. Firms that were not previously subject to the global market shock component will not      be subject to the requirement until the 2019 CCAR/DFAST cycle. The revisions also result in an elimination or modification of certain schedules to the FR Y-14A/Q/M reports, including clarifying certain aspects of the reports. Under the initial request for comment, certain of these changes would take effect on September 31, 2017 or December 31, 2017, although the Federal Reserve Board’s final announcement extends the effective date for a number of these revisions to December 31, 2017 or March 31, 2018.

View FRB's notice.

The European Central Bank is consulting on a draft ECB guide on the assessment methodology for the internal model method and the advanced CVA capital charge for counterparty credit risk under the Capital Requirements Regulation. IMM and A-CVA are internal models used by banks to calculate counterparty credit risks for over-the-counter (OTC) derivatives and securities financing transactions.

Read more.

The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on the homogeneity of underlying exposures in securitizations under the new EU framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The "simple" criterion provides, among other things, that the securitization must be backed by a pool of underlying exposures that are homogenous in terms of asset type and that the underlying exposures must include obligations that are contractually binding and enforceable, with full recourse to debtors and, where applicable, guarantors. The homogeneity requirement in the STS Regulation is designed to better enable investors to assess risk and conduct robust due diligence.

Read more.

The US Board of Governors of the Federal Reserve System, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the US National Credit Union Administration released interagency examiner guidance regarding financial institutions affected by major disasters. In accordance with the guidance, examiners will continue to assign component and composite ratings for these affected financial institutions, taking into account how the disaster has affected certain of the ratings factors, such as capital adequacy and asset quality. The guidance also notes that examiners should evaluate management capability, but should distinguish between problems intrinsic to the management of the institution, and those problems caused by the major disaster. The guidance notes that a major disaster may result in a lower component or composite rating for an affected institution, but that formal or informal action that would typically be considered for lower-ranked institutions may not be required, taking into account the institution’s disaster recovery plan and policies, which should also be evaluated for reasonableness, among other factors. If action is required, the guidance instructs examiners to appropriately tailor the response to the specific circumstances affecting the institution.

View the interagency supervisory guidance.

The European Banking Authority has launched a consultation on draft Regulatory Technical Standards on risk retention requirements for originators, sponsors and original lenders under the new EU securitization framework for simple, transparent and standardized securitizations. The new framework is made up of the STS Regulation and amendments to the existing Capital Requirements Regulation. The STS Regulation, which will come into effect in 2018, provides the criteria for identifying which securitizations will be designated as STS securitizations, a system to monitor the application of those criteria as well as common requirements on risk retention, due diligence and disclosure for all financial services sectors. The amended CRR sets out the regulatory treatment of exposures to securitizations that are deemed to be STS securitizations.

The STS Regulation requires, among other things, originators, sponsors or original lenders of a securitization to retain on an ongoing basis a material net economic interest in the securitization of at least 5 %. The draft RTS specify in greater detail the risk retention requirement, including the modalities of retaining risk, the measurement of the level of retention, the prohibition of hedging or selling the retained interest and the conditions for retention on a consolidated basis.

Read more.

The US Financial Stability Oversight Council published its 2017 annual report. The report addresses topics such as financial and regulatory developments and potential emerging threats and vulnerabilities, and makes a number of recommendations with respect to these topics. The report notes that market conditions have been relatively stable over the last year, and discusses the FSOC’s rescission of its designation of two nonbank financial institutions for supervision by the US Board of Governors of the Federal Reserve System—American International Group, Inc. and General Electric Capital Corporation, Inc. One key issue in the report is the continuing and growing threat that cybersecurity risks pose to the financial system. The report notes that although progress has been made in this area, more work is required to guard against significant cybersecurity events in the future. The report also discusses FinTech initiatives, both in the context of how innovation is changing financial market structure and financial products. The report notes that while these innovations can provide great benefits, they also create new risks to, and potential vulnerabilities in, the financial system.

View the FSOC report.

The European Banking Authority has published standardized data templates for non-performing loans, following calls from the European Commission and the Council of the European Union to develop templates that would assist in developing the NPL secondary markets. The templates are not a supervisory reporting requirement, but a market standard to be used by banks on a voluntary basis.

View the EBA’s press release.

View the templates.

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.

Read more.

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.

Read More.

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.

Read more.

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.

Read more.

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.

Read more.

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.

Read more.

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.

Read more.

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.

Read more.

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.