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

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

View the Opinion and Report.

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

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

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

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

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

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

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

View the text of the final rule.

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

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

View the report.

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

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

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

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

View the press release.

View the final rule.

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

View the press release.
​
View the review.

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

View the press release.

View the proposed rule.

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

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

View the speech.

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

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

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

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

View the FAQs in “Clean” Format.

View the FAQs in “Track Changes” Format.

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

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

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

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

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

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

View the press release.

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

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

View the consultation paper.

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

View the press release.

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

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

View Comptroller Curry's remarks.

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

View the proposed rulemaking.

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

View the proposed rule.

View the FDIC Chairman’s statement.

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

View the consultation.

The Comptroller of the Currency, Thomas J. Curry, in a speech before the Exchequer Club, discussed the increasing credit risk in the federal banking system. Comptroller Curry believes the financial system is currently at a point in the market cycle where loan underwriting standards are weakening and credit risk is becoming an increasing point of focus. He stated, “...we should be asking whether banks have the appropriate risk management processes and structures in place to measure, monitor and control the increased credit risk they are taking on.”  In his remarks, the Comptroller mentioned leveraged lending and auto lending as two specific products of concern.

View the  press release.

View the Comptroller’s remarks.

The Bank of England published its approach to stress testing and evaluating the resilience of the UK banking system and set out its plans in this regard for the next three years. The BoE's approach will include the introduction of an annual cyclical scenario, assessing risks to the banking system that derive from financial cycles, taking into account domestic, global and markets elements. This annual cyclical scenario will include all PRA-regulated banks and building societies with total retail deposits greater than £50 billion, on an individual or consolidated basis, at a firm's financial year end date. Currently, this means the following firms will be included: Barclays plc, HSBC Holdings Group, Lloyds Banking Group, Nationwide Building Society, Royal Bank of Scotland Group, Santander UK plc and Standard Chartered Bank Group. UK subsidiaries of foreign-owned investment banks will be excluded. Every other year, the BoE will also biannually explore scenarios that are unrelated to the financial cycle and for which risks to financial stability and individual banks are deemed to be emerging. Therefore, in 2016, there will be a European Banking Authority stress test and a UK cyclical scenario test. In 2017, there will be both a UK cyclical and exploratory scenario test (for the first time). In 2018, the BoE intends to only run a UK cyclical scenario test. The results of the 2015 UK stress test are expected to be published on December 1, 2015.

View the BoE's approach to stress testing.

The European Commission published its report to the European Parliament and the Council on the capital requirements for covered bonds as incorporated in the Capital Requirements Regulation. Under CRR, for banks investing in covered bonds that meet certain criteria a preferential risk weights is applied. The Commission is required to report on the appropriateness of: (i) the preferential risk weights taking into account types of cover assets, level of transparency on the cover pool and the impact of the covered bond issuance on the issuer's unsecured creditors; (ii) extending the preferential risk weights to covered bonds secured by certain aircraft loans; (iii) including covered bonds guaranteed by residential loans as eligible assets; (iv) the derogation for covered bonds backed by securitization instruments; and (v) the derogation for covered bonds backed by other covered bonds. The Commission considers the European Banking Authority's recommendations on the EU covered bond framework published in 2014 and sets out where it agrees with those recommendations and its proposed steps to implement them, including consulting with stakeholders on proposed changes to the legislative requirements. The Commission's recent consultation on the EU's covered bond framework under the Capital Markets Union initiative is also relevant and will impact on how the capital treatment for covered bonds is revised.

View the Commission's Report.

View the EBA's Report.

 
The Prudential Regulation Authority launched a consultation on its proposed criteria and methodology for identifying other systemically important institutions, i.e. institutions that are not classed as globally systematically important financial institutions but whose failure would have a significant negative effect on the UK financial system. According to the Capital Requirements Directive, national regulators are required to identify O-SIIs that are banks, investment firms or mixed financial holding companies incorporated in their jurisdiction. That requirement derives from the Basel Committee on Banking Supervision framework for domestic systemically important banks or D-SIBs. In developing its proposals, the PRA states that it has to take into account the relevant EBA Guidelines on the assessment of O-SIIs. The PRA must identify as O-SIIs those firms whose distress or failure would have a systemic impact on the UK or EU economy or financial system due to size, importance, complexity, cross-border activity and interconnectedness. Firms that are designated as O-SIIs by the PRA will be subject to enhanced supervision by the PRA. However, the PRA considers that O-SIIs are likely to be those firms that are currently subject to PRA supervision as a Category 1 firm and therefore there will be minimal impact on the firms. The PRA intends to publish the first list of O-SIIs in Q1 2016 and thereafter annually by December 1, each year. The consultation is open until January 18, 2016. The PRA will publish its final Statement of Policy in Q1 2016.
 
View the PRA consultation paper.

The US Board of Governors of the Federal Reserve System issued guidance intended to clarify the criteria and process used by the Federal Reserve Board in determining whether to waive or to conduct pre-membership safety-and-soundness and consumer compliance examinations of insured depository institutions that are looking to either: (i) become state chartered member banks of the Federal Reserve System; or (ii) merge with another institution where a state member bank would be the surviving entity, including those with $10 billion or less in total consolidated assets. Specifically, the Federal Reserve Board stated that a state nonmember bank, national bank, or savings association seeking to convert its status to a state member bank will not generally be required to complete a safety-and-soundness or consumer compliance examination prior to the conversion if the institution seeking membership meets the criteria for "eligible bank," as set forth in the Federal Reserve Board’s Regulation H, together with certain additional safety and soundness criteria set forth in the guidance (collectively, the "eligibility criteria"). Under circumstances where an insured depository institution is looking to merge with another institution where a state member bank would be the surviving entity, a safety-and-soundness or consumer compliance examination of the insured depository institution will not be required so long as the state member bank meets all of the eligibility criteria on an existing and pro-forma basis.

View the guidance.

A Delegated Regulation correcting the text of the Regulatory Technical Standards on requirements for investor, sponsor, original lenders and originator institutions for exposures to transferred credit risk under the Capital Requirements Regulation was published in the Official Journal of the European Union. Minor errors were made in the RTS published in various languages of the EU, and the revisions correct such errors, including clarifying that materially relevant data does not have to be provided to investors at an individual loan level in all circumstances and that it may be sufficient to provide such data on an aggregate basis in certain circumstances. The Delegated Regulation enters into force on October 28, 2015.
 
View the Delegated Regulation.

The US Board of Governors of the Federal Reserve System announced the approval of the applications by Royal Bank of Canada and its subsidiary, RBC USA Holdco Corporation, to acquire City National Corporation and its wholly owned subsidiary, City National Bank, under section 3 of the Bank Holding Company Act. City National is a $33 billion banking organization. The Federal Reserve Board’s approval comes approximately seven months after submission of the application, which was the subject of comments opposing the application. On the same day, the Federal Reserve Board approved the application by Royal Bank of Canada to establish a limited federal branch in New Jersey. As a limited federal branch, it will only take deposits permitted to be taken by an Edge corporation under section 25A of the Federal Reserve Act.

View the press release announcing the approval of the acquisition.

View the Federal Reserve Board order approving the acquisition.

View the Federal Reserve Board press release approving the limited branch.

View the Federal Reserve Board order approving the limited branch.

The European Banking Authority published final translations of its Guidelines on the management of interest rate risk arising from non-trading activities, also known as interest rate risk in the banking book or IRRBB, which is the risk to firms arising from adverse movements in interest rates. Under the Capital Requirements Directive, national regulators must require a firm to take measures if its economic value declines by more than 20 per cent of their own funds as a result of a sudden and unexpected change in interest rates of 200 basis points which is termed supervisory "standard shock". National regulators must also take steps when a change occurs, as defined by the EBA in these Guidelines. The Guidelines set out the definition of such change and the methods for the calculation of the outcome of the supervisory "standard shock", which is the shock applied to a firm's portfolio to determine the impact on the economic value of the firm, as well as specify the identification, management and mitigation of IRRBB. The Guidelines apply from January 1, 2016. They will repeal the Guidelines of the Committee of European Banking Supervisors published in 2006. The Guidelines are addressed to national regulators and relevant credit institutions and investment firms. National regulators must notify the EBA by December 7, 2015 as to whether they comply or intend to comply with the Guidelines.
 
View the Guidelines.

The Basel Committee on Banking Supervision published a report relating to the regulatory consistency of Risk-Weighted Assets for counterparty credit risk. This report is part of the BCBS’s wider Regulatory Consistency Assessment Program, which is intended to ensure consistent implementation of the Basel III framework. The report examines variability in banks’ modeling of derivatives, specifically exposure modeling, by presenting findings from a hypothetical test portfolio exercise. The report concentrates on the internal models method and the advanced credit valuation adjustments risk capital charge for OTC derivative trades. This report completes the BCBS’s review, in respect of trading-related internal models, and follows two earlier exercises that focused on market risk RWAs that were published in January 2013 and December 2013. In the report, the BCBS presents key findings, lists a number of observed good practices, and highlights areas where banks and supervisors may seek to harmonize practices to reduce variability in outcomes.

View the report.

William C. Dudley, President and Chief Executive Officer of the US Federal Reserve Bank of New York, delivered a speech at the SIFMA Liquidity Forum reiterating the need to strike a proper balance between sound regulation and liquidity in financial markets. Specifically, his remarks examined market liquidity in two important fixed-income markets: the US Treasury market and the US corporate bond market. He discussed, among other things, methods on how to measure liquidity, evidence of how liquidity has changed in recent years, factors that could influence liquidity provision, and costs associated with shifts in liquidity. Dudley expressed his support for the recommendations in the recently issued interagency report on the October 15, 2014 Treasury market flash rally, including the need to better understand the implications of the evolving Treasury market structure and liquidity and how changes in regulation and market structure influence liquidity conditions more generally. Specifically, he called for study and data analysis as to whether there is a decrease in liquidity and/or an increase in liquidity risk that is costly or poses a risk to financial stability and whether regulation can be altered to improve the balance between enhancing financial stability and the costs of such regulation, including adverse impacts on liquidity.

View the speech.

The US Board of Governors of the Federal Reserve System announced its approval of the applications by: (i) M&T Bank Corporation to acquire Hudson City Bancorp, Inc.; and (ii) by M&T’s subsidiary bank, Manufacturers and Traders Trust Company, to merge with Hudson City Savings Bank. Upon consummation of the transactions, M&T will have consolidated assets of approximately $132.5 billion, making it the 25th largest insured depository organization in the United States (currently it is 31st). M&T agreed to purchase Hudson City and submitted applications to the Federal Reserve Board in respect of the transaction in 2012. However, the Federal Reserve Board initially identified weaknesses in M&T’s risk management program, including issues in M&T’s Bank Secrecy Act/anti-money laundering compliance management program and its consumer compliance program and thus postponed consideration of the deal at M&T’s request until M&T was able to remediate these concerns.

View the press release.

View the Order.

The Prudential Regulation Authority published an updated Supervisory Statement on reports provided by skilled persons under the Financial Services and Markets Act 2000. Under FSMA, the PRA may appoint, or may require a firm or a certain individual to appoint a skilled person to provide the PRA with a report giving an independent view of a firm's activity. This is part of the PRA's supervisory approach to firms, to identify, assess or prevent risks, track the development of previously identified risks or to use as part of possible remedial measures. The Supervisory Statement is to be read alongside the Use of Skilled Persons Part of the PRA Rulebook, which specifies the rules on contracts entered into with skilled persons. The updated Supervisory Statement provides greater clarity on the use of a skilled person as part of the PRA's supervisory approach and in particular as a discretionary supervisory tool. The Supervisory Statement includes: (i) the PRA's considerations when appointing a skilled person; (ii) the PRA's considerations when determining whether it should use its powers under FSMA to obtain a report by a skilled person or to appoint a skilled person to collect or update information; and (iii) the PRA's expectations of an appointed skilled person.

View the Supervisory Statement.

The European Banking Authority published its first analysis on asset encumbrance for EU banks, using data received from the 200 banks that provide it with such data. This first analysis initiates the regular monitoring of levels of asset encumbrance at EU level and future reports will be published annually. The analysis aims to assist supervisors in assessing how banks manage funding stress as well as the impact that switching from unsecured to secured funding might have on banks in conditions of stress. The report is based on data received for December 2014 and March 2015 further to a requirement under the Capital Requirements Regulation for banks to report levels of repurchase agreements, securities lending and all forms of asset encumbrance to national regulators. The analysis shows that the overall weighted average encumbrance ratio was 27% in March 2015, with ratios at country level that range from 0% for Estonia and 44% in Denmark and Greece. The report shows there has been no increase in levels of asset encumbrance over the past four years, based on a comparison with a similar report released by the European Systemic Risk Board in 2011. 

View the report.

The European Commission published two proposed Regulations as part of its Capital Markets Union initiative which aim to revive the EU securitization markets. The proposed Regulation on common rules on securitization and creating a European framework for simple, transparent and standardized securitization (referred to as STS Securitization) sets out the eligibility criteria for STS securitizations such as risk retention rules, due diligence and disclosure requirements. The proposed Regulation also includes requirements for supervisory requirements, amendments to other EU legislation to ensure consistency, an exemption, subject to certain criteria being met, from the clearing obligation for OTC derivative contracts entered into by covered bond entities and securitization special purpose entities and rules on third country securitizations. The second proposed Regulation would amend the Capital Requirements Regulation to revise capital requirements for banks and investment firms originating, sponsoring or investing in securitizations. The objective of the proposals is to align the CRR provisions with the revised Basel framework of 2014 as was recommended by the European Banking Authority in its report on qualifying securitizations in July. The proposed revisions to CRR seek to adopt a more risk-sensitive approach to STS securitization which is currently in the early stages of development at international level. Both legislative proposals are subject to the European legislative process. 

View the proposed STS Securitization Regulation.
 
View the proposed CRR Amendment Regulation.