ABA Dodd-Frank Tracker

ABA Seeks Greater Synchronicity between Call Report, BHC Reports

2017-08-01T09:30:00.000-04:00

In response to proposed changes to the FR Y-9C form that bank holding companies with more than $1 billion in assets are required to file quarterly, ABA emphasized the importance of aligning these changes with those being made to the Call Report.

While it welcomed the changes — many of which are identical to those made to the Call Report — ABA noted that the ongoing lack of synchronization between efforts to revise the two reports are actually undermining the goal of streamlining the regulatory reporting process for banks. With additional changes expected to the Call Report in the near future, ABA urged the Fed to incorporate all changes into the March 31, 2018, FR Y-9C.

Read the letter.

Fed Seeks Comments on Proposed Reporting Changes for BHCs

2017-07-19T10:23:00.001-04:00

The Federal Reserve is seeking comments on a proposal to revise the FR-Y9 report that bank holding companies with more than $1 billion in assets are required to file. The proposed changes are nearly identical to those made to the Call Report and include the elimination of several data items and a more streamlined questions for reporting on complex or specialized activities. Comments are due Sept. 18.

While the regulatory agencies have made a number of changes to the Call Report in recent years in an effort to reduce the compliance burden on banks, the FR-Y9 report has not been adjusted accordingly. In previous comments, ABA pointed out that not updating the holding company report has undermined the goal of a streamlined reporting process, and has instead created additional confusion and burden due to a lack of harmony between the forms. ABA has been working with the Fed to better align the two reports, and welcomed the proposed changes.

Read the proposal.

Fed’s Powell Signals More ‘Transparency’ in Stress Tests

2017-06-02T11:15:00.000-04:00

The Fed will work in the coming months to provide greater transparency into the stress testing process, Governor Jerome Powell said in an interview on CNBC.

We’re working on something…in the coming months which will provide much more granular information about our expectations for loss rates on particular portfolios, of corporate loans and other kinds of loans. We’ll also provide more guidance, when we announce the results on June 22…on how we think about the qualitative requirement. And we’re going to seek comment from the public on how we go about providing more transparency.

ABA EVP Wayne Abernathy welcomed Powell’s remarks.

The idea of providing greater transparency on how the tests treat certain kinds of loans is consistent with recommendations ABA made in our recent white paper to Treasury as well as in our conversations with the Fed over the years. There is a growing consensus, among regulators and the regulated, about the value of stress testing, so efforts to refine the tests to make them even more valuable for supervision and management is a welcome step.

The Fed announced its schedule for stress test results. The Fed will release results of the Dodd-Frank Act-mandated stress tests on June 22, 2017 and will release the results of the Comprehensive Capital Analysis and Review process for larger and internationally active bank holding companies on June 28. Company-run stress tests results will be available on or before July 7.

Powell also said that with the bulk of post-crisis rulemaking completed, it is time to revisit how new regulations are working.

I think it’s our obligation now…to ask what aspects of it may be redundant or inefficient, or utterly essential and should be protected down to every letter. But there are going to be some adjustments and I think that’s only appropriate. Much of this new stuff was novel and it would be very surprising if we got it all exactly right the first time.

He added that the Fed is rethinking the way its supervision affects bank directors.

We’re going to move to a more principles-based approach and we’re going to eliminate many of the really specific directives that we give to boards of directors. We want directors to focus on their main job of overseeing and holding accountable the management, not running the company and not getting tied up in a lot of checklists.

Watch the interview.

House Republicans Press Yellen on CCAR Transparency, Efficiency

2017-05-05T11:15:00.000-04:00

A group of House Republicans led by Reps. Blaine Luetkemeyer (Mo.) and Keith Rothfus (Pa.) recently wrote to Federal Reserve Chairman Janet Yellen urging her to take action to increase the transparency and efficiency of the Fed’s Comprehensive Capital Analysis and Review process for bank holding companies with more than $50 billion in assets, including removing the qualitative assessment process for all CCAR banks. The Fed earlier this year removed the qualitative component for noncomplex firms in CCAR with less than $250 billion in assets.

The lawmakers noted that the Fed’s opacity about what CCAR considers forces institutions to overspend and invest excess time in developing models and tests and that the Fed should increase public awareness of what goes into its scenario design for the capital planning exercise.

They said:

We believe it prudent that the Board take into account these concerns and work administratively to create a more transparent, streamlined approach to CCAR. Included in those reforms should be institution of a date-certain time frame for the annual release of CCAR instructions, in an effort to impart regularity upon the process, and coordination across agencies on all stress testing efforts, to ensure a consistent process for submission of testing results.

ABA has strongly advocated with regulators and on Capitol Hill for improvements to the CCAR process that will promote efficiency for participating banks without sacrificing contributions to financial stability.

Read the letter.

ABA Commends Congressional Effort to Reform Dodd-Frank

2017-05-02T10:40:00.000-04:00

As the House Financial Services Committee prepares to begin the markup of the Financial Choice Act, ABA President and CEO Rob Nichols wrote to committee leadership commending them for their efforts to address the negative consequences of the Dodd-Frank Act.

Nichols highlighted several ABA-advocated provisions in the bill. These include: the TAILOR Act, which requires regulators to tailor regulations based on a bank’s business model and risk profile; a Qualified Mortgage safe harbor for mortgages held in portfolio; the establishment of an independent office for examination review; a provision to raise the Federal Reserve’s small bank holding company threshold to $5 billion in consolidated assets; a measure providing greater flexibility for mutual banks; a repeal of the small business loan data collection requirement; and a short form call report for highly rated banks. The bill also includes a provision that would repeal the Durbin Amendment, as ABA strongly supports.

In addition, Nichols commended the committee for its efforts to rein in the CFPB’s broad authority, and advocated for a bipartisan commission structure to provide greater accountability. He also urged the committee to take additional steps to provide regulatory relief from unnecessary stress tests.

Finally, he expressed reservations about the Choice Act’s voluntary “off-ramp” from Dodd-Frank’s regulatory regime for banks that elect to maintain a specified level of capital. While acknowledging that the provision was well-intentioned, he pointed out that hundreds of well-run banks may choose not to pursue the exemption or be unable to do so, which would prevent them from achieving meaningful regulatory relief.

Read more.

Hensarling Releases Full Text of Financial Reform Bill

2017-04-20T10:30:00.000-04:00

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) has released the latest legislative text of his Financial Choice Act, a 600-page bill aimed at rolling back and reforming parts of the Dodd-Frank Act’s extensive supervisory regime, as well as providing regulatory relief for banks of all sizes. A similar version of the legislation cleared the committee in the previous Congress. The committee is scheduled to hold a hearing on the bill next week.

Title V of the Choice Act contains numerous provisions long sought by ABA. These regulatory relief measures would provide a Qualified Mortgage safe harbor to mortgage loans held in portfolio, tailor supervision to banks’ risk profiles and business models, raise the small bank holding company policy statement asset threshold to $5 billion, create an independent exam appeals process, provide charter flexibility for thrifts, stop data collection on small business loans, clarify the QM rule’s points and fees test, expand the short-form Call Report, enhance mortgage relief for smaller banks and smaller mortgage originators and prevent future “Operation Choke Point” activities.

The bill further details plans to reform the CFPB, which would be renamed the Consumer Law Enforcement Agency and would be stripped of examination powers and “UDAAP” enforcement authority. The Choice Act would also repeal the Durbin Amendment, impose more stringent penalties for Wall Street in cases of fraud or deception and repeal sections of Dodd-Frank that limit capital formation, including the Volcker Rule. It would bring the new CLEA, FDIC, OCC, Federal Housing Finance Agency, National Credit Union Administration and supervisory functions of the Federal Reserve into the congressional appropriations process, mandate cost-benefit analyses of regulations and require congressional approval for “major rules.”

Additional regulatory relief would be available for banks maintaining a 10% non-risk weighted leverage ratio that elect into the alternative regime. Qualifying banks would be exempt from federal capital and liquidity requirements, blocks on capital distributions, systemic risk regulations and limitations on mergers and acquisitions provided any new entity also maintains the minimum leverage ratio.

Another key component of the Choice Act is ensuring no institution is “too big to fail” by replacing Dodd-Frank’s Orderly Liquidation Authority provision with a new Bankruptcy Code designed to accommodate the failure of a large, complex financial institution. Additionally, it significantly restricts the Federal Reserve’s ability to make discounted loans or bail out financial firms or creditors.

View the full text of the bill.

SEC Extends Deadline for Guide 3 Disclosure Revisions

2017-04-20T09:36:00.000-04:00

In response to requests from ABA, the SEC extended the comment period related to its proposal to change Industry Guide 3, which details required statistical financial disclosures for bank holding companies. In effect for over two decades, Guide 3 has faced criticism over the years by bankers, auditors and investors, as many of the Guide 3 requirements overlap with those of the federal banking agencies and the Financial Accounting Standards Board. The comment period, originally scheduled for 60 days, was extended another 60 days to July 7.

Read more.

Regulators Clear Living Wills for Regional, Card Banks

2017-03-27T10:20:00.000-04:00

The FDIC and Federal Reserve have announced that they had reviewed resolution plans submitted in December 2015 by 16 regional and credit card banks and that none were found “not credible” or inadequate to facilitate an orderly resolution under the Bankruptcy Code, the statutory standard under the Dodd-Frank Act.

So-called living wills submitted for fifteen of the banking firms – American Express, Ally Financial, BB&T, Capital One, Comerica, Discover, Fifth Third, Huntington, KeyCorp, M&T Bank, PNC, Regions, SunTrust, U.S. Bancorp and Zions Bancorporation – had no shortcomings, according to regulators. As a result, these institutions will be able to submit less information as part of the resolution plans due in December 2017. The agencies identified shortcomings in the plan submitted by Northern Trust Corporation that the company must address in its next filing.

Meanwhile, the agencies provided feedback to the U.S. affiliates of four overseas banking firms – Barclays, Credit Suisse, Deutsche Bank and UBS – to address vulnerabilities associated with governance, capital and liquidity. All four have “significantly restructur[ed]” their U.S. operations to comply with Dodd-Frank, the agencies said. The four firms will have until July 2018 to submit revised living wills.

The resolution plan process – which applies to U.S. bank holding companies with assets of more than $50 billion, nonbanks designated as systemically important by the Financial Stability Oversight Council and large foreign banks with U.S. operations – requires these large institutions to describe their strategy for a rapid and orderly wind-down in the event of stress. Planning requirements are tiered based on a firm’s level of complexity.

Read more.

Agencies Finalize EGRPRA Review with Joint Report to Congress

2017-03-22T09:19:00.000-04:00

The federal banking agencies have released a 440-page report to Congress that highlights some of the significant regulatory burdens facing America’s banking industry. This report concludes the agencies’ decennial review of regulations that began in June 2014 and is required by the Economic Growth and Regulatory Paperwork Reduction Act.

ABA EVP Wayne Abernathy said:

We appreciate regulators’ extensive consultation with the banking industry to better understand the specific regulatory burdens that make it harder for banks to serve their customers and communities. We’re eager to extend the good work of the EGRPRA process into this more detailed and comprehensive review as regulators work with Treasury to identify additional areas for improvement and take action to make those changes a reality.

ABA submitted extensive feedback to the federal banking agencies throughout the EGRPRA review. Among other things, ABA asked the agencies to streamline the Call Report, simplify reporting for highly capitalized banks, modernize the Community Reinvestment Act, reduce BSA/AML burden, increase the Federal Reserve’s threshold for small bank holding company relief, provide additional flood insurance guidance and update the OCC’s Part 9 fiduciary regulations.

Multiple ABA recommendations have already been acted upon, including on the Call Report, small bank holding companies and Part 9. Other recommendations have not been acted upon, though ABA will continue to press the agencies to provide this relief. The EGRPRA final report also offers a roadmap for actions the regulators will take soon to address certain regulatory burdens, such as proposals to simplify capital rules for community banks and increase the threshold requiring an appraisal for commercial real estate loans from $250,000 to $400,000.

Read the report.

SEC Seeks Comments on Bank Holding Company Disclosures

2017-03-02T09:00:00.000-05:00

The SEC is seeking comments on the disclosures publicly reporting bank holding companies are required to provide to investors.

Acknowledging that the industry has changed dramatically since the existing guidance was finalized in the 1970s, the SEC is soliciting feedback on whether the current disclosure standards provide sufficient information to investors, whether and how the current disclosures could be improved and whether other public companies in the financial industry should be required to provide similar disclosures.

ABA has long advocated a review of the existing guidance and will submit a comment letter to the SEC. Comments are due 60 days after publication in the Federal Register.

Read more.

The Week Ahead: Feb. 13 - 17

2017-02-10T11:00:00.000-05:00

Monday

Comments Due FRB: Application of the RFI/C(D) Rating System to Savings and Loan Holding Companies
Read more.
Effective Date HUD: Revision of Freedom of Information Act Regulation
Read more.

Tuesday

Comments Due FRB: Banking Organization Systemic Risk Report (FR Y-15)
Read more.
Comments Due SBA: Small Business Investment Companies--Administrative Fees
Read more.
Effective Date CFTC: Aggregation of Positions; Final Rule
Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

Fed Revises Capital Planning Requirements for Banks Under $250B

2017-01-31T10:00:00.000-05:00

The Federal Reserve has issued a final rule that will exempt many regional banks from the complex qualitative requirements of its annual Comprehensive Capital Analysis and Review, or CCAR, process. The rule takes effect for the 2017 CCAR cycle – which began on Jan. 1 – for bank holding companies with between $50 billion and $250 billion in assets. CCAR instructions and scenarios for 2017 will be released later this week.

As the ABA recommended in its comment letter, the Fed offered additional clarity on the supervisory review process, specifying that it plans to conduct its reviews “in a manner similar to existing supervisory programs,” including a “first day letter” in advance and sufficient lead time to provide information and address findings. The Fed also said it will provide large and noncomplex firms with “several months’ advance notice” of focus areas in the capital plan.

While welcoming this refinement of the stress test program for those banks affected by the rule, ABA will continue to encourage the Federal Reserve to consider expanding these reforms to other banks.

Read the final rule.
Read ABA’s comment letter.

The Week Ahead: Jan. 15 - 20

2017-01-13T10:30:00.000-05:00

Sunday

Effective Date CFPB: Civil Penalty Inflation Adjustments
Read more.
Effective Date FDIC: Rules of Practice and Procedure
Read more.

Tuesday

Effective Date FDIC: Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks
Read more.
Effective Date FRB: Regulatory Capital Rules: Implementation of Capital Requirements for Global Systemically Important Bank Holding Companies
Read more.
Effective Date SEC: Investment Company Liquidity Risk Management Programs; Final Rule
Read more.
Effective Date SEC: Investment Company Reporting Modernization; Final Rule
Read more.
Comments Due FDIC: Enhanced Cyber Risk Management Standards
Read more.
Comments Due OCC: Company-Run Annual Stress Test Reporting Template and Documentation for Covered Institutions With Total Consolidated Assets of $50 Billion or More Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (PRA)
Read more.
Comments Due OCC: Reporting, Recordkeeping, and Disclosure Requirements Associated With Proprietary Trading and Certain Interests in and Relationships With Covered Funds (PRA)
Read more.

Wednesday

Effective Date FRB: Regulation D; Reserve Requirements of Depository Institutions
Read more.

Thursday

Effective Date OCC: Receiverships for Uninsured National Banks
Read more.

Friday

Comments Due SEC: Exemptions To Facilitate Intrastate and Regional Securities Offerings; Final Rule
Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

Fed Extends Comment Deadline for Physical Commodities Proposal

2016-12-21T09:10:00.002-05:00

The Federal Reserve has announced that it will extend the comment period for its proposed rule on physical commodities activities for financial holding companies. Comments will now be due on Feb. 20.

The proposed rule would impose tighter capital requirements and limitations on financial holding companies engaged in physical commodities activities. Under current law, certain FHCs are permitted to engage in physical commodities trading, energy management and energy tolling activities, and FHCs are also permitted to make merchant banking investments in companies engaged in activities involving physical commodities.

The proposed rule would revise the calculation used to determine the total value of commodities held by a FHC (which is currently limited to 5% of tier 1 capital) and clarify existing prohibitions on certain activities. It would also impose new risk-based capital requirements for activities that could expose the FHC to liability in the event that the physical commodity was released into the environment.

Additionally, the proposed rule rescinds authorizations that allow certain financial holding companies to engage in physical commodity activities involving power plants, removes copper from the list of precious metals that all BHCs are permitted to own and store, and establishes new reporting requirements for commodities holding.

Read more.

The Week Ahead: Dec. 19 - 23

2016-12-16T11:00:00.000-05:00

Monday

Comments Due CFTC: Cross-Border Application of the Registration Thresholds and External Business Conduct Standards Applicable to Swap Dealers and Major Swap Participants; Proposed Rule
Read more.
Comments Due OCC: Diversity Self-Assessment Template for OCC-Regulated Entities (PRA)
Read more.
Comments Due OCC: Retail Foreign Exchange Transactions (PRA)
Read more.

Wednesday

Comments Due FDIC: Joint Standards for Assessing Diversity Policies and Practices (PRA)
Read more.
Comments Due FHFA: Indemnification Payments; Correction and Extension of Comment Period
Read more.

Thursday

Comments Due FRB: Regulations Q and Y; Risk-Based Capital and Other Regulatory Requirements for Activities of Financial Holding Companies Related to Physical Commodities and Risk-Based Capital Requirements for Merchant Banking Investments
Read more.

Friday

Effective Date FEMA: National Flood Insurance Program (NFIP): Financial Assistance/Subsidy Arrangement
Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.

Fed Approves Final TLAC Rule

2016-12-16T10:20:00.000-05:00

The Federal Reserve Board has finalized a rule on how much total loss absorbing capacity, or TLAC, the eight U.S. global systemically important banks are required to hold. The purpose of the rule is to ensure that banks have a minimum level of long-term debt instruments that can be called upon should the company fail and need to be wound down rapidly.

Under the rule, banks will be required to issue a minimum level of long-term debt that would complement existing Tier 1 regulatory capital to meet the required level of TLAC. Domestic G-SIBs would be required to have an outstanding long-term debt amounting to at least 6% of risk-weighted assets (plus its Basel Committee-designated G-SIB surcharge), or 4.5% of its total leverage exposure, whichever is greater. A G-SIB’s TLAC amount would be either 18% of risk-weighted assets, or 7.5% of its total leverage exposure, whichever is greater.

The rule also stipulates the debt must be issued at the bank holding company level, and prevents the holding company from entering into certain financial arrangements that could stand in the way of orderly resolution, such as the issuance of short-term debt to external investors or the entrance into derivatives or other types of financial contracts with external counterparties.

One significant change in the final rule is the inclusion a provision allowing banks to “grandfather in” debts that are governed by foreign law or contain certain acceleration clauses and were issued prior to Dec. 31, 2016. Because of this change, the final rule also removes the longer phase-in period that was originally proposed, and sets the final compliance date for Jan. 1, 2019. The rule is expected to cost banks between $680 million and $2 billion.

ABA President and CEO Rob Nichols said:

Today’s final rule caps the dramatic regulatory changes that have been made to reinforce our nation’s policy that no bank should be too big to fail. The TLAC resources – combined with higher capital and liquidity requirements, stress testing, recovery and resolution planning – ensure that the system is better prepared to withstand shocks and has a viable framework in place to handle them. However, since the final rule will inevitably limit the covered banks’ flexibility in managing their funding, and the markets’ reaction will be critically important, we will continue to examine how the existing regulatory framework, including the TLAC requirement, balances strong, effective regulation with the need to ensure that banks can effectively support economic growth and opportunity.

Read the final rule.

GAO Report Finds Flaws in Fed’s Stress Test Frameworks

2016-11-16T09:30:00.000-05:00

Inadequate transparency, flaws in scenario design and model risk management issues surrounding the Federal Reserve’s Dodd-Frank Act Stress Test and Comprehensive Capital Analysis and Review programs could be limiting their overall effectiveness, according to a report released by the Government Accountability Office.

The report highlighted a lack of transparency, particularly surrounding the Fed’s CCAR test – which applies to bank holding companies with more than $50 billion in assets – that GAO said may limit banks’ ability to fully understand the assessment and undermine public confidence in the findings. In addition, GAO noted that the Fed has not conducted sufficient analysis on its “severely adverse” scenarios, and pointed out that its model risk management efforts fail to focus on how “component modeling choices affected overall stress test results.”

The GAO said:

The Federal Reserve… continues to annually refine and develop its stress test models. However, limitations in analytical approaches and to disclosure present challenges to risk assessment by the Federal Reserve and to transparency. In some cases, the Federal Reserve has not always followed its own guidance or principles.

GAO made a total of 15 recommendations to the agency for improving its stress testing frameworks. The independent watchdog called on the Fed to work with the other federal regulatory agencies to harmonize their approaches to stress testing, and to remove the company-run stress test component from its CCAR test.

GAO also recommended that the Fed improve transparency by publicly disclosing more detailed information on its methodology, decision-making process and “stronger or leading practices” observed during CCAR assessments, and establish procedures for responding to CCAR banks. In addition, GAO encouraged the Fed to re-assess and adjust its severely adverse scenario and design and implement processes and systems to better manage model risk.

Read the full report.

OCC's Mutual Savings Association Advisory Committee Charter Renewed

2016-10-18T10:00:00.000-04:00

The OCC has renewed the charter of its Mutual Savings Association Advisory Committee (MSAAC), which advises the agency on issues and opportunities facing mutual savings institutions.

The MSAAC provides advice to the Comptroller of the Currency about mutual savings associations and assesses their current condition, regulatory changes that may promote their health and viability and other issues affecting these institutions. The committee includes officers and directors of federal mutual savings institutions of all types, sizes, operating strategies and geographic areas, as well as from federal savings associations in a mutual holding company structure.

Read more.

Treasury Issues Controversial ‘Interest Stripping’ Final Rule

2016-10-17T11:05:00.000-04:00

In response to comments from ABA and other groups, the Treasury Department issued a revised final rule to address alleged “interest stripping” that carved out debt instruments issued by most financial institutions from an important portion of the rule. The Treasury proposal was targeted at transactions that use inter-affiliate debt to take deductions in a higher-tax jurisdiction and receive the income in a no- or low-tax jurisdiction, but ABA noted that it was far broader than headlines implied, with implications for ordinary operations of banks of all sizes.

In response to comments from ABA and others about the comprehensive regulatory and audit regime to which banks are subject, Treasury carved out an exception to the rule for debt instruments issued by an “excepted regulated financial company,” including insured depository institutions, bank holding companies and certain savings and loan holding companies. Treasury did not lift documentation requirements for regulated entities, but S corporations are exempt from all aspects of the final rule.

ABA’s request for a less punitive approach to documentation errors was acknowledged. Documentation under the final rule is treated as timely so long as it is prepared by the time the filer’s federal income tax return is filed. The final rule also provides a rebuttable presumption for documentation errors provided that covered entities are otherwise in compliance, instead of per se re-characterization of the debt to equity as proposed.

Treasury also delayed the implementation date, with the final rule coming into force only for debt instruments issued on or after Jan. 1, 2018. ABA will continue to review the 518-page final rule and provide analysis as needed.

Read the final rule.

OCC Finalizes Recovery Planning Guidelines for Large Banks

2016-09-30T09:30:00.000-04:00

The OCC has issued final guidelines on recovery planning for the financial institutions it regulates with assets of more than $50 billion. The guidelines will join the OCC’s safety and soundness regulations as an appendix and be enforceable by statute, the agency said.

Under the guidelines, each covered bank would be expected to develop and maintain a recovery plan appropriate for its own risk profile, size, activities and complexity. Each plan would be expected to include an overview of the bank; qualitative and quantitative stress triggers for when the recovery plan would be implemented; the range of recovery options for each trigger and how they would be implemented; assessments of how each option would affect the covered bank; escalation procedures; reports to management or board members as appropriate; and communications procedures.

As ABA requested in its comment letter, the OCC recognized that many banks covered by the proposal already engage in significant recovery planning exercises, and the agency said “we do not intend for the recovery planning described in these final guidelines to be needlessly burdensome or duplicative of these other planning processes.” But while ABA urged the agency to allow covered banks to meet the guidelines by leveraging recovery planning done at the holding company level, the OCC emphasized that it is “unlikely” that a plan not prepared specifically for the covered bank will satisfy the final guidelines, unless the covered bank comprises at least 95% of the holding company’s assets.

Also as requested by ABA, the guidelines will take effect on a phased schedule. Banks with assets of over $750 billion will need to comply within six months of Jan. 1, 2017; banks with $100-$750 billion in assets will have 12 months; and banks with $50-$100 billion in assets will have up to 18 months after Jan. 1 to comply.

Read the final guidelines.

Fed Proposes Tighter Requirements for Physical Commodities Activities

2016-09-26T09:07:00.000-04:00

The Federal Reserve has announced a proposed rule that would impose tighter capital requirements and limitations on financial holding companies that engage in physical commodities activities. The proposal follows the Fed’s 2014 advanced notice of proposed rulemaking and the OCC’s recent proposal to prohibit national banks and federal savings associations from investing in industrial and commercial metals.

Current law permits certain FHCs to engage in physical commodities trading, energy management and energy tolling activities, and financial holding companies are also permitted to make merchant banking investments in companies engaged in activities involving physical commodities. The proposed rule would impose additional limitations on the physical commodities activities FHCs may engage in by revising the calculation used to determine the total value of commodities held by a FHC (which is currently limited to 5% of tier 1 capital) and clarifying existing prohibitions on certain activities.

It would also impose new risk-based capital requirements for activities that could expose the FHC to liability in the event that the physical commodity was released into the environment. Additionally, the proposed rule rescinds authorizations that allow certain financial holding companies to engage in physical commodity activities involving power plants, removes copper from the list of precious metals that all BHCs are permitted to own and store, and establishes new reporting requirements for commodities holding.

In a joint statement, ABA and other financial trade associations said:

[I]t is both inappropriate and unfortunate that [the Federal Reserve] has proposed regulatory changes that are based upon wholly theoretical and unsubstantiated concerns rather than actual facts, evidence, or historical experience ... By imposing unjustifiably higher capital on this important economic activity, end-users will ultimately pay the price, burdening business and hindering job creation, the formation of new businesses and economic growth.

ABA is currently reviewing the details of the proposal. Comments are due 90 days after the proposed rule is published in the Federal Register.

Read the proposed rule.

Agencies Issue Report and Propose Action to Limit Bank Activities

2016-09-09T10:20:00.000-04:00

The Federal Reserve, FDIC and OCC have issued a long-awaited report mandated by Section 620 of the Dodd-Frank Act in which they called for sweeping changes to banks’ powers. Notably, the Fed recommended that Congress repeal the following: merchant banking authority for financial holding companies; grandfathered authority for physical commodities activities for certain FHCs; regulatory exemptions for industrial loan companies; and regulatory exemptions for grandfathered unitary savings and loan holding companies.

The Fed said it believes that “the existing statutory merchant banking authority enables FHCs to engage in activities that pose risks to the organizations’ safety and soundness,” adding in a footnote that it is “considering regulatory measures” to limit risks it associates with merchant banking authority independent of any action Congress might take.

ABA and other financial trade groups roundly opposed the “unfortunate and ill-considered” merchant banking recommendation. The groups said:

For the last 15 years, bank holding companies have successfully used the merchant banking authority granted to them by law to finance startups and growing companies, fueling jobs and economic growth. The regulators have made these recommendations without pointing to any evidence that these activities have ever posed any problem, and have made no attempt to assess the costs to businesses and jobs.

As part of its Section 620 review, the OCC issued a proposed rule that would prohibit national banks from dealing or investing in industrial and commercial metal. The rule – which would exempt the buying and selling of exchange, coin and bullion – would principally target bank involvement in the copper market, which was permitted under an OCC interpretive letter issued two decades ago. Comments are due on the proposal 60 days after it is published in the Federal Register.

The OCC also said it would clarify minimum prudential standards for national banks engaged in swap dealing, review risks posed to banks by membership in clearinghouses, update its investment securities regulations to reflect restrictions in the Volcker Rule, issue guidance or propose regulations to address concentration in mark-to-model assets and liabilities and reconsider whether to allow national banks to hold asset-backed securities as Type III securities. ABA staff will thoroughly review the recommendations and provide appropriate feedback to the agencies.

Read the report.
Read the OCC’s proposed rule.

ABA: NSFR Is Unnecessary, Structurally Flawed

2016-08-08T09:21:00.001-04:00

The proposed Net Stable Funding Ratio – a long-term liquidity measurement included in the Basel III liquidity standards – is structurally flawed and unnecessary for U.S. financial stability, ABA told the federal banking agencies in a comment letter.

Noting the array of regulatory standards put in place since 2009 – from the Liquidity Coverage Ratio to surcharges for global systemically important banks to liquidity stress testing – ABA said:

it is unclear why the NSFR is necessary or why the supervisory process is insufficient to address any remaining firm-specific matters. It is hard to discern any value that the NSFR brings to bank supervision or bank management not already provided by other regulatory tools and practices.

ABA also pointed out fundamental flaws in the NSFR structure. For example, it relies on flawed assumptions contained in the LCR. (The NSFR is designed to ensure that covered firms maintain a stable funding profile over time; the LCR measures cash flow over a 30-day stress period.) ABA has on numerous occasions pointed out the LCR’s weaknesses – for example, its assumption that deposits leave banks in a stress situation, when U.S. experience is the opposite.

If adopted, the NSFR would apply to banking institutions with more than $250 billion in total assets or $10 billion or more in on-balance sheet foreign exposures. The Fed will also apply a modified NSFR to certain bank holding companies with more than $50 billion in assets. Institutions subject to the rule would be required to publicly disclose their NSFRs quarterly using a standard template. The proposed NSFR consists of the amount of available stable funding over a year divided by the institution’s required stable funding, with the numerator required to equal or exceed the denominator.

Read the letter.

Fed, FDIC Delay Deadline for Most ‘Living Wills’ to 2017

2016-08-03T10:00:00.000-04:00

The Federal Reserve and FDIC have announced that they are delaying the deadline to file resolution plans, or “living wills,” from Dec. 31, 2016, to Dec. 31, 2017, for 36 large banking organizations and two systemically important nonbanks. Meanwhile, the agencies said they will provide feedback on the 2015 round of resolution plans in time for the 2017 filing.

The delay does not apply to the eight U.S. institutions designated as “global systemically important banks”: Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

The resolution plan process – which applies to U.S. bank holding companies with assets of more than $50 billion, nonbanks designated as systemically important by the Financial Stability Oversight Council and large foreign banks with U.S. operations – requires these large institutions to describe their strategy for a rapid and orderly wind-down in the event of stress. Planning requirements are tiered based on a firm’s level of complexity.

Read more.

The Week Ahead: August 1 - 5

2016-07-29T12:30:00.000-04:00

Monday

Comments Due CFTC: Identify Theft Red Flags (PRA) Read more.
Comments Due CFTC: Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants--Cross-Border Application of the Margin Requirements (PRA) Read more.
Comments Due CFTC: Market Surveys (PRA) Read more.
Comments Due FRB: Savings and Loan Holding Company Registration Statement; Notice of Proposed Declaration of Dividend Read more.
Comments Due OCC: Community and Economic Development Entities, Community Development Projects, and Other Public Welfare Investments (PRA) Read more.
Comments Due OCC: Examination Questionnaire (PRA) Read more.
Comments Due OCC: Notice Regarding Unauthorized Access to Customer Information (PRA) Read more.
Comments Due OCC: OCC Supplier Registration Form (PRA) Read more.
Effective Date FDIC/CFTC: Adjustment of Civil Monetary Penalties for Inflation Read more.
Effective Date FINCEN: Civil Monetary Penalty Adjustment and Table. Read more.

Friday

Comments Due FDIC/FRB/OCC: Net Stable Funding Ratio: Liquidity Risk Measurement Standards and Disclosure Requirements Read more.
Comments Due FRB: Restrictions on Qualified Financial Contracts of SIFIs Read more.

All times in Eastern Standard Time. See future events on the Dodd-Frank Calendar.