ABA Dodd-Frank Tracker

FSOC Identifies Systemically Important Non-Banks

2013-06-04T08:17:00.002-04:00

Various press sources are reporting that the Financial Stability Oversight Council voted to propose designating several non-bank companies as "systemically important." While the panel of regulators did not disclose which companies were proposed for designation, AIG, Prudential Financial Inc. and the GE Capital Unit of General Electric Co. confirmed they were notified they had been selected.

Companies identified as systemically important by FCOS will be subject to heightened oversight by the Federal Reserve.

See the ABARegPolicy twitter feed on the right of the ABA Dodd-Frank Tracker homepage for more information.

The Week Ahead: May 20 - May 24

2013-05-17T10:50:00.000-04:00

Tuesday

Hearing House Financial Services: "Qualified Mortgages: Examining the Impact of the Ability to Repay Rule" Read more.
Hearing Senate Banking Committee: "The Financial Stability Oversight Council Annual Report to Congress” Read more.

Wednesday

Hearing Full Committee: “Who is Too Big to Fail: Are Large Financial Institutions Immune from Federal Prosecution?" Read more.
Hearing Oversight and Investigations Committee: “The Annual Report of the Financial Stability Oversight Council” Read more.

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

Join us at the 2013 ABIA Annual Conference
The 2013 ABIA Annual Conference is the only national event devoted exclusively to the issues and concerns of the bank-insurance industry. Our 2013 conference will offer numerous networking opportunities with industry peers and top providers.Read more and join us!

Federal Reserve Report on Company-Run Midyear Stress Tests

2013-05-13T15:20:00.003-04:00

The Federal Reserve has release a report announcing the results of the company-run midyear stress tests.

The Dodd-Frank Act mandates certain U.S. bank holding companies to conduct two stress tests each year. In the midyear test, which is being conducted for the first time in 2013, each firm develops its own baseline, adverse, and severely adverse scenarios to best reflect its individual operations and risks. In the annual Dodd-Frank Act test, the firms used scenarios developed by the Federal Reserve.

Read more.

FSOC Urges Action on Money Markets, Libor

2013-04-26T08:14:00.006-04:00

The Financial Stability Oversight Council (FSOC) recommended that the SEC take action to reduce volatility and risk in money market mutual funds. It also urged regulators to develop alternative reference interest rates to Libor, which investigators found has been subject to manipulation.

The FSOC outlined three options for SEC action, based on FSOC proposals last fall: requiring a floating net asset value; requiring a stable NAV with a buffer to handle daily fluctuations; or combining a stable NAV and buffer with other measures, such as stricter diversification, disclosure or liquidity requirements.

The FSOC's annual report offered several other recommendations for greater stability, including increasing private activity in the mortgage market, raising awareness of interest rate risk, and resolving long-run fiscal imbalances.

Read the report.

Federal Reserve Proposal Establishes Annual Assessments for Designated Institutions

2013-04-15T10:10:00.000-04:00

The Federal Reserve Board has requested comment on a proposal to establish an annual assessment of bank holding companies and savings and loan holding companies with $50 billion or greater in total consolidated assets and for nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve.

The Dodd-Frank Act directs the Federal Reserve to collect assessments, fees, or other charges equal to the expenses the Board estimates are necessary and appropriate to carry out its supervisory and regulatory responsibilities for these large financial companies.

The proposed rule outlines how the Federal Reserve Board would determine which companies are assessed, estimate the total expenses that are necessary or appropriate to carry out its supervisory and regulatory responsibilities for such companies, determine the amount of each company's assessment, and bill for and collect the assessments.

Under the proposal, 2012 would be the first assessment period and payments would not be collected until the rule is finalized. Using the methodologies in the proposal, the Board estimates that for 2012 there would be approximately 70 companies assessed and the Board would collect a total of approximately $440 million.

Comments on the proposed rule must be submitted by June 15.

Read the proposal.

Keating Fires Back at 'Too-Big-to-Fail' Op-Ed

2013-03-14T08:18:00.000-04:00

It's disappointing that Dallas Fed President Richard Fisher would call Dodd-Frank's too-big-to-fail solution a failure when regulators haven't even finished implementing it, ABA President and CEO Frank Keating said in a letter to the editor published in this morning's Wall Street Journal.

Keating was responding to a March 11 Journal op-ed piece by Fisher and Dallas Fed EVP Harvey Rosenblum in which they advocated restructuring large banks.

"Before we add another layer of new restrictions and corporate restructurings, it's important to consider what Dodd-Frank actually instructs regulators -- including the Fed -- to do," Keating said.

He listed several changes mandated by the reform law that target too-big-to-fail, including more stringent capital and liquidity rules, annual stress tests, living wills and creation of the Financial Stability Oversight Council.

Keating emphasized that deceptively simple solutions aren't the answer, and artificial government-mandated restructuring never works in a free-market, democratic society.

[W]e have the strongest banking sector in the world with all-size banks connected in ways that are essential to our economy.

Breaking up large institutions would destroy these synergies and drive business to foreign competitors and shadow banks, ending our country's status as a premier financial center. Let's implement the mandates Congress enacted to end too-big-to-fail and enhance our financial system -- not destroy it.

Fed Issues Proposal on Financial Market Utilities

2013-02-27T07:46:00.003-05:00

The Federal Reserve issued a proposed rule that would stipulate the conditions and requirements for Federal Reserve Banks to open accounts for and provide financial services to financial market utilities that the Financial Stability Oversight Council (FSOC) designates as systemically important.

The Dodd-Frank Act-mandated proposal also would authorize Reserve Banks to pay interest on the balances maintained by such designated financial market utilities. There will be a 60-day comment period on the proposed rule after its publication in the Federal Register.

Read more.
Read the proposed rule.

GAO: Financial Crisis Cost Economy $13 Trillion

2013-02-15T07:55:00.000-05:00

The 2008 financial crisis cost the U.S. economy as much as $13 trillion, according to a Government Accountability Office report released yesterday. The report was published as part of a Dodd-Frank Act cost-benefit analysis.

While the Dodd-Frank Act’s “reforms could enhance the stability of the U.S. financial system and provide other benefits, the extent to which such benefits materialize will depend on many factors whose effects are difficult to predict,” the report said.

According to the report, financial federal regulators reported increasing funding resources associated with implementation of the Dodd-Frank Act in 2012. The CFPB reported funding resources associated with Dodd-Frank of $432 million since 2010, while the agency has hired or redirected 831 full-time equivalent employees to positions directly related to the implementation of the Dodd-Frank Act. The Federal Reserve reported cost directly related to Dodd-Frank implementation of $163 million since 2010, while hiring or redirecting 964 full-time equivalent employees to positions directly related to the implementation.

Read the report.

The Week Ahead: February 11 – February 15

2013-02-08T10:34:00.000-05:00

Tuesday

ABA Telephone Briefing: Understanding Ability-to-Repay and QM. Read more.
FDIC Board Meeting. Read more.

Wednesday

ABA Telephone Briefing: New Employment Obligations and Risks. Read more.

Thursday

Hearing Senate Banking Committee: Oversight & Dodd-Frank Implementation.

Friday

Comments Due Federal Reserve: Stress Testing Scenario Design. Read more.
Comments Due FSOC: MMMF Reform Recommendations. Read more.

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

Join us at the ABA Government Relations Summit The ABA Government Relations Summit is your opportunity to educate lawmakers and regulators about the vital role banks play in the economy. It’s also a time to meet with new leadership and advocate for policy change to support the banking industry. Read more and join us this April!

ABA Comments on FSOC’s Proposed Recommendations re: MMF Reform

2013-01-22T09:39:00.000-05:00

ABA wrote to the Financial Stability Oversight Council (FSOC) regarding the proposed recommendations concerning money market mutual fund (MMF) reform.

ABA noted than many of ABA’s member institutions interact with MMFs in numerous ways, and are therefore keenly interested in FSOC’s proposed recommendations to the SEC. Therefore, ABA offered the following general comments on the proposed recommendations:

First, there is very strong support for retaining a stable net asset value (NAV) MMF, as this product is preferred by trust departments and corporate trustees as a timely and economical way to invest short-term customer cash.
Second, any regulatory action must avoid creating the perception that investments in MMFs are equivalent to insured bank deposit accounts in terms of federal supervision or backing.
Third, the Council should carefully consider the sufficiency of the SEC’s 2010 reforms and give them adequate weight, as many bankers are convinced that further reforms are not needed.

Read the full letter.

SEC Gallagher: Misallocation of Resources, Opportunity Costs due to DFA

2013-01-17T11:11:00.001-05:00

SEC Commissioner Daniel Gallagher spoke before the U.S. Chamber Center for Capital Markets Competitiveness on the “misallocation of resources and opportunity costs that have arisen from the many false assumptions underlying the [Dodd-Frank] Act.”

In total, the Dodd-Frank Act contains approximately 400 specific mandates to be implemented by agency rulemaking, with approximately a hundred applying directly to the SEC. The SEC has adopted final rules implementing nearly a third of those statutory mandates and continues to devote tremendous amounts of resources to drafting additional proposals, completing required studies, and implementing the new rules.

[However,] the Commission is handling ten times its normal rulemaking volume.

As a result, the SEC, like other regulators, is now dealing with the problem of rushed, inadequate rule proposals that were pushed out in a bid to meet arbitrary congressional deadlines.

This increased pace raises two sets of concerns. The first stems from the difference between getting rules done and getting them done right.

The second set of concerns centers around the concept of opportunity cost and the misallocation of limited resources.

Read Gallagher’s full remarks.

FSOC Extends Comment Deadline on Proposed MMMF Reform Recommendations

2013-01-16T11:37:00.001-05:00

The Financial Stability Oversight Council late yesterday extended from Jan. 18 to Feb. 15 the comment deadline on its proposed recommendations to reform the money market mutual fund industry.

The FSOC’s three proposed recommendations would require funds to float their net asset values, rather than fixing values at $1 a share; hold a stable NAV and maintain a buffer of capital to absorb day-to-day fluctuations in value; or keep a risk-based NAV buffer of 3 percent combined with other measures to increase their resilience.

“The … proposed recommendations are not mutually exclusive and could be implemented in combination to address the structural vulnerabilities that result in the susceptibility of MMFs to runs,” the FSOC said. The council added that it also is seeking comments on other potential reforms that could address those vulnerabilities and mitigate the risk of runs.

Read more.
Read the FSOC’s proposed recommendations.

GAO: Agencies Didn't Fully Quantify DFA Rules' Costs

2012-12-19T07:48:00.004-05:00

The federal financial agencies considered but did not fully quantify the benefits and costs of 54 substantive rules implemented between July 21, 2011, and July 23, 2012, under the Dodd-Frank Act, according to a new Government Accountability Office report.

While some regulators identified the costs of the approach they used in writing the rules, they didn't compare them to the alternative approaches they could have taken, the GAO said.

The report also found that the agencies informally coordinated on 19 of the 54 rules the GAO reviewed, but did not eliminate the differences between related rules.

The GAO reiterated its 2011 recommendation that the agencies measure costs under Office of Management and Budget guidance, and the Financial Stability Oversight Council establish formal policies for coordination.

Read the report.

The Week Ahead: December 10 – December 14

2012-12-07T07:44:00.000-05:00

Monday

Meeting FDIC: Systemic Resolution Advisory Committee. Read more about the Committee.

Tuesday

FDIC Board Meeting. Read the meeting agenda.

Wednesday

Hearing HFS: Challenges Implementing Title VII of Dodd-Frank. Read more.

Thursday

Financial Stability Oversight Council (FSOC) Meeting. Read more.
Hearing HFS: Impact of the Volcker Rule. Read more.
Hearing House Ag Committee: Dodd-Frank Derivatives Reform. Read more.

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

Join us at the ABA Government Relations Summit
The ABA Government Relations Summit is your opportunity to educate lawmakers and regulators about the vital role banks play in the economy. It’s also a time to meet with new leadership and advocate for policy change to support the banking industry. Read more and join us this April!

SEC Staff Submits Money Market Funds Report

2012-12-06T08:50:00.004-05:00

The SEC staff has produced a report on money market fund regulations, delving deeper into the causes of investor redemptions in 2008, the efficacy of the Commission’s 2010 amendments to strengthen money market funds regulations, and the potential impacts of future reform on issuers and investors.

Commissioners Aguilar, Paredes, and Gallagher had requested such as analysis to inform further dialogue on money market reform.

In a statement regarding the staff report Commissioner Luis Aguilar noted the consideration of the potential impact of assets migrating from existing money market funds to less regulated funds as a result of structural changes to the money market funds structure.

At this time, the report has not been made available to the public.

Read Commissioner Aguilar’s press release.

OFR & FSOC 2nd Annual Conference

2012-12-06T08:03:00.005-05:00

The Office of Financial Research (OFR) and the Financial Stability Oversight Council (FSOC) are co-hosting their second annual conference today entitled “Assessing Financial Intermediation: Measurement and Analysis.”

The conference brings together thought leaders from the research and regulatory communities, public interest groups, and the financial services industry to discuss challenges to financial stability posed by evolving financial activities. This year’s conference examines recent changes in financial institutions, markets, and activities, and explores the future implications for financial stability, risk management, and policy.

Read the conference agenda.
Watch a webcast of the conference.

OFR’s Financial Research Advisory Committee

2012-11-20T11:01:00.002-05:00

The Financial Research Advisory Committee of the Treasury's Office of Financial Research (OFR) has announced it will hold its first meeting on Wednesday, December 5, 2012.

The Committee will provide advice to the OFR, bring diverse perspectives to inform the OFR’s research-and-data agendas, and help the OFR fulfill its mission by developing and employing best practices for data management, data standards, and research methodologies.

The Dodd-Frank Act established the OFR within the Treasury to serve the Financial Stability Oversight Council (FSOC), its member agencies, and the public by improving the quality, transparency, and accessibility of financial data and information; conducting and sponsoring research related to financial stability; and promoting best practices in risk management.

The Financial Research Advisory Committee is made up of 30 members include two Nobel laureates in economics; leaders in business and nonprofit fields; and prominent researchers at major universities and think tanks.

The meeting will begin at 10 a.m. and will be open to the public via live webcast here.
Read more including a full list of members.

FSOC Recommends Money Market Mutual Fund Reforms

2012-11-14T08:09:00.003-05:00

The Financial Stability Oversight Council (FSOC) yesterday voted unanimously to release three proposed recommendations to reform the money market mutual fund industry.

The FSOC issued the proposed recommendations because SEC Chairman Mary Schapiro in August was unable to garner support from a majority of commissioners to move forward with a reform proposal. To break the SEC stalemate, Treasury Secretary Timothy Geithner, who chairs the FSOC, urged the council in a Sept. 27 letter to take up MMF reform.

There will be a 60-day public comment period on the proposed recommendations. “The council will consider the comments and may issue a final recommendation to the SEC,” the FSOC explained. The SEC would be required under the Dodd-Frank Act to adopt the recommendation or explain in writing to the FSOC why it had failed to act.

The FSOC’s three proposed recommendations would require funds to float their net asset values, rather than fixing values at $1 a share; hold a stable NAV and maintain a buffer of capital to absorb day-to-day fluctuations in value; or keep a risk-based NAV buffer of 3 percent combined with other measures to increase their resilience.

“The … proposed recommendations are not mutually exclusive and could be implemented in combination to address the structural vulnerabilities that result in the susceptibility of MMFs to runs,” the FSOC said. The council added that it also is seeking comments on other potential reforms that could address those vulnerabilities and mitigate the risk of runs.

Comments on the proposals will be due 60 days after publication in the Federal Register.

Read more.
Read the FSOC’s proposed recommendations.

FSOC to Hold Meeting Today on MMMF Industry Reform

2012-11-13T07:50:00.003-05:00

The Financial Stability Oversight Council (FSOC) today will hold an open meeting to discuss proposed recommendations to reform the money market mutual fund industry and other topics.

The FSOC is considering the recommendations after SEC Chairman Mary Schapiro in August cancelled a vote on issuing a reform proposal because a majority of commissioners opposed the measure.

Treasury Secretary Timothy Geithner, who chairs the FSOC, urged the council in a Sept. 27 letter to take up MMF reform. The FSOC should issue for comment MMF reform options and, after considering the comments, make a recommendation to the SEC, Geithner said.

The SEC would be required under the Dodd-Frank Act to adopt the recommendation or explain to the FSOC why it had failed to act, he explained.

Read more and watch a live webcast of the meeting beginning at 2:30 pm.
Read Geithner’s full letter.

Keating Comments on Criteria for Next Treasury Secretary

2012-11-13T07:48:00.003-05:00

The next Treasury secretary ideally will have commercial banking experience and can be “the economic spokesman for all Americans—red states and blue states alike,” ABA President and CEO Frank Keating said yesterday during an interview on Fox Business Network’s “Markets Now” television show.

Keating noted that many important issues will require attention or debate in the next six months, including the role of the Financial Stability Oversight Council (FSOC), changes to the Dodd-Frank Act and the Basel III capital proposals. “These are serious matters that the president needs to put in the lap of the Treasury secretary and say ‘fix it, grow the economy.’ That’s why whoever’s selected is hugely significant,” he told host Connell McShane.

Watch the interview.

FSOC to Hold Meeting on MMMF Industry Reform

2012-11-09T08:55:00.004-05:00

The Financial Stability Oversight Council (FSOC) will hold an open meeting next Tuesday to discuss proposed recommendations to reform the money market mutual fund industry and other topics, the Treasury Department said late today.

The FSOC is considering the recommendations after SEC Chairman Mary Schapiro in August cancelled a vote on issuing a reform proposal because a majority of commissioners opposed the measure.

Treasury Secretary Timothy Geithner, who chairs the FSOC, urged the council in a Sept. 27 letter to take up MMF reform. The FSOC should issue for comment MMF reform options and, after considering the comments, make a recommendation to the SEC, Geithner said.

Geithner explained the SEC would be required under the Dodd-Frank Act to adopt the recommendation or explain to the FSOC why it had failed to act.

Read Treasury’s meeting announcement.
Read Geithner’s letter.

Tarullo on Financial Stability Regulations

2012-10-11T11:08:00.001-04:00

Federal Reserve Governor Daniel Tarullo spoke at the University of Pennsylvania Law School on financial stability regulations, primarily the Dodd-Frank Act and its effect on financial stability.

Dodd-Frank creates a legal and institutional framework within which financial stability regulation is to be developed but, with a couple of notable exceptions, it does not delineate the steps that should actually be taken to promote financial stability.

The necessarily somewhat extemporized character of Dodd-Frank has had several consequences for the development of financial stability regulation.

First, many of the new authorities and requirements of Dodd-Frank require extensive elaboration through administrative rulemaking, often coordinated or agreed among three or more agencies.

Second,…the provisions of the law that use the concept of risk to financial stability as a directly applicable legal standard provide only general guidance for regulators in applying that standard.

Third, broad as Dodd-Frank is in some respects, it does not grant direct regulatory authority in some areas that academic and agency analysis suggests may pose systemic risk.

Finally, the law made important institutional changes, creating novel governmental entities specifically designed to address financial stability, and binding existing agencies more closely together in their rulemaking and supervisory activities. The relationships among existing agencies and the evolving practice of these new entities may in turn pose some novel practical and administrative law issues.

Tarullo also spoke of the money market mutual funds market, noting it was unfortunate the SEC has not begun to form new regulations and rules for the market. Tarullo noted the money market funds remain a threat to financial stability and that having the Financial Stability Oversight Council (FSOC) or the Federal Reserve step in to regulate the market would be a worse option for all involved.

FSOC could designate money market funds as systemically important and thus subject the market to the prudential requirements under the Dodd-Frank Act.

Read Tarullo’s full speech.

Federal Reserve Issues Stress Test Rules

2012-10-10T09:36:00.004-04:00

The Federal Reserve yesterday issued two final rules on stress-testing requirements, which will implement sections 165(i)(1) and (i)(2) of the Dodd-Frank Act. One covers company-run stress tests for bank holding companies, state member banks and savings and loan holding companies with more than $10 billion in total consolidated assets.

In general, such institutions will not be required to conduct stress tests until October 2013, the Fed said. The Fed also noted that companies with between $10 billion and $50 billion in total assets that begin conducting their first company-run stress test in the fall of 2013 will not have to publicly disclose the results of that first stress test.

The other final rule covers stress-testing requirements for bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies the Financial Stability Oversight Council designates for Fed supervision.

Read more.

Geithner: Further Reforms to MMF Industry are Essential

2012-09-28T09:30:00.002-04:00

In advance of the Financial Stability Oversight Council (FSOC) upcoming meeting, Treasury Secretary Geithner sent a letter to the FSOC members regarding recent efforts to reform the money market fund industry and address the threats those funds can pose to the stability of the financial system.

FSOC, created by the Dodd-Frank Act, was established to lead efforts to detect emerging threats to financial system and has been given the power to define which non-banking financial firms will receive more oversight in order to curtail any excessive risk taking.

From Geithner’s letter:

Further reforms to the MMF industry are essential for financial stability… the financial crisis of 2007–2008 demonstrated that MMFs are susceptible to runs and can be a source of financial instability with serious implications for broader financial markets and the economy.

The SEC took important steps in 2010 to improve the resilience of MMFs by amending Investment Company Act Rule 2a-7 to strengthen the liquidity, credit-quality, maturity, and disclosure requirements of MMFs. But the effort toward reform should not stop there.

The 2010 reforms did not attempt to address two core characteristics of MMFs that leave them susceptible to destabilizing runs: (1) the lack of explicit loss-absorption capacity in the event of a drop in the value of a portfolio security and (2) the “first-mover advantage” that provides an incentive for investors to redeem their shares at the first indication of any perceived threat to the fund’s value or liquidity.

Read the full letter.

FDIC’s Martin Gruenberg on Living Wills

2012-09-14T08:59:00.001-04:00

In remarks to the American Banker Regulatory Symposium, FDIC Acting Chairman Martin Gruenberg discussed the progress being made at the FDIC and the Federal Reserve on the resolution plans, or “living wills,” mandated by the Dodd-Frank Act.

Title II of the Dodd-Frank Act enables the FDIC to resolve an insured depository institution, its parent holding company, and any affiliate as well as other non-bank systemically important financial institutions (SIFIs).

The FDIC has been working over the past two years to develop the strategic and operational capability to carry out this new authority.

In addition, Title I of the Dodd-Frank Act requires bank holding companies with more than $50 billion in assets and other firms designated as systemic to develop living wills. These firms are required to demonstrate how they could be resolved under the bankruptcy code without disruption to the financial system and the economy. Title I makes clear that under the Dodd-Frank Act, bankruptcy is the option of first recourse. Only in extraordinary circumstances would a Title II orderly liquidation be considered.

The FDIC has already adopted two rules regarding the resolutions plans. The first, jointly issued with the Federal Reserve, requires bank holding companies with total consolidated assets of $50 billion or more, and certain nonbank financial companies that the Financial Stability Oversight Council (FSOC) designates as systemic, to develop, maintain, and periodically submit resolution plans to the Federal Reserve and the FDIC.

In addition, in a second rule the FDIC also required any FDIC-insured depository institution with assets over $50 billion to develop, maintain, and periodically submit plans outlining how the FDIC would resolve it through the FDIC’s traditional resolution powers under the Federal Deposit Insurance Act.

Gruenberg noted the first resolution plans were submitted in early July by the nine largest companies with non-bank assets of over $250 billion and are currently being reviewed by the FDIC and Federal Reserve.

Read Gruenberg’s full remarks.