President-Elect Trump’s transition website promises to “dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.” For those who wonder what that might mean in more detail, we believe that Rep. Jeb Hensarling’s (R-TX) Financial CHOICE Act, introduced earlier this year, is a starting point that signals a potential general direction of travel for financial reform. It is not the end, however, as we expect that the Republican Congress and Administration will have more ambitious plans for a significant reorientation of the regulatory framework (for instance, Rep. Hensarling has stated that he will … Read more
On September 8, the Federal Reserve, OCC and FDIC issued the long-expected report to Congress and the FSOC, as required under section 620 of the Dodd-Frank Act, regarding activities and investments of banks and their nonbank affiliates, which were defined collectively in the report as “banking entities” (the “620 Report”). In addition to a comprehensive review and discussion of currently-permissible activities and investments of banking entities, that 107-page document includes a discussion by each agency of associated risks, applicable risk mitigation activities and legal limitations, and specific recommendations. Below are our initial takeaways from the 620 Report. We will circulate … Read more
The involuntary chapter 11 bankruptcy filing of American Bancorporation (“American”), commenced by a group of distressed debt investors holding American’s trust-preferred securities (“TruPS”), was upheld by the U.S. Bankruptcy Court for the District of Minnesota pursuant to an order entered on May 27, 2014. This development highlights the use of involuntary bankruptcy as the latest strategy by TruPS holders to increase their leverage and recovery in distressed bank holding company situations.
TruPS are deeply subordinated junior debentures issued to statutory trusts that in turn issue preferred securities. They were at one time a commonly used structure for financing bank … Read more
The Federal Reserve’s recent Dodd-Frank enhanced prudential standards final rule subjects foreign banking organizations with ≥ $50 billion in U.S. assets (“Foreign Bank”) to a qualitative liquidity framework. Among other things, the qualitative liquidity framework requires a Foreign Bank to maintain separate U.S. liquidity buffers (based on results of internal liquidity stress tests) for its: (1) U.S. branches/agencies; and (2) U.S. intermediate holding company (“IHC”).
The U.S. branches/agencies must maintain a U.S. liquidity buffer consisting of unencumbered highly liquid assets that are sufficient to meet projected net stressed cash flow need for the first 14 days… Read more
The OCC has proposed a set of enforceable and specific risk governance guidelines to formalize its heightened expectations for large national banks and federal savings associations. The risk governance guidelines would set new, and much higher, minimum standards for the design and implementation of a bank’s own risk governance framework and the oversight of such framework by the bank’s board of directors.
State banks that are not subject to the OCC’s proposed risk governance guidelines should still pay attention because the same or similar principles will likely be applied by the Federal Reserve and the FDIC to large state member … Read more
Effective July 16, 2013, the Federal Reserve Banks’ Operating Circular No. 10 (“OC-10”) has been amended to include a new appendix entitledProhibition Against Federal Assistance to Any Swaps Entity (“Appendix 6”). Appendix 6 is intended to ensure that the Federal Reserve Banks comply with the requirements of Section 716 of the Dodd-Frank Act (“Swaps Pushout Rule”) when making discount window advances under OC-10. OC-10 sets forth the terms and conditions under which an entity may obtain advances from, incur obligations to, or pledge collateral to a Federal Reserve Bank.
The Swaps Pushout Rule … Read more
The OCC has issued a final rule specifying the methods for calculating credit exposure arising from derivatives and securities financing transactions for purposes of the federal lending limits that apply to national banks, federal and state branches and agencies of foreign banks and federal and state savings associations. The final rule reflects a further convergence in methods for measuring credit exposure from derivatives and securities financing transactions between bank capital rules and legal lending limits.
The final rule, like the June 2012 interim final rule that it revises, implements Section 610 of the Dodd-Frank Act, which is one of several … Read more
The U.S. Basel III final rule is the most complete overhaul of U.S. bank capital standards since the U.S. adoption of Basel I in 1989 – nearly a quarter of a century ago. The final rule comprehensively revises the regulatory capital framework for the entire U.S. banking sector by implementing many aspects of Basel III as well as key provisions of the Dodd-Frank Act, including the Collins Amendment capital floor in Section 171 and the ban on references to credit ratings in Section 939A. The U.S. Basel III final rule also makes significant changes to the 2012 U.S. Basel III … Read more