In this newsletter, we provide a snapshot of the principal European, U.S. and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
Bank Prudential Regulation & Regulatory Capital
U.S. Federal Agencies Jointly Release Final Risk Retention Rule
On October 23, 2014, six federal agencies – the U.S. Securities and Exchange Commission ("SEC"), Office of the Comptroller of the Currency ("OCC"), Board of Governors of the Federal Reserve System ("Federal Reserve Board"), Federal Deposit Insurance Corporation ("FDIC"), Department of Housing and Urban Development ("HUD") and the Federal Housing Finance Agency ("FHFA") – jointly adopted final risk retention rules imposing 5% risk retention, or "skin-in-the-game," requirements for securitizations. The final rule exempts securitizations of "qualified residential mortgages" ("QRMs") from the risk retention requirement and does not require QRMs to include a minimum down payment. Nevertheless, the new rules, when they become effective over the next two years, will impose significant new costs and obligations on a wide range of securitization structures. In particular, the final risk retention rules are expected to affect transaction structures, disclosure requirements, origination standards for new assets and the relative responsibilities of sponsors, originators, managers and trustees in securitization transactions, among other matters.
For more details, you may like to read our client memo: http://www.shearman.com/~/media/Files/NewsInsights/Publications/2014/10/Credit-Risk-Retention-Rules-Finalized-DSP-102314.pdf.
The draft final rules are available at: http://www.federalreserve.gov/aboutthefed/boardmeetings/bcreg20141022a1.pdf.
Federal Reserve Board Releases Supervisory Scenarios For 2015 CCAR Tests
On October 23, 2014, the Federal Reserve Board released supervisory scenarios for use in the 2015 capital planning and stress testing program, namely the Comprehensive Capital Analysis and Review ("CCAR"). The supervisory scenarios will apply to 31 bank holding companies with over $50 billion in consolidated assets and comes on the heels of recently issued final rules modifying the capital plan and stress test regulations. The Fed presents three supervisory scenarios (baseline, adverse and severely adverse) that will take into account 28 variables including, but not limited to, economic activity, unemployment and interest rates. The adverse and severely adverse scenarios are designed to test the resilience of banking institutions to stressed economic environments. Banks will be required to use the 2015 supervisory scenarios for both the CCAR and the annual stress tests required by the Dodd–Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") as a complementary exercise to CCAR. The Federal Reserve Board plans to provide further data regarding the 2015 global market shock scenario to be used by six bank holding companies with large trading positions on or before December 1, 2014. Capital plans must be submitted by January 5, 2015. Additionally, the OCC and FDIC have recently released economic scenarios to be used for stress tests required under Dodd-Frank.
The 2015 supervisory scenarios are available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20141023a1.pdf, the FDIC press release for the 2015 supervisory scenarios is available at: https://www.fdic.gov/news/news/press/2014/pr14087.html and the OCC press release for the 2015 supervisory scenarios is available at: http://www.occ.gov/news-issuances/news-releases/2014/nr-occ-2014-141.html.
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