In this week's newsletter, we provide a snapshot of the principal US, European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
Bank Prudential Regulation & Regulatory Capital
US Federal Reserve Board Releases Semi-annual Report on Banking Applications Activity
On April 30, 2015, the US Board of Governors of the Federal Reserve System released its Semi-annual Report on Banking Applications Activity. The report delivers aggregate information on applications submitted by bank holding companies, state member banks, savings and loan holding companies, foreign banking organizations, and other entities and individuals for approval to undertake various transactions, including mergers and acquisitions, and engaging in new activities.
The latest report covers the period from July 1, 2014 to December 31, 2014. During that period, 681 proposals were reviewed, of which 629 were approved and 52 were withdrawn. Among other things, the report noted that merger and acquisition proposals are generally more complex than other proposals. The average and median number of days to approve such an application is 60 and 41 days, respectively, but the average number of days to approve an application that receives adverse public comments is 206 days.
The latest Semi-annual Report on Banking Applications Activity is available at: http://www.federalreserve.gov/bankinforeg/201504-semiannual-report-on-banking-applications-activity.pdf.
European Banking Authority Monitors Additional Tier 1 Capital Instruments
On May 4, 2015, the European Banking Authority published a report on the monitoring of Additional Tier 1 capital instruments issued by EU institutions. Under the EU Capital Requirements Regulation, the EBA must monitor the quality of own funds instruments issued by EU institutions. The report presents the EBA's recent monitoring results and updates the EBA's earlier report on the topic, published in October 2014. The EBA has examined fifteen AT1 issuances made between August 2013 and November 2014, five of which were made under a conversion mechanism and ten under a temporary write-down mechanism. The report states that certain provisions or wording of existing AT1 instruments should be avoided or revised so that uncertainty and complexity is minimized. Wording used should be consistent with that in the CRR, for example, "non-objection" cannot be used as a substitute for "supervisory permission," a term used in the CRR. The EBA intends to continue monitoring certain AT1 issuances, expects that future issuances will use some level of standardization, and advises that terms and conditions should not be unjustifiably complex. The EBA will also develop standardized terms and conditions for AT1 issuances. These would be non-compulsory for institutions, but would help to ensure compliance with regulatory provisions. The EBA report is not fully comprehensive and a final report will be published at the end of May 2015.
The report is available at: http://www.eba.europa.eu/-/eba-updates-its-monitoring-of-additional-tier-1-capital-instruments.
European Banking Authority Consults on Mapping of Credit Assessments of External Credit Assessment Institutions for Securitization Positions
On May 7, 2015, the EBA published a consultation paper comprising draft Implementing Technical Standards on the mapping of credit assessments of External Credit Assessment Institutions for securitization positions under the CRR. The draft ITS aim to determine the mapping between credit ratings and credit quality steps for the allocation of risk weights to ECAIs' ratings issued on securitizations. Under the CRR, risk weights under the standardized and internal ratings based approach for securitization positions should be based on the credit quality of those positions established according to the credit ratings of ECAIs. The ITS aim to enhance regulatory harmonization across the EU allowing credit ratings of all registered credit rating agencies to be used for calculating institutions' capital requirements. Responses to the consultation are due by August 7, 2015.
The consultation paper is available at: http://www.eba.europa.eu/documents/10180/1065442/EBA-CP-2015-08+CP+on+ITS+on+Mapping+of+ECAIs+Credit+Assessments.pdf.
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