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 Board of Governors of the Federal Reserve System Finalizes Rule on Capital Plan and Stress Testing

On November 25, 2015, the US Board of Governors of the Federal Reserve System approved a final rule to modify its capital plan and stress testing rules, which would take effect for the 2016 capital plan and stress testing cycle. Largely similar to the proposed rule, the final rule modifies the timing for certain regulatory requirements that have not yet been incorporated into the capital plan and stress testing framework. Firms subject to the supplementary leverage ratio would begin to incorporate it into their 2017 capital plan and stress testing cycle. All firms would continue to use the generally applicable risk-based capital framework for stress-testing exercises. However, firms with at least $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures would continue to be subject to the advanced approaches risk-based capital framework for their regulatory capital ratios. The common equity tier 1 capital requirement in the Federal Reserve Board's revised regulatory capital rules will be fully phased in over the nine-quarter planning horizon of the 2016 capital plan and stress testing cycles. The final rule eliminates the requirement for firms to calculate a tier 1 common ratio.

The Federal Reserve Board press release and the final rule are available at:

http://www.federalreserve.gov/newsevents/press/bcreg/20151125a.htm and

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151125a1.pdf.

US Federal Reserve Board Proposes Rule Requiring Large Banking Organizations to Publicly Disclose Several Measures of their Liquidity Profile

On November 24, 2015, the US Federal Reserve Board issued a proposed rule that would require large banking organizations to publicly disclose certain measures of their liquidity profile, including, for the first time, quantitative liquidity risk metrics. The proposed rule would require large banking organizations to disclose, on a quarterly basis, their consolidated Liquidity Coverage Ratios based on averages over the prior quarter. In addition, firms would have to disclose their consolidated High-Quality Liquid Asset amounts, organized by HQLA category, as well as their projected net cash outflow amounts, including retail inflows and outflows, derivatives inflows and outflows as well as various other measures. The required disclosures are based generally on a template approved by the Basel Committee on Banking Supervision with enhancements to reflect US implementation of LCR requirements.

The Federal Reserve Board press release and the proposed rule are available at:

http://www.federalreserve.gov/newsevents/press/bcreg/20151124a.htm and

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151124a1.pdf.

US Federal Reserve Board Announces Implementation of Several Recommendations to Enhance Supervision of Large and Complex Banking Organizations

On November 24, 2015, the US Federal Reserve Board announced the implementation of several recommendations to enhance the supervision of large and complex banking organizations. These recommendations followed a comprehensive review of Reserve Bank procedures for supporting sound supervisory decisions as well for resolving differing staff opinions related to the supervision of large and complex organizations. Among other issues, the review identified inconsistencies in practices by Reserve Banks as well as in documentation generated by supervisory teams. The review also noted that a formal process for raising divergent staff views had not been established. As a result, the Operating Committee of the Large Institution Supervision Coordinating Committee (known as LISCC), which coordinates the supervision of the largest, most systemically important financial institutions in the US, will oversee the establishment of minimum operating and documentation standards for all supervisory activities. The Federal Reserve System will also work to develop policies and practices to encourage the exchange of differing staff views on all supervisory matters. Additionally, the Federal Reserve System will be developing a curriculum specifically designed for the supervision of large financial institutions for its examiner commissioning and training program.

The Federal Reserve Board press release and the review are available at:

http://www.federalreserve.gov/newsevents/press/bcreg/20151124b.htm and

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20151124b1.pdf.

European Commission Proposal on Establishment of European Deposit Insurance Scheme

On November 24, 2015, the European Commission published a legislative proposal together with a press release on the establishment of a new European Deposit Insurance Scheme. The EDIS would be a euro area-wide insurance scheme for bank deposits, strengthening the EU's economic and monetary union, setting out measures to reduce risk in the banking sector and amending the Single Resolution Mechanism Regulation. The scheme would initially consist of a reinsurance scheme for participating national Deposit Guarantee Schemes in the first three years, after which co-insurance schemes would be put into place for four years, whereby contributions to the EDIS would increase. The EDIS would be funded by contributions made by banks established in the Single Supervisory Mechanism and a full European scheme would be in place by 2024. National schemes would only be able to access EDIS funds if clear conditions are met. The EDIS would encourage national schemes to manage any possible risks cautiously and would be mandatory for Member States covered by the SSM. The scheme would also be open to those Member States who are not covered by the SSM but who would like to join the Banking Union. National DGSs already provide protection at a national level. The EDIC would back these with a common European scheme.

The press release and legislative proposal are available at:

http://europa.eu/rapid/press-release_IP-15-6152_en.htm?locale=en and

http://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-586-EN-F1-1.PDF.

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