In this 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, US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation Release Notice of Proposed Net Stable Funding Ratio Rulemaking
On May 3, 2016, the US Board of Governors of the Federal Reserve System approved a joint notice of proposed rulemaking to establish a net stable funding ratio in the US, in line with the framework previously established by the Basel Committee on Banking Supervision. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation previously approved the rule on April 26, 2016. The net stable funding ratio would require covered institutions to maintain stable sources of funding, including capital and long-term debt, over a one-year horizon. Specifically, a covered company's ratio of (i) "available stable funding," a measure of the stability of its equity and liabilities over a one-year time horizon to (ii) "required stable funding," a calculation made based upon the liquidity characteristics of the institution's assets, derivative exposures and commitments over the same one-year horizon, must be at least 1.0. With respect to assets that qualify as "available stable funding," asset categories are assigned an "available stable funding" (ASF) weight, with Tier 1 regulatory capital and Tier 2 capital instruments with a maturity of over one year receiving a 100% ASF weight, and trade date payables, certain short-term funding and certain short-term retail brokered deposits receiving a 0% ASF weight. The rule is aimed at reducing liquidity risk by ensuring that a covered institution retains sufficient liquid assets in the event of funding disruptions or a liquidity run in order to remain viable.
The rule would apply to (i) bank holding companies, certain savings and loan holding companies and depository institutions, in each case, having $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposures, as well as to (ii) their depository institution subsidiaries having $10 billion or more in total consolidated assets. Less stringent requirements would also apply to bank holding companies and certain savings and loan holding companies having at least $50 billion, but less than $250 billion, in total consolidated assets. The effective date of the rule, as proposed, would be January 1, 2018.
Comments on the notice of proposed rulemaking are due by August 5, 2016.
The notice of proposed rulemaking is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160503a1.pdf.
Federal Reserve Bank of New York President Proposes Providing Securities Firms with Access to Discount Window
On May 1, 2016, Federal Reserve Bank of New York President William Dudley delivered remarks at the Federal Reserve Bank of Atlanta 2016 Financial Markets Conference, focusing on the connection between liquidity and financial stability. Dudley first addressed market liquidity, noting that evidence that market liquidity has diminished is mixed. Turning to funding liquidity, Dudley emphasized the link between funding liquidity and capital requirements and asked whether more should be done to support funding liquidity. Dudley noted the importance of the availability of a lender-of-last resort, and remediating any gaps in the lender-of-last-resort function. As an example, Dudley noted the limited ability of the Federal Reserve Board to provide funding to a securities firm, even on a fully collateralized basis, and suggested that providing such firms with access to the Discount Window "might be worth exploring." Dudley also noted that the Bank for International Settlement's Committee on the Global Financial System is engaged in a project to determine what lender-of-last-resort gaps currently exist, focusing, in particular, on those that may create vulnerability in terms of financial stability. One area that he anticipates will receive considerable attention is whether there are any gaps with respect to the activities of globally systemic firms that operate on a cross-border basis. He also noted that greater attention needs to be paid to the appropriate role for the home- versus host-country supervisor and that the regulatory and supervisory responses for large, systemically-important firms that operate on a cross-border basis need to be closely coordinated, especially during times of stress. Dudley stressed that expectations about who will be the lender- of-last-resort need to be well understood in both the home and host countries.
President Dudley's speech is available at: https://www.newyorkfed.org/newsevents/speeches/2016/dud160501.
US Office of the Comptroller of the Currency Issues Guidance on Banks' Maintenance and Retention of Records and Examiner Access
On April 27, 2016, the OCC issued a bulletin reminding all OCC-supervised banks of their obligations to maintain and retain their records and the OCC's authority to obtain prompt and complete access to each bank's books and records and communicate freely with its employees, officers and directors. The guidance is being issued in response to the OCC's discovery that certain communications technology being made available to banks contains data deletion and encryption features which could inhibit the OCC's ability to access bank data and records. The guidance notes that the permanent deletion of internal communications is in conflict with the OCC's expectations for sound governance, compliance, risk management and safety and soundness principles.
The OCC guidance is available at: http://www.occ.gov/news-issuances/bulletins/2016/bulletin-2016-13.html.
To continue reading this article, please click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
