United States: Financial Services Report - Winter 2012

Editor's Note

Occupy Starbucks. Have you ever wondered who makes up the one percent that sit in coffee houses sipping sun-dried Ethiopian soy milk lattes reading Nietzsche on their Kindles and tweeting Herman Cain jokes? If you haven't got scone crumb gravel stuck in the Smartphone pocket of your hoodie, chances are it's not you. You're part of the 99 percent. You should be grande angry.

We turn our back for one quarter and look what happened. Kim Kardashian got married and divorced, and so did the "Super Committee." Other stuff happened too. Living wills are this season's "singing trout." And with the demise of the "SuperComs," Congress has time on its hands and is turning again to privacy. The "Volcker Rule" is getting implemented by the Fed, OCC, SEC, and FDIC. FinCen issued a bunch of proposed rules. And there is a lot of noise about reserve requirements, both here and in Baselville. Finally, the Consumer Financial Protection Bureau ("CFPB") issued a number of edicts, so many that we needed to create a new section of this Newsletter called "Bureau Report."

By the way, if you're not already a subscriber to our "FranknDodd" daily alert service it doesn't necessarily mean that you are committing malpractice. But why take a chance? Lower your risk profile by registering now at register@frankndodd.com.

Until next time, eat more fiber, use your turn signal before lanechanging, and have a wonderful holiday and a Happy New Year.

Beltway Report

The Volcker Rule Proposal

Ever since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, banking organizations (and some nonbank financial institutions) have attempted to determine the breadth and impact of the Volcker Rule. This rule, now section 13 of the Bank Holding Company Act, generally prohibits a covered banking entity ("CBE") from proprietary trading and from investing in or controlling private equity or hedge funds. Long-awaited guidance is now at hand. The Federal Reserve Board ("Federal Reserve"), the Office of the Comptroller of the Currency ("OCC"), the Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange Commission ("SEC") all approved the proposed regulation for publication. The Commodities Futures Trading Commission ("CFTC") is expected to release its own proposal to implement the Volcker Rule in the near future. The proposed rule sweeps more broadly than the Volcker Rule requires but provides some greater specificity on certain provisions of the Dodd-Frank Act. Permitted activities are subject to an array of restrictions and compliance requirements. For a detailed overview of the proposal, please see our client alert available at http://www.mofo.com/files/Uploads/Images/111014-Volcker-Rule.pdf .

NCUA Makes Headway

The National Credit Union Administration ("NCUA") and Citigroup reached a $20.5 million settlement regarding potential claims relating to the sale of residential mortgagebacked securities to five failed wholesale credit unions. The NCUA also reached a $145 million settlement with Deutsche Bank Securities regarding similar claims. The NCUA is the first regulatory agency to recover losses on behalf of failed financial institutions that resulted from investments in these securities. The NCUA will use the net proceeds from this settlement to reduce assessments being charged to credit unions to pay for the losses.

Noah's Ark 2.0

The federal banking agencies published guidance updating the Interagency Questions and Answers Regarding Flood Insurance was most recently published on July 21, 2009. The guidance finalizes two questions and answers previously proposed: one relating to insurable value, and the other relating to forced placement of flood insurance. The agencies withdrew a third question regarding insurable value. The agencies requested comment on three additional proposed updates to questions and answers relating to forced placement of flood insurance. Two answers were significantly and substantively changed. The third change, regarding forced placement of flood insurance, revises a previously finalized Question and Answer for consistency with the proposed changes. After public comment is received and considered and the guidance adopted in final form, the agencies will issue a final update to the 2009 Interagency Questions and Answers Regarding Flood Insurance. Comments are due 45 days after publication in the Federal Register, which is expected shortly.

Prepaid Abroad

On October 17, 2011, the Financial Crimes Enforcement Network ("FinCEN") published a proposed rule that would add "tangible prepaid access devices" to the list of monetary instruments that must be reported when they are "transported, mailed, or shipped into or out of the United States." A "tangible prepaid access device" is defined as "any physical item...dedicated to obtaining access to prepaid funds or the value of funds by the possessor in any manner without regard to whom the prepaid access is issued." The value of the accessible funds would be determined by the amount of the funds available through the access device at the "time of physical transportation, mail, or shipment into or out of the United States." Because the value accessible through a prepaid access device may change without the knowledge of the holder of the device, FinCEN requested comment as to whether the value of the access device should be determined based upon the maximum potential value, rather than the value at the time the device crosses the U.S. border.

For additional information on this proposal, please see our client alert available at http://www.mofo.com/files/Uploads/Images/111019-FinCENProposes-Requirement.pdf .

Prepaid Access Rule

FinCEN issued guidance in the form of frequently asked questions ("FAQs") to clarify various aspects of its final rule regarding "prepaid access" ("Final Rule"). Following the issuance of the Final Rule, which amended the Bank Secrecy Act ("BSA") regulations applicable to Money Services Businesses ("MSB") with respect to "prepaid access," financial institutions, retailers, and others have had questions regarding their compliance obligations under the Final Rule.

The mandatory compliance date for the majority of the Final Rule is March 31, 2012. The FAQs can be accessed at http://www.fincen.gov/news_room/nr/html/20111102.html . For detailed information on the provisions of the FAQs, please consult our client alert available at: http://www.mofo.com/files/Uploads/Images/111109-Prepaid-Access.pdf .

Registration Rules for Securities Holding Companies

The Federal Reserve proposed a new Regulation OO for the registration of companies that control registered brokers or dealers as securities holding companies ("SHCs"). Section 618 of Dodd-Frank establishes a new regime at the Federal Reserve for the supervision of SHCs— available only for those SHCs that are not nonbank financial companies that have been designated as systemically important by the Financial Stability Oversight Council ("FSOC"), an insured bank or savings association, or an affiliate of one, a foreign banking organization, a foreign bank that controls an Edge Act corporation, or any company subject to comprehensive consolidated regulation by a foreign supervisory. Registration would not be required or necessary for companies that are already supervised on a consolidated basis by the Federal Reserve. The proposal itself is procedural, but it would require a detailed submission. The Federal Reserve projects that five companies are likely to register. Supervision of these companies will be comprehensive, and the enhanced prudential standards for systemically important financial institutions are likely to influence this supervision. For a detailed discussion of this proposal, please review our client alert available at http://www.mofo.com/files/Uploads/Images/110906-Securities-Holding-Companies.pdf .

FinCEN Proposal on Mandatory Electronic Filing of Bank Secrecy Act Forms

FinCEN issued a notice and request for comments pursuant to which FinCEN would require electronic filing, beginning June 30, 2012, of all Bank Secrecy Act reports (other than the Report of International Transportation of Currency or Monetary Instruments). Comments on the Notice were due by November 15, 2011.

Matchmaker in Chief

On September 7, 2011, the FDIC announced the launch of a new initiative aimed at encouraging small investors and asset managers to partner with larger investors to participate in the FDIC's structured transaction sales of assets from failed institutions. The Investor Match Program allows smaller investors to use a customized database that identifies potential collaborators, and is designed to expand opportunities for participation by minority- and women‑owned ("WMO") investors in FDIC structured sales transactions, and to transfer knowledge from larger investors and improve organizational competencies of smaller investors. To participate, investors must be pre-qualified to bid in FDIC structured sales transactions.

Federal Savings Associations Subject to Standard OCC Appeals Process

Pursuant to Section 316 of Dodd-Frank, the OCC issued a bulletin revising its procedures for national banks to appeal OCC actions and decisions to include federal savings associations. The issuance provides for a uniform appeals process for national banks, federal savings associations, and federal branches and agencies, and replaces the prior OCC appeals guidance relating to national banks, and repeals existing OTS appeals guidance.

Additional Interchange FAQ

The Federal Reserve released a second set of FAQs on debit interchange fees, focusing on general-use prepaid cards and clarifications on compliance with the prohibitions on circumvention, evasion, and net compensation. The FAQs clarify section 235.5(c) requiring the card be "the only means of access to the underlying funds, except when all remaining funds are provided to the cardholder in a single transaction." They confirm that a generaluse prepaid card retains its exemption if the cardholder is able to use information from the card to pay a merchant or other payee on the merchant's or other payee's website, provided the card meets the other criteria for the exemption. This is true whether the cardholder enters card information on the merchant's or other payee's website to initiate a one-time payment or to authorize the merchant or other payee to initiate recurring payments. But if a cardholder is able to use the issuer's (or issuer's agent's) online card or account management system to authorize the issuer to pay a merchant or other payee from the cardholder's account or subaccount, then the card is not the only means of access to the underlying funds and the card loses its exemption. Thus, if a cardholder is able to pay a creditor by authorizing the issuer or issuer's agent to make electronic fund transfers out of an account or the card is linked to a bill payment service, the card is not the only means of access to the underlying funds. The FAQs clarify several issues related to the new restrictions on issuers receiving net compensation from a payment card network related to debit card transactions, and explain how issuers should allocate these payments as the rule goes into effect in the middle of the calendar year.

Black Friday

Retailers represented by the National Retail Federation, the Food Marketing Institute, and the National Association of Convenience Stores as well as two individual retailers—Boscov's Department Store and Miller Oil Co.—have sued the Federal Reserve in U.S. District Court in Washington, D.C. over the recent interchange fee rule. The complaint alleges that the final interchange rule exceeded the statutory authority delegated to the Federal Reserve by the Durbin Amendment, is an unreasonable interpretation of that statute, and is invalid under the Administrative Procedure Act because it: (1) ignores the statutory direction that the final rule distinguish between the allowable "incremental cost" of "authorization, clearance, or settlement of a particular electronic debit transaction" and all "other costs incurred by the issuer which are not specific to a particular transaction," which are not includable in the interchange fee as the Federal Reserve declined to determine incremental costs associated with particular debit transactions, and invented a third category of costs not mentioned in the statute claiming unfettered discretion over the inclusion (and exclusion) of those costs in setting an allowable interchange transaction fee; (2) impermissibly counts within the category of recoverable costs a 5-basis-point (0.05 percent) allowance for fraud losses incurred by issuing banks, which, contrary to the statutory provision, permits recovery of fraud losses without regard to any measures by an issuer to prevent fraud; (3) includes network switch fees as a component of allowable costs, notwithstanding the fact that the Durbin Amendment creates a structure for regulation of network fees that is separate and apart from the interchange fee calculations; and (4) circumvents the statutory prohibitions against network or issuer exclusivity arrangements by allowing issuing banks and networks to satisfy the non-exclusivity requirement by providing only one personal identification number ("PIN") network provider and one "signature" debit network provider per debit card, and not allowing those networks to provide network services for all transactions performed on the card. In summary, the retailers argue that "the Final Rule permits banks to recover significantly more costs than permitted by the plain language of the Durbin Amendment and deprives plaintiffs of the benefits of the statute's anti-exclusivity provisions" and that exceeds the Board's statutory authority and constitutes an unreasonable construction of the Durbin Amendment. Plaintiffs seek declaratory relief.

Credit Rating References

In compliance with Section 939A of Dodd Frank, the OCC proposed a rule to remove references to credit ratings from various OCC regulations and related guidance to assist national banks and federal savings associations in meeting due diligence requirements in assessing credit risk for portfolio investments. Comments may be submitted through December 29, 2011. The proposed OCC rule would remove references to credit ratings in the OCC's non-capital regulations. In particular, the OCC proposes to amend the definition of "investment grade" in 12 CFR Part 1 to no longer reference credit ratings. In addition to following the standard under the proposed rule, national banks and federal savings associations would be expected to continue to maintain appropriate ongoing reviews of their investment portfolios to verify that they meet safety and soundness requirements appropriate for the institution's risk profile and for the size and complexity of the portfolios. The proposed guidance clarifies steps national banks should take to demonstrate they have properly verified their investments meet the newly established credit quality standards under 12 CFR Part 1 and steps national banks and federal savings associations should take to demonstrate they met due diligence requirements when purchasing investment securities and conducting ongoing reviews of their investment portfolios. Additionally, when purchasing corporate debt securities, Federal savings associations will need to follow requirements to be established by the Federal Deposit Insurance Corporation pursuant to 12 U.S.C. 1831e(d) (as amended by section 939(a)(2) of the Dodd-Frank Act).

Be Nice to Each Other

The Government Accountability Office (the "GAO") issued a study finding that financial regulators do not have formal protocols in place for interagency cooperation on Dodd-Frank rulemaking. The GAO recommended four ways to improve the effectiveness of collaboration: ensuring that the specific practices in the Office of Management and Budget's regulatory analysis guidance are better incorporated into rulemaking policies; the Financial Stability Oversight Council ("FSOC") needs to work with the banking agencies to establish formal coordination policies clarifying when coordination should occur, the process used to solicit and address comments, and the role FSOC should play in facilitating this coordination; banking agencies should develop plans for measuring the impact of Dodd-Frank Act regulations; and the FSOC should direct the Office of Financial Research to work with regulators to identify and collect data necessary to analyze the impact of the Dodd-Frank Act regulations on the stability, efficiency and competitiveness of US financial markets.

Bureau Report

CFPB Releases Prototypes for Closing Mortgage Disclosures

In its latest round to streamline TILA and RESPA disclosures, the CFPB unveiled two different prototypes of the final disclosure form intended to combine the Truth in Lending Disclosure and the HUD-1. Previous rounds had focused on two different proposals for the initial disclosure form to integrate the Good Faith Estimate and Truth in Lending Disclosure. In this round, the CFPB says it boiled down ten pages of content to five or six. Testing of the final disclosure prototypes will follow the same pattern for the initial disclosure forms and will involve consumer interviews and input requested on the website. The agency will then revise these forms and request additional input in the next round.

Complaining, 24/7

The CFPB has been collecting consumer complaints (in 191 languages) concerning credit cards for over three months, and in late November it released its first report. Many in the industry are concerned that the complaint registry will become a Petri dish for nascent class actions. We can't rule that out, but so far, it's gone pretty much as anyone familiar with bank customer relations would expect: 5,000 complaints, 3,100 of those resolved with consumers disputing the outcome in only 400 cases (13%). Most of the complaints were from consumers who misunderstood their agreements or their monthly statements.

Warning: I am Coming After You!

The CFPB outlined plans to provide advance notice of potential enforcement actions to individuals and firms under investigation. The Early Warning Notice process, modeled on similar procedures successful at other agencies, allows the subject of an investigation to respond to any potential legal violations that CFPB enforcement staff believe have been committed before the Bureau ultimately decides whether to begin legal action. The process begins with the Office of Enforcement explaining to individuals or firms that evidence gathered in a CFPB investigation indicates they have violated consumer financial protection laws. Recipients of an Early Warning Notice are then invited to submit a response in writing, within 14 days, including any relevant legal or policy arguments and facts. Enforcement staff will have the ability to bypass providing a notice when prompt action is deemed necessary. Factual assertions included in any written response must be made under oath by someone with personal knowledge of such facts, and responses will be discoverable by third parties. The CFPB will decide whether to proceed with an enforcement action following its review of the written response. In July 2011, the CFPB's Office of Enforcement made public its rules regarding the initiation and execution of enforcement investigations. More information about the Early Warning Notice can be found at: www.consumerfinance.gov/wp-content/uploads/2011/11/EarlyWarningNotice.pdf .

A Little Pruning

The CFPB announced that it will ask the public to comment on which regulations it inherited from the other agencies should be updated, modified, or eliminated because they're outdated, unduly burdensome or unnecessary. There will be a 90-day comment period on the notice.

Student Loans: More Information Needed

The CFPB published a Notice and Request for Information seeking to collect data from students, schools, industry and other stakeholders in the private student loan market on a series of issues from origination to servicing to collection. The CFPB is interested in a complete picture of private student lending, so it is seeking a broad swath of information, including information available to shop for private student loans; the role of schools in the marketplace; underwriting criteria; repayment terms and behavior; impact on choice of field of study and career choice; servicing and loan modification; financial education, and default avoidance. The CFPB will use the collected input to assist with preparation of a report to Congress on private student lending, required by Dodd- Frank to be produced by July 21, 2012. The CFPB will also use the information it gathers to prioritize its own regulatory and education work. The public has 60 days to submit comments after the notice has been submitted to the Federal Register.

Operations Report

Who's Da Boss?

The banking agencies have issued a policy statement explaining how the total assets of an insured bank, thrift, or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under Dodd-Frank. Under section 1025 of Dodd-Frank, the Consumer Financial Protection Bureau ("CFPB") has exclusive authority to examine for compliance with federal consumer financial laws and primary authority to enforce those laws for institutions with total assets of more than $10 billion, and their affiliates. Section 1026 confirms that the four prudential regulators—the Federal Reserve, the FDIC, the NCUA, and the OCC—will retain supervisory and enforcement authority for other institutions. The statement explains that a common measure of the asset size of an insured depository institution is the total assets reported in the quarterly Reports of Condition and Income ("Call Reports"), which financial institutions are required to file, and the need to establish a schedule for determining the size of an institution that avoids unwarranted uncertainty or volatility regarding the identity of an institution's primary supervisor for federal consumer financial laws.

For this purpose, the agencies are adapting criteria used for deposit insurance assessment purposes. Accordingly, after an initial asset size determination based on June 30, 2011 data, an institution will generally not be reclassified unless four consecutive quarterly reports indicate that a change in supervisor is warranted. For the reasons that the CFPB should be governed by a commission, see Roland Brandel's article in the American Banker, History Shows Why CFPB Needs a Commission, http://www.americanbanker.com/bankthink/federal-trade-commissionconsumer-financial-protection-bureaudirector-1043312-1.html .

Final Rule Amending Reg. D – Reserve Requirements for Depository Institutions

The Federal Reserve announced the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2012, amounts used in the calculation of reserve requirements for depository institutions. The Federal Reserve also announced the annual indexing of nonexempt deposit cutoff levels and the reduced reporting limit used to determine deposit reporting panels effective in 2012. All depository institutions must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank or as a deposit in a pass-through account at a correspondent institution. Reserve requirements are assessed on the depository institution's net transaction accounts (mostly checking accounts). Depository institutions must also regularly submit deposit reports of their deposits and other reservable liabilities. For net transaction accounts in 2012, the first $11.5 million, up from $10.7 million in 2011, will be exempt from reserve requirements. A 3% reserve ratio will be assessed on net transaction accounts over $11.5 million up to and including $71.0 million, up from $58.8 million in 2011. A 10% reserve ratio will be assessed on net transaction accounts in excess of $71.0 million. These annual adjustments, known as the low reserve tranche adjustment and the reserve requirement exemption amount adjustment, are based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2010 and June 30, 2011.

Final Rules on Living Wills:

Prepare for Your Own Demise

The Federal Reserve announced the approval of a final rule to implement the Dodd-Frank resolution plan requirement set forth in Section 165(d) (the "Final Rule"). The Final Rule requires bank holding companies with assets of $50 billion or more and nonbank financial firms designated by the Financial Stability Oversight Council to annually submit resolution plans to the Federal Reserve and the FDIC. The plan must describe the company's strategy for rapid and orderly resolution in bankruptcy during times of financial distress, and include a strategic analysis of its components, a description of the range of specific actions the company proposes to take in resolution, and a description of the company's organizational structure, material entities, interconnections and interdependencies, and management information systems. Companies will submit their initial resolution plans on a staggered basis: (1) July 1, 2012 for companies with $250 billion or more in non bank assets; (2) July 1, 2013 for companies with total non bank assets with $100 billion or more, but less than $250 billion; and (3) December 31, 2013 for companies with less than $100 billion in total non bank assets. The Final Rule took effect on November 30, 2011, and was developed jointly with the FDIC, which issued its final rule in September 2011. For a detailed discussion of the FDIC's living will rule, please review our client alert available at: http://www.mofo.com/files/Uploads/Images/110916-Living-Wills-Final-Rules.pdf .

For a comprehensive understanding of the Final Rule and related plan considerations, please review our Living Wills User Guide available at: http://www.mofo.com/files/Uploads/Images/110905-Living-Wills.pdf .

Conflict of Interest Rules

On September 19, 2011, the SEC released a proposed rule ("Proposed Rule 127B") implementing the conflicts of interest provisions of section 621 of Dodd-Frank which added a new section 27B to the Securities Act of 1933, as amended (the "Securities Act"). Proposed Rule 127B was released on September 19, 2011, for a 90-day comment period, which will end on December 19, 2011. Proposed Rule 127B would generally prohibit certain persons involved in the structuring, creation, and distribution of an assetbacked security ("ABS") from engaging in transactions within one year after the date of the first closing of the sale of such ABS that would involve or result in a material conflict of interest with respect to any investor in such ABS. Because of the sweeping nature of new section 27B of the Securities Act, several industry participants and trade groups submitted in-depth pre-rulemaking comments and expressed concern that section 27B, as drafted, was broad enough to prohibit a vast range of legitimate and necessary securitization-related transaction types, such as providing credit enhancement, liquidity facilities, and warehouse lending, and exercising control rights under a securitization. Therefore, Proposed Rule 127B simply repeats the text of new section 27B of the Securities Act more or less verbatim. In the release accompanying Proposed Rule 127B, the SEC directly engaged pre-rulemaking comments, and set forth a proposed framework for identifying and dealing with conflicts of interest. The SEC indicated that application of the proposed framework would not operate to prohibit inherent securitization activities, such as providing financing to a securitization participant, conducting servicing activities, collateral management activities, and underwriting activities, employing a credit rating agency, receiving payments for performing a role in the securitization, exercising remedies in the event of a default, and contractual rights to remove servicers or appoint special servicers, providing credit enhancement through a letter of credit, and structuring the right to receive excess spreads or equity cashflows. The proposed framework laid out in the SEC's explanatory release accompanying Proposed Rule 127B sets forth (i) conditions to the application of the rule and (ii) regulatory exceptions to the rule. For an in-depth discussion of the rule, please review our client alert available at http://www.mofo.com/files/Uploads/Images/110929-SEC-Proposes-Dodd-Frank-Conflicts-of-Interest-Rules.pdf .

Standing Out in the Crowd

Pursuant to Section 113 of Dodd- Frank aimed at avoiding a repeat of the Lehman Brothers collapse in September 2008, the Federal Stability Oversight Council ("FSOC") issued a proposed rule establishing a three-stage analysis for identifying non bank systemically important financial institutions. The FSOC is statutorily empowered to require a non bank financial company to be supervised by the FRB if it determines that material financial distress at the company or the nature, scope, size, scale, concentration, interconnectedness, or mix of the activities of the company could pose a threat to the financial stability of the United States. The three-stage screening involves: (1) specific quantitative thresholds consisting of an asset test marker of $50 billion in global assets for U.S. firms or $50 billion in U.S. assets for foreign entities and one of several other quantitative thresholds: (a) $30 billion or more in gross notional credit default swaps, (b) $3.5 billion of derivative liabilities, (c) $20 billion of outstanding loans taken or bonds issued, or (d) a minimum 15 to 1 assets-to-equity leverage ratio; (2) a second stage consisting of a deeper analysis involving qualitative factors, such as consultations with primary regulators; and (3) a third stage involving a decision by the FSOC whether to designate the firm as a non bank systemically important financial institution. Designated firms could request a hearing and try to convince the FSOC to modify its decision. Comments on the proposal are due by December 19, 2011.

Basel Surcharge

The Basel Committee on Banking Supervision (the "Basel Committee") issued a release reaffirming its proposal to impose a capital surcharge on banks deemed to be "too big to fail." The surcharge would consist of a 1% to 2.5% additional charge for 28 unnamed banks with the charge varying with the bank's perceived systemic importance. The Basel Committee also proposes to discourage "too big to fail" banks from expanding further by means of the imposition of a 3.5% capital charge on expanding banks that, as a result of such expansion, would become even more systemically important.

Counterparty Credit Risk Rules

The Basel Committee on Banking Supervision issued revised draft rules under the Basel III framework specifiying capital reserve requirements for banks' exposures to central counterparties. The changes have to do with the scope of the Revised Rules, the capitalization of trade exposures, the capitalization of default fund exposures, and indirect access-related issues. The rules did not modify the risk weight for trade exposures. Comments were due by November 25, a final proposal will be issued by the end of the year, and implementation will occur by January 2013. The committee issued a list of FAQs on the counterparty credit risk sections of the Basel III rules providing guidance on default counterparty credit risk charge, credit valuation adjustment risk capital charge and asset value correlations.

Some Reprieve: SLHC Reporting

The Federal Reserve proposed a twoyear phase-in period for most savings and loan holding companies ("SLHCs") to file Federal Reserve regulatory reports and an exemption for some SLHCs from initially filing Federal Reserve regulatory reports. Under Dodd-Frank, supervisory and rulemaking authority for SLHCs and their nondepository subsidiaries transferred from the Office of Thrift Supervision ("OTS") to the Federal Reserve on July 21, 2011. On February 3, 2011, the Federal Reserve sought comment on its notice of intent to require SLHCs to submit the same reports as bank holding companies, beginning with the March 31, 2012, reporting period. After consideration of the comments received on the notice of intent, the Federal Reserve Board proposes to exempt a limited number of SLHCs from initial regulatory reporting using the Federal Reserve's existing regulatory reports and a two-year phase-in period for regulatory reporting for all other SLHCs. Exempt SLHCs would continue to submit Schedule HC, which is currently a part of the Thrift Financial Report, and the OTS H-(b)11 Annual / Current Report. Comments on the proposal were due on November 1, 2011.

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Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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