The CFPB Announces New Enforcement Rules
On Wednesday, June 6, 2012, the Consumer Financial Protection Bureau (the "CFPB") announced three final rules to implement provisions of Sections 1052, 1053, and 1042 of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (the "Dodd-Frank Act") and one interim final rule to implement provisions of the Equal Access to Justice Act (the "EAJA"). The three final rules deal with the CFPB's investigative and adjudicative processes and its interactions with state law enforcement authorities. The interim final rule implements the EAJA provisions that certain prevailing parties in administrative proceedings can recover attorney fees and expenses.
The Fed Announces New Joint Market Risk Rule
On Thursday, June 7, 2012, the Federal Reserve Board (the "Fed") announced a joint final rule with the Office of the Comptroller of the Currency (the "OCC"), and the Federal Deposit Insurance Corporation (the "FDIC"). The joint final rule implements changes to the market risk capital rule, which requires banking organizations with significant trading activities (aggregate trading assets and liabilities equal to 10 percent of total assets, or $1 billion or more) to adjust their capital requirements to account for the market risks of those activities. The rule also implements certain revisions made by the Basel Committee on Banking Supervision to its market risk framework between 2005 and 2010. The rule applies to bank holding companies and state-chartered banks that are members of the Federal Reserve System. Separate from this rule, the Fed, the OCC, and the FDIC jointly proposed to apply the market risk capital rule to savings and loan holding companies that meet the thresholds described in the final rule (see below).
Read the June 7, 2012 Fed press release
Read the June 12, 2012 Fed press release
Read the June 12, 2012 OCC press release
Read the June 12, 2012 FDIC press release
The Fed Announces Three Joint Notices of Proposed Rules Regarding Capital Requirements
On Thursday, June 7, 2012, the Fed announced it is seeking comment on three joint notices of proposed rules ("NPRs") with the OCC and the FDIC that would revise and replace the agencies' current capital rules.
The first NPR, titled Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Minimum Regulatory Capital Ratios, Capital Adequacy, and Transition Provisions, would revise the agencies' risk-based and leverage capital requirements consistent with agreements reached by the Basel Committee on Banking Supervision ("Basel III"). This NPR would apply to all insured banks and savings associations, top-tier bank holding companies domiciled in the United States with more than $500 million in assets, and savings and loan holding companies that are domiciled in the United States. Provisions of this NPR that would apply to these banking organizations include implementation of a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the advanced approaches capital rules, a supplementary leverage ratio that incorporates a broader set of exposures. Additionally, consistent with Basel III, the agencies propose to apply limits on a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified "buffer" of common equity tier 1 capital in addition to the minimum risk-based capital requirements. The revisions set forth in this NPR are consistent with section 171 of the Dodd-Frank Act, which requires the agencies to establish minimum risk-based and leverage capital requirements.
The first NPR also would revise the agencies' prompt corrective action framework by incorporating the new regulatory capital minimums and updating the definition of tangible common equity. Prompt corrective action is an enforcement framework that constrains the activities of insured depository institutions based on their level of regulatory capital.
The second NPR, titled Regulatory Capital Rules: Advanced Approaches Risk-based Capital Rules; Market Risk Capital Rule, would revise the agencies' advanced approaches risk-based capital rules consistent with Basel III and other changes to the Basel Committee's capital standards. The agencies also propose revising the advanced approaches risk-based capital rules to be consistent with Sections 939A and 171 of the Dodd-Frank Act. Additionally in this NPR, the OCC and FDIC propose that the market risk capital rules apply to federal and state savings associations, and the Fed proposes that the advanced approaches and market risk capital rules apply to top-tier savings and loan holding companies domiciled in the United States, if stated thresholds for trading activity are met. Generally, the advanced approaches rules would apply to such institutions with $250 billion or more in consolidated assets or $10 billion or more in foreign exposure, and the market risk rule would apply to savings and loan holding companies whose trading activity (the gross sum of its trading assets and trading liabilities) is equal to 10 percent or more of its total assets, or $1 billion or more.
The third NPR, titled Regulatory Capital Rules: Standardized Approach for Risk-weighted Assets; Market Discipline and Disclosure Requirements, would revise and harmonize the agencies' rules for calculating risk-weighted assets to enhance risk sensitivity and address weaknesses, including by incorporating aspects of the Basel II standardized framework, and alternatives to credit ratings, consistent with Section 939A of the Dodd-Frank Act. The revisions include methods for determining risk-weighted assets for residential mortgages, securitization exposures, and counterparty credit risk. This NPR also would introduce disclosure requirements that would apply to U.S. banking organizations with $50 billion or more in total assets. This NPR would apply to the same set of institutions as the first NPR.
Read the June 7, 2012 Fed press release
Read the June 12, 2012 Fed press release
Read the June 12, 2012 OCC press release
Read the June 12, 2012 FDIC press release
The SEC Issues Derivative Regulation "Roadmap"
On Monday, June 11, 2012, the Securities and Exchange Commission (the "SEC") issued a policy statement describing the order in which it expects new rules regulating the derivatives market to take effect. The statement covers final rules to be adopted by the SEC pursuant to Title VII of the Dodd-Frank Act. The policy statement does not estimate when the rules will be put in place, but describes the sequence in which they will take effect.
In addition, the policy statement discusses the timing of the expiration of the temporary relief the SEC previously granted to securities-based swaps market participants. The relief exempts these market participants from certain provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Trust Indenture Act of 1939. Much of this relief is due to expire when certain final rules under Title VII become effective.
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