United States: Financial Regulatory Developments Focus - December 3rd, 2014

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 infrastructures, asset managers and corporates.

Bank Prudential Regulation & Regulatory Capital

The Federal Reserve Board Proposes Enhanced Prudential Oversight for General Electric's Financial Arm

On November 25, 2014, the US Board of Governors of the Federal Reserve System ("Federal Reserve Board") issued a proposed order to apply enhanced prudential standards to General Electric Capital Corporation ("GECC"), the financial arm of General Electric. The Financial Stability Oversight Council ("FSOC") has designated GECC as systemically important under Section 165 of the Dodd-Frank Act. The enhanced prudential standards would be similar to those standards applicable to large bank holding companies and would include requirements for risk-based capital, leverage, liquidity, stress testing and other prudential standards.

Certain additional standards specific to GECC's activities would also be applied, including restricting transactions between General Electric Corporation and GECC and independence requirements for the board of directors of GECC. There is a 60 day consultation period.

The Federal Reserve Board proposed order is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20141125b1.pdf.

Federal Deposit Insurance Corporation Issues Filing and Document Procedures for State Banks

On November 19, 2014, the Federal Deposit Insurance Corporation ("FDIC") issued a Financial Institution Letter ("FIL") applicable to all state banks outlining documentation and filing procedures for state banks engaging, directly or indirectly, in investments and activities permissible for national banks.

The FDIC FIL is available at:

https://www.fdic.gov/news/news/financial/2014/fil14054.pdf.

Federal Deposit Insurance Corporation Issues Guidance for Deposit Insurance

On November 20, 2014, the FDIC issued a FIL laying out guidance in the form of questions and answers for new banks preparing applications for deposit insurance. The guidance is applicable to institutions with $1 billion or less in consolidated assets and covers topics including, among other things, processing timelines, pre-filing meetings and initial capitalization.

The FDIC FIL is available at:

https://www.fdic.gov/news/news/financial/2014/fil14056a.pdf.

Federal Deposit Insurance Corporation Issues Final Rule Revising Capital Ratios

On November 25, 2014, the FDIC issued a final rule which will revise capital ratios and ratio thresholds to conform to the prompt corrective action capital ratio and ratio thresholds for used deposit insurance assessments. It will further revise assessment base calculations and require "highly complex" institutions to use Basel III standardized approaches for derivatives and securities financing transactions to measure counterparty exposure for deposit insurance assessment. The final rule will be effective on January 1, 2015, except for certain amendments to 12 C.F.R. ℘327.9 of certain assessment pricing methods, which will be effective on January 1, 2018.

The final rule is available at:

http://www.gpo.gov/fdsys/pkg/FR-2014-11- 26/pdf/FR-2014-11-26.pdf.

Federal Deposit Insurance Corporation Issues Proposed Rule Amending Filing Requirements

On November 25, 2014, the FDIC issued a proposed rule to amend filing requirements and processing procedures for notices filed under the Change in Bank Control Act. The rule would, among others, consolidate requirements and adopt best practices of the Federal Reserve Board and the OCC. The rule, if finalized, will be effective January 25, 2015.

The proposed rule is available at:

http://www.gpo.gov/fdsys/pkg/FR-2014-11- 25/pdf/2014-27934.pdf.

Prudential Regulation Authority Proposes Revised LCR Regime

On November 28, 2014, the UK Prudential Regulation Authority ("PRA") launched a consultation on the UK liquidity coverage requirement ("LCR") framework. EU secondary legislation implementing LCR requirements across the EU will come into force by December 31, 2014 and will apply in the UK from October 1, 2015. The PRA is therefore proposing to: (i) revoke the current UK LCR rules; (ii) apply a transition to 100% LCR on January 1, 2018 by requiring 80% LCR from October 1, 2015 and 90% from January 1, 2017; (iii) continue existing add-ons not covered in the EU LCR regime as new Pillar 2 add-ons until each firm's next liquidity review; (iv) maintain the current reporting regime for two years following the introduction of the COREP liquidity returns in 2015; (v) require firms to ensure that their systems and processes enable them to report all COREP liquidity returns daily; (vi) extend the EU LCR rules to UK-designated investment firms; and (vii) require third country firms to provide liquidity information on a whole-firm basis. The proposals are relvant to UK banks, building societies and UK-designated investment firms as well as UK branches of EEA credit institutions and third country banks or designated investment firms. The consultation closes on February 27, 2015.

The consultation paper is available at:

http://www.bankofengland.co.uk/pra/Documents/publications/cp/2014/cp2714.pdf.

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