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 Proposes Rule to Treat US Municipal Securities as Level 2B High-Quality Liquid Assets under the Liquidity Coverage Ratio
On May 21, 2015, the US Board of Governors of the Federal Reserve System issued a proposal adding certain general obligation state and municipal bonds to the range of assets a banking organization may use to satisfy the Liquidity Coverage Ratio requirement. Under the LCR requirement adopted by the federal banking agencies in September 2014, large banking organizations are required to hold High-Quality Liquid Assets that can be easily and quickly converted into cash within 30 days during a period of financial stress. The proposed rule would allow investment grade, general obligation US state and municipal bonds to be counted as HQLA up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. The limits on the amount of a state or municipality's bonds that could qualify are based on the specific liquidity characteristics of the bonds. The proposed rule would apply only to entities subject to the LCR and supervised by the Federal Reserve Board. The deadline for comments on the proposed rule is July 24, 2015. The proposed rule is available at: http://www.federalreserve.gov/newsevents/press/bcreg/20150521a.htm.
US Financial Stability Oversight Council Releases Annual Report
On May 26, 2015, the US Financial Stability Oversight Council unanimously approved and published its 2015 annual report. The report discusses a variety of issues, including significant financial market and regulatory developments, potential emerging threats to the financial stability of the US, and recommendations on methods to mitigate such threats. The findings in the FSOC report emphasize, among other things, the need for the continuing enhancement of cyber security for all market participants, the ongoing investigation into whether existing rules and standards are sufficiently robust to mitigate the potential risk that central counterparties could transmit credit and liquidity problems among financial institutions and markets during periods of market stress, and the efforts made to reduce gaps that remain in the scope and quality of data sharing among regulators. The 2015 FSOC annual report and press release are available at: http://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/2015%20FSOC%20Annual%20Report.pdf; and http://www.treasury.gov/press-center/press-releases/Pages/jl10055.aspx.
US Federal Bank Regulatory Agencies Seek Further Comment on Interagency Effort to Reduce Regulatory Burden
On May 29, 2015, the US Office of the Comptroller of the Currency, the US Federal Deposit Insurance Corporation, and the Federal Reserve Board (collectively, the "federal bank regulatory agencies") approved a notice requesting comment on a third set of regulatory categories as part of their review to identify outdated or unnecessary regulations applied to insured depository institutions. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 requires federal bank regulatory agencies to review their regulations at least once every 10 years and to categorize and publish the regulations for comment. Consistent with the EGRPRA, the federal bank regulatory agencies have grouped regulations applicable to insured depository institutions into 12 regulatory categories: (i) Applications and Reporting; (ii) Banking Operations; (iii) Capital; (iv) Community Reinvestment Act; (v) Consumer Protection; (vi) Directors, Officers and Employees; (vii) International Operations; (viii) Money Laundering; (ix) Powers and Activities; (x) Rules of Procedure; (xi) Safety and Soundness; and (xii) Securities. The latest notice seeks comment on regulations in the following three categories: (i) Consumer Protection; (ii) Directors, Officers and Employees; and (iii) Money Laundering. Comments will be accepted within 90 days after publication in the Federal Register. Although the current notice seeks comment on the three specifically enumerated categories above, comments are accepted on any of the established categories of regulation as well as on all rules that have been finalized before the publication of the last EGRPRA notice which is expected by year-end. The European Commission also recently launched its Better Regulation Agenda, which among other things, aims to improve the review of existing EU laws.
The Federal Register Notice is available at: https://www.fdic.gov/news/news/press/2015/pr15044a.pdf.
For more information, the EGRPRA website is available at: http://egrpra.ffiec.gov/.
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