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 Federal Deposit Insurance Corporation Chairman Delivers Speech at The Clearing House Annual Conference
On November 18, 2015, US Federal Deposit Insurance Corporation Chairman, Martin J. Gruenberg, gave a speech at The Clearing House annual conference regarding progress the FDIC has made in implementing the Dodd-Frank Act's framework for the orderly failure of large, complex, Systemically Important Financial Institutions. With respect to providing feedback to the largest financial institutions on their living will submissions, the Chairman described certain specific actions that firms have been asked to address in their resolution plans, including requiring firms to place a greater focus on reducing the interconnectedness between legal entities and provide greater detail in the public portions of the resolution plans. He also discussed the progress the FDIC has made in: (i) facilitating the orderly resolution of a SIFI under its Title II Orderly Liquidation Authority; and (ii) cross-border coordination on resolution. The Chairman echoed similar remarks made in his speeches at the Peterson Institute for International Economics in May 2015 and at the FDIC Banking Research Conference in September 2015.
The text is available at: https://www.fdic.gov/news/news/speeches/spnov1815.html.
US Federal Deposit Insurance Corporation Updates Frequently Asked Questions on Brokered Deposits
On November 13, 2015, the FDIC updated its Frequently Asked Questions regarding brokered deposits. FDIC regulations typically prohibit the acceptance of brokered deposits by FDIC-insured depository institutions that are not well capitalized. The updated FAQs contain revised responses on various topics relating to identifying, accepting and reporting brokered deposits, including but not limited to: (i) the circumstances under which certain business professionals that refer clients to a bank will be considered deposit brokers; (ii) examples of programs that would not be considered brokered deposit programs; and (iii) situations in which contract and dual employees would not be classified as deposit brokers by the FDIC. The FDIC is soliciting comments on the updated document until December 28, 2015.
The FAQs in "Clean" and "Track Changes" format are available at: https://www.fdic.gov/news/news/financial/2015/fil15051a.pdf; and https://www.fdic.gov/news/news/financial/2015/fil15051b.pdf.
European Banking Authority Consults on Draft Regulatory Technical Standards for Additional Criteria for Preferential Treatment for Intragroup Liquidity
On November 18, 2015, the European Banking Authority launched a consultation on draft Regulatory Technical Standards to specify additional criteria for preferential treatment in calculating the Liquidity Coverage Requirement for cross-border intragroup liquidity flows, as required under the Capital Requirements Regulation. The CRR observes that there can at times be a need for intra-group financial support in a case where an institution experiences liquidity difficulties and finds itself under conditions of stress. The draft RTS, amongst other things, specify how liquidity providers and receivers can display a low liquidity risk profile, by for example, a liquidity provider monitoring the liquidity position of the receiver on a daily basis. The draft RTS also detail the binding agreements and commitments that are required for credit and liquidity between group entities. Comments on the consultation are due by January 13, 2016.
The consultation and draft RTS are available at: http://www.eba.europa.eu/documents/10180/1275118/EBA-CP-2015-22+CP+on+cross-border-flows+within+a+group+or+an+IPS.pdf.
Basel Committee on Banking Supervision Publishes Interim Impact Analysis on Fundamental Review of Trading Book
On November 18, 2015, the Basel Committee on Banking Supervision published an interim impact analysis of its fundamental review of the trading book. The analysis used data from 44 banks and assesses the impact of the revisions proposed in previous consultations carried out in 2013 and 2014. The analysis found, amongst other things, that: (i) change in market risk capital charges would produce an increase of 4.7% in the overall Basel III minimum capital requirement; (ii) that such change leads to a 2.3% increase when the bank with the largest value of market risk-weighted assets is excluded from the sample; and (iii) in comparison with the current market risk framework, the standard proposed would result in a weighted average increase of 74% in aggregate market risk capital. The Basel Committee expects to finalize the review before the end of 2015.
The analysis is available at: http://www.bis.org/bcbs/publ/d346.pdf.
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