United States: Financial Regulatory Developments Focus - 24 March 2016

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 Reserve Board Approves Application by Goldman Sachs Bank USA to Acquire Deposits

On March 21, 2016, the US Board of Governors of the Federal Reserve System approved the application by Goldman Sachs Bank USA under the Bank Merger Act to assume substantially all (approximately $17 billion) of the deposit liabilities and certain assets of GE Capital Bank, a subsidiary of General Electric Corporation, including assets GE Bank uses to manage its online deposit-taking platform. The acquisition was announced in August 2015, and the Federal Reserve Board extended processing of GS Bank's application in light of numerous public comments that challenged the transaction on various grounds, including that GS is already too big to fail. In approving the transaction, among other findings, the Federal Reserve Board concluded that the transaction would have a negligible impact on the systemic footprint of GS (which has approximately $860 billion in total assets) and would improve the stability of funding available to GS Bank by diversifying its sources of funding.

The Federal Reserve Board order is available at: http://www.federalreserve.gov/newsevents/press/orders/orders20160321a1.pdf.

Senior Officials of US Bank Regulatory Agencies Deliver Remarks Regarding Bank Supervisory Process

On March 18, 2016, as part of the Federal Reserve Bank of New York's Conference on Bank Supervision, senior officials of several US bank regulatory agencies delivered remarks regarding the effectiveness of bank supervision and key components of the bank supervisory process. In the conference's opening remarks, NY Fed President William Dudley noted the importance of distinguishing between effective and ineffective supervision, particularly given the confidential nature of the bank supervisory process. Federal Deposit Insurance Corporation Vice Chairman Thomas Hoenig subsequently noted several critical features of successful oversight of financial institutions including: (i) subjecting commercial banks of all sizes to full-scope examinations, (ii) having regulators require that the largest banks disclose important supervisory findings to allow the public to better understand their financial condition and (iii) recognition by supervisors of their limits and emphasizing that banks hold sufficient capital to backstop management mistakes and bad luck.

President Dudley's speech is available at: https://www.newyorkfed.org/newsevents/speeches/2016/dud160318.

Vice Chairman Hoenig's speech is available at: https://www.fdic.gov/news/news/speeches/spmar1816.html.

Dodd-Frank Act Criticized at American Bankers' Association Conference

On March 15-16, 2016, at an American Bankers' Association Conference in Washington, DC, US Senate Banking Committee Chairman Richard Shelby and US House of Representatives Financial Services Committee Chairman Jeb Hensarling both raised concerns regarding the current regulatory regime and certain requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, Chairman Shelby addressed the costs and burdens of financial regulation under the Dodd-Frank Act, specifically criticizing the $50 billion threshold for identifying systemically important financial institutions, and noted plans to continue to push his regulatory relief bill, The Financial Regulatory Improvement Act of 2015, through the Senate. Chairman Hensarling also outlined proposed legislation that would reform the Dodd-Frank Act, including eliminating certain Dodd-Frank Act and Basel III requirements for banks that hold higher levels of capital.

Chairman Shelby's remarks are available at: http://www.banking.senate.gov/public/index.cfm/republican-press-releases?ID=42698066-A7A2-4D3D-9B57-6FAE242E05F4.

Coverage of Chairman Hensarling's remarks is available at: http://financialservices.house.gov/news/documentsingle.aspx?DocumentID=400461.

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