Bank Prudential Regulation & Regulatory Capital

US Board of Governors of the Federal Reserve System Releases Proposed Rule to Modify Capital Plan and Stress Testing Rules

On September 26, 2016, the US Board of Governors of the Federal Reserve System issued a proposed rule modifying the capital plan and stress testing rules for the 2017 test cycle. The proposed changes include the elimination of the qualitative portion of the Comprehensive Capital Analysis and Review for certain large and noncomplex firms (generally, firms with less than $250 billion in total consolidated assets), along with a reduction in the amount of data that such firms would be required to submit on the FR Y-14 regulatory reports. Such institutions however, would remain subject to the quantitative CCAR requirements and to normal supervision by the Federal Reserve Board regarding their capital planning. The proposed rule would be effective for the 2017 CCAR. Comments on the proposal are due by November 25, 2016.

In a speech given the same day, Federal Reserve Board Governor Tarullo stated that the Federal Reserve Board is considering adoption of a "stress capital buffer approach" to setting post-stress capital requirements whereby the G-SIB capital surcharge would be factored into the estimate of the amount of capital required under stress. However, Governor Tarullo emphasized that this was a preliminary proposal and would not apply to the 2017 cycle of CCAR.

The text of the proposal is available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20160926a1.pdf

The text of Governor Tarullo's speech is available at: http://www.federalreserve.gov/newsevents/speech/tarullo20160926a.htm .

US Federal Deposit Insurance Corporation Publishes Semi-Annual Update of Global Capital Index

On September 20, 2016, the US Federal Deposit Insurance Corporation released the semi-annual report of the Global Capital Index. In a concurrent statement, Vice-Chairman Thomas M. Hoenig noted that while Global Systemically Important Banks did increase their equity capital, a beyond-proportionate increase in assets led to a net increase in the overall leverage of G-SIBs. Vice-Chairman Hoenig also noted that asset quality in Europe remains an issue in comparison to the United States, with more than three times as many non-performing loans, and that better-capitalized banks trade at a premium when compared to banks with weaker capital positions. Vice-Chairman Hoenig noted that, while banks are better capitalized now, with average leverage ratios of around 5%, such ratio remains inadequate should banks have to withstand losses similar to the last financial crisis.

The text of Vice-Chairman Hoenig's statement is available at: https://www.fdic.gov/news/news/speeches/spsep2016.html .

The Global Capital Index is available at: https://www.fdic.gov/about/learn/board/hoenig/capitalizationratio2q16.pdf .

US Federal Deposit Insurance Corporation Updates Deposit Insurance Fund Figures

On September 20, 2016, FDIC Chairman Martin Gruenberg issued a statement on the release of updated data regarding the FDIC's Deposit Insurance Fund. (DIF) The DIF balance stood at almost $78 billion, leading to a reserve ratio of 1.17%, an eight-year high. Chairman Gruenberg's statement noted that the FDIC still intends to reach the statutory minimum ratio of 1.35% set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, before September 30, 2020.

The text of Chairman Gruenberg's statement is available at: https://www.fdic.gov/news/news/speeches/spsep2016a.html.

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