Bank Prudential Regulation & Regulatory Capital
US Federal Financial Regulators Publish Proposed Changes to the Volcker Rule
On July 17, 2018, the U.S. Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Securities and Exchange Commission and Commodity Futures Trading Commission published their previously announced notice of proposed rulemaking entitled Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds in the Federal Register. The proposed rules seek to simplify and tailor the Volcker Rule. Comments to the proposal are due by September 17, 2018.
For a more comprehensive discussion of the proposed changes to the Volcker Rule, you may wish to refer to our client publication: "Volcker Rule 2.0: First Major Rule Revisions Proposed" available at: https://www.shearman.com/perspectives/2018/06/volcker-rule-2-first-major-rule-revisions-proposed.
The full text of the proposal is available at: https://www.gpo.gov/fdsys/pkg/FR-2018-07-17/pdf/2018-13502.pdf.
US FDIC Publishes Updates to Interagency Forms
On July 11, 2018, the FDIC announced updates to four of its interagency forms: (i) the Biographical and Financial Report (OMB Control Number 3064-0006); (ii) the Bank Merger Act Application (OMB Control Number 3064-0015); (iii) the Notice of Change in Control form (OMB Control Number 3064-0019); and (iv) the Notice of Change in Director or Senior Executive Officer form (OMB Control Number 3064-0097). The U.S. Board of Governors of the Federal Reserve System also published updated versions of these forms (FR 2081c, FR 2070, FR 2081a and FR 2081b, respectively) to its website on July 11, 2018.
The FDIC announcement notes that these updates are based upon the comments and recommendations of an interagency working group, comprised of representatives from the FDIC, the Federal Reserve Board and the OCC. The changes to the forms were made to improve the clarity of the specific information requested in the forms, provide additional transparency to financial institutions completing the forms, make changes to reflect new laws, regulations, capital requirements and accounting rules and to delete information requests that have been determined to be unnecessary.
The changes to the FDIC forms are effective immediately.
The full text of the FDIC Financial Institution Letter, including links to the updated forms, is available at: https://www.fdic.gov/news/news/financial/2018/fil18038.pdf.
EU Secondary Legislation Adopted Amending Liquidity Coverage Requirement
On July 13, 2018, the European Commission adopted an Amending Regulation to make amendments to an existing Delegated Regulation (Regulation (EU) 2015/61) supplementing the Capital Requirements Regulation. The existing Delegated Regulation sets out detailed requirements on the Liquidity Coverage Requirement and specifies which assets are to be considered as liquid (so-called high quality liquid assets) and how the expected cash outflows and inflows over a 30-day stressed period are to be calculated.
The European Commission consulted on a draft of the Amending Regulation between January and February 2018. The Amending Regulation makes changes to the existing Delegated Regulation with the objective of improving its practical application, relating to:
- full alignment of the calculation of the expected liquidity outflows and inflows on repurchase agreements, reverse repurchase agreements and collateral swaps transactions with the international liquidity standard developed by the Basel Committee on Banking Supervision;
- treatment of certain reserves held with third-country central banks;
- waiver of the minimum issue size for certain non-EU liquid assets;
- the application of the unwind mechanism for the calculation of the liquidity buffer; and
- integration in the existing Delegated Regulation of the new criteria for simple, transparent and standardized securitizations.
The Amending Regulation will now be considered by the European Parliament and the Council of the European Union. It will enter into force twenty days following its publication in the Official Journal of the European Union and will apply directly across the EU 18 months after that date.
The Amending Regulation can be viewed at: http://ec.europa.eu/transparency/regdoc/rep/3/2018/EN/C-2018-4404-F1-EN-MAIN-PART-1.PDF
EU Court Annuls European Central Bank Leverage Ratio Decisions for Six Banks
On July 13, 2018, the General Court of the European Union annulled decisions of the European Central Bank, refusing to allow six French banks to exclude from the calculation of the leverage ratio certain exposures connected to French savings accounts. Banque Postale, BPCE, Confédération Nationale du Crédit Mutual, Société Générale, Crédit Agricole and BNP Paribas applied to the ECB, as their direct prudential supervisor under the Single Supervisory Mechanism, for permission to exclude exposures consisting of sums in a number of savings accounts taken out with them and transferred to the Caisse des Dépôts et Consignations, a French public investment vehicle. National regulators and the ECB have discretion to allow banks to exclude exposures that satisfy a number of conditions from the calculation of the leverage ratio under the CRR.
When the ECB refused that permission, the six banks applied for annulment of those decisions. The General Court found that the ECB had erred in law and made manifest errors of assessment in refusing to allow the banks to exclude the exposures.
An appeal, limited to points of law only, may be brought before the Court of Justice against the decision of the General Court within two months of notification of the decision.
The Court's press release is available at: https://curia.europa.eu/jcms/upload/docs/application/pdf/2018-07/cp180110en.pdf.
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