The Federal Reserve Board and the Federal Deposit Insurance Corporation1 have released two final rules to tailor the application of enhanced prudential standards to large U.S. and foreign banking organizations:
- A Board-only release that finalizes the application of enhanced prudential standards (stress testing, capital planning, liquidity stress testing, liquidity risk management, single counterparty credit limits and overall risk management) to U.S. bank holding companies, certain savings and loan holding companies and FBOs; and
- A joint release tailoring the application of capital and liquidity rules to these banking organizations.
The Final Rules leave in place the core post-crisis regulatory framework created by the Dodd-Frank Act, while creating tiered thresholds that modify the stringency and applicability of the regulations. Notwithstanding significant comments about how the proposals could have been made more risk-sensitive, the Agencies opted for simplicity and generally adopted the Rules as proposed.
While the Final Rules include positive changes for most banking organizations, a limited number of institutions (particularly certain FBOs and savings and loan holding companies) will be required to comply with some of the enhanced prudential standards for the very first time. Large FBOs also will be subject to more comprehensive reporting requirements across their U.S. operations, requiring accounting and technology build-outs. In addition, whether this relief translates into a meaningful reduction in compliance burden will depend in large part on whether and how examiners make corresponding changes to supervisory expectations across the categories.
The Board also indicated that some elements of the Final Rules may be subject to further revisions in forthcoming rulemakings, and further tailoring of certain related rules and regulatory reports is expected.
The Final Rules become effective 60 days after publication in the Federal Register, and compliance dates will span 2020 and 2021.
The charts in the Appendix provide several different visual perspectives of the categorization framework.
Our earlier observations on the proposals are available here (U.S. banking organizations) and here (FBOs).
To read the full alert memorandum, click here.
Footnote
1. At the time of this publication, the Office of the Comptroller of the Currency had yet to approve officially the joint proposal.
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