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 Board Of Governors Of The Federal Reserve System Announces Approval Of Applications By M&T Bank Corporation To Acquire Hudson City Bancorp, Inc.

On September 30, 2015, the US Board of Governors of the Federal Reserve System announced its approval of the applications by: (i) M&T Bank Corporation to acquire Hudson City Bancorp, Inc.; and (ii) by M&T's subsidiary bank, Manufacturers and Traders Trust Company, to merge with Hudson City Savings Bank. Upon consummation of the transactions, M&T will have consolidated assets of approximately $132.5 billion, making it the 25th largest insured depository organization in the United States (currently it is 31st). M&T agreed to purchase Hudson City and submitted applications to the Federal Reserve Board in respect of the transaction in 2012. However, the Federal Reserve Board initially identified weaknesses in M&T's risk management program, including issues in M&T's Bank Secrecy Act/anti- money laundering compliance management program and its consumer compliance program and thus postponed consideration of the deal at M&T's request until M&T was able to remediate these concerns.

The Federal Reserve Board press release and order are available at:

http://www.federalreserve.gov/newsevents/press/orders/20150930a.htm .

The Federal Reserve Board order is available at:

http://www.federalreserve.gov/newsevents/press/orders/orders20150930a1.pdf. 

European Banking Authority Publishes Report Analyzing Asset Encumbrance For EU Banks

On September 30, 2015, the European Banking Authority published its first analysis on asset encumbrance for EU banks, using data received from the 200 banks that provide it with such data. This first analysis initiates the regular monitoring of levels of asset encumbrance at EU level and future reports will be published annually. The analysis aims to assist supervisors in assessing how banks manage funding stress as well as the impact that switching from unsecured to secured funding might have on banks in conditions of stress. The report is based on data received for December 2014 and March 2015 further to a requirement under the Capital Requirements Regulation for banks to report levels of repurchase agreements, securities lending and all forms of asset encumbrance to national regulators. The analysis shows that the overall weighted average encumbrance ratio was 27% in March 2015, with ratios at country level that range from 0% for Estonia and 44% in Denmark and Greece. The report shows there has been no increase in levels of asset encumbrance over the past four years, based on a comparison with a similar report released by the European Systemic Risk Board in 2011.

The report is available at: http://www.eba.europa.eu/documents/10180/974844/EBA+Report+on+Asset+Encumbrance-+September+2015.pdf  .  

European Commission Publishes Proposed Legislative Package To Revive EU Securitization Markets

On September 30, 2015, the European Commission published two proposed Regulations as part of its Capital Markets Union initiative which aim to revive the EU securitization markets. The proposed Regulation on common rules on securitization and creating a European framework for simple, transparent and standardized securitization (referred to as STS Securitization) sets out the eligibility criteria for STS securitizations such as risk retention rules, due diligence and disclosure requirements. The proposed Regulation also includes requirements for supervisory requirements, amendments to other EU legislation to ensure consistency, an exemption, subject to certain criteria being met, from the clearing obligation for OTC derivative contracts entered into by covered bond entities and securitization special purpose entities and rules on third country securitizations. The second proposed Regulation would amend the CRR to revise capital requirements for banks and investment firms originating, sponsoring or investing in securitizations. The objective of the proposals is to align the CRR provisions with the revised Basel framework of 2014 as was recommended by the EBA in its report on qualifying securitizations in July. The proposed revisions to the CRR seek to adopt a more risk-sensitive approach to STS Securitization which is currently in the early stages of development at international level. Both legislative proposals are subject to the European legislative process.

The proposed STS Securitization Regulation is available at:

http://ec.europa.eu/finance/securities/docs/securitisation/com-2015-472_en.pdf.

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