Council of EU Presidency Compromise on Regulation on ECB’s Powers to Impose Sanctions

On December 11, the Council of the EU published a note (dated December 10) that amends the ECB’s powers to impose sanctions.

The ECB published its recommendation for a Council Regulation in April 2014. The recommendation aims to establish a coherent regime for the imposition by the ECB for sanctions relating to the performance of its supervisory tasks under the Regulation establishing the single supervisory mechanism, by adapting the framework already set out for the purposes of monetary policy conduct.

BCBS Issues Revisions to Basel Securitization Framework

The Basel Committee on Banking Supervision (“BCBS“) issued revisions to the Basel II securitization framework on December 11.

 The framework, which comes into effect in January 2018, forms part of the BCBS’s broader Basel II agenda to reform regulatory standards for banks in response to the global financial crisis. The revisions aim to address a number of shortcomings in the securitization framework highlighted by the financial crisis and strengthen the capital standards for securitization exposures held in the banking book.

 The final requirements set out in the framework incorporate feedback to two rounds of consultation in 2012 and 2013 and take account of two quality impact studies undertaking during those consultations. Compared to the 2013 proposals, this final set of requirements includes amendments that smooth the impact of maturity on capital charges, as well as technical enhancements and clarifications.

EBA Publishes Risk Dashboard of EU Banking Sector for Q3 2014

On December 11, the European Banking Authority (“EBA“) published its risk dashboard for the third quarter of 2014, summarizing the main risks and vulnerabilities in the EU banking sector.

The data reflected in this version of the dashboard shows that, among other things:

  • Capital positions in EU banks reached the highest level since 2009, driven by capital issuances ahead of the stress test and assets quality review exercises;
  • Levels of non-performing loans remained stable, but were still high;
  • Profitability levels were volatile;
  • Shifting of balance sheet structure continued; and
  • Loan-to-deposit ration remained fairly unchanged during H1 2014.

 The EBA also published an interactive tool.

Federal Reserve Board Releases a Proposed Rule to Impose Risk-Based Capital Surcharges on GSIB U.S. Bank Holding Companies

On December 9, the Federal Reserve Board (the “Board”) released a proposed rule (the “Proposed Rule”) to establish risk-based capital surcharges for U.S. bank holding companies identified as “global systemically important banking organizations (“GSIBs”).  The Proposed Rule is one of several enhanced prudential standards developed by the Board in accordance with Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Also, it is based on the framework adopted by the Basel Committee on Banking Supervision as modified to address risks unique to the U.S. financial system.

Under the methodology described in the Proposed Rule, to determine whether it is a GSIB, each U.S. top-tier bank holding company with total consolidated assets of $50 billion or more that is not a subsidiary of a non-U.S. banking organization would be required to annually calculate a systemic indicator score beginning December 31 of the year it crosses the $50 billion threshold.  Such score would be based on five systemic indicators—size, interconnectedness, substitutability, complexity and cross-jurisdictional activity.  If it is 130 basis points or greater, then such bank holding company would be designated as a GSIB and be subject to a GSIB surcharge.  A GSIB surcharge would be calculated using two methods—(a) method 1 based on the sum of systemic indicator scores reflecting size, interconnectedness, cross-jurisdictional activity, substitutability and complexity and (b) method 2 based on the sum of systemic indicator scores reflecting size, interconnectedness, cross-jurisdictional activity and complexity as well as a measure of use of short-term wholesale funding but excluding the systemic indicator scores reflecting substitutability.  The higher of the two surcharges determined under the two methods would be imposed on such bank holding company as a GSIB surcharge.

Currently, eight U.S. bank holding companies would be identified as GSIBs under the Proposed Rule.  The Board’s regulatory capital rule would need to be amended to increase a GSIB’s capital conservation buffer by the amount of its GSIB surcharge. 

The Proposed Rule would be phased in beginning 2016 at a rate of 25% per year and become fully effective on January 1, 2019.

Public comment is due no later than February 28, 2015.  ReleaseProposed Rule.

Rating Agency Developments

On December 10, Moody’s released its approach to rating sustainable net cash flow for CMBS and CRE CDO CLO Real Estate collateral in the Americas and ex-Japan Asia Pacific.  Approach

On December 10, Moody’s released its approach to rating US and Canadian Conduit/ Fusion CMBS.  Approach

On December 10, Fitch released its criteria to rating U.S. fixed-rate multiborrower CMBS surveillance and re-REMIC criteria.  Criteria

On December 9, Fitch released its guidelines for rating prefunded U.S. municipal bonds.  Guidelines

On December 9, Fitch released a table of covered bonds spread levels.  Table

On December 8, Moody’s released its methodology for rating business and consumer service industry.  Methodology

On December 8, Moody’s released its methodology for rating global oilfield services industry.  Methodology.

SEC Issues Revisions to Regulation AB Telephone Interpretations

On December 9, the SEC issued Compliance and Disclosure Interpretations (“C&DIs”) that comprise the SEC’s interpretations of the rules adopted under Regulation AB II and the Securities Act and the Exchange Act.  The new C&DIs replace the interpretations published in the Regulation AB Manual of Publicly Available Telephone Interpretations. C&DIs update previously-issued telephone interpretations to reflect the final Regulation AB IIRelease.

Treasury and HUD Announce Changes to Making Home Affordable Program

On December 4, Treasury and HUD announced changes to Making Home Affordable (MHA) to better assist struggling homeowners. The changes are designed to motivate homeowners in MHA to continue making timely mortgage payments. The program was originally established in 2009  to provide relief to homeowners facing financial hardship.  Under the revised guidelines, all homeowners in the program will now be eligible to earn a principal reduction of $5,000 in the sixth year of their modification, which will reduce their outstanding principal balance by as much as $10,000 in total. In addition, Treasury and HUD will provide additional assistance to homeowners who surrender their houses through a short sale or deed-in-lieuTreasury  ReleaseHUD Release.

EIOPA Consults on Second Set of Solvency II Implementing Technical Standards and Guidelines

The European Insurance and Occupational Pensions Authority (EIOPA) has, on December 2, published 16 consultations in respect of the second set of draft implementing technical standards (ITS) and guidelines required under the Solvency II Directive (2009/138/EC).

The 16 consultations have been grouped under the three Solvency II pillars. EIOPA has also published two additional consultations on: (i) the draft guidelines on the supervision of branches of third-country insurance undertakings; and (ii) technical advice on recovery plans, finance schemes and supervisory powers in deteriorating financial conditions.

Responses to the consultations are requested by March 2, 2015 with the exception of the technical advice consultation for which responses are requested by February 18, 2015.  Consultations.

Financial Regulators Release 2014 Bank Secrecy Act/Anti-Money Laundering Examination Manual

On December 2, the Federal Financial Institutions Examination Council (FFIEC) released the revised Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual. The revisions clarify supervisory expectations and incorporate regulatory changes since the manual’s 2010 update. The revisions incorporate feedback from the banking industry and examination staff.

The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and State Liaison Committee revised the manual in collaboration with the Financial Crimes Enforcement Network (FinCEN), the administrator of the BSA, and the Office of Foreign Assets Control (OFAC). FinCEN and OFAC collaborated on the revisions made to the sections that address compliance with the regulations and sanctions programs that FinCEN and OFAC administer and enforce.  ManualRelease.