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.

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.

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.

CFTC Provides Relief from the Clearing Requirement for Swaps Entered into by Eligible Treasury Affiliates

On November 26, CFTC issued a no-action letter providing additional relief for eligible treasury affiliates that enter into swaps that are subject to the clearing requirement in section 2(h)(1) of the Commodity Exchange Act (CEA) and part 50 of the CFTC’s regulations. The no-action letter modifies relief that was previously issued for treasury affiliates on June 4, 2013 in CFTC No-Action Letter 13-22. “Eligible treasury affiliates” are entities that are wholly-owned by a non-financial parent company, and are “financial entities” under section 2(h)(7)(C)(i)(VIII) of the CEA because of the activities undertaken on behalf of its non-financial affiliates. Among other changes, the no-action letter modifies the rules placed upon operations between a treasury affiliate and its affiliates and removes restrictions as to the number of financial affiliates that may be within a corporate group.  Release.  Letter.

Federal Reserve Board Seeks Public Comment on the Application of Enhanced Prudential Standards to General Electric Capital Corporation

On November 25, the Federal Reserve Board (the “Board”) released proposed enhanced prudential standards and reporting requirements to be applied to General Electric Capital Corporation (“GECC”) and requested public comment on the application thereof.  GECC is designated by the Financial Stability Oversight Counsel as a non-bank systemically important financial institution that needs to be supervised by the Board and be subject to enhanced prudential standards similar to those applicable to certain bank holding companies.  Release.

FINRA and MSRB Release Proposals to Provide Pricing Reference Information for Investors in Fixed Income Markets

On November 17, the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB) released companion proposals that would require disclosure of pricing reference information on customer confirmations for transactions in fixed income securities. The proposals are substantially similar, but seek input on factors unique to the corporate and municipal bond markets.

Under the two proposals, bond dealers in retail-sized fixed income transactions would be required to disclose on the customer’s confirmation the price of certain same-day principal trades in the same security, as well as the difference between this reference price and the customer’s priceNews Release.

SEC Adopts Rules to Improve Systems Compliance and Integrity Rules to Strengthen Technology Infrastructure of Securities Markets

On November 19, the Securities and Exchange Commission voted to adopt new rules designed to strengthen the technology infrastructure of the U.S. securities markets. The rules – together comprising Regulation Systems Compliance and Integrity (Regulation SCI) – impose requirements on certain key market participants intended to reduce the occurrence of systems issues and improve resiliency when systems problems do occur.  ReleaseRuleSEC Staff Guidance.

SEC Releases Accounting Bulletin to Update Guidance on Pushdown Accounting

On November 18, the SEC released a Staff Accounting Bulletin (SAB) to rescind portions of the interpretive guidance included in its SAB Series for what is known as pushdown accounting. The new bulletin brings existing guidance into conformity with Accounting Standards Update No. 2014-17 – Business Combinations (Topic 805).  ReleaseBulletin.

Agencies Propose Technical Corrections and Clarifications to the Capital Rules Applicable to Advanced Approaches Banking Organizations

On November 18, the Federal Reserve Board, the FDIC and the OCC proposed clarifications to the revised regulatory capital rules adopted by the agencies in July 2013. The proposal applies to large internationally active banking organizations that currently determine their regulatory capital ratios under the advanced approaches rule.  Release.