On October 21 and 22, the Fed, HUD, FDIC, FHFA, OCC, and SEC jointly approved final risk retention rules. The final rules, which implement Section 941 of Dodd Frank, generally follow the re-proposed rules issued in August 2013, mandating that sponsors retain at least 5% of the credit risk in asset-backed securities transactions. Generally, risk may be retained by holding either a horizontal or avertical slice of issued securities, while additional options are available for specific types of securitizations. The rules will apply toresidential mortgage-backed securities one year after publication in the Federal Register, and will apply to all other asset classes two years after publication. Final Rules. Joint Release.
On August 29, Judge Louis L. Stanton of the United States District Court for the Southern District of New York granted a motion by JPMorgan, Citigroup and several other banks for judgment on the pleadings, dismissing a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving US$388 million in RMBS. Defendants sought judgment on the pleadings that the FDIC’s claims under the Securities Act of 1933 were time barred by the three-year statute of repose applicable to such claims. FDIC argued that the Extender Statute, which extends the limitation period for the FDIC to assert claims to three years after the FDIC is appointed as receiver, tolled the time within which it had to assert its claims. Judge Stanton agreed with the defendants, holding that under the Supreme Court’s decision in CTS Corp. v. Waldburger, the FDIC Extender Statute applied only to statutes of limitation and did not alter the applicable statute of repose. Order.
On September 3, the Fed, the Farm Credit Administration, the FDIC, the FHFA, and the OCC sought comment on a proposed rule to establish margin requirements for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The proposed rule would establish minimum requirements for the exchange of initial and variation margin between covered swap entities and their counterparties to non-cleared swaps and non-cleared security-based swaps. The margin requirements mandated by the Dodd-Frank Act are intended to address a number of weaknesses in the regulation and structure of the swap markets that were revealed during the recent financial crisis. The requirements are intended to reduce risk, increase transparency, and promote market integrity. Proposed Rule.
On September 3, the FDIC, the Fed, and the OCC finalized the Liquidity Coverage Ratio rule to strengthen the liquidity positions of large financial institutions. The rule will for the, first time, create a standardized minimum liquidity requirement for large and internationally active banking organizations. Each institution will be required to hold high quality, liquid assets (HQLA) such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The ratio of the firm’s liquid assets to its projected net cash outflow is its “liquidity coverage ratio,” or LCR. Final Rule.
Judge Sam Sparks of the United States District Court for the Western District of Texas granted judgment to defendants in two related cases filed by the FDIC on behalf Guaranty Bank (now defunct) arising out of Guaranty Bank’s purchases in 2004 and 2005 of US$2.1 billion in RMBS. Defendants Goldman Sachs, Deutsche Bank, Merrill Lynch and RBS Securities sought judgment on the pleadings that the FDIC’s claims were time barred under the Texas Securities Act’s five-year statute of repose. The court agreed, holding that under the Supreme Court’s recent decision in CTS Corp. v. Waldburger the FDIC Extender Statute did not preempt the Texas statute of repose. Goldman/DB Order. Merrill/RBS Order.
On August 5, the Fed and the Board of Directors of the FDIC announced the completion of reviews of the second round of resolution plans submitted by 11 large, complex banking organizations in 2013. Press Release.
On July 21, the FDIC clarified how it will evaluate requests by S-Corporation Banks to make dividend payments that would otherwise be prohibited under the Basel III capital conservation buffer. New Basel III capital rules include a capital conservation buffer which prohibits or limits the dividends a bank can pay when its risk-based capital ratios fall below certain thresholds. If an S-corporation bank has income but is limited from paying dividends as a result of the new rules, its shareholders may have to pay taxes on their pass-through share of the S-corporation’s income from their own resources. To avoid this problem, a bank may request approval from their primary federal regulator to make a dividend payment that would not otherwise be permitted. Absent serious safety-and-soundness concerns about the requesting bank, the FDIC generally would expect to approve such requests by well-rated S-corporation banks that are limited to the payment of dividends to cover shareholders’ taxes on their portion of an S-corporation’s earnings. Press Release. Financial Institution Letters.
On June 16, FDIC announced it is seeking comment on a notice of proposed rulemaking amending the Annual Stress Test rule. This proposed rule would shift the timing of the annual stress testing cycle by approximately 90 days and clarify that institutions covered by the rule will not have to calculate their regulatory capital ratios using the Basel III until the testing cycle beginning on January 1, 2016. The public comment period closes 60 days from publication in the Federal Register. Press Release. Proposed Rule.
On June 4, the Fed, FDIC and OCC published the first of several requests for comments to identify outdated, unnecessary or unduly burdensome regulations imposed on insured depository institutions.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA) requires the federal banking regulators to review regulations issued by the agencies at least every 10 years. It also requires the regulators to break down the regulations by category, present each category for comment and identify areas of regulations that are outdated, unnecessary or unduly burdensome.
On March 5, the Fed, the FDIC, and the OCC issued final guidance which describes supervisory expectations for stress tests to be conducted by financial companies with between $10 and $50 billion in total assets. The guidance confirms that these companies are not subject to the Fed’s capital plan rule, the Fed’s annual Comprehensive Capital Analysis and Review, Dodd-Frank Act supervisory stress tests, or related data collections, which apply to bank holding companies with assets of at least $50 billion. Joint Release. Final Supervisory Guidance.