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On June 4, the Fed, FDIC and OCC published the first of several requests for comments to identify outdated, unnecessary or unduly burdensome regulations imposed on insured depository institutions.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to break down the regulations by category, present each category for comment and identify areas of regulations that are outdated, unnecessary or unduly burdensome.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.
On January 14, the Fed, CFTC, FDIC, OCC and SEC issued an interim final rule which will permit banking entities to retain interests in certain collateralized debt obligations backed primarily by trust preferred securities (TruPS CDOs) if the following conditions are met: (i) the TruPS CDO was established and the interest was issued before May 19, 2010; (ii) the banking entity reasonably believes that the offering proceeds received by the TruPS CDO were invested primarily in Qualifying TruPS Collateral (as defined by the rule); and (iii) the banking entity’s interest in the TruPS CDO was acquired on or before December 10, 2013, the date the agencies issued final rules implementing section 619 of the Dodd-Frank Act (the Volcker Rule). The agencies also released a non-exclusive list of issuers which meet the requirements of the interim final rule. Comments must be submitted within 30 days of publication in the Federal Register. Joint Release. Joint Interim Final Rule. List of Excluded CDO Issuers.
On December 17, J.P. Morgan Chase Bank filed a complaint in the United States District Court for the District of Columbia against the Federal Deposit Insurance Corporation (FDIC) seeking $1 billion in indemnification for settlements made by J.P. Morgan on behalf of Washington Mutual in RMBS actions. J.P. Morgan alleges that the FDIC is contractually obligated to indemnify J.P. Morgan for certain claims against WaMu in consideration for J.P. Morgan’s purchase of WaMu out of FDIC receivership and assumption of its liabilities. J.P. Morgan seeks indemnification for settlements of twenty different RMBS cases; the complaint does not identify the amounts of the individual settlements. Complaint.
On December 19, Fed, FDIC and OCC issued Frequently Asked Questions to clarify rules applicable to investments in covered funds and whether collateralized debt obligations backed by trust preferred securities (TruPS CDOs) could be determined to be covered funds under the Volcker Rule. The FAQs clarify that banking entities that have holdings in TruPS CDOs may use the conformance period to determine if they can be brought into conformance by July 21, 2015. Release. FAQ.