debt instruments

OCC Issues Final Rule Regarding Regulatory Capital Treatment of Total Loss-Absorbing Capacity Investments

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On January 6, the OCC issued a final rule that applies to Category I and II banking organizations (advanced approaches banks), which include banking organizations and their subsidiary banks that have at least $700 billion in total consolidation assets, or $100 billion or more in total consolidated assets and $75 billion or more in cross-jurisdictional activities. The final rule requires deduction from advanced approaches banks’ regulatory capital for investments in certain unsecured debt instruments issued by bank holding companies subject to the Federal Reserve Board’s total loss-absorbing capacity and long-term debt requirements. Bulletin.

ECB Amends Eligibility Criteria for Unsecured Bank Bonds

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On October 5, 2016, the European Central Bank (“ECB”) stated that it will be making changes to its collateral framework by revising the collateral eligibility criteria and risk control measures in relation to senior unsecured debt instruments issued by credit institutions or investment firms (unsecured bank bonds or UBBs).

Under the current rules, UBBs will, except for these new changes, become ineligible on January 1, 2017. The ECB’s revisions to its collateral framework are aimed at temporarily maintaining the eligibility of UBBs (including the eligibility of statutorily subordinated UBBs that are not also contractually subordinated), beyond January 1, 2017.

Furthermore, UBBs will also be subject to additional risk control measures to remain eligible. The ECB has decided to reduce, as of January 1, 2017, the usage limit for uncovered bank bonds from 5% to 2.5%. The reduction will not apply where:

  • the value of such assets is equal to or less than €50 million (net of any applicable haircut); or
  • such assets are guaranteed (by a public sector entity that has the right to levy taxes) by way of a guarantee that complies with the provisions of Article 114 of the ECB Guideline on the implementation of the Eurosystem monetary policy framework.

The changes are expected to come into effect from January 1, 2017.