On November 30, the Federal Reserve Board approved a final rule specifying its procedures for emergency lending under Section 13(3) of the Federal Reserve Act. The final rule provides greater clarity regarding, among other things, the Board’s authority to engage in emergency lending to programs and facilities with “broad-based eligibility.” The final rule will take effect January 1, 2016. Press Release. Final Rule.
Federal Reserve Board
Federal Reserve Releases First Determination of Aggregate Consolidated Liabilities of all Financial Companies
On July 1, the Federal Reserve Board released its first determination of the aggregate consolidated liabilities of all financial companies in accordance with section 622 of the Dodd-Frank Act, which prohibits any financial company from combining with another company if the resulting company’s liabilities exceed 10 percent of the aggregate consolidated liabilities of all financial companies. Release.
Federal Reserve Proposes Adding Additional Asset Types to Meet LCR Requirements
On May 21, the Federal Reserve Board proposed adding certain general obligation state and municipal bonds to the range of assets a banking organization may use to satisfy the Liquidity Coverage Ratio (LCR) requirements designed to ensure that large banking organizations have the capacity to meet their liquidity needs during a period of financial stress. Subject to specified limits, the proposed rule would allow investment grade, general obligation U.S. state and municipal bonds to be counted as high-quality liquid assets (HQLA) up to certain levels if they meet the same liquidity criteria that currently apply to corporate debt securities. Release. Proposal.
Federal Reserve Board Releases Additional Information on the LISCC Supervisory Program
On April 17, the Federal Reserve Board published a Supervision and Regulation Letter containing additional information on the operating structure of the Large Institution Supervision Coordinating Committee (LISCC) supervisory program, which was established in 2010 to oversee and supervise certain large and systemically important financial institutions. Release. Supervision and Regulation Letter.
Federal Reserve Request Comment on Proposed Amendments to Regulation D
On April 13, the Federal Reserve Board requested public comment on proposed amendments to Regulation D (Reserve Requirements of Depository Institutions) making technical changes to the calculation of interest payments on certain balances maintained by depository institutions at Federal Reserve Banks. The proposed amendments are a matter of prudent planning and have no implications for the near-term conduct of monetary policy. Release. Federal Register Notice.
Federal Reserve Board Extends Comment Period
On February 26, the Federal Reserve Board extended until April 3 the comment period for its proposed rule to implement capital surcharges for the largest, most systemically important U.S. bank holding companies. The proposed rule would establish a methodology to identify whether a firm is a global systemically important banking organization and would also establish the size of a firm’s risk-based capital surcharge. The proposal is designed to further strengthen the capital positions of these institutions. Release.
Federal Reserve Proposes to Expand the Applicability of Board’s Small Bank Holding Company Policy Statement
On January 29, Federal Reserve Board (Fed) invited public comment on a proposed rule to expand the applicability of the Board’s Small Bank Holding Company Policy Statement (Policy Statement) for small bank holding companies as well as certain savings and loan holding companies. The Policy Statement facilitates the transfer of ownership of small community banks by allowing their holding companies to operate with higher levels of debt than would otherwise be permitted. Institutions subject to the Policy Statement are not subject to the Board’s regulatory capital requirements. Currently, bank holding companies with less than $500 million in total consolidated assets may be subject to the Policy Statement. The proposed rule will permit to certain bank holding companies and savings and loan holding companies with less than $1 billion in total consolidated assets that meet the qualitative requirements to qualify. The Fed also adopted an interim final rule to exclude from the Fed’s regulatory capital requirements savings and loan holding companies with less than $500 million in total consolidated assets that meet the qualitative requirements in the Policy Statement. Release. Policy Statement. Interim Final Rule.
Federal Reserve Acts to Extend Conformance Period Under Volcker Rule for Legacy Covered Funds Until July 2017
On December 18, the Federal Reserve Board announced that it has acted under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly known as the Volcker Rule, to give banking entities until July 21, 2016, to conform investments in and relationships with covered funds (i.e., most private equity and hedge funds) and foreign funds that were in place prior to December 31, 2013 (“Legacy Covered Funds”). The Board also announced its intention to act next year to grant banking entities an additional one-year extension of the conformance period until July 21, 2017, to conform ownership interests in and relationships with Legacy Covered Funds.
Section 619 generally prohibits insured depository institutions and any company affiliated with an insured depository institution from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.
The Board previously extended the conformance period to July 21, 2015, when the agencies adopted rules to implement Section 619. The Board also previously issued a statement in April 2014 indicating that it intended to grant two additional one-year extensions of the conformance period for banking entities to conform ownership interests in and sponsorship activities of collateralized loan obligations (“CLOs”) that are backed in part by non-loan assets and that were in place as of December 31, 2013. The December 18 action is consistent with the Board’s previous announcement regarding CLOs and extends the conformance period for other types of Legacy Covered Funds.
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. Release. Proposed Rule.
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.