Financial Regulatory Forum

Regulators release public portions of resolution plans for smaller banks

By Bora Yagiz, Compliance Complete

NEW YORK, Jan. 16 (Thomson Reuters Accelus) – The Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) released the public portions of resolution plansfor 116 institutions that submitted plans for the first time in December 2013, a group comprising smaller banks affected by Dodd-Frank requirements for winding-up plans.

The Dodd-Frank Act requires that bank holding companies (and foreign companies treated as bank holding companies) with total consolidated assets of $50 billion or more and nonbank financial companies designated for enhanced prudential supervision by the Financial Stability Oversight Council periodically submit resolution plans to the Federal Reserve Board and the FDIC. Each plan must describe the company’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company, and include both a public and confidential section. (more…)

FDIC adds more flesh to “single point of entry” resolution plans, but questions remain

By Henry Engler, Compliance Complete

NEW YORK, Dec. 18 (Thomson Reuters Accelus) – The Federal Deposit Insurance Corporation, under mounting pressure from the industry for greater clarity, announced on Tuesday additional details on its “Single Point of Entry” resolution plans for failed banks.
The basic concept is to close the holding company of a failed firm, and transfer its healthy subsidiaries into a new bridge institution that could be managed while the resolution of the defunct company proceeds. Shareholders would be wiped out under the plan, while unsecured creditors could seek equity claims as a means to recapitalize the new institution. Should the subsidiaries require liquidity to operate, they would borrow from the bridge, which in turn may borrow from an “orderly liquidation fund” funded by the U.S. Treasury. (more…)

JPMorgan’s massive spending on controls underlines “aggressive” relations with regulators

By Henry Engler, Compliance Complete

NEW YORK, Sept. 24 (Thomson Reuters Accelus) - What was once a more consultative relationship between JPMorgan and its regulators has turned into an environment of aggressive demands to reshape the banking giant, say bankers.

With news the largest U.S. bank has settled one set of charges for $920 million and is bracing for more legal and regulatory scrutiny in the coming weeks and months, insiders say the most noticeable change has been the regulators’ use of “consent orders” to enforce wholesale changes across the institution’s risk management controls and systems. (more…)

U.S. regulators’ Basel III rules package signals intent to maintain momentum in big-bank reforms

By Bora Yagiz

NEW YORK, July 17 (Thomson Reuters Accelus) - In a move considered to be the most complete overhaul of U.S. bank capital standards since Basel I in 1988, three U.S. banking regulators (the Federal Reserve Board, Office of Comptroller of the Currency, and Federal Deposit Insurance Corporation) have finalized the three Basel III-related notices of proposed rulemaking (NPRs) from 2012 on capital rules.

Collectively, the rules raise capital ratios, expand the base of assets for risk-based capital calculations, make changes to the methodology for calculation of credit risk weightings for banking and trading book assets and put emphasis on a stricter definition of capital, especially with regards to common equity Tier 1 (CET1) capital, the highest quality of equity. Higher quality of equity is perceived to provide a better safety net for the financial system in economic downturns, but this safety comes with a higher cost of business for the banks. Simply put, money kept as capital is not invested.  (more…)

Basel paper offers new look at bail-in models for ailing institutions

By Bora Yagiz, Compliance Complete

NEW YORK, June 12 (Thomson Reuters Accelus) - A recent Bank for International Settlements (BIS) quarterly review article attempts to solve the too-big-to-fail (TBTF) problem without causing systemic disruption to financial markets, by offering a new resolution template to recapitalize banks on the verge of bankruptcy. It may, however, inadvertently legitimize a de facto bail-in model against the consent of depositors, and put their money at risk.

Since the financial crisis of 2008, regulators worldwide have sought to reduce the likelihood of a TBTF failure through increase in capital quality and quantity enshrined internationally in Basel III, as well as setting various resolution mechanisms set to wind down failing institutions.  (more…)

First wave of U.S. living wills has limitations, but offers useful start

By Bora Yagiz

NEW YORK, July 9 (Thomson Reuters Accelus) - The “living will” resolution plans submitted to U.S. regulators by nine big banks last week suffer from a number of limitations, including narrow scenarios of financial distress and an assumption that regulators will be coordinated in their approach. But there will be plenty of opportunity to perfect the blueprints.

Five major U.S. banking organizations and four foreign-based bank holding companies with $250 billion or more in total nonbank assets submitted on July 2 their resolution plans, or “living wills,” to the Federal Reserve Board and Federal Deposit Insurance Corporation (FDIC) as required by section 165(d) of the Dodd-Frank Act (DFA). This constituted the first of the three waves of submissions of a staggered schedule arranged according to the banks’ sizes and due to be completed by end-2013. These plans to complement the recovery plans that are designed to maintain firms under extreme stress as going concerns, will serve as the official point of entry for bankruptcy. (more…)

Regulatory round-up — U.S. rules to know in 2012

By Nick Paraskeva

NEW YORK, Dec. 16 (Thomson Reuters Accelus) – Several recently adopted rules in the U.S. are going into effect for specific types of firms in 2012. These rules include ones released by the Securities and Exchange Commission, Commodity Futures Trading Commission and Federal Reserve, issued to implement the Dodd-Frank Act and as a response to market developments.

The SEC-adopted rules requiring reporting by advisers to hedge funds and by large traders of securities are explained below. We also cover the CFTC final rules on derivative clearing firms in the swaps market and provide a summary of the Fed’s final rules on living wills for large banks, and non-bank systemically important financial institutions (SIFIs), under the Dodd-Frank Act. (more…)

from Christopher Whalen:

Did the FDIC really kill the repo market?

Back in April 2011, Jim Bianco penned a commentary, “Why The Federal Reserve May Have A Hard Time Raising Rates.” He argued that the increase in the FDIC insurance assessment rate for large banks adds to bank funding costs, and thus offsets the impact of Fed ease. Bianco and others infer a roughly 15bp tax or “wedge” on money market assets is created by the FDIC assessment rule.  By way of reference, the Fed’s target band for fed funds is 0 to 25bp but has been at low end of this range for months.

David Kotok of Cumberland Advisors subsequently wrote that the FDIC tax is offsetting the 25 bp paid to banks on Fed reserves and is effectively forcing U.S. banks out of the market.  (See my paper published by Networks Financial Institute at ISU, “What is a Core Deposit and Why Does It Matter?”, which goes into the changes to the deposit insurance made by the Dodd-Frank legislation.)

Let’s agree with the central contention of the “Bianco-Kotok Hypothesis” (or BKH), namely that the new FDIC assessment is affecting the money markets. But is this change the most compelling explanation for the alarming exodus of banks from the institutional credit markets?  Bianco’s research illustrates the collapse of yields in the securities repurchase (or repo) market since April, when the FDIC implemented the new deposit insurance assessment rules. He talks about the task the Fed faces to raise rates given the FDIC assessment:

ANALYSIS-Deck chairs secure aboard USS Financial Regulation

By Kevin Drawbaugh

WASHINGTON, March 21 (Reuters) – The big U.S. government agencies in charge of policing banks and markets, despite being excoriated over the severe 2008-2009 financial crisis, have successfully dodged a major structural shake-up.

While Congress may yet clamp down on the financial industry from Wall Street to Main Street, a top-to-bottom overhaul of the nation’s regulatory apparatus — which seemed like a certainty a year and a half ago — is not going to happen.

As political reality has tempered reform proposals, plans to reconfigure a patchwork bureaucracy stitched together over decades have faded from view, with just one agency closure still on the negotiating table.

US FDIC extends protection for securitized assets

   By Karey Wutkowski
   WASHINGTON, March 11 (Reuters) – U.S. bank regulators  extended a policy on Thursday that protects securitized assets in the event that a bank fails and is seized by regulators. (more…)

  •