Financial Regulatory Forum

Canadian banking outlook downgraded over ‘bail-in’ move, adding to recent financial stability concerns

By Daniel Seleanu, Compliance Complete

TORONTO, July 17, 2014 (Thomson Reuters Accelus) -  In yet another worrying sign for Canada’s financial sector, Moody’s Investors Service has lowered its outlook for the Canadian banking system from “stable” to “negative” over uncertainty about government willingness to bail out banks during a crisis. It follows a pair of recent warnings issued by the Bank of Canada (BOC) and the Bank for International Settlements (BIS), both of which highlighted the growing risk of stress posed by runaway consumer debt and property prices.

 

Moody’s negative outlook reflected the rating agency’s pessimism over Canada’s plan to implement a “bail-in” regime that would avoid taxpayer-funded bank bailouts by shifting some of the burden to bondholders. It would allow banks to convert some of their debt into to equity during a crisis.

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Canada’s financial system vulnerable to overheated housing market, central bank says

By Daniel Seleanu, Compliance Complete

TORONTO, July 1, 2014 (Thomson Reuters Accelus) - Canada’s overheated housing market represents a significant risk to the stability of its financial system, the country’s central bank has warned.

In its recently released Financial System Review (FSR) (PDF), the Bank of Canada (BOC) warned that while the system was stable overall, it remained vulnerable to several risks that could trigger a disorderly market correction. The economic and financial consequences of such a correction would be severe, the BOC predicted.  (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…)

Federal Reserve issues technical fix to market-risk capital rule to conform with Basel III

By Bora Yagiz, Compliance Complete

NEW YORK, Dec. 12 (Thomson Reuters Accelus) - The Federal Reserve Board issued a final rule that makes technical changes to the Board’s market-risk capital rule to align it with the Basel III revised capital framework adopted by the Board earlier this year. (more…)

Regulators’ emphasis on resolution plans, “too-big-to-fail,” may be misplaced

By Bora Yagiz, Compliance Complete

NEW YORK, Dec. 5 (Thomson Reuters Accelus) – Focusing on too-big-to-fail policies and hard-to-implement resolution plans may lead regulators to miss the next big financial failure, which could come in the areas of shadow banking and short-term financing, industry experts said.
This was the main message given by a panel of experts at a conference organized by the Clearing House, a banking association and payments company on Thursday.  (more…)

Largest U.S. banks see themselves in “regulatory spiral” with no clear end

By Henry Engler, Compliance Complete

NEW YORK, Dec. 4 (Thomson Reuters Accelus) – Although five years have passed since the height of the financial crisis, top lawyers at some of the largest U.S. banks see themselves pitted in an escalating, and at times adversarial, battle with regulators, the end of which remains unknown.

At a conference sponsored by the Clearing House on Friday, senior legal representatives from JPMorgan and Bank of America painted a picture of unprecedented enforcement actions and fines across a wide range of issues, adding that the zeal of recent actions could potentially disrupt the supervisory and cooperative relationship that has long existed between banks and regulators. (more…)

The future of the U.S. resolution regime: toward “a tale of two models”?

By Bora Yagiz, Compliance Complete

NEW YORK, Nov. 25 (Thomson Reuters Accelus) - The U.S. Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) may be far from putting the final touches on titles I and II of the Dodd-Frank Act — the preparation of resolution plans within the framework of enhanced prudential standards, and the authority of FDIC to become the receiver of a failed non-bank financial or holding company and unwind it respectively. But comments by regulators and a conference in Washington last month held by the Federal Reserve Board and Federal Reserve Bank of Richmond on the topic reveal that some consensus is emerging on the structure and implementation of the resolution regime as well as its future course. (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…)

First wave of U.S. “living wills” provides a blueprint for the industry

By Bora Yagiz

NEW YORK, July 2 (Thomson Reuters Accelus) - The biggest U.S. banks and foreign banks with U.S. operations will show regulators and the world this week how they are not “too big to fail.”

On Monday U.S. bank holding companies with $250 billion or more in total nonbank assets and foreign-based bank holding companies with $250 billion or more in total U.S. nonbank assets are due to submit resolution plans, known as the “living wills” to the Federal Reserve and Federal Deposit Insurance Corp.  (more…)

Suit against U.S. Consumer Financial Protection Bureau could force it to define limits to its authority, says banking industry lawyer

By Emmanuel Olaoye

NEW YORK, June 29 (Thomson Reuters Accelus) - Even if a small bank’s lawsuit challenging the authority and leadership of U.S. Consumer Financial Protection Bureau fails in court, it could force the bureau to publicly define its limits, a top banking industry lawyer said.

Joseph Barloon, a partner at Skadden Arps in Washington, said the bureau could be forced to say what it can and cannot do, and provide the banking industry some guidance on the agency’s positions on issues such as mortgage lending. (more…)

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