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Federal Reserve Governor Stein Discusses Fire-sales Problem Associated with Securities Financing Transactions and Potential Policy Remedies

Today, Federal Reserve Governor Jeremy C. Stein delivered a speech discussing the fire-sales problem associated with securities financing transactions (SFTs) and potential policy remedies, including a liquidity-linked capital surcharge, modifications to liquidity standards such as the Basel III net stable funding ratio (NSFR) and universal margin requirements for SFTs.

Existing Regulatory Tools:  In his speech, Governor Stein argued that “the mainstays of our existing regulatory toolkit–risk-based capital, liquidity, and leverage requirements–have a variety of other virtues, but none seem well-suited to lean in a comprehensive way against the specific fire-sale externalities created by SFTs.”

New Regulatory Tools:  Governor Stein went on to consider other tools that might be better suited to dealing with SFT-related fire-sales externalities. …  Read More

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Davis Polk’s U.S. Basel III Guide for Community Banks

U.S. Basel III is the most complete overhaul of U.S. bank capital standards in nearly a quarter of a century. It comprehensively revises the regulatory capital framework for the entire U.S. banking sector and will have significant implications for community banks from a business, operations, M&A and regulatory compliance perspective. This article provides an overview of the key aspects of U.S. Basel III for community banks.  A version of this article was published in DirectorCorps, Bank Director’s educational program for directors of community banks.…  Read More

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Davis Polk Blackline Comparing 2014 CCAR Instructions with 2013 Instructions

Yesterday, the Federal Reserve issued instructions for the 2014 Comprehensive Capital Analysis and Review (CCAR).  Thirty bank holding companies with $50 billion or more of total consolidated assets will participate in the 2014 CCAR, including 18 bank holding companies that participated in the 2013 CCAR and 12 bank holding companies that will participate in CCAR for the first time.

We have created a blackline that compares the Federal Reserve’s 2014 CCAR instruction with its 2013 instructions.

View Blackline Comparing 2014 CCAR Instructions with 2013 Instructions (PDF) Read More

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Davis Polk Visuals of the Federal Reserve’s 2014 Stress Test Scenarios

Yesterday, the Federal Reserve issued three hypothetical, supervisory scenarios that will be used in the 2014 capital planning and stress testing cycle.  The OCC issued substantively identical scenarios.

The baseline, adverse, and severely adverse scenarios each include 28 variables (16 domestic variables and 12 international variables), including economic activity, unemployment, exchange rates, prices, incomes and interest rates. The 28 variables include all of the variables provided last year and two new domestic variables—the yield on the 5-year Treasury bond and the prime rate.…  Read More

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Federal Reserve Issues 2014 CCAR Instructions and Supervisory Scenarios

Today, the Federal Reserve published instructions for the 2014 Comprehensive Capital Analysis and Review (CCAR).  Thirty bank holding companies with $50 billion or more of total consolidated assets will participate in the 2014 CCAR, including 18 bank holding companies that participated in the 2013 CCAR and 12 bank holding companies that will participate in CCAR for the first time.  The 2014 CCAR submissions are due by January 6, 2014.

The Federal Reserve also issued three hypothetical, supervisory scenarios that will be used in the 2014 capital planning and stress testing cycle.  …  Read More

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