The Federal Reserve’s Dodd-Frank enhanced prudential standards final rule requires a foreign banking organization with $50 billion or more in U.S. assets to maintain separate U.S. liquidity buffers for its U.S. branches/agencies and U.S. intermediate holding company. We have prepared a visual memorandum that uses diagrams, flowcharts, examples and an interactive calculator to illustrate the U.S. liquidity buffer requirement and related calculations. The interactive calculator allows you to enter various internal and external cash flow amounts to assess the potential impact of the final rule’s prescribed method for calculating net stressed cash flow need.… Read More
Basel Committee Chairman Stefan Ingves has delivered a speech discussing the Basel III leverage ratio and its role in the Basel framework, noting that while the Basel Committee has recently agreed on a common measure of bank leverage, the issue of calibration (i.e., the percentage level of the leverage ratio) is still open. Significantly, Chairman Ingves stated that “[e]ven though the leverage ratio has been designed as a backstop, it must be a meaningful backstop if it is to serve its intended purpose.” In this respect, Chairman Ingves noted the following in his speech:
- “Only now that we have an agreed [measure of leverage] can the [Basel] Committee begin to turn to the issue of calibration, and the relationship of the leverage ratio to the risk-based framework.
We have prepared two visual summaries of the Federal Reserve’s Dodd-Frank enhanced prudential standards final rule. One visual summary focuses on requirements that apply to U.S. bank holding companies (BHCs) and the other focuses on requirements that apply to foreign banks, including the U.S. intermediate holding company (IHC) requirement.
Today, the Federal Reserve published a final rule establishing Dodd-Frank enhanced prudential standards for U.S. bank holding companies with ≥$50 billion in total consolidated assets (Large U.S. BHCs) and foreign banking organizations with ≥$50 billion in total consolidated assets (Large FBOs).
By way of background, Section 165 of the Dodd-Frank Act requires the Federal Reserve to establish enhanced prudential standards, including heightened capital standards, liquidity standards, single counterparty credit limits, enhanced risk management requirements, capital stress testing requirements (final rules already issued) and an early remediation framework, for Large U.S.… Read More
Ahead of next week’s Dodd-Frank enhanced prudential standards (EPS) final rule, we have created an EPS resources website: USBasel3.com/EPS. The website contains background materials and Davis Polk’s analysis and visuals on EPS proposals for large domestic and foreign banking organizations, U.S. Basel III, stress testing, liquidity, risk governance, counterparty credit exposures and other prudential regulatory developments.
Over the coming weeks, we will be preparing a series of materials relating to the EPS final rule, including high-level overviews, blacklines, comparisons, memos and visuals. … Read More
U.S. financial regulators found themselves on the receiving end of an outpouring of concern from lawmakers last Wednesday about the risks to the banking sector and debt markets from the treatment of collateralized loan obligations (“CLOs”) in the Volcker Rule final regulations. Regulators and others have come to realize that treating CLOs as if they were hedge funds is a problem and we now understand from Governor Tarullo’s testimony that the treatment of CLOs is at the top of the list for the new interagency Volcker task force. … Read More