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Home Archive for category "Enhanced Prudential Standards"
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Blackline of U.S. Liquidity Coverage Ratio Final Rule

Today, the U.S. banking agencies issued a final rule to implement the Basel III liquidity coverage ratio (LCR). We have prepared a blackline that compares the text of the final rule against the proposed rule that was issued in 2013.

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Blackline of Federal Reserve’s Proposed Revisions to Capital Planning and Stress Testing Rules

Today, the Federal Reserve issued a proposal to revise certain aspects of its capital planning and stress testing regulations.  We have prepared a blackline (available here) showing these proposed changes.

Key changes:  The proposal would, among other things:

  • Shift the start date of the capital plan and stress test cycles from October 1 of a calendar year to January 1 of the following calendar year.  A large (≥$50 billion) bank holding company (“BHC“) would be required to submit its capital plan and stress test results to the Federal Reserve by April 5, three months later than under current regulations. 
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Basel Committee Chair Discusses Liquidity Risk Management

The Chairman of the Basel Committee, Stefan Ingves, delivered a speech entitled Liquidity risk management – the LCR and beyond. In addition to discussing the Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), Chairman Ingves reminded banks that “the LCR and NSFR are not meant to be the first line of defence against banks’ liquidity problems.” He observed that “the LCR and NSFR are relatively simple quantitative measures that cannot hope to fully capture the many nuances of liquidity risk that a bank may face” and that “[b]anks must develop a range of quantitative and qualitative controls for themselves to ensure that they are prepared for the volatility in their cash flows that is inherent in the complexity of banks’ business models.” In this context, Chairman Ingves discussed the Basel Committee’s Principles for sound liquidity risk management and supervision and concluded by stating that:

“The first line of defence against the impact of future liquidity shocks on the banking system is stronger risk management by banks themselves. Read More

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Federal Reserve Governor Tarullo Discusses Removal of Internal Ratings-Based (IRB) Approach to Regulatory Capital

Today, Federal Reserve Governor Daniel K. Tarullo delivered a speech that, among other things, argued for discarding the advanced internal ratings-based (IRB) approach for calculating risk-based capital requirements.  Currently, under U.S. Basel III, the advanced IRB approach applies to U.S. banking organizations with at least $250 billion in total consolidated assets or at least $10 billion in on-balance-sheet foreign exposures.  Governor Tarullo also argued for increasing the $50 billion applicability threshold for Dodd-Frank enhanced prudential standards to a higher asset level, such as $100 billion. …  Read More

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Summary of Basel Committee’s Final Large Exposures Framework

Following is a summary of the Basel Committee’s final framework for measuring, reporting and limiting a bank’s exposures to single counterparties and groups of connected counterparties. The large exposures framework, which relies on a number of concepts in the Basel Committee’s risk-based capital framework, is intended to ensure greater international consistency in regulatory and supervisory approaches to large exposures and to act as a backstop to risk-based capital requirements.

Blackline Showing Changes: Davis Polk’s blackline of the Basel Committee’s April 2014 final vs.…  Read More

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U.S. Intermediate Holding Company: Structuring and Regulatory Considerations for Foreign Banks – Visual Memorandum

Establishing a top-tier U.S. intermediate holding company (IHC) that complies with Dodd-Frank enhanced prudential standards involves complex structuring, regulatory, capital, liquidity, tax and corporate governance considerations as well as significant business, legal and operational analysis. We have prepared a visual memorandum (available here) that uses flowcharts, diagrams, comparison tables and timelines to explore key structuring and regulatory considerations for foreign banks that are required to establish an IHC.

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