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Capital and Prudential Standards Blog

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Davis Polk Blackline of Federal Reserve’s Corrections to Dodd-Frank Stress Test Capital Ratio Projections

Today, the Federal Reserve published corrections to its 2014 supervisory Dodd-Frank Act stress test (“DFAST“) results.  We have prepared a blackline (available here) showing the Federal  Reserve’s revised capital ratio projections for 30 large U.S. bank holding companies under the supervisory severely adverse stress scenario.  According to the Federal Reserve, it adjusted the supervisory DFAST results to “address inconsistencies in the treatment of the fourth quarter 2013 actual capital actions and assumptions about preferred and employee compensation-related issuance over the course of the planning horizon.”

View Blackline of Federal Reserve’s Corrections to 2014 Supervisory DFAST Capital Ratio Projections

 

Materials: 

Federal Reserve, Dodd-Frank Act Stress Test 2014: Supervisory Stress Test Methodology and Results (originally published on Mar.…  Read More

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Dodd-Frank Enhanced Prudential Standards for Foreign Banks with Limited U.S. Footprints: Visual Memorandum

The Federal Reserve’s Dodd-Frank enhanced prudential standards (EPS) final rule adopts a tiered approach for applying EPS to foreign banks. Under the tiered approach, the most burdensome requirements will only apply to foreign banks with large U.S. operations, whereas fewer requirements will apply to foreign banks with limited U.S. footprints. We have prepared a visual memorandum focusing on the requirements that will apply to foreign banks with limited U.S. footprints, including the U.S. risk committee, internal liquidity stress testing, home country capital certification and home country capital stress testing requirements.…  Read More

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Basel Committee Agrees to 0% Risk Weight for European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF)

The Basel Committee has agreed that supervisors may allow banks to apply a 0% risk weight to claims on the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF). The ESM and EFSF will be included in the list of entities receiving a 0% risk weight under the Basel capital framework — paragraph 56 of Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework (June 2006). Claims on the ESM and EFSF will also be included as Level 1 High Quality Liquid Assets (HQLA) under the Basel Committee’s liquidity coverage ratio (LCR) framework — paragraph 50 (c) of Basel III: The Liquidity Coverage Ratio and Liquidity Risk Monitoring Tools (Jan.…  Read More

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Basel Committee Issues Consistency Report on Australia’s Implementation of Basel III

Today, the Basel Committee published a report on the regulations that implement the Basel capital framework in Australia.

According to the Basel Committee, Australia’s implementation of the Basel capital framework was found to be closely aligned with the Basel III standards: 12 out of 14 assessed components were found to be “Compliant”. The two components that were graded “Largely Compliant” were the “Definition of Capital” and the “Internal Ratings-Based Approach for credit risk,” where some differences exist vis-à-vis the Basel framework.…  Read More

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Comparison of Dodd-Frank Stress Tests for Large and Mid-Size Banking Organizations

The following chart provides a high-level comparison of the Federal Reserve’s Dodd-Frank stress testing requirements, related reporting requirements and supervisory expectations for  (1) large banking organizations (≥$50 billion in total consolidated assets) and (2) mid-size banking organizations (>$10 billion and < $50 billion in total consolidated assets).  The comparison chart is based on information contained in a recent Federal Reserve Supervision and Regulation (SR) letter.  Our blackline of the U.S. banking agencies’ final vs. proposed Dodd-Frank stress test supervisory guidance for mid-size banking organizations is available here.…  Read More

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The Failure of Mt. Gox and Other Recent Bitcoin Catastrophes: Why Banks Should Care

Related: March 5, 2014. Davis Polk’s Reuben Grinberg discusses the evolution of Bitcoin and whether it’s here to stay. He speaks with Trish Regan and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

Although Davis Polk does not yet accept Bitcoin, we have been closely following the rapid-fire booms, busts and arrests in the Bitcoin and the larger cryptocurrency space.

Cryptocurrencies – including Bitcoin, Ripple, Litecoin, Dogecoin and about a hundred others – are essentially money in the form of artificial commodities of limited total supply, which are transmittable quickly and without cost over the internet without a financial intermediary.…  Read More

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