CCH Financial Reform News Center

Agreement Reached on Basel Committee Capital and Liquidity Reforms

By John M. Pachkowski, J.D., Editor, CCH Federal Banking Law Reporterand Bank Digest; Author, Anti-Money Laundering and Bank Secrecy: Compliance and the USA PATRIOT Act; Co-Author CCH Financial Privacy Law Guide.

The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, have reached “broad agreement,” during a July 26, 2010, meeting, on the overall design of the Basel Committee’s capital and liquidity reform package which is intended to increase the quality, quantity and international consistency of capital, to strengthen liquidity standards, to discourage excessive leverage and risk taking, and reduce procyclicality.

Shelby Criticizes Democrats’ Opposition to Capital Standards Amendment

This story appeared in Bank Digest.

Sen. Richard Shelby, R-Ala., the ranking Republican on the Banking, Housing, and Urban Affairs Committee, released a statement regarding Senate Democrats’ opposition to an amendment related to capital standards that Republicans offered on June 17, 2010, during the financial reform conference committee proceedings. “The Democrats’ blind disregard for the safety and soundness of our financial system throughout the regulatory reform process has been astonishing. It is nonetheless shocking that they opposed a straightforward requirement that any new capital rules take into account implications for the stability of the financial system before taking effect. If Democrats’ new Financial Stability Oversight Council is to have no role in fundamental matters affecting the financial stability of the system such as capital standards, then what is its purpose?”

Collins Amendment Adds Leverage and Risk-Based Capital Requirements to Systemic Risk Title of Financial Legislation

This story appeared in Jim Hamilton's World of Securities Regulation.

Section 171 of the baseline financial reform legislation, authored by Senator Susan Collins, and inserted by way of amendment to the Restoring American Financial Stability Act on the Senate floor, would require financial firms to have adequate amounts of cash and other liquid assets to survive financial crisis. Federal regulators are directed to impose minimum leverage and risk-based capital requirements on banks, bank holding companies and nonbank financial firms such as investment banks and private funds that are identified by the new Financial Stability Oversight Council for enhanced supervision by the Federal Reserve.

Financial Services in the Post-Crisis Environment Discussed

By Gregg D. Killoren, J.D., CCH State Banking Law Reporter, Bank Digest and Individual Retirement Plans Guide.

In remarks before the Consumer Bankers Association Annual Conference on June 8, 2010, Fed Governor Elizabeth A. Duke discussed the implications for retail banking of new regulations and altered consumer behavior in the aftermath of the financial crisis. Duke, speaking at the conference in Hollywood, Fla., noted that, at the outset of the financial crisis, “the Fed used a wide range of tools to fight the crisis in a direct and urgent manner, including lowering interest rates; maintaining a steady flow of dollars to meet demand abroad; providing liquidity to sound institutions to support faltering financial markets; and providing emergency loans to specific, troubled institutions whose failures would have had disastrous consequences for the financial system and the broad economy.” Defending against criticism of these actions, especially the decision to provide a loan to American International Group after allowing Lehman Bros. to go into bankruptcy, Duke offered, “I still believe that the consequences would have been far worse for all businesses and consumers if we had let AIG fail.”

Bernanke Says Smaller Banks May Need Additional Capital

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

The number of regional and community banks considered weak is still increasing, and many organizations may need additional capital over the next few years, Federal Reserve Board Chairman Ben Bernanke said.

Speaking May 6, 2010, Bernanke said the most significant areas of concern are residential mortgages and commercial real estate loans. Meanwhile, with tepid credit demand and the economy still under stress, profitable lending opportunities have been “relatively scarce” for many of these banks, Bernanke noted.

Fed Releases Basel Consultative Package

This story appeared in Bank Digest.

The Fed has made available a consultative package by the Basel Committee on Banking Supervision to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The Committee's consultative documents cover: quality, consistency and transparency of the capital base; risk coverage of the capital framework (counterparty credit risk exposures); leverage ratio; countercyclical capital framework and build-up of capital buffers; and minimum liquidity standards.

Further Information Sought on FHLBank-Seattle’s Capital Restoration Plan

This story appeared in Bank Digest.

The Federal Housing Finance Agency has requested and the Federal Home Loan Bank of Seattle has agreed to provide a supplement to the capital restoration plan submitted by the bank. On Nov. 6, 2009, the FHFA exercised its statutory authority to classify the bank as “undercapitalized” As a result of that classification, the bank is currently unable to repurchase and redeem member stock. Although the bank currently satisfies all existing capital requirements, FHFA determined that the bank needed to supplement its earlier submissions with a more specific business plan with steps the bank will take to resume timely repurchases and redemptions of member capital stock and to focus its business on advances supporting housing finance and community development.

OTS Offers Guidance on Risk Weighting of Early Default Provisions

This story appeared in Bank Digest.

The Office of Thrift Supervision has issued guidance on risk weighting of early default provisions under the agency’s capital regulations. The guidance noted that where there is recourse—the retention of credit risk—a savings association must hold capital for the assets as if they were still carried on its books.

FHFA Proposes Rule for Temporary Capital Increases

This story appeared in Bank Digest.

The FHFA has proposed a rule that would implement a provision of the Federal Housing Enterprises Financial Safety and Soundness Act providing for a temporary increase in the minimum capital level for the entities regulated by the agency--the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks. The proposed rule would permit the FHFA Director to impose on the institutions capital levels higher than the statutory minimum and provide for periodic reviews of capital levels.

Agencies Jointly Adopt Changes to Risk-Based Capital Rules

This story appeared in Bank Digest.

The federal bank and thrift regulatory agencies have announced the final risk-based capital rule related to the Financial Accounting Standards Board's adoption of Statements of Financial Accounting Standards Nos. 166 and 167. The new accounting standards make substantive changes to how banking organizations account for many items, including securitized assets, that had been previously excluded from these organizations' balance sheets. The rule:

• eliminates the exclusion of certain consolidated asset-backed commercial paper programs from risk-weighted assets;

• provides for an optional two-quarter implementation delay, followed by an optional two-quarter partial implementation, of the effect on risk-weighted assets that will result from the new standards;
• provides for an optional two-quarter delay, followed by an optional two-quarter phase-in, of the application of the agencies' regulatory limit on the inclusion of the allowance for loan and lease losses (ALLL) in tier 2 capital for the portion of the ALLL associated with the assets a banking organization consolidates as a result of the change;
• and reserves the agencies' authority to require a banking organization to treat entities that are not consolidated under accounting standards as if they were consolidated for risk-based capital purposes

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