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.

House-Senate Conference Agrees to Amendment Facilitating US Covered Bonds Market

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

House-Senate conferees accepted an amendment sponsored by Rep. Scott Garrett that would facilitate a covered bonds market in the U.S. to add liquidity and certainty to the capital markets. The amendment, which is part of the securities subtitle of the legislation, establishes regulatory oversight of covered bond programs, includes provisions for default and insolvency of covered bond issuers and subjects covered bonds to appropriate securities regulations by federal regulators. The amendment mirrors covered bonds legislation introduced earlier by Rep.Garrett, HR 2896, with support from Rep. Paul E. Kanjorski and Financial Services Committee Ranking Member Spencer Bachus as leading cosponsors.

Temporary U.S. Dollar Liquidity Swap Facilities Re-Established

This story appeared in Bank Digest.

In response to the re-emergence of strains in U.S. dollar short-term funding markets in Europe, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing the re-establishment of temporary U.S. dollar liquidity swap facilities. These facilities are designed to help improve liquidity conditions in U.S. dollar funding markets and to prevent the spread of strains to other markets and financial centers. The Bank of Japan will be considering similar measures soon. Central banks will continue to work together closely as needed to address pressures in funding markets. The Federal Open Market Committee has authorized temporary reciprocal currency arrangements (swap lines) with the Bank of Canada, the Bank of England, the European Central Bank (ECB), and the Swiss National Bank. The arrangements with the Bank of England, the ECB, and the Swiss National Bank will provide these central banks with the capacity to conduct tenders of U.S. dollars in their local markets at fixed rates for full allotment, similar to arrangements that had been in place previously.

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.

FDIC Informs Banks of Liquidity and Funding Policy Statement

This story appeared in Bank Digest.

The FDIC has informed the banks it supervises of a new Interagency Policy Statement on Funding and Liquidity Risk Management. The guidance sets out the process that institutions should follow in appropriately identifying, measuring, monitoring and controlling their funding and liquidity risks. It emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a contingency funding plan as primary tools for measuring and managing these risks.

Fed Calls for Comments on Basel Committee Capital Proposal

This story appeared in Bank Digest.

The Fed is encouraging banks to submit comments in response to a Basel Committee proposal intended to strengthen the resiliency of the banking sector through new international capital and liquidity standards. Banks that submit comments are encouraged to send copies to the Fed. Proposed changes include introducing new standards for liquidity risk management, adding a leverage ratio to the international Basel II framework, improving the quality and consistency of capital and strengthening of capital requirements for counterparty credit risk.

OCC Informs Banks of Liquidity and Funding Policy Statement

This story appeared in Bank Digest.

The OCC has informed the banks it supervises of a new Interagency Policy Statement on Funding and Liquidity Risk Management. The guidance sets out the process that institutions should follow in appropriately identifying, measuring, monitoring and controlling their funding and liquidity risks. It emphasizes the importance of cash flow projections, diversified funding sources, stress testing, a cushion of liquid assets and a contingency funding plan as primary tools for measuring and managing these risks.

State Street Bank to Settle Charges of Misleading Subprime Mortgage Investors

This story appeared in Bank Digest.

State Street Bank and Trust has agreed to settle SEC charges that it misled investors about their exposure to subprime investments while selectively disclosing more complete information to specific investors. The company has agreed to pay more than $300 million that will be distributed to investors who lost money during the subprime market meltdown in 2007, in addition to nearly $350 million it previously agreed to pay to investors to settle private claims. The SEC said the suit arose from joint efforts with the Massachusetts Securities Division and the Massachusetts Attorney General's office.

Monthly Report Issued on Credit and Liquidity Programs and Fed Balance Sheet

This story appeared in Bank Digest.

The Federal Reserve Board has issued its monthly report on the credit and liquidity programs that were created to address the financial crisis and the effect those programs have had on the Fed’s balance sheet. The report was issued as part of the Fed’s efforts to enhance transparency and to ensure appropriate accountability to Congress and the public concerning policy actions taken to address the financial crisis.

Regulators Seek Comments on New Basel Capital Proposals

This story appeared in Bank Digest.

The federal bank and thrift regulatory agencies are encouraging comments on Basel Committee on Banking Supervision proposals that aim to strengthen the resiliency of the banking sector through new capital and liquidity standards. The proposed changes include introduction of new standards for liquidity risk management, the addition of a leverage ratio to the Basel II framework, improvements to the quality and consistency of capital and strengthening of capital requirements for counterparty credit risk.