Dodd-Frank News Center

Brainard speaks in Washington on assessing financial stability

This story appeared in Bank Digest.

Federal Reserve Board Governor Lael Brainard spoke at the Peterson Institute for International Economics in Washington, D.C., on Dec. 7, 2018. The subject of her prepared remarks was "Assessing Financial Stability over the Cycle."

In her prepared remarks, Brainard said that if anything has been learned from the financial crisis, "it is that we must be especially vigilant to safeguard the resilience of our financial system in good times when vulnerabilities may be building." She went on to describe the state of the economy, highlight areas where she saw financial imbalances building, and discuss the implications for policy.

According to Brainard, while the U.S. financial system is much more resilient than before the crisis, "the appetite for risk among financial market participants rose notably over 2017 and much of 2018, and corporate borrowing has reached new heights amid rapid growth and deteriorating underwriting standards in riskier segments, such as leveraged lending." She went on to say, "At a time when cyclical pressures have been building and bank profitability has been strong, it might be prudent to ask large banking organizations to fortify their capital buffers, which could subsequently be released if conditions warrant."

Perdue introduces bill to provide relief from costs of 'duplicative capital buffers'

This story appeared in Bank Digest.                                   

Senator David Perdue (R-Ga) has introduced a bill (S. 3682) intended to provide relief from financial regulatory burdens and extra costs that are passed down to small business owners, farmers, and consumers. According to Perdue's press release, after the 2008-2009 financial crisis, federal bank regulators increased the amount of capital held by banks for certain "risky" activities. This included the supplemental leverage ratio (SLR), which requires banks to hold a certain amount of capital.

But according to the release, the SLR did not account for the initial margin that customers pay, and as a result, duplicative capital buffers were built as banks had to hold additional capital aside. The cost of this trapped capital was ultimately passed on to the end users, such as farmers and business owners.

FDIC-supervised institutions notified of proposed simplified measure of capital adequacy

This story appeared in Bank Digest.                                   

The Federal Deposit Insurance Corporation has notified institutions it supervises that the federal banking agencies have jointly issued a notice of proposed rulemaking that would provide for an optional, simplified measure of capital adequacy for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. 

Specifically, according to the FDIC's guidance, the community bank leverage ratio would allow qualifying community banking organizations the option of calculating a simple on-balance sheet leverage ratio to measure capital adequacy. Banks using the CBLR would complete a simpler reporting schedule, which the agencies intend to propose at a later date, the FDIC said. Comments on the proposal must be received within 60 days of its publication in the Federal Register.

 

Agencies propose modifying capital rules for high volatility commercial real estate exposures

This story appeared in Bank Digest.                                     

The Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency are requesting comment on a proposal to modify their capital rules for high volatility commercial real estate exposures, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The proposal would revise the definition of "high volatility commercial real estate (HVCRE) exposure" to conform to the statutory definition of "high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan," in accordance with the EGRRCPA. 

The proposal would also establish principles for interpretation of certain terms in the revised definition, and the agencies request comment on whether any other terms in the revised definition would also require interpretation. Comments on the proposed rule must be received within 60 days of its publicatin in the Federal Register.

Gruenberg speaks in Washington on enhanced supplementary leverage capital ratio

This story appeared in Bank Digest.                                     

Federal Deposit Insurance Corporation Board member Martin J. Gruenberg spoke at the Peterson Institute for International Economics in Washington, D.C., on Sept. 6, 2018. The subject of his prepared remarks was "An Essential Post-Crisis Reform Should Not Be Weakened: The Enhanced Supplementary Leverage Capital Ratio." 

In his prepared remarks, Gruenberg said, "A central lesson of the financial crisis of 2008 was that the buildup of leverage--in other words, reliance on debt--at the largest financial institutions in the United States increased the vulnerability of the financial system and was a critical contributor to the crisis." He said the enhanced supplementary leverage capital ratio, which he described as "an unweighted measure of equity as a percentage of an institution's exposures designed to constrain reliance on debt," was the key post-crisis reform that addressed the issue of reliance on debt by these large financial institutions. 

Gruenberg also discussed changes that have been proposed to the enhanced supplementary leverage capital ratio, as well as his "serious concerns" with these proposed changes.

Fed proposes revision of 'Capital Assessments and Stress Testing' information collection

This story appeared in Bank Digest.   

The Federal Reserve Board is proposing to revise, without extension, an existing information collection entitled "Capital Assessments and Stress Testing," which is applicable to top-tier bank holding companies with total consolidated assets of $100 billion or more and U.S. intermediate holding companies. According to the Fed's notice, this collection helps ensure that large firms have strong, firm‐wide risk measurement and management processes supporting their internal assessments of capital adequacy and that their capital resources are sufficient given their business focus, activities, and resulting risk exposures.                                   

The Fed is proposing to revise sub-schedule L.5 (Derivatives and SFT Profile) for the FR Y-14Q report by adding items that were mistakenly omitted in a prior revision. Comments on the proposed revision must be submitted by Oct. 9, 2018.

House Subcommittee examines capital regimes for financial institutions

This story appeared in Bank Digest.                                     

The House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing entitled "Examining Capital Regimes for Financial Institutions" on July 17, 2018. The hearing was held to examine the existing regulatory structure for prudentially regulated financial institutions and explore avenues that Congress and regulators can address through legislative and regulatory policy changes. 

The Dodd-Frank Act imposed a series of new capital regimes on financial institutions with more than $10 billion in total consolidated assets, but the Economic Growth, Regulatory Relief, and Consumer Protection Act (signed in May 2018) exempts certain financial institutions from the enhanced supervisory standards of Dodd-Frank.

 

Fed calculates financial sector liabilities at more than $20 trillion

This story appeared in Bank Digest.                                     

The Federal Reserve Board has determined that, as of July 1, 2018, the aggregate consolidated liabilities of all financial companies were equal to $20,283,121,945,000. The number constitutes the average of the year-end financial sector liabilities of the preceding two years and will be the measure of aggregate consolidated liabilities for purposes of Section 622 of the Dodd-Frank Act from July 1, 2018, through June 30, 2019, according to the Fed's announcement and accompanying press release. 

Sec. 622 of the Dodd-Frank Act, implemented by the Fed's Regulation XX, prohibits any financial company from combining with another company if the resulting company's liabilities exceed 10 percent of the aggregate consolidated liabilities of all financial companies. The Fed's regulation also requires that the Fed publish the aggregate consolidated liabilities of all financial companies by July 1 of each year.

 

Fed releases CCAR results

This story appeared in Bank Digest.                           

The Federal Reserve Board has released the results of its Comprehensive Capital Analysis and Review, which evaluates the capital planning processes and capital adequacy of the largest U.S.-based bank holding companies, including the firms' planned capital actions, such as dividend payments and share buybacks. Of the 35 companies subject to the CCAR, the Fed objected to the capital plan of only one firm, DB USA Corporation, due to qualitative concerns such as material weaknesses in the firm's data capabilities and controls supporting its capital planning process, as well as weaknesses in its approaches and assumptions used to forecast revenues and losses under stress. 

The Fed issued conditional non-objections to the capital plans of Goldman Sachs, Morgan Stanley, and State Street Corporation.

Fed limits credit exposure of large bank holding companies and foreign banking organizations

This story appeared in Bank Digest.                                  

The Federal Reserve Board has approved a final rule to establish single-counterparty credit limits for large U.S. bank holding companies and foreign banking organizations pursuant to Sec. 165(e) of the Dodd-Frank Act. The Fed's release said that consistent with the recently passed Economic Growth, Regulatory Reform, and Consumer Protection Act, the limits in the final rule will apply only to global systemically important bank holding companies (GSIBs) and bank holding companies with at least $250 billion in total consolidated assets. The final rule is effective 60 days after its publication in the Federal Register, but compliance will not be required until Jan. 1, 2020, for GSIBs and until July 1, 2020, for all other firms.

Under the rule, a GSIB will be limited to a credit exposure of no more than 15 percent of its tier 1 capital to another systemically important financial firm, while a bank holding company with $250 billion or more in total consolidated assets will be restricted to a credit exposure of no more than 25 percent of its tier 1 capital to a counterparty. 

Foreign banks operating in the U.S. with $250 billion or more in total global consolidated assets, and their intermediate holding companies with $50 billion or more in total U.S. consolidated assets, will be subject to limits similar to those applicable to bank holding companies with $250 billion or more in assets, the Fed said.an foreclosure.