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."

Quarles speaks at Harvard Law School on future of stress testing

This story appeared in Bank Digest.  

Federal Reserve Board Vice Chairman for Supervision Randal K. Quarles spoke at a symposium sponsored by the Harvard Law School Program on International Financial Systems, entitled "An International Perspective on the Future of Bank Stress Testing," at Harvard Law School on Nov. 16, 2018. The subject of his prepared remarks was "Beginning Stress Testing's New Chapter."

In his prepared remarks, Quarles said that "stress testing has meaningfully increased the post-stress resiliency of large financial institutions, and become a critical tool" in keeping the banking system strong. He went on to review proposed changes to the Fed's stress testing program, which he said "are intended to improve the program, maintaining its dynamism and flexibility while providing adequate notice to regulated firms, without altering materially the stringency of the tests or the overall level of capital in the system."

Fed proposals would align prudential standards with risk profiles

This story appeared in Bank Digest.                                   

The Federal Reserve Board has published two proposals to establish a revised framework for applying prudential standards to large U.S. banking organizations based on risk, consistent with Section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Comments on both proposals, which were announced at the Fed's Oct. 30, 2018, open meeting, must be received by Jan. 22, 2019. 

The first notice--Prudential standards for large bank holding companies and savings and loan holding companies--is a Fed-only proposal that would tailor the application of prudential standards to U.S. bank holding companies and apply enhanced standards to certain large savings and loan holding companies. The second notice--Proposed changes to applicability thresholds for regulatory capital and liquidity requirements--which would be issued jointly with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, is a proposal to tailor the application of the agencies' capital and liquidity rules. 

The proposals seek to more closely align the regulatory requirements that apply to large banking organizations with their risk profiles. The proposed framework would not apply to the U.S. operations of foreign banking organizations.

Banking agencies announce support for reforms to Basel III agreement

This story appeared in Bank Digest.                                   

The Office of the Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation have announced their support for the conclusion of efforts to reform the international bank capital standards initiated in response to the global financial crisis. According to the agencies' joint release, the Governors and Heads of Supervision and the Basel Committee on Banking Supervision have announced the finalization of the reforms to the Basel III agreement on bank capital standards, and with this agreement the committee will conclude the international reforms.                                  

Treasury Secretary Steven Mnuchin issued a statement saying, "The reforms standardize the approach, improve the quality and consistency of bank capital requirements, and will help level the playing field for U.S. firms and businesses operating internationally."

Hoenig speaks on strengthening global capital at Risk USA Conference in New York

Federal Deposit Insurance Corporation Vice Chairman Thomas M. Hoenig spoke at the 22nd Annual Risk USA Conference in New York, N.Y., on Nov. 9, 2016. The subject of his prepared remarks was "Strengthening Global Capital: An Opportunity Not To Be Lost." Hoenig discussed key factors at the core of the debate over what defines adequate capital.

Specifically, he discussed the controversy over alternative measurements for judging adequate capital; changes he said the Basel Committee appears to be considering that he believes will weaken current standards and why he thinks these changes are ill-advised; and his concerns regarding Total Loss-Absorbing Capacity and its use as a means to justify lower levels of capital and require firms to issue more debt.

According to Hoenig, "Momentum is developing within the Basel Committee to undermine measures that could increase bank capital levels, and some jurisdictions are threatening to walk away if the measures are thought too strict." He said the United States "should avoid joining this race to the bottom."

Fed proposes single-counterparty credit limits for large bank holding companies

This story appeared in Bank Digest.

The Federal Reserve Board has issued a notice of proposed rulemaking to address the risk associated with excessive credit exposures of large banking organizations to a single counterparty. According to the Fed's press release, the proposed rule would apply single-counterparty credit limits to bank holding companies with total consolidated assets of $50 billion or more, and the proposed limits are tailored to increase in stringency as the systemic footprint of a firm increases. The release stated that similarly tailored requirements would also be established for foreign banks operating in the United States. Comments on the proposed rule should be received by June 3, 2016.

In addition, the Fed has released a white paper explaining the analytical and quantitative reasoning for the proposed rule's tighter 15 percent limit for credit exposures between systemically important financial institutions.

Results of Financial Markets Regulatory Dialogue meeting released

This story appeared in Bank Digest.

United States and European Union participants in the Financial Markets Regulatory Dialogue met on Feb. 3, 2016, in Washington, D.C., to exchange views on financial regulatory developments. According to a joint U.S.-E.U. statement, the participants held discussions on bank capital and liquidity measures, approaches to cross-border bank supervision, bank structural reform, recent developments in bank resolution, central counterparty resolution, over-the-counter derivatives reforms, alternative investment fund managers, benchmarks, insurance, cooperation on audit oversight, and information sharing for supervisory and enforcement purposes.

The joint statement said that looking forward, the participants committed to review the functioning of the dialogue with a view to improving U.S.-EU cooperation on financial regulation. The next FMRD meeting will take place in Brussels in July 2016

Fed extends comment period for proposed rule on GSIB resolution

This story appeared in Bank Digest.

The Federal Reserve Board has extended the comment period from Feb. 1, 2016, to Feb. 19, 2016, for its proposed rule to strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance. Among other provisions, according to the Fed, the proposed rule requires U.S. global systemically important banks and the U.S. operations of foreign GSIBs to meet a long-term debt requirement, a "total loss-absorbing capacity" requirement, and a requirement that the parent holding company of a domestic GSIB avoid entering into certain financial arrangements that would create obstacles to an orderly resolution.

The Fed's release said the comment period was being extended to allow interested persons more time to analyze.

Agencies jointly release advisory supporting Basel Committee's external audit guidance

The Federal Deposit Insurance Corporation, Federal Reserve Board, and Office of the Comptroller of the Currency have issued an Interagency Advisory in support of the principles and expectations set forth in the Basel Committee on Banking Supervision's March 2014 guidance on external audits of banks. This guidance was updated in an effort to enhance the quality and usefulness of audits. The Basel Committee's guidance addresses how a bank's audit committee should relate to the bank's external auditors, how auditors should perform audits, and how auditors should interact with the bank's supervisor.

The Interagency Advisory also explains the agencies' supervisory expectations regarding how internationally active U.S. financial institutions should address differences between the standards and practices followed in the United States and the principles and expectations in the BCBS external audit guidance. The Advisory acknowledges that the existing standards and practices in the United States are "broadly consistent" with the BCBS external audit guidance, but it notes that where there are differences between the BCBS external audit guidance and U.S. standards, examiners should encourage institutions' audit committees to follow the practices identified in the advisory.

Fed proposes long-term debt, TLAC requirements for GSIBs

This story appeared in Bank Digest.

The Federal Reserve Board has issued a proposed rule that would require global systemically important banks and foreign GSIBs operating in the United States to meet a new long-term debt requirement and a new "total loss-absorbing capacity" requirement. According to the agency's press release, the new requirements would bolster financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers. The agency said the requirements would improve the prospects for the orderly resolution of a failed domestic GSIB and would strengthen the resiliency of all GSIBs.