Dodd-Frank News Center

Calabria issues statement on FSOC's issuance of nonbank designation guidance

This story appeared in Bank Digest.                                   

Federal Housing Finance Agency Director Mark A. Calabria has issued a statement on the recent Financial Stability Oversight Council principals meeting, at which the Council approved final guidance regarding nonbank financial company designations. Calabria noted in his statement that one of the FSOC's core purposes under the Dodd-Frank Act is to end bailouts, but he said he was concerned that actions taken just over a decade ago, such as the establishment of the Troubled Asset Relief Program, reinforced the expectation of bailouts.

Calabria went on to say that he believed the guidance on nonbank designations the FSOC had approved was an important step towards ending bailouts. According to Calabria, "Some of the previous nonbank designations were done in such a manner that raised the possibility that designated entities would be perceived as 'too big to fail.' In doing so, the Council ran the risk that a designation would distort market expectations and reduce market discipline, contrary to its statutory purposes. I believe the approach the Council adopted yesterday reduces that risk."

Fed issues guidance on new large financial institution rating system

This story appeared in Bank Digest.

The Federal Reserve Board has issued guidance on the new rating system for the supervision of large financial institutions (LFIs). According to the Fed, this "LFI rating system" would replace the current bank holding company rating system (referred to as the "RFI rating system") for these firms.

The LFI rating system supports the Fed's supervisory program for all LFIs, including the largest firms that pose the greatest risk to U.S. financial stability, which are supervised under the authority of the Large Institution Supervision Coordinating Committee (LISCC).

The Fed will assign initial LFI ratings to firms in the LISCC portfolio in early 2019, and for all other firms subject to the LFI rating system, the Fed will assign initial ratings in early 2020.

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.

Sanders and Sherman introduce bill to cap size of financial institutions

This story appeared in Bank Digest.                                   

Senator Bernie Sanders (I-Vt) has introduced the Too Big to Fail, Too Big to Exist Act (S. 3542), which would break up the nation's biggest banks and risky financial institutions in order to safeguard the economy and prevent another costly taxpayer bailout. Representative Brad Sherman (D-Calif) will introduce a companion bill in the House. According to a press release issued by Sanders, the bill would cap the size of the largest financial institutions so that a company's total exposure is no more than 3 percent of GDP. 

The release said that by applying a cap on the size of financial institutions, the bill would break up the six largest banks in the country: JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley. The bill also addresses large nonbank financial service companies such as Prudential, MetLife, and AIG.

Agencies release public portions of resolution plans

This story appeared in Bank Digest.                                     

The Federal Deposit Insurance Corporation and Federal Reserve Board have released the public portions of four foreign banking organizations' resolution plans, commonly known as "living wills," which are required by the Dodd-Frank Act and must describe each company's strategy for rapid and orderly resolution under bankruptcy in the event of material financial distress or failure. The four firms, which were required to submit plans by July 1, 2018, are Barclays PLC, Credit Suisse Group AG, Deutsche Bank AG, and UBS AG. The plans are focused on the companies' U.S. operations. 

In addition, the FDIC has received and posted on its website the public sections of separate resolution plans submitted on July 1 by 41 large insured depository institutions. These plans are required by FDIC regulation and are designed to enable the FDIC, as receiver, to resolve each institution under the Federal Deposit Insurance Act in a way that provides customers timely access to deposits, maximizes returns, and minimizes creditor losses.

 

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.

 

Treasury report calls for restricting, not abolishing, orderly liquidation authority

This story appeared in Bank Digest.                                     

A report by the Treasury Department says that the federal government's power to take over and resolve insolvent large nonbank financial companies should be subject to stricter limits but not entirely revoked. The orderly liquidation authority, which was created by the Dodd-Frank Act, should be available only if extraordinary circumstances would render a new Bankruptcy Code chapter inadequate, Treasury says. Changes to the OLA itself also are called for.                                  

The report's recommendations rely heavily on benefits from Dodd-Frank Act and other post-financial crisis reforms, including required higher capital and liquidity levels and resolution plans.                                   

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) issued a statement saying the report's failure to call for the complete abandonment of the OLA is inconsistent with President Trump's previously announced principle of avoiding all possible taxpayer bailouts. But House Judiciary Committee Chairman Bob Goodlatte (R-Va) and committee member Tom Marino (R-Pa) issued statements favorable to the report, particularly the fact that it expressed support for the Financial Institution Bankruptcy Act.

 

FSOC updates information on SIFI designations; releases member views on AIG rescission

This story appeared in Bank Digest.                           

The Financial Stability Oversight Council has updated its general information on nonbank financial company designations to reflect its rescission of the designation of American International Group, Inc., as a systemically important financial institution. The FSOC is authorized to make such designations under the Dodd-Frank Act if it determines that a nonbank financial company's material financial distress--or the nature, scope, size, scale, concentration, interconnectedness, or mix of its activities--could pose a threat to U.S. financial stability. Such companies are subject to consolidated supervision by the Federal Reserve Board and enhanced prudential standards.

The FSOC has also released a document presenting views of Council members regarding the rescission of the AIG designation.

 

FSOC meeting announced

This story appeared in Bank Digest.                

Treasury Secretary Steve Mnuchin will preside over an executive (closed) session of the Financial Stability Oversight Council at the Treasury Department on Monday, May 8, 2017. According to a Treasury Department press release, the preliminary agenda includes a discussion of the April 21, 2017, presidential memorandum on Council designations; an update on the annual reevaluation of the designation of a nonbank financial company; a discussion of interagency regulatory collaboration and the Feb. 3, 2017, executive order on core principles for financial regulation; a discussion of the FSOC's 2017 annual report; and an update on bank holding companies' living wills and resolution planning.

New executive actions curtail use of SIFI designation and orderly liquidation authority

This story appeared in Bank Digest.

Appearing at the Treasury Building, President Donald J. Trump signed two Presidential Memoranda that affect the ability of the Financial Stability Oversight Council to designate nonbank financial institutions as systemically important financial institutions and the bank regulators to exercise the orderly liquidation authority found in Title II of the Dodd-Frank Act. A separate Executive Order instructed Treasury Secretary Steven Mnuchin to begin the process of tax simplification.

The Presidential Memorandum affecting the designation of nonbank SIFIs calls for a 180-day review to ensure that the SIFI designation is "a fair and transparent process." The Presidential Memorandum on the orderly liquidation authority provides that the Treasury Department conduct an analysis to ensure that the OLA does not encourage excess risk-taking, moral hazard, and exposure to taxpayers.

Senate Banking Committee Ranking Member Sherrod Brown (D-Ohio) said that actions to undermine Wall Street reform provisions enacted after the financial crisis "encourage Wall Street's risky behavior and leave taxpayers and our economy exposed to another catastrophe." House Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas) said the president "deserves tremendous praise for taking decisive action to protect taxpayers and our economy," while Committee Ranking Member Maxine Waters (D-Calif) said that "these two executive actions are two steps back to the risky financial system that brought us the Great Recession and very nearly dragged our economy into a death spiral."