Download Key Dodd-Frank Act Implementation Issues for International Banks

Key Dodd-Frank Act Implementation
Issues for International Banks: SIFI
Capital & Liquidity Requirements
Kevin F. Barnard, Partner, Arnold & Porter LLP
Helen E. Mayer, Associate, Arnold & Porter LLP
Institute of International Bankers and Conference of State Bank Supervisors
2012 U.S. Regulatory /Compliance Orientation Program
November 28, 2012
Enhanced Prudential Standards for SIFIs and Other
Large Financial Institutions
§  Dodd-Frank authorizes the Financial Stability Oversight
Council (FSOC) to designate nonbank financial
companies as systemically important (SIFIs)
–  The FSOC issued a final rule detailing the SIFI designation
process in April 2012.
§  Dodd-Frank also authorizes the Board (on its own or
upon recommendation by the FSOC) to set more
stringent prudential standards for SIFIs and for large,
interconnected bank holding companies (BHCs) with
assets greater than $50 billion currently supervised by
the Board
–  The Board issued a proposed rule detailing the enhanced
standards in December 2011, although it has not been finalized.
Enhanced Prudential Standards May Include:
§  Risk-based capital requirements;
–  Would extend existing capital requirements to nonbank financial companies
–  Under Dodd-Frank, the Federal Reserve could impose additional capital
requirements on large banking organizations (although it has not done so to
date)
§  Liquidity requirements;
–  Would require a liquidity buffer, periodic stress testing, development of a
Contingency Funding Plan and other monitoring and projection data, and
limits on potential sources of liquidity risk (instruments, counterparties,
counterparty types), among other requirements
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Leverage limits;
Resolution plan and credit exposure report requirements;
Concentration limits;
A capital planning requirement;
Enhanced public disclosures;
Short-term debt limits; and
Overall risk management requirements.
Applicability to Foreign Banking Organizations
§  Enhanced prudential standards may apply to FBOs
with US banking operations (including a US branch,
agency, or commercial lending company)
§  Under Dodd-Frank, when considering whether to
apply enhanced prudential standards to foreign
banking organizations, the Board and the FSOC
must consider:
–  (A) National treatment and equality of competitive
opportunity; and
–  (B) Whether the foreign banking organization is subject to
comparable home country standards on a consolidated
basis.
Board’s Proposed Rule
§  The Board released a proposed rule in December 2011 which has
not yet been finalized, although that rule generally would not apply
to FBOs.
–  The proposed rule would apply to an FBO with a U.S.-based bank holding
company subsidiary that on its own has total consolidated assets of $50
billion or more (but only to the U.S.-based holding company’s activities).
§  The Board stated that it expects to issue a separate proposal that
would apply enhanced standards to FBOs.
§  The Board also issued a proposal for a new form titled “Banking
Organization Systemic Risk Report” (FR Y-15) to collect
consolidated systemic risk data from U.S. BHCs and SLHCs and
aggregated systemic risk information on the U.S. operations of
FBOs if their total U.S. operations, including branches, have assets
of $50 billion or more.
–  Does the Fed’s new proposed form signal a future supervisory approach for
the U.S. operations of large FBOs?
–  See IIB comment letter to the Federal Reserve (19 October 2012)