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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 § § § § § § § 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)