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  • FHFA tries again on GSE capital framework

    Federal Issues

    On May 20, the FHFA announced the re-proposal of a notice of proposed rulemaking that would establish a new regulatory capital framework for Fannie Mae and Freddie Mac (GSEs). In June 2018, the FHFA issued a proposed rulemaking that would implement a regulatory capital framework for the GSEs including (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. (Covered by InfoBytes here.) The FHFA states that while the 2018 proposal remains the foundation of the re-proposal, including the mortgage risk-sensitive framework, the re-proposal “increas[es] the quantity and quality of the [GSEs]’ regulatory capital and reduc[es] the pro-cyclicality of the aggregate capital requirements.”

    According to a factsheet released in conjunction with the re-proposal, the purpose is to ensure that the GSEs operate in a safe and sound manner and are positioned, particularly during times of financial stress, to “fulfill [their] statutory mission to provide stability and ongoing assistance to the secondary mortgage market across the economic cycle.” Specifically, the re-proposal changes include, among other things (i) supplemental capital requirements; (ii) quality of capital changes, such as a risk weight floor and capital buffers; (iii) measures to address pro-cyclicality; and (iv) requirements for the GSEs to assess their own credit, market, and operational risk. Comments on the proposal must be submitted within 60 days of publication in the Federal Register.

    Federal Issues Fannie Mae Freddie Mac GSE Capital Requirements FHFA Agency Rule-Making & Guidance

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  • Fed changes supplementary leverage ratio rule to increase credit flow

    Federal Issues

    On April 1, the Federal Reserve (Fed) released an interim final rule, which provides a short-term change to the calculation of the supplementary leverage ratio for holding companies (banks). This change temporarily allows banks to exclude their Treasury securities and Federal Reserve Bank deposits from the computation of the banks’ total assets, thus reducing the amount of capital the banks must maintain. The Fed suggested that the move will reduce the banks’ tier 1 capital requirements by around two percent, allowing them to take on more debt, resulting in an increase in available credit to households and businesses. The Fed stressed that it made this change to allow the banks to increase the flow of credit, and not to increase the banks’ capital distributions. The temporary change is effective immediately and will automatically revert on March 31, 2021. Comments on the rule must be submitted within 45 days of the announcement.

    Federal Issues Covid-19 Federal Reserve Capital Requirements Bank Holding Companies Federal Reserve System Capital Securities Deposits

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  • FHFA extends comment deadline for proposed rule on capital requirements for Freddie and Fannie

    Federal Issues

    On July 31, the Federal Housing Finance Agency announced a 60-day extension on the public comment period for a proposed rule that would implement a new regulatory capital framework for Freddie Mac and Fannie Mae. Among other things, the proposed rule would implement: (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. (Previously covered by InfoBytes here). The previous deadline for comments was September 17, and the deadline is now November 16.

    Federal Issues FHFA Fannie Mae Freddie Mac GSE Capital Requirements

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  • FHFA proposes rule on capital requirements for Freddie and Fannie

    Federal Issues

    On June 12, the Federal Housing Finance Agency (FHFA) announced a proposed rulemaking, which implements a regulatory capital framework for Freddie Mac and Fannie Mae (the Enterprises) including (i) a new framework for risk-based capital requirements; and (ii) two alternative approaches to setting minimum leverage capital requirements. Regulatory capital requirements for the Enterprises have been suspended since the Enterprises were placed in conservatorship in September 2008, and these new requirements would continue to be suspended while the Enterprises remain under conservatorship. FHFA stated that the purpose of the rulemaking effort is to develop a risk measurement framework to better evaluate each Enterprise’s business decisions while in conservatorship. As a result, the proposed risk-based capital requirements would “provide a granular assessment of credit risk specific to different mortgage loan categories, as well as market risk, operational risk, and going-concern buffer components.” The two options for minimal leverage capital requirements include (i) requiring the Enterprises to hold capital equal to 2.5 percent of total assets and off-balance sheet guarantees related to securitization activities; and (ii) requiring the Enterprises to hold capital equal to 1.5 percent of trust assets and 4 percent of non-trust assets. Comments on the proposed rulemaking must be submitted within 60 days of publication in the Federal Register.

    Federal Issues FHFA Fannie Mae Freddie Mac GSE Capital Requirements

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  • Federal Reserve proposes changes to simplify capital rules for large banks

    Agency Rule-Making & Guidance

    On April 10, the Federal Reserve Board (Board) announced proposed changes intended to simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets by integrating the Board’s regulatory capital rule (capital rule) and Comprehensive Capital Analysis and Review (CCAR) and stress test rules. The proposal introduces a “stress capital buffer” (SCB) requirement which will replace the existing fixed capital conservation buffer requirement. Under the proposal, the size of the SCB will be based on the annual stress test and will be added to the bank’s capital requirements for the coming year. For globally systemically important banks (GSIB), a GSIB surcharge will be added to the determined SCB amount. According to the Board’s announcement, the amount of capital required for GSIBs will generally stay the same or somewhat increase, while non-GSIBs will generally see a modest decrease. Overall, the Board states that the changes would reduce the number of capital-related requirements from 24 to 14. Comments on the proposal are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Stress Test CCAR Capital Requirements Federal Reserve Federal Register

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  • Treasury Report Calls for Extensive Regulatory Relief to Capital Markets

    Federal Issues

    On October 6, the U.S. Treasury Department published a report that focuses on capital market oversight and outlines challenges and recommendations to reduce regulatory burdens. The report, “A Financial System That Creates Economic Opportunities: Capital Markets,” is the second in a series of four the Treasury plans to issue in response to President Trump’s Executive Order 13772, which mandated a review of financial regulations for inconsistencies with promoted “Core Principles.” (See Buckley Sandler Special Alert here.) The report notes that while certain capital market regulatory framework elements function well, there remain significant challenges. Specifically, the report recommends—among other things—reducing fragmentation, overlap, and duplication in the U.S. regulatory structure. This includes focusing on effecting changes to promote efficiency and more clearly defining regulatory mandates that would allow agencies to issue joint rulemaking and foster coordination. 

    Treasury’s recommendations focus primarily on market regulations but also build upon themes identified in the first report published in June 2017, which primarily focused on solutions for providing relief to banks and credit unions. The second report identifies recommendations, actions, and associated “Core Principles” within the following categories:

    • “promoting access to capital for all types of companies, including small and growing businesses, through reduction of regulatory burden and improved market access to investment opportunities”;
    • “fostering robust secondary markets in equity and debt”;
    • “appropriately tailoring regulations on securitized products to encourage lending and risk transfer”;
    • “recalibrating derivatives regulations to promote market efficiency and effective risk mitigation”;
    • “ensuring proper risk management for [central counterparties] and other financial market utilities because of the critical role they play in the financial system”;
    • “rationalizing and modernizing the U.S. capital markets regulatory structure and process”; and
    • “advancing U.S. interests by promoting a level playing field internationally.”

    A fact sheet accompanying the report further highlights Treasury’s recommendations to streamline regulations.

    Federal Issues Department of Treasury Securities Capital Requirements Risk Management

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  • Federal Banking Regulatory Agencies Issue Proposed Rulemaking to Simplify Regulatory Capital Rule

    Agency Rule-Making & Guidance

    On September 27, the Federal Reserve Board, the FDIC, and the OCC (agencies) issued a joint notice of proposed rulemaking to simplify capital rule compliance requirements and reduce the regulatory burden in accordance with the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Among other things, the proposed rule will “apply a simpler regulatory capital treatment” for mortgage servicing assets, certain deferred tax assets, investments in unconsolidated financial institutions, and capital issued by a consolidated subsidiary of a banking organization and held by third parties, or minority interest. To assist banks in evaluating the potential impact of the proposal, the agencies provided an estimation tool template and summary of the proposal. As previously discussed in InfoBytes, the agencies—all members of the Federal Financial Institutions Examination Council (FFIEC)—issued a report in March following an EGRPRA review, in which the agencies outlined initiatives designed to reduce regulatory burdens, particularly on community banks and savings associations. In a statement issued by FDIC Chairman Martin J. Gruenberg, commenters are encouraged to also consider methods for simplifying existing regulatory capital rules impacting community banks. Comments on the joint proposed rule are due 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Bank Regulatory Capital Requirements Federal Reserve FDIC OCC EGRPRA FFIEC Federal Register

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  • Fed Fines New York Bank $3 Million for Violating Regulatory Risk Capital Requirements

    Federal Issues

    On June 26, the Federal Reserve fined a New York-based bank $3 million for unsafe and unsound banking practices after the firm allegedly assigned a lower risk weighting to a portfolio of assets in violation of then-applicable Basel I regulatory risk capital requirements. According to the consent order, between 2010 and 2014, the bank consolidated a portfolio of collateralized loan obligations onto its balance sheet. It allegedly assigned a zero-risk weighting to the assets improperly, and therefore overstated its risk-based capital ratios and set aside less capital than it should have.

    Federal Issues Federal Reserve Banking Risk Management Capital Requirements Enforcement Basel

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  • NCUA Publishes Proposed Rule Offering Alternate Capital Proposal for Credit Unions

    Federal Issues

    On February 8, the National Credit Union Administration (NCUA) published a notice of proposed rulemaking to expand the types of investment capital that federally insured credit unions could use to meet certain regulatory requirements. NCUA is considering whether to allow credit unions to use investment capital (that would be uninsured capital subordinate to all other claims) to satisfy the risk-based net worth ratio requirement. Currently, only low-income designated credit unions are allowed to use secondary capital to satisfy two regulatory requirements: the net worth ratio and the risk-based net-worth ratio. Although any changes to the definition of net worth would require an act of Congress, the NCUA asserted in the proposal that it has broad authority to adjust the risk-based net worth ratio requirement and therefore may choose to allow credit unions that are not “low-income designated” to use alternative capital to meet this requirement.

    Federal Issues Banking NCUA Capital Requirements Agency Rule-Making & Guidance

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  • Special Alert: OCC Takes the Next Step Toward a Fintech National Bank Charter

    Federal Issues

    On December 2, 2016, the Office of the Comptroller of the Currency (“OCC”) announced its plans to move forward with developing a special purpose national bank charter for financial technology (“fintech”) companies. Accompanying the Comptroller of the Currency, Thomas J. Curry’s announcement, the OCC published a white paper that describes the OCC’s authority to grant national bank charters to fintech companies and outlines minimum supervisory standards for successful fintech bank applicants.[1] These standards would include capital and liquidity standards, risk management requirements, enhanced disclosure requirements, and resolution plans. Over the past several months, the OCC has taken a series of carefully calculated steps to position itself as the preeminent regulator of fintech companies in a hotly-contested race among other federal and state regulators who have similarly expressed interest in formalizing a regulatory framework for fintech companies. This proposal from the OCC reflects the culmination of those efforts.

     

    Click here to read the full special alert

     

    * * *

     

    BuckleySandler welcomes questions regarding this new approach to fintech and banking, and would be happy to assist companies in determining whether a national bank charter would be beneficial for executing on their corporate strategies. Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

     

    Federal Issues Nonbank Supervision OCC Special Alerts Capital Requirements Disclosures Bank Supervision Risk Management Fintech

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