Tag: Capital requirements


Fed’s Final G-SIB Surcharge Rule

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Roozbeh Alavi, Lance Auer, and Kevin Clarke.

On July 20th, the Federal Reserve Board (FRB) finalized its capital surcharge rule for the eight US global systemically important banks (G-SIBs). [1] The rule (which was proposed last December), implements the Basel Committee on Banking Supervision’s (BCBS) related standard in the US, but adds a second US-specific methodology that incorporates a charge against a G-SIB’s reliance on short-term wholesale funding (STWF). Under the final rule, a US G-SIB’s surcharge would be set as the higher number calculated under the BCBS methodology and under the US-specific methodology incorporating STWF. The surcharge will be phased in over three years (in 25% increments) beginning January 1, 2016. Along with the capital conservation buffer, the G-SIB surcharge sets a new risk-based capital bar for US G-SIBs. [2]

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Fed’s Proposed Amendments to Capital Plan & Stress Test Rules

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, and Armen Meyer.

On July 17th, the Federal Reserve Board (“Fed”) issued a proposed rule that provides some relief from capital stress testing requirements. [1] Most notably, it eliminates advanced approaches risk-weighted assets and tier 1 common capital (“T1C”) calculations from stress testing, and provides a one year delay in the application of the supplementary leverage ratio (“SLR”) to stress testing. The proposal also does not incorporate the G-SIB surcharge into stress testing at this stage—see PwC’s First take: Key points from the Fed’s final G-SIB surcharge rule (July 22, 2015)—and makes clear that no additional changes will be applied to next year’s stress testing cycle.

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Basel III Liquidity Framework: Final Net Stable Funding Ratio Disclosure Standards

Andrew R. Gladin is a partner in the Financial Services and Corporate and Finance Groups at Sullivan & Cromwell LLP. This post is based on a Sullivan & Cromwell publication authored by Mr. Gladin, Mark J. Welshimer, Andrea R. Tokheim, and Christopher F. Nenno.

Last week, the Basel Committee on Banking Supervision (the “Basel Committee”) published final standards (the “Final Disclosure Standards”) for the disclosure of information relating to banks’ net stable funding ratio (the “NSFR”) calculations. [1] The Final Disclosure Standards were adopted substantially as proposed in December 2014. [2]

The NSFR, which the Basel Committee adopted in final form in October 2014, [3] is one of the key standards, along with the liquidity coverage ratio (the “LCR”), [4] introduced by the Basel Committee to strengthen liquidity risk management as part of the Basel III framework. The NSFR is designed to promote more medium- and long-term funding of the assets and activities of banks over a one-year time horizon. The Final Disclosure Standards, in turn, are part of the broader so-called Pillar 3 disclosure regime (along with disclosure requirements in capital rules as well as the LCR-related disclosure framework) and are designed to “improve the transparency of regulatory funding …, enhance market discipline, and reduce uncertainty in the markets as the NSFR is implemented.” [5]

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Key Points From the 2015 Comprehensive Capital Analysis and Review (CCAR)

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mike Alix, Steve Pearson, and Armen Meyer.

The 2015 stress test results published on March 11th as part of the Federal Reserve’s (“Fed”) CCAR follow last week’s release of Dodd-Frank Act Stress Test (“DFAST”) results. [1] CCAR differs from DFAST by incorporating the 31 participating bank holding companies’ (“BHC” or “bank”) proposed capital actions and the Fed’s qualitative assessment of BHCs’ capital planning processes. The Fed objected to two foreign BHCs’ capital plans and one US BHC received a “conditional non-objection,” all due to qualitative issues.

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Key Points from 2015 Dodd-Frank Act Stress Test (DFAST)

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mike Alix and Steve Pearson.

For the first time all banks passed DFAST this year, but this unfortunately told us nothing about their chances of passing last week’s CCAR qualitative assessment.

The DFAST results published March 5, 2015 are the Federal Reserve’s (Fed) first stress test results released in 2015. On March 11th, the Fed released the more important Comprehensive Capital Analysis and Review (CCAR) results which told us whether the banks passed the Fed’s qualitative and quantitative assessments in order to return more capital to shareholders. [1]

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G-SIB Capital: A Look to 2015

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Dan Ryan, Kevin Clarke, Roozbeh Alavi, and Armen Meyer. The complete publication, including appendix, is available here.

On December 9, 2014, the Federal Reserve Board (FRB) issued a long-awaited proposal to impose additional capital requirements on the US’s global systemically important banks (G-SIBs). The proposal implements the Basel Committee on Banking Supervision’s (BCBS) G-SIB capital surcharge framework that was finalized in 2011, but also proposes changes to BCBS’s calculation methodology resulting in significantly higher surcharges for US G-SIBs compared with their global peers.

The proposal, which we expect will be finalized in 2015, requires US G-SIBs to hold additional capital (Common Equity Tier 1 (CET1) as a percentage of Risk Weighted Assets (RWA)) equal to the greater of the amount calculated under two methods. The first method is consistent with BCBS’s framework, and calculates the amount of extra capital to be held based on the G-SIB’s size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity. The second method is introduced by the US proposal, and uses similar inputs but replaces the substitutability element with a measure based on a G-SIB’s reliance on short-term wholesale funding (STWF).

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Ten Key Points from the FSB’s TLAC Ratio

The following post comes to us from Dan Ryan, Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP, and is based on a PwC publication by Mr. Ryan, Kevin Clarke, Roozbeh Alavi, and Dan Weiss. The complete publication, including appendix, is available here.

On November 10th, the Financial Stability Board (FSB) issued a long-awaited consultative document that defined a global standard for minimum amounts of Total Loss Absorbency Capacity (TLAC) to be held by Global Systemically Important Banks (G-SIBs). TLAC is meant to ensure that G-SIBs have the loss absorbing and recapitalization capacity so that, in and immediately following resolution, critical functions can continue without requiring taxpayer support or threatening financial stability.

The FSB’s document requires a G-SIB to hold a minimum amount of regulatory capital (Tier 1 and Tier 2) plus long term unsecured debt that together are at least 16-20% [1] of its risk weighted assets (RWA), i.e., at least twice the minimum Basel III total regulatory capital ratio of 8%. In addition, the amount of a firm’s regulatory capital and unsecured long term debt cannot be less than 6% of its leverage exposure, i.e., at least twice the Basel III leverage ratio. In addition to this “Pillar 1” requirement, TLAC would also include a subjective component (called “Pillar 2”) to be assessed for each firm individually, based on qualitative firm-specific risks that take into account the firm’s recovery and resolution plans, systemic footprint, risk profile, and other factors.

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Basel III Framework: The Net Stable Funding Ratio

Barnabas Reynolds is head of the global Financial Institutions Advisory & Financial Regulatory Group at Shearman & Sterling LLP. This post is based on a Shearman & Sterling client publication by Mr. Reynolds and Azad Ali. The complete publication, including annex, is available here.

A key element of the Basel III framework aims to ensure the maintenance and stability of funding and liquidity profiles of banks’ balance sheets. Two liquidity standards, the “net stable funding ratio” and a “liquidity coverage ratio”, were introduced in the Basel III framework to achieve this aim. Final standards on the net stable funding ratio have recently been released. Despite the implementation date of January 2018, banking institutions are considering the full impact of these measures on all aspects of their businesses now.

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Basel Committee Adopts Net Stable Funding Ratio

The following post comes to us from Debevoise & Plimpton LLP and is based on the introduction to a Debevoise & Plimpton Client Update; the full publication is available here.

On October 31, 2014, the Basel Committee on Banking Supervision (the “Basel Committee”) released the final Net Stable Funding Ratio (the “NSFR”) framework, which requires banking organizations to maintain stable funding (in the form of various types of liabilities and capital) for their assets and certain off-balance sheet activities. The NSFR finalizes a proposal first published by the Basel Committee in December of 2010 and later revised in January of 2014. Particularly given the historical trend as between the Basel Committee and U.S. banking agency implementation and in line with its Halloween release, it has left many wondering: Is it a trick or a treat?

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Operational Risk Capital: Nowhere to Hide

The following post comes to us from PricewaterhouseCoopers LLP and is based on a PwC publication by Dietmar Serbee, Helene Katz, and Geoffrey Allbutt; the complete publication, including appendix and footnotes, is available here.

The Basel Committee on Banking Supervision (BCBS) last month proposed revisions to its operational risk capital framework. The proposal sets out a new standardized approach (SA) to replace both the basic indicator approach (BIA) and the standardized approach (TSA) for calculating operational risk capital. In our view, four key points are worth highlighting with respect to the proposal and its possible implications:
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