Tag: FDIC


Resolution Preparedness: Do You Know Where Your QFCs Are?

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, Frank Serravalli, Dan Weiss, John Simonson, and Daniel Sullivan. The complete publication, including appendix, is available here.

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, Frank Serravalli, Dan Weiss, John Simonson, and Daniel Sullivan. The complete publication, including appendix, is available here.

In January, the US Secretary of Treasury issued a notice of proposed rulemaking (“NPR”) that would establish new recordkeeping requirements for Qualified Financial Contracts (“QFCs”). [1] US systemically important financial institutions (“SIFIs”) and certain of their affiliates [2] will be required under the NPR to maintain specific information electronically on end-of-day QFC positions, and to be able to provide this information to regulators within 24 hours if requested. This is a significant expansion in both scope and detail from current QFC recordkeeping requirements, which now apply only to certain insured depository institutions (“IDIs”) designated by the FDIC. [3]

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Agencies Release New Volcker Rule FAQ

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Whitney A. Chatterjee, H. Rodgin Cohen, C. Andrew Gerlach, and Eric M. Diamond; the complete publication, including footnotes and appendix, is available here.

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Whitney A. Chatterjee, H. Rodgin Cohen, C. Andrew Gerlach, and Eric M. Diamond; the complete publication, including footnotes and appendix, is available here.

On February 27, 2015, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission (collectively, the “Agencies”) provided an important addition to their existing list of Frequently Asked Questions (“FAQs”) addressing the implementation of section 13 of the Bank Holding Company Act of 1956, as amended (the “BHC Act”), commonly known as the “Volcker Rule.”

The Volcker Rule imposes broad prohibitions on proprietary trading and investing in and sponsoring private equity funds, hedge funds and certain other investment vehicles (“covered funds”) by “banking entities” and their affiliates. The Volcker Rule, as implemented by the final rule issued by the Agencies (the “Final Rule”), provides an exemption from the covered fund prohibitions for foreign banking entities’ acquisition or retention of an ownership interest in, or sponsorship of, a covered fund “solely outside of the United States” (the “SOTUS covered fund exemption”).

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A Closer Look at US Credit Risk Retention Rules

David M. Lynn is a partner and co-chair of the Corporate Finance practice at Morrison & Foerster LLP. The following post is based on a Morrison & Foerster publication by Jerry Marlatt, Melissa Beck, and Kenneth Kohler.

David M. Lynn is a partner and co-chair of the Corporate Finance practice at Morrison & Foerster LLP. The following post is based on a Morrison & Foerster publication by Jerry Marlatt, Melissa Beck, and Kenneth Kohler.

In a flurry of regulatory actions on October 21 and 22, 2014, the Federal Deposit Insurance Corporation (the “FDIC”), the Office of the Comptroller of the Currency, the Federal Reserve Board, the Securities and Exchange Commission, the Federal Housing Finance Agency (the “FHFA”), and the Department of Housing and Urban Development (collectively, the “Joint Regulators”) each adopted a final rule (the “Final Rule”) implementing the credit risk retention requirements of section 941 of the Dodd-Frank Act for asset-backed securities (“ABS”). The section 941 requirements were intended to ensure that securitizers generally have “skin in the game” with respect to securitized loans and other assets.

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Ten Key Points from the Final Risk Retention Rule

The following post comes to us from PricewaterhouseCoopers LLP and is based on a PwC publication by Christopher Merchant, Frank Serravalli, and Daniel Sullivan.

The following post comes to us from PricewaterhouseCoopers LLP and is based on a PwC publication by Christopher Merchant, Frank Serravalli, and Daniel Sullivan.

This week six federal agencies (Fed, OCC, FDIC, SEC, FHFA, and HUD) finalized their joint asset-backed securities (ABS) risk retention rule. As expected, the final rule requires sponsors of ABS to retain an interest equal to at least 5% of the credit risk in a securitization vehicle.

1. A win for the mortgage industry: The final rule effectively broadens the original proposal’s exemption from risk retention requirements for Qualified Residential Mortgages (QRM) by tying the definition of QRM to the Consumer Finance Protection Bureau’s definition of Qualified Mortgage (QM). This alignment abandons the proposal’s most stringent requirements to obtain the QRM exemption, including that a residential mortgage have at least a 20% down payment. The final rule also provides an additional exemption for certain mortgages that would not meet the QRM standards, e.g., community-focused residential mortgages. The immediate impact of the rule on the industry is further muted, given the significant amount of mortgages issued by government sponsored entities (i.e., Fannie Mae, Freddie Mac, and Ginnie Mae) that are currently exempt from the rule’s requirements. It may however be too soon for the industry to celebrate, as the final rule states that the agencies will reassess the effectiveness of the QRM definition at reducing securitization risk at most four years from now, and every five years thereafter.

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Questions and Answers on the Liquidity Coverage Ratio

The following post comes to us from Byungkwon Lim, partner in the Corporate Department at Debevoise & Plimpton LLP and leader of the firm’s Hedge Funds and Derivatives & Structured Finance Groups. This post is based on the introduction to a Debevoise & Plimpton Client Update; the full publication is available here.

The following post comes to us from Byungkwon Lim, partner in the Corporate Department at Debevoise & Plimpton LLP and leader of the firm’s Hedge Funds and Derivatives & Structured Finance Groups. This post is based on the introduction to a Debevoise & Plimpton Client Update; the full publication is available here.

On September 3, the Board of Governors of the Federal Reserve (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC”) (collectively, the “Agencies”), released a final rule that applies a Liquidity Coverage Ratio (the “LCR”) to certain U.S. banking organizations (the “Final Rule”). The rule finalizes a proposal published by the Agencies on October 24, 2013 (the “Proposed Rule”), and includes a number of substantive and technical changes.

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Regulators Re-Propose Uncleared Swap Margin, Capital and Segregation Rules

Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Davis Polk client memorandum; the complete publication, including sidebars and appendix, is available here.

Annette Nazareth is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, and a former commissioner at the U.S. Securities and Exchange Commission. The following post is based on a Davis Polk client memorandum; the complete publication, including sidebars and appendix, is available here.

On September 3, 2014, U.S. banking regulators re-proposed margin, capital and segregation requirements applicable to swap entities [1] for uncleared swaps. [2] The new proposed rules modify significantly the regulators’ original 2011 proposal in light of the Basel Committee on Banking Supervision’s and the International Organization of Securities Commissions’ (“BCBS/IOSCO”) issuance of their 2013 final policy framework on margin requirements for uncleared derivatives and the comments received on the original proposal. The revised proposal:

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Volcker Rule: Agencies Release New FAQ

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Eric M. Diamond, Joseph A. Hearn, and Ken Li. The complete publication, including appendix, is available here.

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Eric M. Diamond, Joseph A. Hearn, and Ken Li. The complete publication, including appendix, is available here.

[On September 10, 2014], the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Commodity Futures Trading Commission (collectively, the “Agencies”) provided an addition to their existing list of Frequently Asked Questions (“FAQs”) addressing the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”

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Banking Agencies Release Limited Volcker Rule Guidance

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Robert W. Reeder III, Camille L. Orme, Whitney A. Chatterjee, and C. Andrew Gerlach. The complete publication, including appendix, is available here.

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Robert W. Reeder III, Camille L. Orme, Whitney A. Chatterjee, and C. Andrew Gerlach. The complete publication, including appendix, is available here.

On June 10, 2014, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation (collectively, the “Banking Agencies”) and the Securities and Exchange Commission (the “SEC”) released substantially identical Frequently Asked Questions (“FAQs”) addressing six topics regarding the implementation of section 13 of the Bank Holding Company Act of 1956, as amended, commonly known as the “Volcker Rule.”

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What It Takes for the FDIC SPOE Resolution Proposal to Work

The following post comes to us from Karen Petrou, co-founder and managing partner of Federal Financial Analytics, Inc., and is based on a letter and a FedFin white paper submitted to the FDIC by Ms. Petrou; the full texts are available here.

The following post comes to us from Karen Petrou, co-founder and managing partner of Federal Financial Analytics, Inc., and is based on a letter and a FedFin white paper submitted to the FDIC by Ms. Petrou; the full texts are available here.

In a comment letter and supporting paper to the FDIC on its single-point-of-entry (SPOE) resolution concept release, Karen Shaw Petrou, managing partner of Federal Financial Analytics, argues that SPOE is conceptually sound and statutorily robust. However, progress to date on orderly liquidation has been so cautious as to cloud the credibility of assertions that the largest U.S. financial institutions, especially the biggest banks, are no longer too big to fail (“TBTF”). Crafting a new resolution regime is of course a complex undertaking that benefits from as much consensus as possible. However, if definitive action is not quickly taken on a policy construct for single-point-of-entry resolutions resolving high-level questions about its practicality and functionality under stress, markets will revert to TBTF expectations that renew market distortions, place undue competitive pressure on small firms, and stoke systemic risk. Even more dangerous, the FDIC may not be ready when systemic risk strikes again.

Questions addressed in detail in the paper and Ms. Petrou’s answers to them are summarized below:

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FDIC Lawsuits against Directors and Officers of Failed Financial Institutions

John Gould is senior vice president at Cornerstone Research. The following post discusses a Cornerstone Research report by Abe Chernin, Katie Galley, Yesim C. Richardson, and Joseph T. Schertler, titled “Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions—February 2014,” available here.

John Gould is senior vice president at Cornerstone Research. The following post discusses a Cornerstone Research report by Abe Chernin, Katie Galley, Yesim C. Richardson, and Joseph T. Schertler, titled “Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions—February 2014,” available here.

Federal Deposit Insurance Corporation (FDIC) litigation activity associated with failed financial institutions increased significantly in 2013, according to Characteristics of FDIC Lawsuits against Directors and Officers of Failed Financial Institutions—February 2014, a new report by Cornerstone Research. The FDIC filed 40 director and officer (D&O) lawsuits in 2013, compared with 26 in 2012, a 54 percent increase.

The surge in FDIC D&O lawsuits stems from the high number of financial institution failures in 2009 and 2010. Of the 140 financial institutions that failed in 2009, the directors and officers of 64 (or 46 percent) either have been the subject of an FDIC lawsuit or settled claims with the FDIC prior to the filing of a lawsuit. Of the 157 institutions that failed in 2010, 53 (or 34 percent) have either been the subject of a lawsuit or have settled with the FDIC.

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