Tag: Foreign banks


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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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.

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 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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New Credit Default Swap Terms to Be Implemented in September 2014

The following post comes to us from Isabel K.R. Dische and Leigh R. Fraser, partners at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Ms. Dische, Ms. Fraser, and Molly Moore.

The following post comes to us from Isabel K.R. Dische and Leigh R. Fraser, partners at Ropes & Gray LLP, and is based on a Ropes & Gray publication by Ms. Dische, Ms. Fraser, and Molly Moore.

Earlier this year, the International Swaps and Derivatives Association Inc. (ISDA) published the 2014 Credit Derivatives Definitions (the 2014 Definitions). The 2014 Definitions introduce a new government bail-in Credit Event trigger for credit default swap (CDS) contracts on financial Reference Entities in non-U.S. jurisdictions and also modify the typical terms of sovereign CDS contracts in light of the Greek debt crisis, by allowing a buyer of protection to deliver upon settlement the assets into which the Reference Obligation has converted even if such assets are not otherwise deliverable. Further, they create a concept of a Standard Reference Obligation, which means that most CDS contracts on a given Reference Entity would have the same Reference Obligation, thereby increasing the fungibility of such CDS contracts.

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Volcker Rule and Covered Bonds

he following post comes to us from Jerry Marlatt, Senior Of Counsel at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Marlatt.

he following post comes to us from Jerry Marlatt, Senior Of Counsel at Morrison & Foerster LLP, and is based on a Morrison & Foerster publication by Mr. Marlatt.

The subtler aspects of the Volcker Rule [1] continue to emerge. One of the subtleties is the extraterritorial reach of the Rule in connection with underwriting, investments in, and market making for covered bonds by foreign banks.

Foreign banks that underwrite, invest in, or conduct market making for covered bonds need to review their activity under the Volcker Rule.

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US Intermediate Holding Company: Structuring and Regulatory Considerations for Foreign Banks

The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, attorneys in the Financial Institutions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum; the full publication, including diagrams, tables, and flowcharts, is available here.

The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, attorneys in the Financial Institutions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum; the full publication, including diagrams, tables, and flowcharts, is available here.

The Federal Reserve’s Dodd-Frank enhanced prudential standards (“EPS”) final rule requires a foreign banking organization with $50 billion or more in U.S. non-branch/agency assets (“Foreign Bank”) to place virtually all of its U.S. subsidiaries underneath a top-tier U.S. intermediate holding company (“IHC”). The IHC will be subject to U.S. Basel III, capital planning, Dodd-Frank stress testing, liquidity, risk management requirements and other U.S. EPS on a consolidated basis.

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Dodd-Frank Enhanced Prudential Standards for Foreign Banks with Limited US Footprints

The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, attorneys in the Financial Institutions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum; the full publication, including diagrams, tables, and flowcharts, is available here.

The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, attorneys in the Financial Institutions Group at Davis Polk & Wardwell LLP, and is based on a Davis Polk client memorandum; the full publication, including diagrams, tables, and flowcharts, is available here.

The Federal Reserve has issued a final rule adopting a tiered approach for applying Dodd-Frank enhanced prudential standards to foreign banking organizations (“FBOs”). Under the tiered approach the most burdensome requirements (e.g., the requirement to establish a top-tier U.S. intermediate holding company) will only apply to FBOs with large U.S. operations, whereas fewer requirements will apply to FBOs with limited U.S. footprints.

We have summarized below the Dodd-Frank enhanced prudential standards that will apply to the following FBOs with limited U.S. footprints:

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Final Federal Reserve Rules for Foreign Banking Organizations

The following post comes to us from Joseph T. Lynyak, III and Rodney R. Peck, partners in the Financial Services Regulation practice at Pillsbury Winthrop Shaw Pittman LLP and is based on a Pillsbury publication by Messrs. Lynyak and Peck.

The following post comes to us from Joseph T. Lynyak, III and Rodney R. Peck, partners in the Financial Services Regulation practice at Pillsbury Winthrop Shaw Pittman LLP and is based on a Pillsbury publication by Messrs. Lynyak and Peck.

This post describes the final regulations issued by the Federal Reserve Board (the “FRB”) on February 18, 2014, that radically modify the former requirements applicable to foreign banking organizations (“FBOs”) pursuant to the FRB’s Regulation K. The final rules (the “Final Rules”) impose various requirements on large FBOs that previously have been applied to large U.S. domestic bank holding companies and banks under the Dodd-Frank Act. In addition, however, the Final Rules also alter many of the former approaches to the regulation of FBOs in general, including the necessity for many FBOs to form “U.S. intermediate holding companies” for their U.S. operations.

Regardless of the category an FBO falls into, the Final Rules present significant additional compliance burdens.

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Enhanced Prudential Standards

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Andrew R. Gladin, Rebecca J. Simmons, Mark J. Welshimer, and Samuel R. Woodall III. The complete publication, including Annexes, is available here.

The following post comes to us from Sullivan & Cromwell LLP, and is based on a Sullivan & Cromwell publication by Andrew R. Gladin, Rebecca J. Simmons, Mark J. Welshimer, and Samuel R. Woodall III. The complete publication, including Annexes, is available here.

On February 18, 2014, the Board of Governors of the Federal Reserve System (the “FRB”) approved a final rule (the “Final Rule”) implementing certain of the “enhanced prudential standards” mandated by Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or “Dodd-Frank”). The Final Rule applies the enhanced prudential standards to (i) U.S. bank holding companies (“U.S. BHCs”) with $50 billion (and in some cases, $10 billion) or more in total consolidated assets and (ii) foreign banking organizations (“FBOs”) with (x) a U.S. banking presence, through branches, agencies or depository institution subsidiaries, and (y) depending on the standard, certain designated amounts of assets worldwide, in the United States or in U.S. non-branch assets. The Final Rule’s provisions are the most significant, detailed and prescriptive for the largest U.S. BHCs and the FBOs with the largest U.S. presence—those with $50 billion or more in total consolidated assets and, in the case of FBOs, particularly (and with increasing stringency) for FBOs with combined U.S. assets of $50 billion or more or U.S. non-branch assets of $50 billion or more.

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Enhanced Prudential Standards “First Take”

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.

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.

Our observations on the Federal Reserve’s final rule:

1. Delayed effective date and higher threshold: Foreign Banking Organizations (FBOs) eked out several small victories in the final rule—in particular, the July 2015 compliance date has been pushed to July 2016 and smaller FBOs (i.e., those with under $50 billion in US non-branch assets) are no longer required to form an Intermediate Holding Company (IHC). The changes reflect the Federal Reserve’s attempt to respond to FBOs’ concerns, especially that smaller FBOs did not pose as much risk to US financial stability.

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