Posts from: Andrew Fei

US Basel III Supplementary Leverage Ratio

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Sunday, October 5, 2014

Banks, Basel Committee, Capital requirements, Credit exposure, Derivatives, Financial institutions, Financial regulation, Leverage, Liquidity
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

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 U.S. banking agencies have finalized revisions to the denominator of the supplementary leverage ratio (SLR), which include a number of key changes and clarifications to their April 2014 proposal. The SLR represents the U.S. implementation of the Basel III leverage ratio.

Under the U.S. banking agencies’ SLR framework, advanced approaches firms must maintain a minimum SLR of 3%, while the 8 U.S. bank holding companies that have been identified as global systemically important banks (U.S. G-SIBs) and their U.S. insured depository institution subsidiaries are subject to enhanced SLR standards (eSLR).

Proposed Dodd-Frank Concentration Limit on Financial Institution M&A Transactions

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Wednesday, June 11, 2014

Banks, Dodd-Frank Act, Federal Reserve, Financial institutions, Financial regulation
More from: Andrew Fei, Luigi De Ghenghi, Margaret Tahyar, Randall Guynn, Davis Polk

The following post is based on a Davis Polk publication by Luigi L. De Ghenghi, Randall Guynn, Margaret E. Tahyar and Andrew S. Fei; the full publication, including visuals, tables and flowcharts, is available here.

In May 2014, the Federal Reserve issued a proposal that would implement the financial sector concentration limit set forth in Section 622 of the Dodd-Frank Act. The proposal reflects the Financial Stability Oversight Council’s January 2011 Study and Recommendations Regarding Concentration Limits on Large Financial Companies.

The concentration limit generally prohibits a financial company from merging or consolidating with, acquiring all or substantially all of the assets of, or otherwise acquiring control of another company if the “liabilities” of the resulting financial company, calculated using methodologies in the proposal, exceed 10% of aggregate financial sector liabilities.

US G-SIB Leverage Surcharge and Basel III Leverage Ratio

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Monday, April 28, 2014

Banks, Basel Committee, Capital requirements, Financial institutions, Financial regulation, G-SIB, International governance, Leverage, Subsidiaries, Surcharges, Systemic risk
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

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 visuals, tables, and flowcharts, is available here.

The U.S. banking agencies have finalized higher leverage capital standards for the eight U.S. bank holding companies that have been identified as global systemically important banks (“U.S. G-SIBs”) and their insured depository institution (“IDI”) subsidiaries. The agencies also proposed important changes to the denominator of the U.S. Basel III supplementary leverage ratio (“SLR”). A number of these proposed changes are intended to implement the Basel Committee’s January 2014 revisions to the Basel III leverage ratio.

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

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Monday, April 14, 2014

Banks, Dodd-Frank Act, Financial institutions, Financial regulation, Foreign banks
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

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.

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

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Wednesday, March 26, 2014

Banks, Capital requirements, Dodd-Frank Act, Financial institutions, Financial regulation, Foreign banks, Liquidity, Prudence, Risk committee, Risk management, Stress tests
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

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:

Dodd-Frank Enhanced Prudential Standards for U.S. Bank Holding Companies and Foreign Banks

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Thursday, February 27, 2014

Banks, Basel Committee, Capital requirements, Dodd-Frank Act, Financial institutions, Financial regulation, Foreign banks, Leverage, Liquidity, Prudence, Risk management
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

The following post comes to us from Luigi L. De Ghenghi and Andrew S. Fei, and is based on two Davis Polk publications; the full publications, including visuals, tables, flowcharts and timelines, are available here (focusing on U.S. bank holding companies) and here (focusing on foreign banks).

Pursuant to Section 165 of the Dodd-Frank Act, the Federal Reserve has issued a final rule to establish enhanced prudential standards for large U.S. bank holding companies (BHCs) and foreign banking organizations (FBOs).

U.S. BHCs: The final rule represents the latest in a series of U.S. regulations that apply heightened standards to large U.S. BHCs. As the graphic below illustrates, under the emerging post-Dodd-Frank prudential regulatory landscape for U.S. BHCs, the number and stringency of prudential standards generally increase with the size of the banking organization.

Basel Committee’s Revisions to the Basel III Leverage Ratio

Posted by Margaret E. Tahyar, Davis Polk & Wardwell LLP, on

Friday, January 24, 2014

Banks, Basel Committee, Capital requirements, Credit exposure, Derivatives, Financial institutions, Financial regulation, International governance, Leverage
More from: Andrew Fei, Luigi De Ghenghi, Margaret Tahyar, Davis Polk

Margaret E. Tahyar is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP. The following post is based on the introduction to a Davis Polk client memorandum by Luigi L. De Ghenghi and Andrew S. Fei; the full publication, including visuals, tables, timelines and formulas, is available here.

In January 2014, the Basel Committee on Banking Supervision finalized its revisions to the Basel III leverage ratio. Compared to its June 2013 proposed revisions, the Basel Committee has made several important changes to the denominator of the Basel III leverage ratio, including with respect to the treatment of derivatives, securities financing transactions and certain off-balance sheet items.

Proposed Changes to Basel III Leverage Ratio Framework

Posted by Margaret E. Tahyar, Davis Polk & Wardwell LLP, on

Monday, July 29, 2013

Banks, Basel Committee, Capital requirements, Credit exposure, Financial institutions, Financial regulation, International governance, Leverage
More from: Andrew Fei, Luigi De Ghenghi, Margaret Tahyar, Davis Polk

On the heels of publishing the U.S. Basel III final rule, the U.S. banking agencies have proposed higher leverage capital requirements for the eight U.S. bank holding companies that have been identified as global systemically important banks (“Covered BHCs”) and their insured depository institution (“IDI”) subsidiaries. The higher leverage capital requirements, which we are calling the American Add-on, build upon the minimum Basel III supplementary leverage ratio in the U.S. Basel III final rule.

The proposed American Add-on would require a Covered BHC’s IDI subsidiaries to maintain a Basel III supplementary leverage ratio of at least 6% to be considered well-capitalized under the prompt corrective action framework. The American Add-on also requires Covered BHCs to maintain a leverage buffer that would function in a similar way to the capital conservation buffer in the U.S. Basel III final rule. A Covered BHC that does not maintain a Basel III supplementary leverage ratio of greater than 5%, i.e., a buffer of more than 2% on top of the 3% minimum, would be subject to increasingly stringent restrictions on its ability to make capital distributions and discretionary bonus payments. The proposed effective date of the American Add-on is January 1, 2018.

Basel Committee Revises Basel III Liquidity Coverage Ratio

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Sunday, February 3, 2013

Banks, Basel Committee, Capital requirements, Financial institutions, Financial regulation
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

This post is based on a Davis Polk publication by Luigi L. De Ghenghi, Andrew S. Fei and other Davis Polk attorneys; the full version, including annexes, is available here.

The Basel Committee has made significant revisions to the Basel III Liquidity Coverage Ratio (“LCR”). The revised LCR standards allow banks to use a broader range of liquid assets to meet their liquidity buffer and relax some of the run-off assumptions that banks must make in calculating their net cash outflows. The revised standards also clarify that banks may dip below the minimum LCR requirement during periods of stress. The Basel Committee expects national regulators to implement the LCR on a phased-in basis beginning on January 1, 2015. The Basel Committee will also press ahead with its review of the Basel III Net Stable Funding Ratio (“NSFR”).

While the Federal Reserve has expressed its intent to implement some version of the LCR and other Basel III liquidity standards in the United States, the scope, timing and nature of U.S. implementation is currently unclear. This memorandum and the accompanying tables explore key aspects of the revised LCR standards and issues relating to their implementation in the United States.

Fed Begins 2013 CCAR Capital Planning Process for Large Banks

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on

Monday, December 3, 2012

Banks, Basel Committee, Capital requirements, Dodd-Frank Act, Federal Reserve, Stress tests
More from: Andrew Fei, Luigi De Ghenghi, Davis Polk

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. This post is based on a Davis Polk publication by Mr. De Ghenghi, Mr. Fei, and other Davis Polk attorneys; the full version, including footnotes and appendix, is available here.

The Federal Reserve launched the 2013 capital planning and stress testing process for large bank holding companies (“BHCs”) with the publication, on November 9, 2012, of two sets of instructions: one set for the 19 BHCs that participated in the 2011 Comprehensive Capital Analysis and Review (“CCAR”) process (“CCAR BHCs”) and another set for the 11 other U.S.-domiciled, top-tier BHCs with total consolidated assets of $50 billion or more that did not participate in the 2011 CCAR process (“non-CCAR BHCs”). On the same day, the Federal Reserve joined with other U.S. banking agencies to announce that recent proposals to implement Basel III in the United States will not become effective on January 1, 2013.

The Federal Reserve’s instructions for the CCAR BHCs, which reveal how the Dodd-Frank Act’s stress testing requirements will be integrated with the Federal Reserve’s capital planning requirements, are instructive for the non-CCAR BHCs that will become subject to Dodd-Frank stress-testing requirements in the 2014 capital planning cycle. Similarly, nonbank financial companies designated by the Financial Stability Oversight Council (“FSOC”) for supervision by the Federal Reserve will be subject to Dodd-Frank stress-testing requirements and, under a proposal by the Federal Reserve, would also be required to submit annual capital plans to the Federal Reserve.

For the CCAR BHCs, the two most significant changes from the 2012 process are:

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Posts from: Andrew Fei

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