Bank Regulators Signal Changes to Capital Holding Requirements

On September 8, the Federal Reserve Board (FRB) released a policy statement providing details regarding its Countercyclical Capital Buffer Framework (Framework). The FRB explained that the Framework is designed to implement requirements under the Basel III International bank capital rules, and will generally raise capital holding requirements for internationally active banks when there is an elevated risk of systemic credit losses. In responding to comments, the FRB used the policy statement to clarify that when the systemic threat is reduced, banks would be allowed to release excess capital into the economy to further create financial stability. Meanwhile, the Group of Central Bank Governors and Heads of Supervision (Group) that oversees the Basel Committee on Banking Supervision (Committee) cautioned the Committee to avoid significant increases in overall bank capital requirements as the Committee creates a final rule to address excessive variability in risk-weighted assets. The Group expressed its desire that the Committee focus on improving and harmonizing the methods through which banks determine their own risks. The Committee’s final rule is due by year’s end.

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GAO Releases Report on Mortgage Servicing

On July 25, the GAO released a report titled “Mortgage Servicing: Community Lenders Remain Active under New Rules, but CFPB Needs More Complete Plans for Reviewing Rules.” At the request of the House Committee on Financial Services, the GAO report outlines and analyzes the effect of the CFPB’s 2013 mortgage-servicing rules and the banking regulators’ implementation of the Basel III framework on credit unions and community banks’ (collectively, community lenders) mortgage servicing activities. Specifically, the GAO report examines (i) community lenders’ participation in the mortgage servicing market, as well as the potential effect of the new mortgage servicing rules on them; (ii) the potential impact that the Basel III framework could have on community lenders’ decisions to hold or sell Mortgage Servicing Rights (MSR); and (iii) regulators’ processes for estimating the impact of the new regulations.  Read more…

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Financial Stability Board Updates List of Global Systemically Important Banks

On November 6, the Financial Stability Board published its annual update of global systemically important banks (G-SIBs). Included in its annual update is the addition of one international bank bringing the total number of institutions on the list to 30. Eight U.S. G-SIBs remain on the list. Coinciding with the updated list, the Basel Committee on Banking Supervision also published updated information regarding denominators and capital thresholds used to calculate bank scores and allocate capital requirements of G-SIBs.

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Basel III Releases Final Standard On Net Stable Funding Ratio

On October 31, the Basel III Committee on Banking Supervision released its final standard for the net stable funding ratio (NSFR), which requires that banks maintain stable funding sources to mitigate liquidity risk. The standard will complement the liquidity coverage ratio finalized earlier this year. The NSFR will ensure banks have enough cash or assets that can reliably be converted into cash to cover their expected outflows on a one-year horizon. In 2010, the Basel III Committee established a rigorous review process of the financial market and economy, and revised that standard in January 2014 to “focus on the riskier types of funding profile employed by banks while improving alignment with the LCR and reducing cliff effects in the measurement of available and required stable funding.” The most recent revisions cover the required stable funding for: (i) short-term exposures to financial institutions, including but not limited to banks; (ii) derivatives exposures; and (iii) assets posted as initial margin for derivatives contracts. The NSFR will become a minimum standard by January 1, 2018.

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Federal Reserve Announces Quantitative Impact Study for Insurance Holding Companies

On September 30, the Federal Reserve Board announced that it will begin a quantitative impact study (QIS) in order to better understand the potential effects of its revised regulatory capital framework. The study will focus on the effects on savings and loan holding companies, as well as nonbank financial companies that are supervised by the Federal Reserve and significantly engaged in insurance underwriting activity. In July 2013, the Federal Reserve finalized its revised regulatory capital framework in order to implement the Basel III capital rules for bank holding companies, certain savings and loan holding companies, and state member banks. In order to give the Federal Reserve time to adapt the capital rules for savings and loan holding companies substantially engaged in insurance underwriting activity, such entities were excluded from the 2013 framework. The QIS is being conducted in order to provide the Federal Reserve with a better understanding of how to design a capital framework for the insurance holding companies that is consistent with safety and sounds principles and the requirements of section 171 of Dodd-Frank (the Collins Amendment). The results of the QIS will allow the Federal Reserve to explore and address areas of concern raised by commenters during the proposal stage of the revised regulatory capital framework rulemaking. The Federal Reserve has contacted the insurance holding companies subject to its supervision and has requested their participation in the QIS. The requested information should be submitted by December 31, 2014.

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