On January 6, President Obama announced his intent to nominate Allan R. Landon to serve on the Board of Governors of the Federal Reserve System. If confirmed by the U.S. Senate, Landon would serve out the remaining term of former Fed Governor Sarah Bloom Raskin, who departed to become Deputy Secretary of Treasury. Previously, Landon was a partner at Ernst & Young LLP and served as Chairman and CEO of Bank of Hawaii Corporation.
On January 15, the Federal Reserve and the FDIC issued a joint press release making available the public sections of resolution plans of firms with less than $100 billion in qualifying nonbank assets. The Dodd-Frank Act requires that certain banking institutions periodically submit resolution plans to the Federal Reserve and the FDIC describing the bank’s strategy for rapid and orderly resolution in the event of material financial distress or failure of the company. The public portions of these “living wills” are available on the Federal Reserve and FDIC websites.
On January 6, the Federal Reserve appointed Thomas Laubach as director of the Division of Monetary Affairs. Mr. Laubach will advise the board and the Federal Open Market Committee on the conduct of monetary policy. Mr. Laubach first joined the Board’s staff officially in 2001, and has also served as a visiting senior economist at both the Bank for International Settlements and the President’s Council of Economic Advisers. Mr. Laubach succeeds William B. English, who was appointed senior special adviser to the Board.
On December 2, Fed Governor Brainard delivered remarks at the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) Outreach Meeting in California. Governor Brainard noted the significance of safety and soundness in the banking system, but noted that some Dodd-Frank regulations should target only larger institutions so that undue burdens are not placed on community banks: “Applying a one-size-fits-all approach to regulations may produce a small benefit at a disproportionately large compliance cost to smaller institutions.” The EGRPRA review, conducted every 10 years, provides an opportunity for federal financial regulators to consider whether current regulations are outdated, unnecessary, or unduly burdensome.
On December 3, the New York Fed announced the formation of its Integrated Policy Analysis Group (IPA). Designed to develop the New York Fed’s view of the economic and financial environment globally, the IPA will (i) integrate information from within and outside the Bank to assess the developing economic and financial environment; (ii) assess risks with the potential to impact the Fed’s objectives and “consider policy options to mitigate those risks;” and (iii) manage international relationships. Alberto G. Musalem was appointed as the head of IPA, and the new group is scheduled to begin its work in January 2015.
On November 5, the OCC, FDIC, and the Fed announced that they will hold an outreach meeting on December 2 to review regulations under the Economic Growth and Regulatory Paperwork Reduction Acts of 1996 (EGRPRA). This is the first of a series of outreach meetings and will be held at the LA branch of the Federal Reserve Bank of San Francisco. Under the EGRPRA, the FFIEC and the previously mentioned agencies must review their regulations at least every 10 years to identify any unnecessary or outdated regulations. The December 2 meeting will feature panel presentations by industry participants and consumer and community groups.
On November 5, the Board finalized Reg. XX thereby implementing Section 622 of the Dodd-Frank. The final rule, which was proposed in May, prohibits a financial company from combining with another company if the resulting company’s liabilities exceed 10 percent of the aggregate consolidated liabilities of all financial companies. The final rule also adds an exemption to clarify that a financial company may continue to engage in securitization activities if it has reached the limit and establishes reporting requirements for financial companies that do not otherwise report consolidated information to the Board or other Federal banking agency. Financial companies subject to the limit include insured depository institutions, bank holding companies, savings and loan holding companies, foreign banking organizations, companies that control insured depository institutions, and nonbank financial companies designated by the Financial Stability Oversight Council for Board supervision. The final rule will be effective on January 1, 2015.
On October 30, five federal agencies – the FCA, FDIC, NCUA, OCC and the Fed – issued a proposed rule regarding flood insurance. The proposed rule will amend regulations relating to loans secured by property located in special flood hazard areas. Specifically, the proposed rule would (i) establish requirements in connection with the escrow of flood insurance payments; (ii) provide certain borrowers with the option to escrow flood insurance premiums and fees; and (iii) eliminate the HFIAA requirement “to purchase flood insurance for a structure that is part of a residential property located in a special flood hazard area if that structure is detached from the primary residential structure and does not also serve as a residence.” Comments on the proposed rule are due by December 29, 2014.
On October 29, the FOMC released its policy statement announcing an end to the Fed’s mortgage and treasury bond purchase program used to boost the economy. Quantitative Easing 3 (QE3) was the third in a series of subsequent monetary policy tools used to spur investing and spending in part by keeping long-term interest rates low. The end of QE3 marks a significant milestone in the post-crisis era. Regarding the end of QE3, the FOMC noted that it had seen “a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.”
On October 28, the Federal Reserve announced its final rule to amend Regulation HH, standards for financial market utilities (FMUs) that have been designated as systemically important by the FSOC. The new rule will implement a common set of risk-management standards for all designated FMUs and revise certain definitions. Further, the Fed also announced final revisions to part 1 of its Federal Reserve Policy on Payment System Risk. The final rule and revisions to the policy are based on the Principles for Financial Market Infrastructures, which were developed jointly by the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions. Specifically, the amendments and revisions will establish (i) separate standards to address credit risk and liquidity risk; (ii) new plans for recovery and orderly wind-down; (iii) new standards on general business risk and on tiered participation arrangements; and (iv) increased requirements on transparency and disclosure. The final rule will be effective on December 31, 2014. FMUs have until December 31, 2015 to comply with specific additional requirements set forth in the rule.
On October 8, the Federal Reserve Board announced the appointment of William English as an advisor to the Board for Monetary Policy in the Office of Board Members. Since July 2010, Mr. English has served as the director of the Board’s Division of Monetary Affairs and as secretary to the Federal Open Market Committee. Mr. English is expected to remain as secretary to the FOMC so that he can continue to contribute to the monetary policy process.
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.
On September 9, the Federal Reserve Board and the CFPB announced an increase in the dollar thresholds in Regulation Z and Regulation M for exempt consumer credit and lease transactions. Transactions at or below the thresholds are subject to the protections of the regulations. Based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers as of June 1, 2014, TILA and Consumer Leasing Act generally will apply to consumer credit transactions and consumer leases of $54,600 or less beginning January 1, 2015—an increase of $1,100 from 2014. Private education loans and loans secured by real property, used or expected to be used as a principal dwelling, remain subject to TILA regardless of the amount of the loan.
On September 8, the OCC, the FDIC, and the Federal Reserve Board released proposed revisions to the Interagency Questions and Answers Regarding Community Reinvestment. Specifically, the agencies propose to revise three questions and answers that address alternative systems for delivering retail banking service and provide additional examples of innovative or flexible lending practices. In addition, the proposal would revise three questions and answers addressing community development-related issues and add four new questions and answers – two of which address community development services, and two of which provide general guidance on responsiveness and innovativeness. Comments on the proposal are due by November 10, 2014.
On September 3, the OCC, the FDIC, and the Federal Reserve Board released a final rule establishing a minimum liquidity requirement for large and internationally active banking organizations. The rule will require banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure, and such banking organizations’ subsidiary depository institutions that have assets of $10 billion or more, to hold high quality, liquid assets (HQLA) that can be converted easily into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The ratio of the institution’s HQLA to its projected net cash outflow is its “liquidity coverage ratio,” or LCR. The Federal Reserve Board also is adopting a modified LCR for bank holding companies and savings and loan holding companies that do not meet these thresholds, but that have $50 billion or more in total assets. Bank holding companies and savings and loan holding companies with substantial insurance or commercial operations are not covered by the final rule. Relative to the proposal issued in October 2013, the final rule includes changes to the range of corporate debt and equity securities included in HQLA, a phasing-in of daily calculation requirements, a revised approach to address maturity mismatch during a 30-day period, and changes in the stress period, calculation frequency, and implementation timeline for the bank holding companies and savings and loan companies subject to the modified LCR. Covered U.S. firms will be required to be fully compliant with the rule by January 1, 2017. Specifically, covered institutions will be required to maintain a minimum LCR of 80% beginning January 1, 2015. From January 1, 2016, through December 31, 2016, the minimum LCR would be 90%. Beginning on January 1, 2017, and thereafter, all covered institutions would be required to maintain an LCR of 100%.