On March 12, the New York DFS issued a consent order against a Germany-based global bank for alleged Bank Secrecy Act and other anti-money laundering (BSA/AML) compliance violations that occurred between 2002 and 2008. According to the DFS’s press release, certain bank employees were selected “to manually process Iranian transactions — specifically, to strip from SWIFT payment messages any identifying information that could trigger OFAC-related controls and possibly lead to delay or outright rejection of the transaction in the United States.” The DFS also alleges that the bank’s New York branch failed to implement proper BSA/AML compliance thresholds, allowing certain alerts regarding suspicious transactions to be excluded. Under the terms of the consent order, the bank must pay a $1.45 billion penalty, to be distributed as follows: $610 million to the DFS; $300 million to the U.S. Attorney’s Office for the Southern District of New York; $200 million to the Federal Reserve; $172 million to the Manhattan District Attorney’s Office; and $172 million to the U.S. DOJ. Additionally, the order requires that the bank “terminate individual employees who engaged in misconduct, and install an independent monitor for Banking Law violations in connection with transactions on behalf of Iran, Sudan, and a Japanese corporation that engaged in accounting fraud.”
On March 16, the Federal Reserve Board issued a proposal seeking public comment that would require all banking organizations with existing Legal Entity Identifiers (LEIs) to report their respective LEIs on regulatory reporting forms beginning June 30, 2015. Because an LEI is unique to a single legal entity, requiring disclosure of the LEI would enable regulators to facilitate information sharing and coordination on domestic financial policy, rulemaking, examination, reporting requirements, and enforcement actions
On March 3, Federal Reserve Chair Janet Yellen delivered remarks to the Citizens Budget Commission regarding actions that the Federal Reserve has taken to strengthen its supervision of large financial institutions in the wake of the recent financial crisis. In her remarks, Chairwoman Yellen highlighted five regulatory changes, including (i) higher capital standards, (ii) higher liquidity requirements, (iii) implementation of stress tests, (iv) required submission of living wills, and (v) in cooperation with the FSOC, the Fed’s enhanced authority to promote the resiliency and stability of the financial system in addition to the safety and soundness of individual institutions.
On March 5, researchers from the Federal Reserve Bank of Richmond released an essay highlighting the decline in the formation of new banks since the financial crisis. According to the essay, new bank formation has fallen from an average of approximately one hundred per year since 1990 to about three per year since 2010. The researchers cited increased banking regulations, the low interest rate environment, and a weak economic recovery as contributing factors for the low rate of new bank startups.
On March 3, the Senate Banking Committee will hold a hearing entitled, “Federal Reserve Accountability and Reform.” The hearing comes after Dallas Fed President Richard Fisher’s February 13 remarks on the growing concern regarding the Federal Reserve’s current governance structure. Additionally, Senator Rand Paul’s (R-KY) “Audit the Fed” proposed legislation has brought increased attention to the transparency of the Federal Reserve operations and monetary policy. Scheduled witnesses for the hearing include Dr. John B. Taylor of Stanford University and Dr. Paul Kupiec of American Enterprise Institute.
On February 18, three federal banking agencies – the Federal Reserve Board, OCC, and FDIC – issued a joint notice seeking public comments on a proposed information collection form and its reporting requirements, FFIEC 102 – “Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule.” If finalized, market risk institutions will be required to file the proposed FFIEC 102 to allow the agencies to, among other things, assess “the reasonableness and accuracy of the institution’s calculation of its minimum capital requirements . . . and . . . the institution’s capital in relation to its risks.” The proposed FFIEC 102 sets forth reporting instructions for financial institutions to which the market risk capital rule applies, and specifies that reporting requirements would take effect starting March 31, 2015. Comments to the proposal must be submitted on or before March 20.
On February 11, Richard W. Fisher, outgoing President of the Federal Reserve Bank of Dallas, delivered remarks before the Economic Club of New York in New York City. In his remarks, he outlined four proposals to address concerns regarding the Fed’s independence and of critics who feel too much authority is concentrated in the New York Fed. His four proposals: (i) Rotate the Vice Chairmanship of the FOMC (currently the NY Fed President is the FOMC’s permanent vice-chair); (ii) supervise and regulate systemically important financial institutions (SIFIs) by Federal Reserve Bank staff from a district other than the one in which the SIFI is located; (iii) grant Federal Reserve Bank Presidents an equal number of votes as Fed Governors, with each getting six votes, and this would replace the current system where the NY Fed gets a permanent vote and the remaining 11 Reserve Banks get four votes, with Cleveland and Chicago voting every two years and the remaining Reserve Banks voting every three years; and (iv) require the Chair of the Federal Reserve hold a press conference after every FOMC meeting. Currently, the Chair holds a press conference every quarter.
On February 10, officials from federal and state banking authorities – the Fed, FDIC, NCUA, OCC, and the CSBS – testified at a U.S. Senate Banking Committee on ways the agencies can provide “regulatory relief” to community banks and credit unions, which disproportionately incur burdens to implement the rules and provisions of the Dodd-Frank Act. Specifically, officials from each of the federal banking agencies detailed current initiatives and proposals that would provide less burdensome compliance costs.
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, 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 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.