#npr – Federal Financial Analytics

18 09, 2023

FedFin on: Large-IDI Resolution Plans

Arezou Rafikian2023-09-19T18:09:58-04:00September 18th, 2023|The Vault|

Although a pending FDIC/FRB proposal imposes a raft of new requirements for resolution plans from IDIs with over $100 billion in assets, the FDIC has also issued a freestanding proposal doing the same, also setting information-filing standards for IDIs below $100 billion but above $50 billion. Aspects of the resolution-plan filing standards for large covered IDIs (CIDIs) echo and in some cases allow reliance on aspects of the joint rule with the Fed, but the FDIC notes that this rule is, as required by the Dodd-Frank Act, focused on financial stability. Its own IDI resolution rules now and as proposed instead address how the FDIC is to meet its own statutory requirements (e.g., least-cost resolution). The NPR mandates many new planning or filing requirements to achieve its goals, most notably adding new severability standards that may require new inter-affiliate or -branch firewalls that reduce operating efficiencies and, when it comes to broker-dealer or other entities, lead to indirect resolution requirements not mandated by functional regulators.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

15 09, 2023

LIVINGWILL23

Eliza Allen2023-09-15T15:52:05-04:00September 15th, 2023|1- Financial Services Management|

Large-IDI Resolution Plans

Although a pending FDIC/FRB proposal imposes a raft of new requirements for resolution plans from IDIs with over $100 billion in assets, the FDIC has also issued a freestanding proposal doing the same, also setting information-filing standards for IDIs below $100 billion but above $50 billion. Aspects of the resolution-plan filing standards for large covered IDIs (CIDIs) echo and in some cases allow reliance on aspects of the joint rule with the Fed, but the FDIC notes that this rule is, as required by the Dodd-Frank Act, focused on financial stability. Its own IDI resolution rules now and as proposed instead address how the FDIC is to meet its own statutory requirements (e.g., least-cost resolution). The NPR mandates many new planning or filing requirements to achieve its goals, most notably adding new severability standards that may require new inter-affiliate or -branch firewalls that reduce operating efficiencies and, when it comes to broker-dealer or other entities, lead to indirect resolution requirements not mandated by functional regulators. The proposal also tightens enforcement policy, most notably increasing the criteria by which a resolution plan will be judged “credible” and thus the extent to which a CIDI will be subject to monetary penalties or even allowed to operate as is.

LIVINGWILL23.pdf…

6 09, 2023

TLAC9

William Cross2023-09-06T15:59:28-04:00September 6th, 2023|1- Financial Services Management|

Long-Term Debt Requirements

Building on an advance notice of proposed rulemaking, the banking agencies have issued several proposals to enhance the resolvability of large banking organizations not covered by stringent GSIB standards. Among these is a proposal mandating long-term debt (LTD) to increase regional-bank total loss-absorbing capacity (TLAC) and, the agencies believe, reduce resolution costs and/or increase the FDIC’s options, thus avoiding the systemic designation and costly resolutions that occurred for regional banks earlier this year. The LTD requirements for category II, III, and IV banking organizations do not go as far as those mandated for GSIBs, based instead exclusively on a “capital-refill” construct in which eligible LTD is issued in amounts the agencies believe sufficient to provide enough capital-equivalent funding to achieve the proposal’s expected results.

TLAC9.pdf…

6 09, 2023

FedFin on: Long-Term Debt Requirements

Arezou Rafikian2023-09-07T16:38:46-04:00September 6th, 2023|The Vault|

Building on an advance notice of proposed rulemaking, the banking agencies have issued several proposals to enhance the resolvability of large banking organizations not covered by stringent GSIB standards. Among these is a proposal mandating long-term debt (LTD) to increase regional-bank total loss-absorbing capacity (TLAC) and, the agencies believe, reduce resolution costs and/or increase the FDIC’s options, thus avoiding the systemic designation and costly resolutions that occurred for regional banks earlier this year. The LTD requirements for category II, III, and IV banking organizations do not go as far as those mandated for GSIBs, based instead exclusively on a “capital-refill” construct in which eligible LTD is issued in amounts the agencies believe sufficient to provide enough capital-equivalent funding to achieve the proposal’s expected results.

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

29 08, 2023

DAILY082923

Eliza Allen2023-08-29T16:55:20-04:00August 29th, 2023|2- Daily Briefing|

Agencies Advance Controversial Long-Term Debt, Resolution Proposals

The FDIC, OCC, and FRB today tackled several critical resolution issues in the wake of recent bank failures, proposals that raise strong objections from regional banks despite FDIC and FRB unanimity today on at least one of them. As anticipated, the FDIC and FRB approved an NPR that would impose minimum long-term debt requirements for banks and BHCs with assets over $100 billion, with the FDIC and Fed boards voting unanimously in favor even as FRB Gov. Bowman strongly dissented despite a three-year transition period. Similar to the ANPR floating this rule (see FSM Report RESOLVE48), the proposal would require large banks to hold a minimum amount of eligible long-term debt equal to the greater of six percent of risk weighted assets, 3.5% of average total consolidated assets, or 2.5% of total leverage exposure for banks subject to the SLR.

Daily082923.pdf…

22 08, 2023

FedFin on: GSIB Surcharge

Arezou Rafikian2023-08-23T10:19:58-04:00August 22nd, 2023|The Vault|

As anticipated in the wake of recent bank failures, the FRB has proposed a significant revision to the current rules calculating systemic-risk scores that lead to GSIB designation. These indicators are used not only for GSIB designation or a higher surcharge, but also for categorizing U.S. and foreign banks for other purposes and thus would also bring some banking organizations into categories subject to very strict prudential standards. The Board estimates that the overall impact of the changes to the surcharge and risk-scoring methodology are small and, regardless, warranted to enhance systemic resilience and consistency. It also estimates that the interaction of this new approach with certain liquidity and TLAC standards is generally minimal. However, the Fed has not assessed the relationship of scoring revisions to one way to calculate the GSIB charges, nor does the Board assess the cumulative impact of all of the changes proposed here in concert with its sweeping revisions to U.S. capital rules for all banking organizations with assets over $100 billion. It is also unclear how these changes in concert with all the others interact with the stress capital buffer applicable to large U.S.-domiciled banking organizations…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

22 08, 2023

GSIB22

Eliza Allen2023-08-22T10:19:26-04:00August 22nd, 2023|1- Financial Services Management|

GSIB Surcharge

As anticipated in the wake of recent bank failures, the FRB has proposed a significant revision to the current rules calculating systemic-risk scores that lead to GSIB designation. These indicators are used not only for GSIB designation or a higher surcharge, but also for categorizing U.S. and foreign banks for other purposes and thus would also bring some banking organizations into categories subject to very strict prudential standards. The Board estimates that the overall impact of the changes to the surcharge and risk-scoring methodology are small and, regardless, warranted to enhance systemic resilience and consistency. It also estimates that the interaction of this new approach with certain liquidity and TLAC standards is generally minimal. However, the Fed has not assessed the relationship of scoring revisions to one way to calculate the GSIB charges, nor does the Board assess the cumulative impact of all of the changes proposed here in concert with its sweeping revisions to U.S. capital rules for all banking organizations with assets over $100 billion. It is also unclear how these changes in concert with all the others interact with the stress capital buffer applicable to large U.S.-domiciled banking organizations. Despite the Fed’s conclusions, it seems likely that the total impact will be considerable in light of methodological problems in this proposal as well as those FedFin identified with the impact analysis for the capital rewrite.

GSIB22.pdf…

18 08, 2023

Al082123

William Cross2023-08-22T09:52:13-04:00August 18th, 2023|3- This Week|

Capital Regulation Deconstructed

Last week, we provided clients with several more in-depth analyses of the interagency capital proposal. Of particular note is our wrap-up report (see Client Report CAPITAL234) which looks hard at the agencies’ own quantitative and qualitative impact assessments to see what the raw numbers say, how the numbers comport with current data and market realities, and – most importantly – how to interpret the agencies’ qualitative conclusions in light of these analytics, as well as our understanding of many of the studies on which key assumptions are premised. As the report details, we agree that the agencies’ rationale for every possible capital woe – that anything is better than a financial crisis – is right. But it’s only right if the result of the rules is to make financial crises less likely and that, as our reports make clear, is far from assured. Many provisions of each key section combined with overall quantitative results could well prove profoundly destabilizing.

Al082123.pdf…

17 08, 2023

CAPITAL234

Eliza Allen2023-08-17T15:22:40-04:00August 17th, 2023|5- Client Report|

FedFin Assessment: What the Agencies Think the Rules Will do and Why Much of That is Wrong

With this report, we conclude our assessment of the regulatory-capital proposal with analysis of what the sum total of the credit (see FSM Report CAPITAL231), operational (see FSM Report OPSRISK22), and market (see FSM Report CAPITAL233) rules could do in the real world of banks, nonbanks, foreign banks, and complex market interconnections. Our first assessment of the proposal’s framework (see FSM Report CAPITAL230) provided the agencies’ quantitative-impact statement (QIS). Here, we evaluate the QIS, expand on the agencies’ qualitative conclusions, and add our own assessment of what might actually happen in the face of these sometimes-contradictory capital incentives.

CAPITAL234.pdf…

4 08, 2023

FedFin on: Credit-Risk Capital Rewrite

Arezou Rafikian2023-08-04T13:41:04-04:00August 4th, 2023|The Vault|

In this report, we proceed from our assessment of the proposed regulatory capital framework to an analysis of the rules governing credit risk. In addition to eliminating the advanced approach, the proposal imposes higher standards for some assets than under the old standardized approach (SA) via new “expanded” requirements. As detailed here, many expanded risk weightings are higher than current requirements either due to specific risk-weighted assessments (RWAs) or definitions and additional restrictions. This contributes to the added capital costs identified by the banking agencies in their impact assessment, suggesting that lower risk weightings in the expanded approach reflected the reduced risks described in the proposal for other assets and will ultimately have little bearing on regulatory-capital requirements and thus ….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…