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    US Agencies Finalize Rules to Closely Match Bank Risk Profiles

    US Agencies (OCC, FED, and FDIC) finalized rules that tailor the regulations for domestic and foreign banks to more closely match their risk profiles. The rules reduce compliance requirements for firms with less risk while maintaining the most stringent requirements for the largest and most complex banks. As part of this framework, the agencies finalized three regulations, which become effective on December 31, 2019. FED also published draft versions of the impacted reporting forms and instructions, including FR 2052a, FR Y-7, FR Y-7Q, FR Y-9C, FR Y-14A/Q/M, and FR Y-15.

    Additionally, FED proposed to amend its assessment rule (Regulation TT), pursuant to Section 318 of the Dodd-Frank Act, to address amendments made by section 401 of Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The proposed amendments to Regulation TT raise the minimum threshold for being considered an assessed company from USD 50 billion to USD 100 billion in total consolidated assets for bank holding companies and savings and loan holding companies. The proposed amendments also adjust the amount charged to assessed companies with total consolidated assets between USD 100 billion and USD 250 billion to reflect changes in supervisory and regulatory responsibilities resulting from EGRRCP Act. Comments must be received on or before December 09, 2019. 

    The finalized rules establish a framework that sorts banks with USD 100 billion or more in total assets into four different categories based on several factors, including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off-balance sheet exposure. Significant levels of these factors result in risk and complexity to a bank and can in turn bring risk to the financial system and broader economy. The US Agencies have finalized the following three rules as part of the regulatory framework for domestic and foreign banks:

    • FED is adopting a final rule that establishes risk-based categories for determining prudential standards for large U.S. banking organizations and foreign banking organizations, consistent with section 165 of the Dodd-Frank Act. The final rule amends certain prudential standards, including standards for liquidity, risk management, stress testing, and single-counterparty credit limits, to reflect the risk profile of banking organizations under each category. The final rule applies prudential standards to certain large savings and loan holding companies using the same categories; makes corresponding changes to reporting forms; and makes additional modifications to the company-run stress test and supervisory stress test rules of FED, consistent with section 401 of the EGRRCP Act.
    • OCC, FED, and FDIC are adopting a final rule to revise the criteria for determining the applicability of regulatory capital and liquidity requirements for large U.S. banking organizations and the U.S. intermediate holding companies of certain foreign banking organizations. The final rule establishes four risk-based categories for determining the applicability of requirements under the agencies’ regulatory capital rule and liquidity coverage ratio (LCR) rule. Under the final rule, such requirements increase in stringency based on measures of size, cross-jurisdictional activity, weighted short-term wholesale funding, non-bank assets, and off-balance sheet exposure. The final rule applies tailored regulatory capital and liquidity requirements to depository institution holding companies and U.S. intermediate holding companies with USD 100 billion or more in total consolidated assets as well as to certain depository institutions.
    • FDIC and FED are jointly adopting a final rule implementing the resolution planning requirements of section 165(d) of the Dodd-Frank Act. This final rule is intended to reflect improvements identified since the agencies finalized their joint resolution plan rule in November 2011 and to address amendments to the Dodd-Frank Act made by EGRRCP Act. Through this final rule, FED is also establishing risk-based categories for determining the application of the resolution planning requirement to certain U.S. and foreign banking organizations, consistent with section 401 of EGRRCP Act. The final rule extends the default resolution plan filing cycle, allows for more focused resolution plan submissions, and improves certain aspects of the resolution planning rule.

    While generally similar to the proposals released for comment over the past year, the final rules simplify the proposals by applying liquidity standards to a foreign bank's U.S. intermediate holding company (IHC) based on the risk profile of the IHC, rather than on the combined U.S. operations of the foreign bank. For larger firms, the final rules apply standardized liquidity requirements at the higher end of the range that was proposed for both domestic and foreign banks. FED estimates that these changes in aggregate will result in a 0.6% decrease in required capital and a 2% reduction in required liquid assets for all banks with assets of USD 100 billion or more. The rules do not reduce capital or liquidity requirements for firms in the highest risk categories, including the U.S. global systemically important banks.


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    Comment Due Date: December 09, 2019

    Effective Date: December 31, 2019

    Keywords: Americas, US, Banking, IHCS, Foreign banks, Regulatory Capital, Liquidity Risk, Stress Testing, Resolution Planning, SCCL, Dodd-Frank Act, EGRRCP Act, Basel III, Reporting, Proportionality, US Agencies

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