The Federal Reserve Board ("FRB") finalized rules that will tailor the application of prudential standards to U.S. bank holding companies and apply enhanced standards to certain large savings and loan holding companies.
Under the newly approved framework, there will be four asset- and risk-based levels of compliance requirements for banks having $100 billion or more in total assets. The categories are:
1. Category I: U.S. global systemically important banks ("GSIBs") will remain subject to the "most stringent standards."
2. Category II: Banks with $700 billion or more in total assets or $75 billion or more in cross-jurisdictional activity will be subject to stricter prudential standards applicable to "very large or internationally active banking organizations" based on cross-jurisdictional activity, short-term wholesale funding, non-bank assets, or off-balance sheet exposures.
3. Category III: Banks with $250 billion or more in assets and banks with at least $75 billion in assets that exceed certain risk thresholds will be subject to enhanced standards tailored to their risk profile.
4. Category IV: Banks with $100 billion in total assets that do not fall into categories I-III will be subject to reduced requirements. These banks will not be subject to standardized liquidity requirements, and will have significantly reduced stress-testing obligations.
The FRB provided a chart illustrating that, as the risk posed by a firm increases, the compliance requirements will increase.
Several other amendments were made to align existing regulations with this framework, including an FRB, FDIC and OCC joint final rule that will tailor the application of the agencies' capital and liquidity rules to large U.S. banking organizations.
Separately, the FRB proposed to raise the threshold for bank holding companies and savings and loan holding companies subject to Regulation TT assessments from $50 billion to $100 billion in total consolidated assets.
While FRB Chair Jerome Powell and Vice Chair for Supervision Randal Quarles expressed support (see here and here) for the final rules, Governor Lael Brainard criticized the new framework as "weaken[ing] the safeguards" created under post-financial crisis reforms. Ms. Brainard, who has previously supported efforts to reduce the regulatory burden on community banks, also criticized reducing capital and liquidity requirements for large banking institutions before a full cycle of testing.
Cadwalader attorneys provided an overview of a proposed regulatory framework for applying prudential standards (including capital and liquidity requirements) to large U.S. banking organizations.
The banking regulators proposal that would tailor the application of the agencies' capital and liquidity rules to large U.S. banking organizations was published in the Federal Register. Comments must be received by January 22, 2019.
The Federal Reserve Board proposed a rule that would tailor the application of prudential standards to U.S. bank holding companies, and apply enhanced standards to certain savings and loan holding companies.
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