A Federal Reserve Board ("FRB") final rule tailoring the application of prudential standards to U.S. bank holding companies and applying enhanced standards to certain large savings and loan holding companies was published in the Federal Register. The final rule is effective on December 31, 2019.
As previously covered, the newly approved framework will create four asset- and risk-based levels of compliance requirements for banks having $100 billion or more in total assets. The categories are:
Category I: U.S. global systemically important banks ("GSIBs") will remain subject to the "most stringent standards."
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.
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.
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.
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.
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