Financial Services Bulletin: Action At The SEC, FRB, FDIC, And OCC


The SEC Adopts First JOBS Act Rules

On Wednesday, July 10, 2013, the Securities and Exchange Commission (the “SEC”) adopted amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the Jumpstart Our Business Startups Act (the “JOBS Act”).  The amendment to Rule 506 permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors.  The amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to satisfy the verification requirement for purchasers who are natural persons.  The amendment to Rule 144A provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers.  The amendments also revise Form D to require issuers to indicate whether they are relying on the provision that permits general solicitation or general advertising in a Rule 506 offering.

In a separate release, the SEC also adopted amendments to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank Act”).  Section 926 requires the SEC to adopt rules that disqualify securities offerings involving certain felons and other “bad actors” from reliance on Rule 506 of Regulation D. 

In a third release, the SEC also proposed amendments to Regulation D, Form D, and Rule 156 under the Securities Act of 1933 to seeking to enhance the SEC’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under the newly adopted amendment to Rule 506.

Perkins Coie LLP published an Update providing greater detail on these newly adopted and proposed SEC rules.

Read the SEC rule releases:

Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings

Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings

Amendments to Regulation D, Form D and Rule 156 under the Securities Act

The FRB, FDIC, and OCC Issue Basel III Capital Reform Rules

On Tuesday, July 2, 2013, the Federal Reserve Board (the “FRB”), in coordination with the Federal Deposit Insurance Corporation (the “FDIC”) and the Office of the Comptroller of the Currency (the “OCC” ), approved a final rule implementing the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act .  On July 9, 2013, the OCC approved the final rule and the FDIC approved the rule as an interim final rule.

The rule aims to help ensure banks maintain strong capital positions that will enable them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns.

The final rule consolidates three separate notices of proposed rulemaking that the OCC, FRB, and FDIC published in the Federal Register on August 30, 2012, with selected changes.

The final rule:

  • implements a revised definition of regulatory capital, a new common equity tier 1 minimum capital requirement, a higher minimum tier 1 capital requirement, and, for banking organizations subject to the advanced approaches risk-based capital rules, a supplementary leverage ratio that incorporates a broader set of exposures in the denominator;
  • incorporates these new requirements into the agencies’ prompt corrective action framework;

  • establishes limits on a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements;

  • amends the methodologies for determining risk-weighted assets for all banking organizations, and introduces disclosure requirements that would apply to top-tier banking organizations domiciled in the United States with $50 billion or more in total assets;

  • adopts changes to the agencies’ regulatory capital requirements that meet the requirements of Sections 171 and 939A of the Dodd-Frank Act; and

  • codifies the agencies’ regulatory capital rules, which have previously resided in various appendices to their respective regulations, into a harmonized integrated regulatory framework.

In addition, the OCC is amending the market risk capital rules to apply to federal savings associations.

The FRB is amending both the advanced approaches risk-based capital rules and the market risk capital rules to apply to top-tier savings and loan holding companies domiciled in the United States, except for certain savings and loan holding companies that are substantially engaged in insurance underwriting or commercial activities.  This exception for savings and loan holding companies engaged in insurance underwriting or commercial activities is a change from the rules as originally proposed; the FRB plans to take additional time to evaluate the appropriate regulatory capital framework for this group of entities.

The final rule also differs from the proposed rules in:

  • changes made to the risk weighting for residential mortgages; and
  • changes to the regulatory capital treatment for community banking organizations of trust preferred securities and certain unrealized gains and losses.

The final rule provides a phase-in period for larger institutions that will begin in January 2014, and a phase-in period for smaller, less complex banking organizations that will begin in January 2015.

Read the FRB press release

Read the OCC press release

Read the FDIC press release

The FRB, FDIC, and OCC Propose Leverage Ratio Rules

On Tuesday, July 9, 2013, the FRB, the FDIC, and the OCC proposed a rule to change the leverage ratio standards for the largest U.S. banking organizations.  Under the proposed rule, bank holding companies with more than $700 billion in consolidated total assets or $10 trillion in assets under custody (“covered BHCs”) would be required to maintain a tier 1 capital leverage buffer of at least 5 percent; which is 2 percent above the minimum supplementary leverage ratio requirement of 3 percent just adopted by these three agencies in their Basel III capital reform rules.  Failure to exceed the 5 percent ratio would subject covered BHCs to restrictions on discretionary bonus payments and capital distributions.  In addition to the leverage buffer for covered BHCs, the proposed rule would require insured depository institutions of covered BHCs to meet a 6 percent supplementary leverage ratio to be considered “well capitalized” for prompt corrective action purposes.  The agencies are proposing the rule would take effect on January 1, 2018.

Read the FRB press release

Read the OCC press release

Read the FDIC press release

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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