Orrick's Financial Industry Week in Review

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Financial Industry Developments

Simplifying GSE Reform – A Roundtable Discussion

On April 8, 2015 Andrew Davidson & Co, held a roundtable discussion in Washington D.C., "Simplifying GSE Reform – A Roundtable Discussion". The discussion was focused on whether to replace or reform the GSEs, alternative methods of risk share, the Ginnie Mae model, and related issues. GSE Reform roundtable discussion summary and proposal here.

Rating Agency Developments

On May 29, DBRS released its updated methodology for rating U.S. asset-backed commercial paper. Report.

On May 29, Fitch republished its criteria for rating supranationals. Report.

On May 28, Fitch released its updated criteria for rating new-issue U.S. and Canadian multiborrower CMBS. Report.

On May 28, Fitch released its updated criteria for rating solar power projects. Report.

On May 27, DBRS released its updated methodology for operational risk assessment of U.S. ABS servicers. Report.

On May 27, Moody's released its global methodology for rating reverse mortgage securitizations. Report.

On May 26, KBRA released its methodology for rating full-recourse secured aircraft-debt instruments issued by airlines and aircraft lessors. Report.

Distressed Debt and Restructuring Developments

Supreme Court Removes Cloud Over Bankruptcy Judges' Powers, But Creditors Need To Remain Vigilant

On February 23, we reported on a case pending before the U.S. Supreme Court: Wellness International Network, Limited v. Sharif. On May 26, the Supreme Court in Wellness held that parties may waive their right to have certain claims decided by a court other than a Bankruptcy Court and that the waiver need not be express. It can be implied as a result of a litigant's conduct. No. 13-935, 575 U.S. ___ (2015).  Read More.

RMBS and Other Securities Litigation

Court Denies Motion for Partial Summary Judgment in RMBS Repurchase Litigation

On May 22, 2015, Judge Denise Cote of the United States District Court for the Southern District of New York denied defendants WMC Mortgage, LLC and GE Mortgage Holding, L.L.C.'s motion for partial summary judgment to dismiss certain loan repurchase claims asserted by Bank of NewYork Mellon in its capacity as RMBS Trustee for GE-WMC Mortgage Securities Trust 2006-I. Defendants argued that because certain loans in the trust had been foreclosed-upon and liquidated, the terms of the operative Pooling and Service Agreement barred recovery. Judge Cote rejected this argument. Following New York State courts construing prevailing New York law, Judge Cote held that money damages could be awarded in lieu of the PSA's "sole remedy" of loan repurchase for a breaching loan where the granting of equitable relief appears to be impossible or impracticable. The court held that the liquidation of a breaching loan presents such a circumstance, and permitted Bank of New York Mellon's claims as to foreclosed-upon loans to go forward. Order.

European Financial Industry Developments

European Commission Requests 11 Member States to Implement Bank Recovery and Resolution Directive (BRRD)

On May 28, 2015, the European Commission published a press release announcing that it has requested 11 member states (Bulgaria, the Czech Republic, France, Italy, Lithuania, Luxembourg, the Netherlands, Malta, Poland, Romania, and Sweden) to fully implement the BRRD.

The member states in question have failed to meet the deadline of December 31, 2014 for incorporating the BRRD into their national law. If any of the countries fail to comply within two months, the Commission may decide to refer them to the European Court of Justice.

EBA Issues Guidelines Under Recast Deposit Guarantee Schemes Directive (DGSD)

On May 28, 2015, the EBA published its final guidelines (EBA/GL/2015/10) on methods for calculating contributions under the recast DGSD.

Article 13 of the recast DGSD requires contributions to deposit guarantee schemes (DGSs) from their members to be risk-based. The guidelines specify the objective and principles for DGS contributions and provide guidance on specific elements that should be taken into account in developing and assessing the methods for calculating risk-based contributions.

The EBA also published its final guidelines (EBA/GL/2015/09) on payment commitments under the DGSD. Article 10(3) of the recast DGSD states that the available financial means of a deposit guarantee schemes (DGSs) may include "payment commitments". These are defined as payment commitments of a credit institution towards a DGS that are fully collateralized, providing that the collateral consists of low risk assets and is unencumbered by any third-party rights and is at the disposal of the DGS.

The guidelines provide guidance on the legal instruments that should be entered into by DGSs and credit institutions, providing for the terms and conditions for the inclusion of payment commitments within the available financial means of the DGS. These guidelines also provide criteria on the eligibility and management of the collateral.

The EBA expects competent authorities and designated authorities to implement both sets of guidelines by December 31, 2015.

ISDA Publishes Market Practice Guidance for Portfolio Compression Under EMIR

On May 27, 2015, the International Swaps and Derivatives Association (ISDA) published market practice guidance on the portfolio compressions obligations under EMIR. The portfolio compression rules are part of the risk mitigation requirements for non-centrally cleared OTC derivatives under EMIR (Regulation 648/2012).

EBA Publishes Guidance on How to Determine Whether a Firm is Failing or Likely to Fail Under the BRRD

On May 26, 2015, the European Banking Authority (EBA) published its final guidelines (EBA/GL/2015/07) on how to determine whether an institution is failing or likely to fail for the purposes of the BRRD.

Under Article 32(1) of the BRRD, the relevant authority must determine that the firm is failing or likely to fail before resolution action can be taken. The guidelines provide separate guidance for competent authorities and resolution authorities. Competent authorities should base their determination on their assessment of the firm's viability under the supervisory review and examination process set out in the CRD IV Directive (2013/36/EU). Resolution authorities must consider the firm's capital and liquidity position, as well as other requirements set out in the BRRD. The guidelines will apply from January 1, 2016.

EBA Issues Guidelines on Management of Interest Rate Risk Arising from Non-Trading Activities

On May 22, 2015, the European Banking Authority (EBA) published its final guidelines on the management of interest rate risk arising from non-trading activities (EBA/GL/2015/08). The guidelines cover the management of interest rate risk in the balance book and provide detailed guidance relating to scenarios and stress-testing, measurement assumptions, methods for measuring interest rate risk, the governance of interest rate risk and the identification, calculation and allocation of capital to interest rate risk. The guidelines will apply from January 1, 2016.

 

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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