Orrick's Financial Industry Week in Review - April 22, 2013

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Financial Industry Developments

Joint Release on Additional Guidance for Resolution Plans

On April 15, the FDIC and the Fed issued a joint release which provides additional guidance, clarification and direction for the first group of 11 institutions filing their resolution plans pursuant to the Dodd-Frank Act.   Separate guidance was issued for domestic and foreign-based institutions.  Joint Release.  Domestic Guidance.  Foreign-Based Guidance.

Rating Agency Developments

On April 18, Fitch released its guidelines for rating state credit enhancement programs.  Fitch Report.

On April 17, Moody's released its methodology for rating general obligation bonds issued by U.S. local governments.  Moody's Report.

On April 15, DBRS released its methodology for rating Canadian covered bonds.  DBRS Report.

Note: Free registration is required for rating agency releases and reports.

RMBS Litigation

Second Circuit Rejects Edge Act Jurisdiction in AIG RMBS Case

On April 19, the Second Circuit ruled that a lawsuit brought by American International Group (AIG) against several Bank of America entities involving alleged fraud in connection with $28 billion in RMBS had been improperly removed from state to federal court.  Judge Barbara Jones of the United States District Court for the Southern District of New York had denied AIG's motion to remand the case to New York state court, finding removal proper under the Edge Act, a statute enacted in 1919 that provides for federal jurisdiction if two conditions are met:  (1) an international banking and financial corporation organized under the laws of the United States (an Edge Act corporation) must be a party; and (2) the lawsuit must involve an offshore banking transaction.  The district court found that these conditions had been met because one defendant – Bank of America, N.A. (BANA) – was an Edge Act corporation and because 27 of the 1.7 million residential mortgage loans underlying the RMBS at issue were secured by properties outside of the United States.  The Second Circuit vacated and remanded the district court's decision for further proceedings, allowing defendants to press their other ground for removal – "related to" bankruptcy jurisdiction – that was not addressed in this interlocutory appeal.  It held that the Edge Act only provided jurisdiction where the Edge Act corporation has engaged in the relevant offshore banking transaction.  Because BANA did not originate the 27 international mortgage loans, the Second Circuit found that the Edge Act's requirements were not satisfied, and that federal jurisdiction under the Edge Act therefore did not exist.  Opinion.

European Financial Industry Developments

Banking Reform Bill Completes Committee Stage in House of Commons

On April 16, the Financial Services (Banking Reform) Bill 2012-13 completed its committee stage in the House of Commons.  A revised version of the Bill, as amended in the committee stage, has been published.

The main aim of the Bill is to give HM Treasury and the relevant regulators powers to implement the recommendations of the Independent Commission on Banking (ICB) on ring-fencing requirements for the banking sector.  The Bill is intended to make the banking sector safer, more resilient and more resolvable. The Bill will now pass to the report stage in the House of Commons.  Banking Reform Bill.

FCA and PRA Publish Respective Approaches to Regulatory Failure

On April 19, the FCA and PRA (who together have taken over the powers of the FSA) published their respective approaches to investigating and reporting on regulatory failure, as required under the Financial Services Act 2012 (FS Act).

Part 5 of the FS Act outlines the tests for determining when each regulator must carry out an investigation into possible regulatory failure and provide reports of its findings and recommendations to HM Treasury.  The tests are different for each regulator and will relate to their respective statutory objectives.  The FCA and PRA statements of policy satisfy the FS Act which requires each regulator to explain how it will meet its statutory requirement to investigate possible occurrences of regulatory failure and to produce a report.  PRA Approach.  FCA Approach.

Events

IMN's 1st Annual Sunshine Backed Bonds Conference

On May 3, investors and capital markets participants will discuss solar securitization trends and possibilities at IMN's 1st Annual Sunshine Backed Bonds Conference in New York.  Renewable energy providers will have the unique opportunity to network with ABS investors interested in exploring renewable energy backed securities as a potential alternative investment.  Orrick is an Associate Level Sponsor.  Howard Altarescu will moderate the Exploring the Role of Securitization in Renewable Energy Finance panel.