Orrick's Financial Industry Week in Review - November 25,2013


Financial Industry Developments

FDIC Guidance on Deposit Advance Products

On November 21, the FDIC issued final supervisory guidance to FDIC-supervised financial institutions with respect to the risks imposed by certain deposit advance products.  The FDIC encourages banks to: (i) continue to offer these products, consistent with safety and soundness and other supervisory considerations and (ii) develop new or innovative programs to effectively meet the need for small-dollar credit.  FDIC ReleaseFinal Guidance.

Regulatory Capital Estimation Tool for Community Banks

On November 19, the Fed, the OCC and the FDIC released an estimation tool to help community banks understand the potential effects on their capital ratios of the regulatory capital reforms imposed by Basel III and the Dodd-Frank ActJoint ReleaseEstimation Tool

Questions and Answers Regarding Community Reinvestment

On November 15, the Fed, the OCC and the FDIC released final revisions to "Interagency Questions and Answers Regarding Community Reinvestment," which provide additional guidance to financial institutions and the public on the agencies' Community Reinvestment Act regulations.  Joint ReleaseQ&A.

Rating Agency Developments

On November 20, S&P released a request for comment on its methodology for rating CDOs of project finance debt.  Comments must be submitted by December 21.  S&P Request for Comment

On November 19, Moody's released its updated approach to rating CLOsMoody's Report.

On November 19, Moody's released its approach to rating corporate synthetic CDOsMoody's Report.

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

RMBS and Other Securities Litigation

JPMorgan Finalizes $13 Billion Settlement With Department of Justice

On November 19, the U.S. Department of Justice announced that JPMorgan Chase & Co. has agreed to pay $13 billion to settle a number of federal and state RMBS-related civil claims against JPMorgan and two institutions that JPMorgan acquired, Bear Stearns and Washington Mutual Inc. (WaMu).  Under the terms of the settlement, $4 billion will be distributed in consumer-related relief for mortgage writedowns, anti-blight work and mortgage payment reductions.  The agreement also includes a previously-announced $4 billion settlement with the Federal Housing Finance Agency.  Additionally, JPMorgan will pay a $2 billion civil penalty to the Justice Department for claims brought under the Financial Institutions Reform, Recovery and Enforcement Act, $1.4 billion to the National Credit Union Administration, $515.4 million to the Federal Deposit Insurance Corp. and over $1 billion combined to the states of California, Illinois, Massachusetts, Delaware and New York.  JPMorgan acknowledged in a statement of facts that its employees and employees of Bear Stearns and WaMu failed to disclose to securitization investors that certain loans did not comply with underwriting guidelines.  The settlement does not resolve any potential criminal liability of JPMorgan or its employees.  Settlement AgreementStatement of Facts

JPMorgan Agrees to $4.5 Billion Settlement in RMBS Suit

On November 15, JPMorgan Chase & Co. agreed to pay 21 institutional investors $4.5 billion to settle all representation and warranty claims, as well as servicing claims, in respect of all RMBS securitizations issued by JPMorgan and Bear Stearns between 2005 and 2008.  In addition, JPMorgan agreed to implement servicing changes to mortgage loans in the trusts.  The settlement does not resolve claims against Washington Mutual Inc.  Press Release.

European Financial Industry Developments

European Commission Initiatives for 2013

On November 14, the European Commission published an updated document setting out its agenda and timetable for the legislative proposals and non-legislative acts related to financial services that it expects to adopt between November 1 and December 31. The most recent previous version of this document was the July 2013 update.  Updated Document.

ECON Report on Proposed Directive on Payment Accounts

On November 20, the European Parliament's Committee on Economic and Monetary Affairs (ECON) published its report (dated November 19) on the proposed Directive on payment accounts.

The report contains a European Parliament legislative resolution on the proposed Directive on payment accounts, the text of which sets out suggested amendments to the European Commission's original proposal, which was published in May 2013.  Report.  

ECB Speech on SSM Comprehensive Assessment and Future Supervision of Banks

On November 20, the European Central Bank (ECB) published a speech given on November 18 by Yves Mersch, ECB executive board member, on the ECB's perspective on current issues relating to the European banking union.

Among other things, Mr Mersch:

    • Considers the comprehensive assessment of banks in the single supervisory mechanism (SSM) that will be subject to direct ECB supervision;
    • states that the stress test, which forms part of the comprehensive assessment, will be conducted by the ECB over a period of three years, and that the ECB will use a baseline scenario and one stress scenario;
    • comments that the ECB is currently discussing internally the question of how exposure to government bonds should be valued; and
    • summarizes the ECB's proposed supervisory approach to banks that will be subject to direct supervision (that is, banks deemed to be significant under the SSM Regulation (Regulation 1024/2013)) and to the other banks in the SSM.

The UK Prime Minister has stated that the UK will not participate in the SSM.  Speech

Update on SFO's first Bribery Act case

The UK Serious Fraud Office (SFO) has updated a webpage on its case relating to Sustainable Agroenergy plc and Sustainable Wealth Investments UK Ltd.  These are the first charges to be brought by the SFO under the Bribery Act.    

The SFO is investigating the activities of these and associated companies in connection with selling bio-fuel investment products involving Jatropha tree plantations in South East Asia.  Webpage.


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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