Orrick's Financial Industry Week In Review

by Orrick, Herrington & Sutcliffe LLP
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Financial Industry Developments

Federal Reserve Seeks Comments on LIBOR Alternatives

On August 24, 2017, the U.S. Federal Reserve requested public comments on a plan for the New York Federal Reserve and the Office of Financial Research to come up with three reference rates based on U.S. Treasuries-backed repurchase agreements (repos). The proposed rates are to be called:

  • Tri-party General Collateral Rate (TGCR)
  • Broad General Collateral Rate (BGCR)
  • Secured Overnight Financing Rate (SOFR)

The most comprehensive of the rates, SOFR, would be a broad measure of overnight Treasury financing transactions and was selected by the Alternative Reference Rates Committee ("ARRC") as a U.S. dollar LIBOR alternative. LIBOR is a benchmark for $350 trillion worth of financial products worldwide, including $150 trillion in derivatives.

Public comments on these proposed rates are requested within 60 days of publication in the Federal Register, which is expected shortly, according to a Federal Reserve Board press release. To read the press release, click here.

Federal Banking Agencies Propose Extension of Certain Capital Rule Transitions

On August 22, 2017, in preparation for a forthcoming proposal that would simplify regulatory capital requirements, federal banking regulators proposed a rule that would extend the existing transitional capital treatment for certain regulatory capital deductions and risk weights. The extension would apply to banking organizations that are not subject to the agencies' advanced approach to capital rules, which are generally those with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure. Comments on this proposal will be accepted for 30 days after publication in the Federal Register. FDIC Press Release. Federal Reserve Press Release. OCC Press Release. Proposal.

LIBOR Discontinuance and the Derivatives Market

On July 27, 2017, the Chief Executive of the UK Financial Conduct Authority ("FCA") announced that, after the end of 2021, the FCA would no longer use its power to persuade or compel panel banks to submit rate information used to determine the London Interbank Offered Rate, known as "LIBOR". LIBOR serves as a benchmark rate for hundreds of trillions of dollars of securities, loans and transactions, including over-the-counter and exchange-traded derivatives. The potential permanent discontinuance of LIBOR has significant implications for the derivatives market, especially for legacy transactions. Read more here.

 

 

Rating Agency Developments

On August 23, 2017, DBRS published a report entitled Rating Companies in the Oil and Gas and Oilfield Services Industries. Report.

On August 21, 2017, Moody's published a report entitled Government-Related Issuers. Report.

On August 18, 2017, DBRS published a report entitled Rating Companies in the Communications Industry. Report.

On August 18, 2017, DBRS published a report entitled Rating Companies in the Consumer Products Industry. Report.

On August 18, 2017, DBRS published a report entitled Rating Companies in the Merchandising Industry. Report.

On August 17, 2017, Fitch published a report entitled U.S. Military Housing Rating Criteria. Report.

 

 

RMBS and Other Securities Litigation

S.D.N.Y. Denies Plaintiffs' Sampling Motion in Consolidated Actions Against RMBS Trustee

On August 21, 2017, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York upheld a magistrate's order denying plaintiff-certificateholders' motion to attempt to prove their claims by re-underwriting a sample of the loans at issue in a consolidated action against Wells Fargo Bank, National Association, in its capacity as RMBS trustee. Judge Failla, after reviewing the magistrate's order for clear error, affirmed that under the governing agreements, to prevail on a breach of contract claim against an RMBS trustee with respect to the loans underlying the trust, Plaintiffs must demonstrate a breach on a loan-by-loan and trust-by-trust basis. Accordingly, Plaintiffs cannot utilize sampling in their efforts to prove that the RMBS trustee breached its contractual obligations. Judge Failla also noted that Plaintiffs, rather than needing to prove that the trustee had actual knowledge of breaches of representations and warranties, could potentially demonstrate the trustee's discovery of breaches through a showing of conscious avoidance or implied actual knowledge. Wells Fargo Sampling Order.

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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