Federal Banking Regulators Finalize Liquidity Coverage Ratio

On September 3, the FDIC, the Fed, and the OCC finalized the Liquidity Coverage Ratio rule to strengthen the liquidity positions of large financial institutions.  The rule will for the, first time, create a standardized minimum liquidity requirement for large and internationally active banking organizations.  Each institution will be required to hold high quality, liquid assets (HQLA) such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a 30-day stress period. The ratio of the firm's liquid assets to its projected net cash outflow is its "liquidity coverage ratio," or LCR.  Final Rule.  

Federal Agencies Seek Comment on Swap Margin Requirements

On September 3, the Fed, the Farm Credit Administration, the FDIC, the FHFA, and the OCC sought comment on a proposed rule to establish margin requirements for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  The proposed rule would establish minimum requirements for the exchange of initial and variation margin between covered swap entities and their counterparties to non-cleared swaps and non-cleared security-based swaps.  The margin requirements mandated by the Dodd-Frank Act are intended to address a number of weaknesses in the regulation and structure of the swap markets that were revealed during the recent financial crisis.  The requirements are intended to reduce risk, increase transparency, and promote market integrity.  Proposed Rule.   

FHFA Proposes Revisions to Federal Home Loan Bank Membership Eligibility Requirements

On September 2, the FHFA proposed a rule that would revise the requirements for financial institutions to apply for and retain membership in one of the 12 Federal Home Loan Banks (Banks).  The proposed rule would revise FHFA's existing Bank membership regulation to ensure that members maintain a commitment to housing finance and that only eligible entities can gain access to Bank advances and the benefits of membership.  Release.  Proposed Rule.

OCC Finalizes its Heightened Standards for Large Financial Institutions

On September 2, the OCC published final guidelines to strengthen the governance and risk management practices of large financial institutions.  The guidelines apply to insured national banks, insured federal savings associations, and insured federal branches of foreign banks with US$50 billion or more in average total consolidated assets.  The guidelines also apply to an OCC-regulated institution with less than US$50 billion in average total consolidated assets if that institution's parent company controls at least one other covered institution.  The guidelines provide that covered institutions should establish and adhere to a written risk governance framework to manage and control risk-taking activities.  The guidelines also provide minimum standards for the institutions' boards of directors to oversee the risk governance framework.  Release. 

SEC Publishes Final Rule Relating to Asset-Backed Securities Disclosure and Registration

On September 4, the SEC posted the final Regulation AB II rule (non-draft version).  Final Rule. 

CFPB Warns Credit Card Companies Against Deceptively Marketing Promotional Offers

On September 3, the CFPB warned credit card companies against deceptively marketing interest-rate promotions, over concerns about companies luring in consumers with offers of reduced or zero interest for a specific purchase or balances transferred from another credit card and then hitting them with surprise interest charges.  Release. 

FDIC RMBS Suit Dismissed as Time-Barred

On August 29, Judge Louis L. Stanton of the United States District Court for the Southern District of New York granted a motion by JPMorgan, Citigroup and several other banks for judgment on the pleadings, dismissing a lawsuit filed by the FDIC, as receiver for Colonial Bank, involving US$388 million in RMBS.  Defendants sought judgment on the pleadings that the FDIC's claims under the Securities Act of 1933 were time barred by the three-year statute of repose applicable to such claims.  FDIC argued that the Extender Statute, which extends the limitation period for the FDIC to assert claims to three years after the FDIC is appointed as receiver, tolled the time within which it had to assert its claims.  Judge Stanton agreed with the defendants, holding that under the Supreme Court's decision in CTS Corp. v. Waldburger, the FDIC Extender Statute applied only to statutes of limitation and did not alter the applicable statute of repose.  Order. 

Court Grants in Part and Denies in Part DB Structured Products' Motion to Dismiss Trustee Repurchase Action

On August 28, Justice Marcy S. Friedman of the Supreme Court of the State of New York granted in part and denied in part DB Structured Products, Inc.'s motion to dismiss repurchase claims brought by HSBC, as Trustee for the Ace Securities Corp. Home Equity Loan Trust, Series 2007-ASAP2.  Relying on her prior decision in Nomura Asset Acceptance Corp. Alternative Loan Trust v. Nomura Credit & Capital, Inc., Justice Friedman held that the relief available to plaintiff is limited by the sole remedy provision of the parties' contracts and therefore dismissed plaintiff's claim for rescission.  She also dismissed as duplicative plaintiff's claim for breach of implied covenant of good faith and fair dealing and rejected plaintiff's claim for indemnification of attorney's fees.  However, Justice Friedman declined to dismiss the complaint because of the plaintiff's failure to serve a timely repurchase demand prior to filing suit, holding the plaintiff sufficiently alleged that DBSP had independently discovered breaches within the six-year limitations period to survive a motion to dismiss. Order. 

BofA and Countrywide Settle RMBS Lawsuit with National Integrity

On August 28, in light of a settlement reached between the parties, Judge Mariana R. Pfaelzer of the United States District Court for the Central District of California dismissed a lawsuit brought by National Integrity Life Insurance Company against various Bank of America and Countrywide entities in connection with more than US$447 million in RMBS.  The complaint alleged claims under the Securities Act of 1933, the Ohio Securities Act, the Ohio Corrupt Activities Act, and various common law causes of action arising out of alleged misstatements made in the RMBS offering documents.  The amount and terms of the settlement were not disclosed.  Order. 

ESMA Publishes Guidelines on the EU Implementation of CPSS-IOSCO Principles

On September 4, ESMA published the translation of guidelines and recommendations on implementing the principles for financial market infrastructures in respect of central counterparties (i.e., clearing houses) published by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) in April 2012.

The purpose of the guidelines and recommendations is to ensure that EMIR and the regulatory technical standards made under it are fully harmonized and compliant with the CPSS and IOSCO principles.  This will bring EU clearing houses into line with international standards. Guidelines.  

PRA Issues Clarification on Implementation of the Solvency II Directive

On August 29, the UK PRA issued an update on the implementation of the Solvency II Directive (2009/138/EC), which is planned for January 1, 2016. The current PRA Update focuses on:

• • the relationship between the risk margin and the calibration of non-hedgeable risks; and
  • the assessment of the credit risk for matching adjustment portfolios.  PRA Update.

EU Regulation on Improving Securities Settlement and Regulating Central Securities Depositories Published in the EU Official Journal

On August 28, the text of the Regulation on improving securities settlement and regulating central securities depositories (Regulation 909/2014) was published in the Official Journal of the EU.  EU Regulation 909/2014.