Federal Reserve Board Releases a Proposed Rule to Impose Risk-Based Capital Surcharges on GSIB U.S. Bank Holding Companies

On December 9, the Federal Reserve Board (the Board) released a proposed rule (the Proposed Rule) to establish risk-based capital surcharges for U.S. bank holding companies identified as "global systemically important banking organizations" (GSIBs).  The Proposed Rule is one of several enhanced prudential standards developed by the Board in accordance with Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Also, it is based on the framework adopted by the Basel Committee on Banking Supervision as modified to address risks unique to the U.S. financial system.

Under the methodology described in the Proposed Rule, to determine whether it is a GSIB, each U.S. top-tier bank holding company with total consolidated assets of $50 billion or more that is not a subsidiary of a non-U.S. banking organization would be required to annually calculate a systemic indicator score beginning December 31 of the year it crosses the $50 billion threshold.  Such score would be based on five systemic indicators—size, interconnectedness, substitutability, complexity and cross-jurisdictional activity.  If it is 130 basis points or greater, then such bank holding company would be designated as a GSIB and be subject to a GSIB surcharge.  A GSIB surcharge would be calculated using two methods—(a) method 1 based on the sum of systemic indicator scores reflecting size, interconnectedness, cross-jurisdictional activity, substitutability and complexity and (b) method 2 based on the sum of systemic indicator scores reflecting size, interconnectedness, cross-jurisdictional activity and complexity as well as a measure of use of short-term wholesale funding but excluding the systemic indicator scores reflecting substitutability.  The higher of the two surcharges determined under the two methods would be imposed on such bank holding company as a GSIB surcharge.

Currently, eight U.S. bank holding companies would be identified as GSIBs under the Proposed Rule.  The Board's regulatory capital rule would need to be amended to increase a GSIB's capital conservation buffer by the amount of its GSIB surcharge.

The Proposed Rule would be phased in beginning 2016 at a rate of 25% per year and become fully effective on January 1, 2019.

Public comment is due no later than February 28, 2015.  Release.  Proposed Rule. 

SEC Issues Revisions to Regulation AB Telephone Interpretations

On December 9, the SEC issued Compliance and Disclosure Interpretations (C&DIs) that comprise the SEC's interpretations of the rules adopted under Regulation AB II and the Securities Act and the Exchange Act.  The new C&DIs replace the interpretations published in the Regulation AB Manual of Publicly Available Telephone Interpretations.  C&DIs update previously-issued telephone interpretations to reflect the finalRegulation AB II.  Release.

Treasury and HUD Announce Changes to Making Home Affordable Program

On December 4, Treasury and HUD announced changes to Making Home Affordable (MHA) to better assist struggling homeowners. The changes are designed to motivate homeowners in MHA to continue making timely mortgage payments.  The program was originally established in 2009  to provide relief to homeowners facing financial hardship.  Under the revised guidelines, all homeowners in the program will now be eligible to earn a principal reduction of $5,000 in the sixth year of their modification, which will reduce their outstanding principal balance by as much as $10,000 in total.  In addition, Treasury and HUD will provide additional assistance to homeowners who surrender their houses through a short sale or deed-in-lieu.  Treasury  Release.  HUD Release.

Rating Agency Developments

On December 10, Moody's released its approach to rating sustainable net cash flow for CMBS and CRE CDO CLO Real Estate collateral in the Americas and ex-Japan Asia Pacific.  Approach.

On December 10, Moody's released its approach to rating US and Canadian Conduit/ Fusion CMBS. Approach.

On December 10, Fitch released its criteria to rating U.S. fixed-rate multiborrower CMBS surveillance and re-REMIC criteria.  Criteria.

On December 9, Fitch released its guidelines for rating prefunded U.S. municipal bonds.  Guidelines.

On December 9, Fitch released a table of covered bonds spread levels.  Table.

On December 8, Moody's released its methodology for rating business and consumer service industry. Methodology.

On December 8, Moody's released its methodology for rating global oilfield services industry.  Methodology.

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European Financial Industry Developments

EIOPA Consults on Second Set of Solvency II Implementing Technical Standards and Guidelines

The European Insurance and Occupational Pensions Authority (EIOPA) has, on December 2, published 16 consultations in respect of the second set of draft implementing technical standards (ITS) and guidelines required under the Solvency II Directive (2009/138/EC).

The 16 consultations have been grouped under the three Solvency II pillars. EIOPA has also published two additional consultations on: (i) the draft guidelines on the supervision of branches of third-country insurance undertakings; and (ii) technical advice on recovery plans, finance schemes and supervisory powers in deteriorating financial conditions.

Responses to the consultations are requested by March 2, 2015 with the exception of the technical advice consultation for which responses are requested by February 18, 2015.  Consultations. 

Council of EU Publishes Final Compromise Text of ELTIF Regulation

The Council of the EU has published an "I" item note from its General Secretariat to the Permanent Representatives Committee (COREPER) which sets out the final compromise text of the proposed Regulation on European Long-Term Investment Funds (ELTIF Regulation).  "I" Item Note.