Rightsizing Regulation: U.S. Banking Agencies Release “Tailoring” Proposals and Regional Banks Are the Winners

by Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP

Last week, the federal banking agencies issued two notices of proposed rulemaking designed to lessen regulatory requirements on small and regional banking organizations.  Together, these two proposals would establish a revised framework for applying prudential, capital, and liquidity standards to large U.S. banking organizations based on risk, consistent with the mandate imposed by Congress in the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Relief Act”) enacted earlier this year.1

This memorandum provides an overview of this proposed regulatory framework and how it would work.

Tailoring of Prudential Standards

The first notice is a proposal issued by the Board of Governors of the Federal Reserve System (the “FRB”) that would “tailor” the application of the so-called “prudential standards” to U.S. bank holding companies, but also would extend enhanced standards to large savings and loan holding companies (other than those substantially engaged in insurance underwriting and commercial activities) as if they were bank holding companies.  These prudential standards emanate from Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), and impose requirements on bank holding companies with respect to capital stress testing, risk management, liquidity risk management, liquidity stress testing and liquidity buffer requirements, and single-counterparty credit limits.

Section 165 applied these prudential standards to bank holding companies with assets of $50 billion, and the FRB issued regulations implementing these standards in 2014.2 Section 401 of the Relief Act raised these Dodd-Frank thresholds to $100 billion effective immediately upon the Relief Act’s enactment and to $250 billion by November 2019.  However, with respect to bank holding companies with assets between $100 billion and $250 billion, Section 401 provides the FRB with discretion to apply prudential standards tailored to the risk of the particular firm.  In making this determination, the FRB must take into consideration certain factors, including capital structure, riskiness, complexity, financial activities (including financial activities of subsidiaries), size, and any other risk-related factors that the FRB deems appropriate.

Tailoring of Capital and Liquidity Standards

The second notice, issued jointly by the FRB, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation, similarly would tailor the application of the agencies’ existing capital regulations and liquidity coverage ratio (“LCR”) requirements, as well as the proposed net stable funding ratio (“NSFR”) regulation.

Neither proposal would apply to the U.S. operations of foreign banking organizations, including any intermediate holding company of a foreign banking organization.  However, the FRB plans to develop a separate proposal relating to foreign banking organizations that would implement Section 401 and “reflect the principles of national treatment and equality of competitive opportunity.”

How the Revised Framework Would Work

Together, the proposals would establish a revised framework for applying prudential standards (including capital and liquidity requirements) to large U.S. banking organizations, creating four categories of standards for those banking organizations with total consolidated assets of $100 billion or more.  These categories reflect the agencies’ perception of the differing levels of systemic risks posed by firms in each group:

  • Category I: U.S. global systemically important bank holding companies (“GSIBs”) would remain subject to the most stringent standards, without change, except that the proposal would reduce the frequency of required company-run stress testing from semi-annual to annual.3
  • Category II: Firms of global scale – those with $700 billion or more in total assets or cross-jurisdictional activity of $75 billion or more – would be subject to more stringent prudential standards (based on global standards developed by the Basel Committee on Banking Supervision) and other prudential standards appropriate to very large or internationally active banking organizations.4  Generally speaking, firms in Category II likely would see no change in existing requirements, but would continue to be excluded from the more onerous requirements imposed on GSIBs, such as the Total Loss Absorbing Capital (TLAC) regulation, the GSIB capital surcharge, and the enhanced supplemental leverage ratio capital calculations.
  • Category III: Firms with $250 billion or more in assets, or with at least $100 billion in assets having “specified risk-based indicators,” would be subject to enhanced standards less stringent than those imposed under Category I or Category II, but more stringent than those imposed under Category I or Category II, but more stringent than those imposed under Category IV.5  The three “specified risk-based indicators” would relate to a firm’s weighted short-term wholesale funding,6 its average amount of equity investments in nonbank subsidiaries,7 and its off-balance-sheet exposures.8  The FRB did not, however, specify any thresholds within these three risk-based indicators that would trigger Category III treatment, but instead invited comment on the issue.
  • Category IV: Firms with $100 billion to $250 billion in total assets would be subject to reduced requirements, provided that they do not meet or exceed three specified risk-based indicators warranting their placement in the more rigorous Category III.  Firms in Category IV no longer would be subject to standardized liquidity requirements or the requirement to conduct and publicly disclose the results of company-run capital stress tests.9  Category IV firms would be subject to supervisory stress testing every two years, instead of annually.  The frequency of required internal liquidity stress testing would be reduced to quarterly, rather than monthly.  Category IV firms would be required to maintain a liquidity buffer that is sufficient to meet the projected net stressed cash-flow need over the 30-day planning horizon under the firm’s internal liquidity stress test.  For liquidity planning purposes, these firms would be required to calculate collateral positions on a monthly basis, rather than a weekly basis as currently required, and would be required to monitor fewer elements of intraday liquidity risk exposures.

The proposal would largely maintain the existing capital planning and stress testing standards under the capital plan and enhanced prudential standards rules for Category III firms, but would remove the mid-cycle company-run stress testing requirement and require public disclosure of company-run stress test results every two years, instead of annually.  In addition, a Category III firm would be required to submit an annual capital plan and be subject to the qualitative and quantitative assessment of its capital plan through the Comprehensive Capital Analysis and Review (CCAR) process.  Category III firms would be subject to annual supervisory stress testing, and would also be required to conduct an internal stress test in connection with its annual capital plan submission.

Category III firms would not be subject to advanced approaches capital requirements or the requirement to recognize most elements of accumulated other comprehensive income in regulatory capital.  Instead, they would be subject to U.S. generally applicable risk-based capital requirements, including capital buffers, as well as the U.S. leverage ratio and the supplementary leverage ratio.  The FRB would maintain the existing liquidity risk management, monthly internal liquidity stress testing, and liquidity buffer requirements under the enhanced prudential standards rule for firms subject to Category III standards.  Such firms also would be subject to tailored LCR and NSFR requirements based on whether the firm has $75 billion or more in weighted short-term wholesale funding.

Consistent with the requirements of Section 401, firms with assets below $100 billion are exempt from the prudential requirements.10

As an alternative to the threshold-based approach described above, the FRB has requested comment on whether it should use the GSIB risk scoring methodology under its GSIB surcharge rule to determine the applicable category of standards for banking organizations with $100 billion or more in total assets.

No Change in Living Wills – For Now

The tailoring proposals would not alter existing requirements with respect to resolution planning, or “living wills,” mandated by Section 165(d) of Dodd-Frank for bank holding companies with assets equal to or greater than $50 billion.  However, the FRB intends to issue a separate proposal that would tailor the resolution planning requirements for firms with total consolidated assets in the range of $100 billion to $250 billion.


1    For a summary of the Relief Act, please see our memorandum, “Bank Deregulation Bill Becomes Law,” dated May 25, 2018, and available here.

2    See 12 C.F.R. Part 252 (Regulation YY).

3    Category I would include JPMorgan Chase & Co., Bank of America Corporation, Citigroup, Inc., Wells Fargo & Company, The Goldman Sachs Group, Inc., Morgan Stanley, The Bank of New York Mellon Corporation, and State Street Corporation.

4    Based on current asset levels, Category II would include Northern Trust Corporation.

5    Based on current asset levels alone, Category III would include U.S. Bancorp, The PNC Financial Services Group, Inc., Capital One Financial Corporation, and The Charles Schwab Corporation.

6    “Short-term wholesale funding” is the amount of a firm’s funding obtained from wholesale counterparties or retail brokered deposits and sweeps with a remaining maturity of one year or less.  Categories of short-term wholesale funding are then weighted based on four residual maturity buckets; the asset class of collateral, if any, backing the funding; and characteristics of the counterparty.

7    “Average total nonbank assets” would mean the average of the total nonbank assets of a bank holding company subject to the capital plan rule, calculated in accordance with the instructions to the Parent Company Only Financial Statements for Large Holding Companies (FR Y-9LP), for the four most recent consecutive quarters or, if the bank holdincompany has not filed the FR Y-9LP for each of the four most recent consecutive quarters, for the most recent quarter or consecutive quarters, as applicable.

8    The proposal would define “off-balance sheet exposure” consistently with measures currently reported by covered firms, as total exposure, as defined on FR Y-15, minus total consolidated assets, as reported on Consolidated Financial Statements for Holding Companies (FR Y-9C).

9    Based on current asset levels alone, Category IV would include BB&T Corporation, Suntrust Banks, Inc., American Express Company, Ally Financial, Inc., Citizens Financial Group, Inc., Fifth Third Bancorp, KeyCorp, Regions Financial Corporation, M&T Bank Corporation, Huntington Bancshares Incorporated, and Discover Financial Services.

10   These firms include Synchrony Financial, Comerica Incorporated, E*TRADE Financial Corporation, SVB Financial Group, and New York Community Bancorp, Inc.

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.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.