Orrick's Financial Industry Week in Review

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Financial Industry Developments

Fed Issues Report on the Economic Well-Being of U.S. Households

On August 7, the Fed provided a snapshot of the self-perceived financial and economic well-being of U.S. households and the issues they face, based on responses to the Board's 2013 Survey of Household Economics and Decisionmaking. The report provides insight into numerous topics of current relevance to household finances, including: housing and living arrangements; credit access and behavior; education and student loan debt; savings; retirement; and health expenses.  Press Release.   

Agencies Provide Feedback on Second Round Resolution Plans

On August 5, the Fed and the Board of Directors of the FDIC announced the completion of reviews of the second round of resolution plans submitted by 11 large, complex banking organizations in 2013.  Press Release.   

OCC Publishes Final Rule that Revises the Risk-Based Capital Definition of Eligible Guarantee for Advanced Approaches Banks

The OCC, the Fed, and the FDIC have published a final rule that revises the advanced approaches risk-based capital rules by removing the requirement that only guarantees provided by certain counterparties are eligible for recognition as credit risk mitigants. Specifically, the final rule modifies the definition of "eligible guarantee" for purposes of the advanced approaches risk-based capital rules by removing the requirement that an eligible guarantee be provided by an "eligible guarantor" for all exposures other than securitization exposures. The rule was published in the Federal Register on July 30, 2014Press ReleaseFinal Rule

Rating Agency Developments

On August 8, Fitch updated its global master criteria for rating covered bondsReport.

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

RMBS and Other Securities Litigation

Judge Rakoff Approves SEC's $285M Settlement With Citigroup

On remand following a Second Circuit decision vacating his June 2011 rejection of a settlement between Citigroup and the SEC, Judge Jed Rakoff of the Southern District of New York approved the settlement, finding that it met the requirements articulated by the Second Circuit.  In the settlement, Citigroup has agreed to pay US$285 million to resolve fraud claims stemming from the sale of mortgage-backed securities.  Additionally, in its August 1, 2014, Form 10-Q, Citigroup stated that the SEC had advised Citigroup that it had concluded its investigation of Citigroup's MBS practices and did not intend to recommend an enforcement action.  Opinion10-Q Excerpt.    

Trustee's Repurchase Suit Against Quicken Loans Dismissed as Time-Barred

On August 4, Judge Paul A. Crotty of the Southern District of New York granted Quicken Loans' motion to dismiss a lawsuit brought by Deutsche Bank National Trust Co. (as Trustee of the GSR 2007-OA1 trust), alleging that Quicken breached its obligation to repurchase defective mortgage loans.  Following the First Department's decision in ACE Securities, Judge Crotty held that the six year statute of limitations for breach of contract began to accrue when Quicken allegedly breached the representations and warranties at issue—at the time the loans were sold—not when the Trustee demanded repurchase.  He rejected the plaintiff's argument that the lawsuit was timely because the contract at issue included a so-called "accrual" provision, which specified that the Trustee's cause of action for repurchase would accrue upon (1) notice of breach (2) failure to cure the breach and (3) Plaintiff's demand for cure.  The court held that the accrual provision could not alter the six-year limitations period because parties cannot agree in advance to extend the statute of limitations before any claims have accrued.  Opinion and Order

European Financial Industry Developments

ESMA Publish Report on Guidelines and Recommendations Relating Principles for Financial Market Infrastructures in Respect of Central Counterparties

On August 5, ESMA published a report setting out guidelines and recommendations for the implementation of the principles for financial market infrastructures in respect of central counterparties (CCPs) published by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO).

The guidelines and recommendations apply to competent authorities and trade repositories when carrying out their duties under EU Regulation 648/2012 on OTC derivative transactions, central counterparties and trade repositories (EMIR).  As is explained in the report, the purpose of the guidelines and recommendations is to ensure that EMIR, and the regulatory technical standards made under it, is fully harmonized and compliant with the CPSS and IOSCO principles.  Report

EBA Publish Final Draft RTS on Equity Exposures

On August 5, EBA published its final draft regulatory technical standards (RTS) specifying the treatment of equity exposures according to Article 495(3) of Regulation No 575/2013 Capital Requirements Regulation (CRR).

The CRR, which has the main purpose of implementing the Basel III reforms in the EU, applies directly to credit institutions and investment firms within member states. When operating under the "Internal Ratings Based Approach," which allows institutions to use their own estimated risk parameters for the purpose of calculating regulatory capital, the RTS provide for regulators to grant financial institutions temporary exemptions and so avoid part of the increase in capital requirement that would otherwise be necessary.

The RTS have been submitted to the European Commission for adoption as directly applicable EU regulations.  RTS

IOSCO Launches Public Information Repository for Central Clearing Requirements

On August 5, IOSCO unveiled its new information repository for central clearing requirements relating to over the counter derivatives.

The purpose of the IOSCO repository is to provide both regulators and market participants with consolidated information on the clearing requirements applicable in different jurisdictions, many of which have been recently revised.  Repository.  News Release.

 

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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