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SRC Insights: First Quarter 2012

DFA Today: The Dodd-Frank Act Keeps Rolling Along

The critical rulemaking process associated with the implementation of the Dodd-Frank Act (DFA or the act) continues. According to Davis Polk's year-end 2011 progress report, “of the 400 total rulemaking requirements, 86 (21.5 percent) have been finalized and 155 (38.75 percent) have been proposed. 159 (39.75 percent) rulemaking requirements have not yet been proposed.”1

This is also likely be a period of reflection and assessment for some existing DFA rules that were implemented during the earliest phases. Enough time has now elapsed to perform meaningful analysis and measure the tangible impact that particular regulations have had on the banking industry to date.

This recurring feature of SRC Insights highlights key events associated with the DFA that have transpired since the last issue. Reference links to more detailed information on the subject matter are also provided. If you have any questions regarding this periodic section, please contact Senior Specialist Bob Rell.

RULE PROPOSALS AND REQUESTS FOR COMMENT

January 17, 2012
FDIC Board Proposes Stress Testing Regulation for Large Banks

The FDIC approved a notice of proposed rulemaking (NPR) that would require certain large insured depository institutions to conduct annual capital-adequacy stress tests. The proposal would apply to FDIC-insured state nonmember banks and FDIC-insured state-chartered savings associations with total consolidated assets of more than $10 billion.

December 20, 2011
Federal Reserve Board Proposes Steps to Strengthen Regulation and Supervision of Large Bank Holding Companies and Systemically Important Nonbank Financial Firms

The Federal Reserve Board proposed steps to strengthen regulation and supervision of large bank holding companies and systemically important nonbank financial firms. The proposal, which includes a wide range of measures addressing issues such as capital, liquidity, credit exposure, stress testing, risk management, and early remediation requirements, is mandated by the DFA.

December 20, 2011
Regulation YY—Enhanced Prudential Standards and Early Remediation Requirement for Covered Companies

This is a request for comment on proposed rules that would implement the enhanced prudential standards required to be established under section 165 of the DFA and the early remediation requirements established under section 166 of the act. The enhanced standards include risk-based capital and leverage requirements, liquidity standards, requirements for overall risk management (including establishing a risk committee), single-counterparty credit limits, stress test requirements, and a debt-to-equity limit for companies that the Financial Stability Oversight Council (FSOC) has determined pose a grave threat to financial stability.

December 7, 2011
Agencies Seek Comment on Additional Revisions to the Market Risk Capital Rules

The federal bank regulatory agencies announced that they are seeking comment on a notice of proposed rulemaking (NPR) that would amend an earlier NPR announced in December 2010. The initial NPR proposed modifications to the agencies' market risk capital rules for banking organizations with significant trading activities.

FINAL NOTICES

January 17, 2012
FDIC Board Approves Final Rule Requiring Resolution Plans for Insured Depository Institutions over $50 Billion

The FDIC approved a final rule requiring an insured depository institution with $50 billion or more in total assets to submit to the FDIC periodic contingency plans for resolution in the event of an institution's failure.

December 23, 2011
Two-Year Phase-in Period for Most Savings and Loan Holding Companies to File Federal Reserve Regulatory Reports

The Federal Reserve Board issued a final notice for a two-year phase-in period for most savings and loan holding companies (SLHCs) to file Federal Reserve regulatory reports and an exemption for some SLHCs from initially filing Federal Reserve regulatory reports.

November 17, 2011
Agencies Issue Statement to Clarify Supervisory and Enforcement Responsibilities for Federal Consumer Financial Laws

Five federal financial supervisory agencies issued this statement, which explains how the total assets of an insured bank, thrift, or credit union will be measured for purposes of determining supervisory and enforcement responsibilities under the DFA.

LEGISLATIVE ACTIONS, HEARINGS, AND LEGAL PROCEEDINGS

February 1, 2012
Hearing Entitled “H.R. 3461: the Financial Institutions Examination Fairness and Reform Act”

Committee on Financial Services

January 18, 2012
The Volcker Rule

Testimony was given by Governor Daniel K. Tarullo before the Subcommittee on Capital Markets and Government-Sponsored Enterprises and the Subcommittee on Financial Institutions and Consumer Credit.

December 7, 2011
Enhanced Supervision: A New Regime for Regulating Large, Complex Financial Institutions

U.S. Senate Committee on Banking, Housing, and Urban Affairs

December 6, 2011
Continued Oversight of the Implementation of the Wall Street Reform Act

U.S. Senate Committee on Banking, Housing, and Urban Affairs

November 2, 2011
The Consumer Financial Protection Bureau: The First 100 Days

Committee on Financial Services

October 31, 2011
Regulatory Reform: Examining How New Regulations are Impacting Financial Institutions, Small Businesses, and Consumers

Committee on Financial Services

GAO AND OTHER NOTABLE REPORT RELEASES SPEECHES, TESTIMONY, AND EVENTS OF INTEREST

February 2, 2012
Remarks by Treasury Secretary Tim Geithner on the State of Financial Reform

As the FSOC convened for its first meeting of 2012, Treasury Secretary Tim Geithner delivered remarks on the state of financial reform at the U.S. Department of the Treasury. Secretary Geithner reviewed the progress made to date and outlined priorities and challenges for the year ahead.

January 13, 2012
Opportunities to Reduce Regulatory Burden and Improve Credit Availability

Remarks were made by Federal Reserve Governor Elizabeth A. Duke at the 2012 Bank Presidents Seminar, California Bankers Association, Santa Barbara, California.

GAO Reports

January 19, 2012
Bank Holding Company Act Characteristics and Regulation of Exempt Institutions and the Implications of Removing the Exemptions (GAO-12-160)

The DFA directs GAO to study the implications of removing the exemptions. This report examines (1) the number and general characteristics of certain institutions in the U.S. banking system that are exempt from the definition of bank in the BHC Act, (2) the federal regulatory system for exempt financial institutions, and (3) potential implications of subjecting the holding companies of exempt institutions to BHC Act requirements.

January 18, 2012
Hybrid Capital Instruments and Small Institution Access to Capital

Responding to concerns that these instruments did not perform well during the 2007-2009 financial crisis, in 2010 the DFA required regulators to establish rules that will exclude the instruments from tier 1 capital and required GAO to study the possible effects of this provision. This report addresses (1) the use, benefits, and risks of hybrid instruments as tier 1 capital; (2) the potential effects of the exclusion on banking institutions and the economy; and (3) options for smaller banking institutions to access regulatory capital.

January 18, 2012
Real Estate Appraisals—Appraisal Subcommittee Needs to Improve Monitoring Procedures

The DFA expanded ASC's Title XI role and required GAO to examine ASC's activities and exemptions to federal appraisal requirements. This report discusses: (1) how ASC is carrying out its original Title XI responsibilities, (2) ASC's actions and plans to implement DFA provisions, and (3) regulatory dollar thresholds for determining when an appraisal is required.

January 17, 2012
Bank Capital Requirements—Potential Effects of New Changes on Foreign Holding Companies and U.S. Banks Abroad

During the 2007-2009 financial crisis, many U.S. and international financial institutions lacked capital of sufficient quality and quantity to absorb substantial losses. In 2010, the DFA introduced new minimum capital requirements for bank and savings and loan (thrift) holding companies—including intermediate holding companies of foreign banks. Intermediate holding companies are the entities located between foreign parent banks and their U.S. subsidiary banks. These companies held about 9 percent of total U.S. bank holding companies' assets as of September 2011. The DFA also required GAO to examine (1) regulation of foreign-owned intermediate holding companies in the United States, (2) potential effects of changes in U.S. capital requirements on foreign-owned intermediate holding companies, and (3) banks' views on the potential effects of changes in U.S. capital requirements on U.S. banks operating abroad.

January 17, 2012
Municipal Securities—Overview of Market Structure, Pricing, and Regulation

The DFA required GAO to review several aspects of the municipal securities market, including the mechanisms for trading, price discovery, and price transparency. This report examines (1) municipal security trading in the secondary market and the factors that affect the prices investors receive and (2) the Securities and Exchange Commission's (SEC's) and self-regulatory organizations' (SROs') enforcement of rules on fair pricing and timely reporting.

January 12, 2012
Securities Research—Additional Actions Could Improve Regulatory Oversight of Analyst Conflicts of Interest

In 2003 and 2004, the SEC, self-regulatory organizations (SROs), and others settled with 12 broker-dealers to address conflicts of interest between the firms' research and investment banking personnel. The regulators alleged that the firms allowed their investment bankers to pressure equity research analysts in ways that could cause them to issue misleading research to the harm of investors. Under the Global Research Analyst Settlement (global settlement), the firms had to undertake reforms designed to sever links between research and investment banking. The SROs also adopted equity research rules to address analyst conflicts across the industry, but these rules were not as stringent in some areas as the global settlement. The DFA required GAO to study these issues.

November 10, 2011
Dodd-Frank Act Regulations—Implementation Could Benefit from Additional Analysis and Coordination

This report examines (1) the regulatory analysis, including cost-benefit analysis, financial regulators have performed to assess the impact of selected final rules issued pursuant to the DFA; (2) how financial regulators consulted with each other in implementing the selected final rules to avoid duplication or conflicts; and (3) what is known about the impact of the final rules.

OTHER REPORTS

January 2012
Davis Polk Dodd-Frank Progress Report

December 2011
Thrift Institutions After Dodd-Frank: The New Regulatory Framework

Morrison & Foerster

November 15, 2011
Regulatory Burden Reduction

This is a discussion of Federal Reserve efforts to minimize regulatory burden, both in the ordinary course of carrying out regulatory responsibilities generally and, more specifically, in implementing the DFA.

UPDATES ON NEW AGENCIES

Consumer Financial Protection Bureau (CFPB)

January 30, 2012
Semiannual Report of the CFPB

This report summarizes the CFPB's activities and accomplishments over the period from its launch on July 21 through December 31, 2011, and provides information required by the DFA.

January 20, 2012
CFPB Adopts Rule to Protect Consumers Sending Money Internationally

The CFPB adopted a rule that will increase protections for consumers who transfer money internationally. Under the new rule, remittance transfer providers will generally be required to disclose the exchange rate and all fees associated with a transfer so that consumers know exactly how much money will be received on the other end. The rule also requires remittance transfer providers to investigate disputes and remedy errors.

January 19, 2012
CFPB Examines Payday Lending

CFPB convened the agency's first-ever field hearing to gather information and input on the payday lending market. The hearing coincided with the publication of the Bureau's “Short-Term, Small-Dollar Lending Procedures,” a field guide CFPB examiners will use to ensure that payday lenders—banks and nonbanks—are following federal consumer financial laws.

January 11, 2012
CFPB Releases Mortgage Origination Examination Procedures

The CFPB announced a key initial step in implementing its Nonbank Supervision program—the publication of the “Mortgage Origination Examination Procedures.” These procedures are a field guide for CFPB examiners looking at mortgage originators in both the bank and nonbank sectors of the industry.

January 6, 2012
Raj Date named Deputy Director of the Consumer Financial Protection Bureau

CFPB Director Richard Cordray named Raj Date the agency's first deputy director. Date has been leading the day-to-day operations of the CFPB since it launched in July 2011.

January 5, 2012
CFPB Launches Nonbank Supervision Program

CFPB launched the nation's first federal nonbank supervision program, one of the central new responsibilities the agency acquired with a director. This will be an extension of the CFPB's bank supervision program that began last July and will ensure that banks and nonbanks follow federal consumer financial laws.

January 4, 2012
Bulletin Regarding the Bureau's Supervision Authority and Treatment of Confidential Supervisory Information

The CFPB issued Bulletin 12-01 to clarify its practices regarding the collection and safeguarding of information obtained through the supervisory process.

January 4, 2012
Richard Cordray Serves as the First Director of the CFPB

November 17, 2011
Interagency Statement for Determining Asset Size of Institutions for Federal Consumer Financial Law Supervisory and Enforcement Purposes

The statement explains how the total assets of an insured depository institution or insured credit union (“institution”) will be measured for purposes of determining supervisory and enforcement responsibilities under sections 1025 and 1026 of the DFA.

October 13, 2011
Supervision and Examination Manual

The CFPB's Supervision and Examination Manual, issued on October 13, 2011, is a guide to how the CFPB will supervise and examine consumer financial service providers under its jurisdiction for compliance with federal consumer financial law.

Federal Insurance Office (FIO)

January 10, 2012
Remarks by Federal Insurance Office Director Michael McRaith at Property/Casualty Insurance Joint Industry Forum

December 9, 2011
Remarks by Deputy Secretary Neal Wolin at Federal Insurance Office Conference

Financial Stability Oversight Council (FSOC)

December 23, 2011
Report to the Congress on Prompt Corrective Action

The DFA requires the FSOC to submit a report to Congress regarding the implementation of prompt corrective action (PCA) by the federal banking agencies. More specifically, section 202(g)(4) of the act requires the council to issue a report on actions taken in response to the GAO study required by section 202(g)(1) of the act. This report discusses the existing PCA framework and the findings and recommendations of the GAO study. It also highlights some lessons learned from the financial crisis and outlines actions taken that could affect PCA, as well as additional steps to modify the PCA framework that could be considered.

November 11, 2011
Minutes of the FSOC

Office of Financial Research (OFR)

Assessment of Fees on Large Bank Holding Companies and Nonbank Financial Companies Supervised by the Federal Reserve Board to Cover the Expenses of the Financial Research Fund

The Treasury Department has proposed a rule that would determine the fee large banks and other major financial institutions would have to pay to help finance new regulatory powers created by the DFA financial reform law.


The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.

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