In this week’s newsletter, we provide a snapshot of the principal US, European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructure providers, asset managers and corporates.
Bank Prudential Regulation & Regulatory Capital
US Federal Reserve Board and the Office of the Comptroller of the Currency approve CIT Group's Acquisition of OneWest Bank
In decisions issued on July 19 and July 21, 2015, respectively, the Federal Reserve and the OCC approved applications by CIT to acquire OneWest Bank and to merge CIT Bank into OneWest Bank, which will operate under the name CIT Bank, National Association following the merger. OneWest Bank was established upon its acquisition of certain assets and liabilities of the failed IndyMac Bank in 2009. Each of the merging banks has approximately $15 billion in deposits, and the merged bank will have approximately $44 billion in total assets, making this one of the larger recent bank merger approvals. The applications were the subject of thousands of public comments, many of them in favor of the application. The regulators also held a public meeting on the application, which is relatively uncommon. In approving the applications, the regulators considered numerous facts, including compensation practices, AML systems, and risks to US financial stability (including factors that might complicate resolution of the firm). The regulators also undertook an extensive review of factors under the Community Reinvestment Act and other considerations regarding the convenience and needs of the communities served by the banks. In connection with its approval, the OCC is subjecting OneWest Bank to its "Heightened Standards" for risk management, even though those standards typically apply only to banks with $50 billion or more in consolidated assets. The OCC is also requiring OneWest Bank to develop a comprehensive business plan and prepare quarterly reports on compliance with that plan.
FRB Order No. 2015-20 is available at: http://www.federalreserve.gov/newsevents/press/orders/orders20150721a1.pdf
The OCC letter of approval is available at: http://www.occ.gov/news-issuances/news-releases/2015/nr-occ-2015-105a.pdf
US Federal Reserve Board and Federal Deposit Insurance Corporation Provide Additional Guidance for Certain Resolution Plans
On July 28, 2015, the Federal Reserve Board and the FDIC provided guidance to 119 firms that will be filing updated resolution plans in December 2015. These firms include three nonbank financial companies: American International Group, Inc., Prudential Financial, Inc., and General Electric Capital Corporation. Based on a review of the plans submitted in 2014, the agencies have provided direction to each firm with respect to their upcoming resolution plans. The Dodd-Frank Wall Street Reform and Consumer Protection Act requires that bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies designated by the Financial Stability Oversight Council as systemically important periodically submit resolution plans to the FDIC and the Federal Reserve. Each plan must describe the company's strategy for rapid and orderly resolution under the US Bankruptcy Code or other applicable insolvency regime in the event of material financial distress or failure of the company.
The updated plans must be submitted on or before December 31, 2015. Additionally, the agencies released an updated tailored resolution plan template. A tailored resolution plan describes resolution strategies in respect of nonbanking operations of a firm and on the relationship between the nonbanking and banking operations.
The joint press release is available at: http://www.federalreserve.gov/newsevents/press/bcreg/20150728b.htm.
The template for tailored resolution plans is available at: http://www.federalreserve.gov/bankinforeg/resolution-plans/tailoredresolution-model-template.pdf.
European Banking Authority to Propose Legislative Initiative to Improve Consistency of Assessment of Bank Management
On July 22, 2015, the European Banking Authority published a report, dated June 16, 2015, following a peer review of the EBA Guidelines on the assessment of the suitability of members of the management body and key function holders in banks. The EU Capital Requirements Directive provides that a bank must have at least two suitable persons who effectively direct the business. The EBA Guidelines set out the criteria and processes for banks and their supervisors to follow when assessing the suitability of proposed and appointed members of the management body and provisions for the assessment of key function holders. The peer review results show that national regulators mostly apply the EBA Guidelines, that best practices have been identified but that there is no harmonized practice amongst EU Member States in many areas of the Guidelines. The EBA intends to set out best practices in a revised version of the EBA Guidelines and to recommend a legislative initiative on certain points to ensure further alignment of practices among Member States.
The report is available at: http://www.eba.europa.eu/documents/10180/950548/EBA+Peer+Review+Report+on+suitability.pdf
and the EBA Guidelines are available at: https://www.eba.europa.eu/documents/10180/106695/EBA-GL-2012-06--Guidelines-on-the-assessment-of-the-suitability-of-persons-.pdf.
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