WASHINGTON (MNI) – The following the Federal Reserve’s announcement
Tuesday of its proposed rules for large financial institutions mandated
by the Dodd-Frank Wall Street Reform and Consumer Protection Act:

The Federal Reserve Board on Tuesday 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 Dodd-Frank Wall Street
Reform and Consumer Protection Act. The proposal generally applies to
all U.S. bank holding companies with consolidated assets of $50 billion
or more and any nonbank financial firms that may be designated by the
Financial Stability Oversight Council as systemically important
companies. The Board will issue a proposal regarding foreign banking
organizations shortly. In general, savings and loan holding companies
(SLHCs) would not be subject to the requirements in this proposal,
except certain stress test requirements. The Board plans to issue a
separate proposal later to address the applicability of the enhanced
standards to SLHCs.

The Board is proposing a number of measures, including:

–Risk-based capital and leverage requirements.

These requirements would be implemented in two phases. In the first
phase, the institutions would be subject to the Boards capital plan
rule, which was issued in November 2011. That rule requires firms to
develop annual capital plans, conduct stress tests, and maintain
adequate capital, including a tier one common risk-based capital ratio
greater than 5 percent, under both expected and stressed conditions. In
the second phase, the Board would issue a proposal to implement a
risk-based capital surcharge based on the framework and methodology
developed by the Basel Committee on Banking Supervision.

–Liquidity requirements. These measures would also be implemented
in multiple phases. First, institutions would be subject to qualitative
liquidity riskmanagement standards generally based on the interagency
liquidity riskmanagement guidance issued in March 2010. These standards
would require companies to conduct internal liquidity stress tests and
set internal quantitative limits to manage liquidity risk. In the second
phase, the Board would issue one or more proposals to implement
quantitative liquidity requirements based on the Basel III liquidity
rules.

–Stress tests. Stress tests of the companies would be conducted
annually by the Board using three economic and financial market
scenarios. A summary of the results, including company-specific
information, would be made public. In addition, the proposal requires
companies to conduct one or more company-run stress tests each year and
to make a summary of their results public.

–Single-counterparty credit limits. These requirements would limit
credit exposure of a covered financial firm to a single counterparty as
a percentage of the firms regulatory capital. Credit exposure between
the largest financial companies would be subject to a tighter limit.

–Early remediation requirements. These measures would be put in
place for all firms subject to the proposal so that financial weaknesses
are addressed at an early stage. The Board is proposing a number of
triggers for remediation — such as capital levels, stress test results,
and risk-management weaknesses — in some cases calibrated to be
forward-looking. Required actions would vary based on the severity of
the situation, but could include restrictions on growth, capital
distributions, and executive compensation, as well as capital raising or
asset sales. The Board is proposing that firms would need to comply with
many of the enhanced standards a year after they are finalized. The
requirements related to stress testing for bank holding companies,
however, would take effect shortly after the rule is finalized. The
Federal Reserve consulted with other members of the Financial Stability
Oversight Council in developing the proposal. Comments on the proposal
are requested by March 31, 2012.

** Market News International Washington Bureau: 202-371-2121 **

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