U.S. Bank Regulators at the Onset of the Financial Crisis

Transcription

1 Table of Contents About the Author... vii Acknowledgments...ix Introduction...xi Table of Chapters...xv Chapter 1 U.S. Bank Regulators at the Onset of the Financial Crisis 1:1 Introduction :2 Office of the Comptroller of the Currency :2.1 Overview :2.2 Regulation and Supervision of National Banks :2.3 Preemption :3 The Federal Reserve Board :3.1 Overview :3.2 Structure and Funding :3.3 Establishing Monetary Policy :3.4 Regulation of State Member Banks :3.5 Regulation of Bank Holding Companies and Financial Holding Companies :3.6 Regulation of Non-U.S. Banks :3.7 Consumer Protection Regulations :3.8 Banking Services: Payment Systems and Discount Window Lending [A] Payment Systems: Clearance and Settlement [B] Discount Window :4 Federal Deposit Insurance Corporation :4.1 Overview :4.2 Deposit Insurance :4.3 Regulation of State Non-Member Banks and Savings Associations :4.4 Activities of State-Chartered Banks and Savings Associations :4.5 Non-U.S. Activities of State Non-Member Banks :4.6 Retail Deposit Funding by Non-U.S. Banks :4.7 Bank Insolvency Regime (Fin. Servs. Reg., Rel. #3, 3/17) xvii

2 FINANCIAL SERVICES REGULATION DESKBOOK 1:5 Office of Thrift Supervision :5.1 Overview :5.2 Regulation of U.S. Thrifts :5.3 Interpretation of HOLA and Preemption :5.4 Regulation of U.S. Thrift Holding Companies :5.5 Non-U.S. Activities of Savings and Loan Holding Companies :6 The National Credit Union Administration :6.1 Overview :6.2 Role and Responsibility of the NCUA :7 Federal Housing Finance Agency :7.1 Overview :7.2 FHLB Banks [A] Overview [B] Office of Finance :7.3 Supervision and Regulation :7.4 Enforcement Chapter 2 The Financial Crisis Critical Events 2:1 Introduction :2 Time Line of the Crisis :3 Details of Major Events :3.1 Bear Stearns Liquidity Crisis and Merger with JPMorgan :3.2 The IndyMac and Washington Mutual Failures and the Role of the Office of Thrift Supervision :3.3 Conservatorship of Fannie Mae and Freddie Mac :3.4 Too Big to Fail I: Lehman, Merrill, and AIG :3.5 Too Big to Fail II: Citigroup and Bank of America Chapter 3 Initial Regulatory Responses to the Financial Crisis 3:1 Introduction :2 Emergency Lending by the Federal Reserve :2.1 Overview :2.2 Term Securities Lending Facility :2.3 Rescue of Bear Stearns :2.4 Primary Dealer Credit Facility :2.5 Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility :2.6 Commercial Paper Funding Facility xviii

3 3:2.7 Term Asset-Backed Securities Loan Facility :2.8 Summary :3 Troubled Asset Relief Program :3.1 Establishment :3.2 TARP Programs [A] Capital Purchase Program [B] Capital Assistance Program [C] Targeted Investment Program [D] Asset Guarantee Program [E] Automobile Industry Financing Program [F] Making Home Affordable Program :3.3 Management, Implementation, and Oversight [A] Oversight Bodies [B] Table of Contents Executive Compensation for TARP Recipients :3.4 Outcome :4 Temporary Liquidity Guarantee Program :4.1 Overview :4.2 Debt Guarantee Program :4.3 The Transaction Account Guarantee Program Chapter 4 Systemic Regulation: Financial Stability Oversight Council 4:1 Introduction :2 Antecedents :2.1 Paulson Treasury Blueprint :2.2 Geithner Treasury White Paper :3 House and Senate Bills :3.1 House Bill Wall Street Reform and Consumer Protection Act :3.2 Senate Bill :4 Enacted Legislation :4.1 Overview :4.2 Systemic Designation Authority :4.3 Recommending Standards :4.4 Systemic Designation Nonbank Financial Company [A] Overview [B] Exclusions from the Definition of Nonbank Financial Companies [C] Factors for Systemically Important Designation [D] Appeal and Review of Systemically Important Designation (Fin. Servs. Reg., Rel. #3, 3/17) xix

4 FINANCIAL SERVICES REGULATION DESKBOOK [E] Anti-Evasion Provision [F] Potential Exemptions :4.5 Systemically Significant Bank Holding Companies :5 Enhanced Prudential Standards :5.1 Overview :5.2 Requirements for Designing Heightened Prudential Standards :5.3 Particular Prudential Standards: Inclusion of Off-Balance Sheet Activities in Computing Capital Requirements :5.4 Contingent Capital :5.5 Limits on Credit Exposures to Non-Affiliates :5.6 Risk Committees at Public Nonbank SIFIs and Certain BHCs :5.7 Resolution Plans ( Living Wills ) :5.8 Credit Exposure Reports :5.9 Enhanced Public Disclosures :5.10 Short-Term Debt Limits :5.11 Stress Tests :5.12 Early Remediation :5.13 Kanjorksi Amendment: Asset Sales and Breakup Powers :5.14 Leverage Limit :6 Designating Particular Activities and Practices :7 Registration of Nonbank SIFIs :8 Intermediate Holding Companies :9 Nonbank SIFIs: Reports, Examinations, and Enforcement :10 Bank Holding Company Act Activities Restrictions and Acquisition Limits :11 Application to Non-U.S. Financial Companies :11.1 Overview :11.2 Recommendation and Application of Standards to Non-U.S. Banking Entities :11.3 Specific Modification of Systemic Risk Provisions :11.4 Treatment of Non-U.S. Nonbank Financial Companies: Designation :11.5 Extraterritorial Application for Non-U.S. Nonbank SIFIs :12 Office of Financial Research :13 FSOC Regulations Relating to the Designation Process :13.1 Overview :13.2 Proposed Regulation on Systemic Designation xx

5 Table of Contents Table 4-1 Groupings of the Statutory Factors :13.3 Final Regulation on Systemic Designation :13.4 FSOC Final FOIA Regulation :14 Federal Reserve Proposed and Final Regulations on Predominantly Engaged in Financial Activities for FSOC Designation Purposes :14.1 Proposed Regulation Predominantly Engaged in Financial Activities :14.2 Supplemental Notice of Proposed Rulemaking on Predominantly Engaged in Financial Activities :14.3 Final Regulation Predominantly Engaged in Financial Activities :14.4 Final Regulation on Significant Bank Holding Company and Significant Nonbank Financial Company :15 FSOC Nonbank SIFI Designations :15.1 Nonbank SIFI Designations of American International Group and GE Capital Corporation :15.2 Nonbank SIFI Designations of Prudential Financial and MetLife, Inc :15.3 MetLife s Court Challenge to Its Designation :15.4 February 2015 Changes to FSOC Designation Procedures :15.5 Enhanced Prudential Standards Order for GE Capital Corporation :15.6 Rescission of Designation of GE Capital :16 Title VIII Designation of Systemically Important Financial Market Utilities :17 Federal Reserve Final Rule on Risk-Management Standards for the Operations Relating to the Payment, Clearing and Settlement Activities of Designated Financial Market Utilities Chapter 5 Orderly Liquidation Authority 5:1 Introduction :2 Administration Antecedents :2.1 Paulson Treasury Blueprint :2.2 Geithner Treasury Rules of the Road :2.3 Geithner Treasury White Paper :3 House and Senate Bills :3.1 House Bill :3.2 Senate Bill :4 Orderly Liquidation Authority As Enacted (Fin. Servs. Reg., Rel. #3, 3/17) xxi

6 FINANCIAL SERVICES REGULATION DESKBOOK 5:4.1 Coverage Limitations: Financial Companies :4.2 Designating a Financial Company As a Covered Financial Company :4.3 Authority to Transfer Assets or Liabilities :4.4 Duration of Receivership :4.5 Funding of Title II Liquidation :4.6 FDIC Super Powers : Bankruptcy Code Approach :4.7 Liquidation Priorities :4.8 Officers and Directors :4.9 Required Rulemaking, Reports, and Studies :5 Post-Enactment Regulatory Actions :5.1 FDIC Final Rule: 12 C.F.R. Part [A] Subpart A [B] Subpart B [C] Subpart C :5.2 Final Rule on Treatment of Mutual Insurance Holding Companies :5.3 Final Rule on Maximum Obligation Limitation :5.4 Final Rule on Enforcement of Subsidiary and Affiliate Contracts by the FDIC As Receiver of a Covered Financial Company :5.5 FDIC Definition of Predominantly Engaged in Activities That Are Financial in Nature or Incidental Thereto Under Title II :6 The FDIC s Single Point of Entry Strategy :7 ISDA Protocol and Proposed Rules on QFCs and Cross-Defaults :8 Federal Reserve Final TLAC Rule :9 Criticism of the OLA and SPOE Chapter 6 The Volcker Rule 6:1 Introduction :2 Antecedents :2.1 Prior Restrictions on Trading and Fund Activities :2.2 Obama Administration Focus [A] Administration Financial Reform Efforts [B] Treasury Department Proposal [C] Merkley-Levin Proposal [D] Final Language :3 The Volcker Rule Statutory Text :3.1 Proprietary Trading Prohibition :3.2 Private Fund Prohibition xxii

7 6:3.3 Anti-Evasion Provision and Systemically Important Nonbanks :3.4 Effective Date, Conformance Period, and Illiquid Funds :4 FSOC Study :4.1 Findings :4.2 Fundamental Principles to Guide Rulemaking and Implementation [A] Five Fundamental Principles [B] Permitted Activities [B][1] Market-Making Activities [B][2] Risk-Mitigating Hedging [B][3] Underwriting [B][4] Loan Trading and Securitization [B][5] Asset-Liability Management :4.3 Challenges in Implementing the Proprietary Trading Ban :4.4 Supervisory Framework :4.5 Activities by Insurance Companies :4.6 Private Funds [A] Hedge Funds and Private Equity Funds [B] Similar Funds [C] Banking Entity :5 Federal Reserve s Transition Rules :5.1 Banking Entities [A] Conformance Period and Extensions [B] Additional Extension Period of Up-to-Five-Years [B][1] Illiquid Funds [B][2] Contractual Obligation to Be Invested Principally in Illiquid Assets [B][3] Effect of Illiquid Funds Definition [C] Table of Contents Process and Factors for Granting Extensions of Two-Year Conformance Period :5.2 Nonbank Financial Companies :6 Proposed Rules of the Federal Reserve, FDIC, OCC and the SEC :6.1 Overview :6.2 Proprietary Trading Prohibition [A] Definitions [B] Permitted Activity Determination [B][1] Market Making [B][2] Underwriting [B][3] Hedging [B][4] Trading in Government Obligations [B][5] Trading on Behalf of Customers (Fin. Servs. Reg., Rel. #3, 3/17) xxiii

8 [B][6] Trading by a Regulated Insurance Company [B][7] Trading Solely Outside the United States [B][8] When Permissible Activity Is Impermissible [C] Material Conflict of Interest [D] Compliance Program :6.3 Private Funds Prohibition [A] Definitions [B] Fund Asset Management Activity [B][1] Overview [B][2] De Minimis Co-Investment Limits [C] FINANCIAL SERVICES REGULATION DESKBOOK Additional Categories of Permitted Fund Activities Outside Section 619(d)(1)(G) [D] Acquiring Fund Interests As a Hedge [E] Fund Activity Solely Outside the United States [F] Super 23A Provisions [G] Compliance Program :7 Federal Reserve Statement of Policy Regarding the Conformance Period Chapter 7 Bank Regulatory Reform 7:1 Introduction :2 Antecedents :2.1 Paulson Treasury Blueprint :2.2 Geithner Treasury White Paper and Proposed Legislation; Republican Alternative [A] Geithner Treasury White Paper and Proposed Legislation [B] Republican Alternative :2.3 House and Senate Bills [A] House Bill [B] Senate Bill :3 Abolition of the Office of Thrift Supervision and Thrift-Related Reforms :3.1 Abolition of the Office of Thrift Supervision [A] Overview [B] Division of Previous OTS Supervisory and Rulemaking Authority [B][1] Federal Reserve [B][2] OCC [B][3] FDIC [C] OTS Actions/Material Post-Transfer Date :3.2 Thrift-Related Reforms [A] Thrifts and Their Holding Companies [B] Regulation LL: Savings-and-Loan Holding Company Regulation xxiv

9 [B][1] Overview [B][2] Permissible Nonbanking Activities [B][2][a] Covered SLHCs Must Comply with FHC Requirements [B][2][b] Well Capitalized and Well Managed Standards [B][2][c] Affirmatively Electing Treatment As an FHC [B][2][d] Insurance Agency and Escrow Activities [B][3] Control Regulations [B][3][a] Control Determinations [B][3][b] Definition of Control [B][3][c] Federal Reserve Approach [B][4] Other Covered Issues [B][4][a] Application Processing [B][4][b] Notice of Change of Director or Senior Executive Officer [B][4][c] Prohibited Service at SLHCs [B][4][d] Management Official Interlocks [B][4][e] Investigative and Formal Examination Proceedings [B][4][f] Dividends by Subsidiary Savings Associations [B][4][g] Qualified Stock Issuances :4 Bank Holding Company Amendments :4.1 Exemptions from Bank Definitions :4.2 Supervision :5 Bank Acquisitions New Restrictions :5.1 BHC Act Section :5.2 Deposit Cap on Other Insured Depository Institution Holding Companies :5.3 Dodd-Frank Act Section 622 Concentration Limit Provision [A] Overview [B] FSOC Study [C] Table of Contents Bank Holding Companies Source of Financial Strength :6 Nonbanking Activities and Acquisitions New Restrictions :6.1 Dodd-Frank Act Sections 606(a) and 606(b) :6.2 Dodd-Frank Act Sections 163(b) and 604(e) :7 Changes to Bank Prudential Regulation :7.1 Overview :7.2 Amendments to Section 23A and 23B of the Federal Reserve Act :7.3 Transactions with Insiders :7.4 Lending Limits :7.5 Securities Holding Companies (Fin. Servs. Reg., Rel. #3, 3/17) xxv

10 FINANCIAL SERVICES REGULATION DESKBOOK 7:8 Enhanced Capital Requirements :9 Capital Plans, Stress Tests, and Living Wills :9.1 Overview :9.2 Capital Plans and Stress Tests :9.3 Living Wills :9.4 Credibility Review :10 Deposit Insurance Reforms :10.1 Overview :10.2 New Assessment Scheme :10.3 Deposit Insurance :11 Federal Reserve Reform and Emergency Stabilization :11.1 Overview :11.2 Section 13(3) Assistance :11.3 Emergency Financial Stabilization :11.4 Governance :11.5 TARP Chapter 8 Investment Adviser and Securities Law Reforms 8:1 Introduction :2 Investment Advisers Act Reforms :2.1 Investment Advisers Act of :2.2 Final SEC Rules [A] Overview [B] Venture Capital Funds [B][1] Overview [B][2] Twenty Percent Basket for Non-Qualifying Investments [B][3] Borrowing, Providing Guarantees, or [B][4] Incurring Leverage Investors Redemption or Other Liquidity Rights [B][5] Private Fund [B][6] Grandfather [C] Private Fund Adviser Exemption [D] Foreign Private Adviser Exemption [E] Changes to Threshold for SEC Registration [F] New Family Office Exemption [G] New Recordkeeping and Reporting Obligations [H] [I] Reporting Requirements for Exempt Reporting Advisers Other Statutory Provisions Affecting Investment Advisers xxvi

11 8:3 Securities Law Reform :3.1 Investor Protection and Broker-Dealer-Related Provisions [A] Overview [B] Table of Contents SEC Study on Investment Adviser Standard of Care :3.2 Self-Regulatory Organization Rules :3.3 Securities Law Enforcement Provisions [A] Overview [B] SEC Final Whistleblower Rules :3.4 Extraterritorial Jurisdiction of Antifraud Provisions :4 Credit Rating Agencies :4.1 Overview :4.2 Governance and Compliance :4.3 Penalties and Liabilities :4.4 Conflicts of Interest :4.5 Procedures and Methodologies Rules :4.6 Disclosure :5 Securitization Reforms :5.1 Credit Retention Requirements :5.2 Conflict of Interest Prohibitions :6 Municipal Securities Reforms :6.1 Municipal Advisors and the Municipal Securities Rulemaking Board :6.2 Executive Compensation and Corporate Governance Chapter 9 Derivatives Reform 9:1 Introduction :2 Antecedents :2.1 Paulson Treasury Blueprint :2.2 Geithner Treasury Rules of the Road :2.3 Geithner Treasury White Paper :3 Administration and House Bills :3.1 Over-the-Counter Derivatives Markets Act of :3.2 Frank Proposal :4 Senate Action :5 Enacted Legislation :5.1 Overview :5.2 Jurisdictional Allocations: Swaps, Security-Based Swaps and Mixed Swaps (Fin. Servs. Reg., Rel. #3, 3/17) xxvii

12 FINANCIAL SERVICES REGULATION DESKBOOK 9:5.3 State Law Preemption :5.4 Regulated Market Participants: Swap Dealers and Major Swap Participants :5.5 Revisions to Existing Definitions of Certain Market Participants :5.6 New Mandatory Clearing of Swaps :5.7 New Mandatory Swap Trade Execution Requirements :5.8 Public Reporting of Swap Transaction Data :5.9 Other New Requirements Concerning Swaps :5.10 Capital and Margin Requirements :5.11 Protection of Counterparty Funds and Property :5.12 Position Limits and Large Swap Trader Reporting :5.13 Extraterritoriality :5.14 Exchange Act Beneficial Ownership Reporting :5.15 Conflicts of Interest :5.16 Enforcement Authority, Insider Trading, Disruptive Practices and Whistleblowers :5.17 Prohibition on Federal Assistance to Swaps Entities :5.18 Effectiveness and Exemptive Authority :6 Final Rulemakings: The First Two Years :6.1 From Enactment to July 31, :6.2 From July 31, 2011 to June 30, Chapter 10 Consumer Financial Protection Bureau 10:1 Introduction :2 Antecedents :2.1 Paulson Treasury Blueprint [A] Short-Term Recommendation [B] Long-Term Recommendation: Conduct of Business Regulatory Agency :2.2 Geithner Treasury White Paper [A] Overview [B] Consumer Financial Protection Agency :2.3 Administration and House Bills [A] Consumer Financial Protection Agency Act of [B] House Bill [B][1] Consumer Financial Protection Agency [B][2] CFPA Authority [B][3] Federal Preemption of State Law xxviii

13 Table of Contents [B][4] Funding [B][5] Other Provisions :2.4 Senate Bill [A] Overview [B] Bureau Within the Federal Reserve System [C] Federal Preemption of State Law [D] Durbin Amendment :3 Enacted Legislation The Consumer Financial Protection Bureau :3.1 Overview :3.2 Authority [A] Promulgate Regulations [B] Information Collection [C] Covered Parties [C][1] Covered Persons [C][2] Financial Products or Services [D] Exempt Persons and Activities :3.3 Preemption :3.4 Funding :3.5 Effective Date :3.6 Durbin Amendment :3.7 Other Provisions :4 Regulatory Developments :4.1 Overview :4.2 Initial CFPB Developments :4.3 Federal Reserve Final Durbin Amendment Rule :4.4 OCC Final Preemption Rule :4.5 Final Remittance Transfer Rule :4.6 Final Rules Defining Larger Participants of the Consumer Reporting and Debt Collection Markets Table of Authorities...T-1 Index... I-1 (Fin. Servs. Reg., Rel. #3, 3/17) xxix

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