Bank Regulatory News and Trends

This regular publication from DLA Piper focuses on helping banking and financial services clients navigate the ever-changing federal regulatory landscape.

Fed finalizes rules tailoring bank regulation to business models. The Federal Reserve has finalized its new supervisory framework for domestic and foreign banks, tailoring regulations to firms' business models, relieving most domestic banks with $100 billion to $250 billion in assets from enhanced capital and liquidity rules, and making the heretofore annual stress tests an every-other-year exercise. The rules, passed on a 4-1 vote on October 10, establish a framework that sorts banks with $100 billion or more in total assets into four categories based on factors including:

asset size cross-jurisdictional activity reliance on short-term wholesale funding nonbank assets and off-balance sheet exposure While generally similar to the proposals released for comment over the past year, the final rules simplify the proposals by applying liquidity standards to a foreign bank's US intermediate holding company based on the risk profile of the IHC, rather than on the combined US operations of the foreign bank. For larger firms, the final rules apply standardized liquidity requirements at the higher end of the range that was proposed for both domestic and foreign banks. The first of the tailoring rules, developed with the FDIC and OCC, revises the criteria for determining the applicability of regulatory capital and liquidity requirements for large US banking organizations and IHCs of foreign banks. The second tailoring rule establishes risk-based categories for determining prudential standards for large domestic and foreign banks, consistent with the Dodd-Frank overhaul law enacted in 2018. The Fed has summarized its new rules in a 2-page visual, spelling out requirements for banks and lists of foreign and domestic firms by category. The rules will be effective 60 days after publication in the Federal Register.

Fed Vice Chair for Supervision Randal Quarles indicated that the Fed will be working with international partners to address an issue not covered in the newly finalized rules: liquidity rules for US branches of foreign banks. "We will be focusing our attention in the coming months on the question of branch liquidity requirements," Quarles said in his October 10 statement in support of the rules. The one dissenting vote from the Fed's Board of Governors came from Lael Brainard, the sole Democratic appointee, who voted against both tailoring rules, saying in her October 10 statement, "Today's actions go beyond what is required by law and weaken the safeguards at the core of...