Impact of U.S. Financial Regulatory Reform
On Global Banking Groups

April 2, 2014 | Federal Reserve Bank of New York

Overview Join the Center for Transnational Legal Studies for the second annual, invitation-only, full-day seminar on the impact of U.S. financial regulatory reform on global banking groups. Leading legal, government and industry experts will address the key policy areas and business issues of importance, including the Enhanced Prudential Standards for Large FBOs; Risk Governance, Litigation and Enforcement; the Volcker Rule; Recovery and Resolution Planning; and OTC Derivatives (including Swap Dealers). This event will present a particularly valuable opportunity for you to learn about the latest developments in the ongoing implementation of these reforms, and benefit from an expert view of the road ahead. Many of these topics are discussed in more detail in the latest edition of Regulation of Foreign Banks & Affiliates in the United States, which is published by the Center.
Introduction
10:15am-10:30am

Introductory Remarks

  • Ernest T. Patrikis, Partner, White & Case; President, Center for Transnational Legal Studies
  • Randall D. Guynn, Partner and Head of the Financial Institutions Group, Davis Polk & Wardwell LLP; Editor, Regulation of Foreign Banks & Affiliates in the United States (7th edition 2013)
Welcoming Remarks
10:30am-10:45am

Sarah Dahlgren, Head of the Financial Supervision Group, NY Federal Reserve

Enhanced Prudential Standards for Large FBOs
10:45am-11:45am

The regulations implementing the Dodd-Frank enhanced prudential standards for large FBOs were finalized in February. The final regulations require certain large FBOs to establish intermediate holding companies for their U.S. subsidiaries. IHCs are subject to capital, liquidity and corporate governance requirements similar to those applicable to U.S. BHCs. Will the FBO Rule result in a more coherent corporate governance framework for the U.S. operations of FBOs? How will FBOs comply with the IHC requirement if they are subject to a 4(m) agreement? How will the IHC requirement apply to subsidiaries with minority interests? What impact will capital planning and stress-testing have on the ability to upstream dividends? How will the risk governance requirements of the IHC interact with the group’s requirements? Will the Federal Reserve take into account the resolution strategy of the FBO (e.g., SPOE or MPOE) in determining whether the capital and liquidity of a particular IHC is comparable to that of a U.S. BHC? How much room will there be for cross-border cooperation to soften the otherwise territorialist approach of the FBO rule?

Moderator

Panelists

Materials PDF

  1. Panel 1 IHC Structuring & Regulatory Considerations Visual Memorandum 4.2.2014 Davis Polk & Wardwell LLP
  2. Panel 1 Foreign Banks - Enhanced Prudential Standards Final Rule Visual Summary 2.24.2014
  3. Panel 1 U.S. BHCs Enhanced Prudential Standards Visual Summary  02.24.2014 Davis Polk & Wardwell LLP
  4. Panel 1 Dodd-Frank Enhanced Prudential Standards for Foreign Banks with Limited U.S. Footprints 03.24.2014 Davis Polk & Wardwell LLP
  5. Panel 1 Foreign Banks U.S. Liquidity Buffer Requirement 02.27.2014 Davis Polk & Wardwell LLP
  6. Panel 1 2014 CCAR and DFAST Visuals 03.27.2014 Davis Polk & Wardwell LLP
  7. Panel 1 Davis Polk Capital and Prudential Standards Blog
  8. Panel 1 Revised Basel III Leverage Ratio 01.21.2014. Davis Polk & Wardwell LLP
  9. Panel 1 Basel III Net Stable Funding Ratio 01.13.2014 Davis Polk & Wardwell LLP Capital and Prudential Standards Blog
  10. Panel 1 CLE U.S. Basel III Final Rule Visual Memo 06.09.2013 Davis Polk & Wardwell LLP
  11. Panel 1 Highlights of the Final Enhanced Prudential Standards Rule 02.21.2014 Cleary Gottlieb Steen & Hamilton LLP
  12. Panel 1 U.S. Basel 3 LCR Proposal 10.30.2013 Davis Polk & Wardwell LLP
  13. Panel 1 Enhanced Prudential Standards for Foreign-Banking Organizations 03.25.2014 White & Case LLP
Risk Governance, Litigation and Enforcement
11:45am-12:45pm

The U.S. litigation and enforcement environment has been harsh for both large FBOs and U.S. banking organizations for several years, and the risk governance requirements are increasing. The fines and settlements for AML, OFAC, mortgages, LIBOR and other compliance issues have been at record levels. The FX investigations are now in full swing. The OCC just published extensive new compliance guidelines on enhanced corporate governance requirements. If those guidelines don’t apply to you now, they will be “coming soon to a theater near you.” Meanwhile, it is hard to find an FBO, or large U.S. BHC for that matter, that is not subject to a 4(m) agreement or other supervisory action that limits its ability to grow in the U.S. Will this hostile environment ever end? What’s next? Volcker Rule compliance issues? What can an FBO do to minimize its U.S. compliance, litigation and enforcement costs and risks? Have the U.S. compliance, litigation and enforcement costs and risks become too high to justify a significant presence in the U.S.? Would debanking in the U.S. help? Is there really any escape in the modern world of global finance in light of the extraterritorial reach of the U.S. financial laws and the adoption of new antimanipulation and anti-corruption laws in the EU?

Moderator

Panelists

Materials PDF

Lunch
12:45pm-1:30pm

Keynote Speaker

  • E. Gerald Corrigan, Managing Director, Executive Office, Goldman Sachs; former President and CEO of the Federal Reserve Bank of New York

Materials PDF

The Volcker Rule
1:30pm-2:30pm

The regulations implementing the Volcker Rule were finalized in December 2013. They impose severe restrictions on proprietary trading and investments in and certain relationships with hedge funds and private equity funds. How can an FBO figure out what constitutes a trading desk or trading account? How robust is the exemption for proprietary trading outside the U.S.? Do the Volcker Rule regulations draw a line between U.S. and extraterritorial activities similar to the line in Regulation K or in the swap dealer rules? The final regulations applicable to covered funds both limited and expanded the term covered fund. Foreign public funds and certain foreign private funds are out, but CLOs, CDOs and other securitization vehicles are in. Covered funds are not banking entities, but controlled excluded funds are. Do these distinctions make any sense? How do these changes affect Super 23A? Is there any scope left to the “solely outside the United States” exemption? Can FBOs still be minority investors in certain third-party funds? How feasible will it be to clarify ambiguities in the regulations if the views of all five agencies need to be considered? What sort of compliance framework is required? Will compliance mistakes lead to a new round of enforcement actions?

Moderator

Panelists

Materials PDF

  1. Panel 3 Agencies Approve Long-Awaited Final Rule - Most Requirements to Take Effect on July 21, 2015 - 12.13.2013 Sullivan & Cromwell LLP
  2. Panel 3 The Final Volcker Rule - The Proprietary Trading Provisions 02.2014 Banking Law Journal, Kini Lee Lyons
  3. Panel 3 Volcker Rule Agencies Issue Interim Final Rule Exempting Certain TruPS-Backed CDOs from Volcker Rule Prohibition 01.14.2014 Sullivan & Cromwell LLP
  4. Panel 3 Volcker Rule 01.27.2014 Sullivan & Cromwell LLP
  5. Panel 3 Final Volcker Rule Flowcharts Funds Davis Polk & Wardwell LLP
  6. Panel 3 Volcker Rule Flowcharts Prop Trading 12.23.2013 Davis Polk & Wardwell LLP
  7. Panel 3 Davis Polk & Wardwell LLP VolckerRule.com
Recovery and Resolution Plannning
2:30pm-3:30pm

Nearly 100 FBOs have filed resolution plans under Dodd-Frank for their U.S. operations. Meanwhile banking supervisors around the world have identified the single-point-of-entry (SPOE) strategy as the most promising strategy for resolving most global systemically important banks (G-SIBs). The FDIC published details on how it would use this strategy for U.S. G-SIBs. The EU bank recovery and resolution directive will include an SPOE bail-in tool, and allow for multiple-point-of-entry (MPOE) strategies for decentralized banking groups. The Federal Reserve will impose a minimum loss-absorbing resources requirement at the parent level of U.S. G-SIBs to make SPOE feasible. The BRRD includes a minimum own funds and eligible liabilities (MREL) requirement and the Financial Stability Board has said it will issue a recommendation for gone-concern loss-absorbing capacity (GLAC) designed to support both SPOE or MPOE. What is the SPOE strategy? Will it end “too big to fail”? Will the MPOE strategy? Will the Federal Reserve impose its new loss-absorbing resources requirement on the new IHCs of FBOs? How can FBOs use either strategy in their U.S. resolution plans? When will the FDIC and Federal Reserve decide whether the resolution plans are credible? What could happen if they find some or all of the plans not credible?

Moderator

Panelists

Materials PDF

  1. Panel 4 Cross-Border Resolution of Banking Groups - International Initiatives and U.S. Perspectives - Part 1 July - Aug 2013 Paul L. Lee - Pratt's Journal of Bankruptcy Law
  2. Panel 4 Resolution Planning in the United States 2013 Randall Guynn, Davis Polk & Wardwell LLP
  3. Panel 4 Too Big To Fail - A Report of the Failure Resolution Task Force 05.2013 Bi-Partisan Policy Center
  4. Panel 4 Written Statement on Bankruptcy Reforms for SIFIs before House Subcommittee on Regulatory Reform 03.26.2014 Thomas Jackson
OTC Derivatives
3:45pm-4:45pm

Title VII of the Dodd-Frank Act introduced a new regulatory regime for previously unregulated OTC derivatives. The CFTC has issued most of the regulations necessary to implement this new regime, but implementation has been rocky, particularly for the cross-border application of its rules. The SEC is much further behind and has not finalized any significant Title VII rules. The Federal Reserve finally granted FBOs the same exemptions from the swap pushout rule as the statutory exemptions for insured banks. What are the key elements of the Title VII regime? Where are we in the regulatory implementation process? When will we see final capital and margin rules for swap dealers, and what will they look like? How might this regime change now that Gary Gensler has left the CFTC? What does the CFTC’s guidance on cross-border transactions mean? How might the SEC’s approach differ from the CFTC’s approach? What impact is the industry’s lawsuit against the CFTC likely to have? What is next with the swap pushout rule?

Moderator

Panelists

Materials PDF

  1. Panel 5 CFTC Issues Cross-Border Substituted Compliance Determinations 01.07.2014 Davis Polk & Wardwell LLP
  2. Panel 5 Margin Final Rule 09.18.2013 Davis Polk & Wardwell LLP
  3. Panel 5 OTC Derivatives Panel Slide Deck 04.02.2014
  4. Panel 5 The Cross-Border Impact of the Dodd-Frank Act Chapter 9 of Third Edition of A Practitioner's Guide to the Regulation of Investment Banking (2013)
  5. Panel 5 OTC Derivatives Regulation KK 04.20.2014
Concluding Remarks
4:45pm-5:00pm