Financial Services Bulletin: Action at the FDIC, CFTC, Fed, and OCC
FDIC Proposes Two New Rules
On Tuesday, March 20, 2012, the Federal Deposit Insurance Company (the “FDIC”) published two Notices of Proposed Rulemaking. The first would implement section 201(c)(16) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which permits the FDIC as receiver for a failed “systemically important financial institution,” or “SIFI,” to enforce and prevent termination of the contracts of the institution's subsidiaries or affiliates. The second proposed rule would make limited clarifications and definitional changes to the deposit insurance assessment system for insured depository institutions with more than $10 billion of assets. The proposed rule would amend the definitions of leveraged loans and subprime loans used to identify concentrations in higher-risk assets. The FDIC reports that there were 107 institutions with more than $10 billion in assets as of Dec. 31, 2011.
Read the FDIC press release
CFTC Adopts Amendments and New Rules on Commodity Pool Operators and Commodity Trading Advisors
On Monday, March 26, 2012, the Commodity Futures Trading Commission (the “CFTC”) adopted amendments to its existing part 4 regulations and promulgated one new regulation regarding Commodity Pool Operators (“CPOs”) and Commodity Trading Advisors (“CTAs”). The Commission is also adopting new data collection requirements for CPOs and CTAs that are consistent with data collection requirements under Title IV of the Dodd-Frank Act for entities registered with both the Commission and the Securities and Exchange Commission. The adopted amendments rescind certain exemptions from registration as a CPO; rescind the exemption from the certification requirement for annual reports for operators of certain pools offered only to qualified eligible persons; modify the criteria for claiming exclusion from the definition of CPO; require the annual filing of notices claiming exemptive relief under several sections of the CFTC’s regulations; and add new risk disclosure requirements for CPOs and CTAs regarding swap transactions.
Read the CFTC rule
The Fed, FDIC, and OCC Propose Revisions to Leveraged Finance Guidance
On Monday, March 26, 2012, the Board of Governors of the Federal Reserve System, the FDIC, and the Office of the Comptroller of the Currency (the “agencies”) announced that they are seeking comment on proposed revisions to the interagency leveraged finance guidance issued in 2001. Transactions that are covered by this guidance are characterized by a borrower with a degree of financial or cash flow leverage that significantly exceeds industry norms, as measured by various debt, cash flow, or other ratios.
The agencies observed tremendous growth in the volume of leveraged finance leading up to the crisis and in the participation of non-regulated investors. They report that although there was a pull-back in leveraged finance during the crisis, volumes have since increased at the same time as, according to the agencies, prudent underwriting practices have deteriorated.
In light of the market's evolution, the agencies propose replacing the 2001 guidance with revised leveraged finance guidance that refocuses attention to five key areas:
- Establishing a Sound Risk-Management Framework
- Underwriting Standards
- Valuation Standards
- Pipeline Management
- Reporting and Analytics
Read the Fed press release
Read the FDIC press release
Read the OCC press release
© 2012 Perkins Coie LLP