Final Look: The Federal Reserve’s Newly Announced Enhanced Prudential Standards
On February 16, 2014, the Federal Reserve Board approved a final rule strengthening the supervision and regulation of large U.S. bank holding companies and foreign banking organizations (FBOs) under section 165 of the Dodd-Frank Act.
The approval of the enhanced prudential standards represents a significant step on the part of the Fed toward improving the framework for supervising and regulating large financial institutions, both domestic and foreign. It addresses the risks that large financial institutions could pose to the financial stability of the U.S. Some highlights:
- Foreign banks are subject to similar standards as their domestic counterparty, but the Fed eased the requirement that some foreign banks create an intermediate holding company to hold capital and liquidity in the U.S., raising the threshold from $10 billion to $50 billion in U.S. non-branch assets.
- The rule would apply to about 24 U.S. bank holding companies and about 100 foreign banks. It is estimated that between 15 to 20 foreign banks would have to create a separate intermediate holding company, compared with about 25 or 26 under the original proposal.
- The rule would not apply to nonbank financial companies that may be designated for Fed supervision by the Financial Stability Oversight Council. The Enhanced Prudential Standards (EPS) rules will be applied to individual nonbanks by rule or order.
- U.S. banks with total consolidated assets of $50 billion or more must meet liquidity management standards, conduct internal liquidity stress tests and maintain a 30-day buffer of highly liquid assets. They must also establish an enterprise-wide risk committee and appoint a chief risk officer.
- The proposal’s single counterparty credit limits and early remediation requirements are still under development and were not included in the final rule.
These final rules will likely jumpstart much of the preplanning and analysis efforts that U.S. bank holding companies and FBOs have taken on to date. The race for implementation is next.
To help kick start that race, Deloitte has developed two papers that outline changes and implications for U.S. bank holding companies and FBOs that are designed to serve as a primer for understanding the rule’s potential impact as quickly as possible.
|Final look: A practical guide to the Federal Reserve’s final enhanced prudential standards for domestic banks
This report provides insights into how the Federal Reserve’s final rule on enhanced prudential supervision impacts U.S. bank holding companies.
|Final look: A practical guide to the Federal Reserve’s final enhanced prudential standards for foreign banks
This report provides insights into how the Federal Reserve’s final rule on enhanced prudential standards impacts foreign banking organizations.
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