On December 12th, Reuters discussed whether significant changes to the Dodd-Frank Act were likely in 2015. Expectations.
On December 11th, the Basel Committee on Banking Supervision issued revisions to the securitization framework to address a number of shortcomings in the Basel II securitization framework and to strengthen the capital standards for securitization exposures. The updated framework reduces reliance on external ratings and simplifies and limits the number of ratings approaches which may be used; adds risk drivers to each approach, particularly an explicit adjustment to take account of the maturity of a securitization's tranche; and changes the amount of regulatory capital banks must hold for exposures to securitizations. BIS Securitization Framework Press Release. The Basel Committee, jointly with the International Organization of Securities Commissions, also published a consultative document entitled “Criteria for identifying simple, transparent and comparable securitisations”. The criteria help identify securitization structures as well as assist in the due diligence evaluation of a securitization. Comments should be submitted on or before February 13, 2015. BIS Securitization Criteria Press Release.
On December 9th, Reuters described how banks have met, both formally and informally, in order to discuss how to present their stress test reports in light of the Federal Reserve Board’s failure to clarify its expectations for the reports. Study Groups.
Global Regulatory Approach
On December 9th, Reuters summarized the remarks of David Wright, Secretary General of the International Organization of Securities Commissions (“IOSCO”). According to Wright, the Financial Stability Board, of which the IOSCO is a member, is adopting a new approach to the regulation of investment funds. Instead of seeking to impose capital requirements or redemption limitations, global regulators are examining whether to base oversight on the possible risks posed by the funds’ activities. Asset Approach. In a related article, Reuters reported Wright also voiced the concern that limits on banks’ market-making activities may cause liquidity problems during times of market stress. Market Stress.
Banker Bonus Caps
On December 8th, Bloombergreported Thomas Hoenig, Vice Chair of the FDIC, said that regulators may seek to restrict the compensation paid to bank executives if other efforts to reform the industry are not adopted. Last Resort.