New Compliance Regulations for US Banks


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New rules were recently issued new regulations to assist US banks to improve their supervision and compliance with regulations. The approach recommended is systematic and specific to business companies and nonbank financial organizations.

The new regulations have been established to address some sensitive best practices that are often overlooked. These best practices include:

  • Stress testing
  • Early remediation requirements
  • Liquidity
  • Risk management
  • Capital
  • Credit exposure

These new regulations are somehow interconnected to those authorized by Dodd Frank Act.

Applicability of New Regulations

These new regulations are meant to be applied to:

  • All banks in the United States holding companies that have assets worth $50 billon at least.
  • All nonbank financial organizations designated as systematically important for companies. (The Financial Stability Oversight Council has the authority to deem companies as important or not).

Note: SLHCs (Savings and Loan Holding Companies) are not subject to compliance with these regulations, except with requirements for stress test.

In the near future, the Federal Reserve (FR) will issue regulations for foreign banking institutes and SLHCs as well. The expected regulations include:

  • Leverage limits and Requirements for Risk Based Capital: Regulations governing these will be put into action in two phases. The first phase had started off in November 2011 after the capital plan rule was issued by the FR. Companies willing to ensure compliance with these regulations are expected to:

a. Produce a plan for annual capital

b. Carryout stress tests

c. Maintain sufficient capital

  • Implement Surcharge on Capital: Based on the framework and methodology the surcharge on the capital must be developed. The Basel Community on Banking Supervision must be involved in supervision of best practices.

Requirements for Liquidity

Requirements will be implements by the FR in two phases:

1st Phase

Compliance with Interagency liquidity risk management guidelines issued in 2010 must be implemented as best practices. This means that companies will be required to carry out internal liquidity stress tests and manage risks associated with liquidity.

2nd Phase

Compliance with Basel III liquidity rules issued by the FR must be implemented for qualitative liquidity.

Stress Tests

The FR will conduct monitoring of stress tests using three scenarios in the economic and financial market. The results from these tests will be open to the public and will include information specific to the company. Supervisors at banks will need to follow some best practices to conduct successful stress tests.

These new compliance regulations for US banks are meant to improve the best practices associated with regulations.

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