This commentary on the Brown-Vitter bill consists of a policy discussion of the bill in Part I and an analysis of the bill’s key provisions in Part II. Part II also includes a visual overview of capital requirements in the Brown-Vitter bill and a chart comparing the bill’s equity capital ratio with the U.S. leverage ratio and the proposed Basel III supplementary leverage ratio.

The approach chosen by the FDIC could force U.S. banks to make their foreign branch deposits dually payable in order to avoid the subordination of such deposits to domestic branch deposits in a resolution proceeding and thereby address concerns of foreign regulators such as the UK Financial Services Authority. Making foreign branch deposits dually payable would expose U.S. banks to greater U.S. reserve requirements, foreign sovereign risk, foreign customer confusion, documentation costs and potentially new foreign regulatory requirements. We believe that the FDIC should adopt an alternative approach.

If the Federal Reserve actually adopts a proposal along the lines outlined in Governor Tarullo’s speech, it could have profound negative implications not only for the operations of foreign banks in the United States, but also for U.S. banking organizations doing business outside the United States. It would likely contribute and add fuel to the growing trend towards regionalization of global banking, thereby complicating and increasing the cost of providing cross-border banking services. This memorandum explores these implications as well as certain key issues and questions that remain open.

• As of September 4, 2012, a total of 237 Dodd-Frank rulemaking requirement deadlines have passed. Of these 237 passed deadlines, 145 (61.2%) have been missed and 92 (38.8%) have been met with finalized rules.
• In addition, 131 (32.9%) of the 398 total required rulemakings have been finalized, while 132 (33.2%) rulemaking requirements have not yet been proposed.
• Major rulemaking activity this month included the Federal Reserve final rule on risk management standards for financial market utilities and the SEC final rules on conflict minerals and the disclosure of payments by resource extraction issuers. Additionally, the OCC, Federal Reserve, NCUA, FHFA and CFPB released a proposed rule on appraisals for higher-risk mortgage loans.

It remains to be seen whether the Federal Reserve Board will adopt similar methods for purposes of implementing the Dodd-Frank Act’s amendments to Section 23A of the Federal Reserve Act. The effective date of the OCC's interim final rule is July 21, 2012, although banks have until January 1, 2013 to comply with the rule’s requirements relating to derivative and securities financing transactions. Using examples, this client newsflash describes the interim final rule’s methods for calculating credit exposure arising from such transactions.

As of June 1, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Of these 221 passed deadlines, 148 (67.0%) have been missed and 73 (33.0%) have been met with finalized rules.

In addition, 110 (27.6%) of the 398 total required rulemakings have been finalized, while 144 (36.2%) rulemaking requirements have not yet been proposed.

 As of May 1, 2012, a total of 221 Dodd-Frank rulemaking requirement deadlines have passed. Of these 221 passed deadlines, 148 (67%) have been missed and 73 (33%) have been met with finalized rules.

 In addition, 108 (27.1%) of the 398 total required rulemakings have been finalized, while 144 (36.2%) rulemaking requirements have not yet been proposed.

 Of particular note this month, the CFTC and SEC approved joint final rules further defining the terms "swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant" and "eligible contract participant."

In addition, 100 (25.5%) of 393 total required rulemakings have been met with finalized rules. Rules have not yet been proposed to meet 138 (35.1%) rulemaking requirements.

Major rulemaking activity this month included CFTC final rules relating to swap dealer internal business conduct, and a CFPB proposed a rule defining "larger participants" in certain consumer financial markets.

• As of the end of 2011, deadlines for half of Dodd-Frank's rulemaking requirements have passed. 25.5% of the passed deadlines have been met with finalized rules.
• Major rulemaking activity this month included a Federal Reserve proposal on enhanced prudential standards and CFTC final rules on swap data recordkeeping and reporting.
• In 2011, the CFTC, FDIC, Federal Reserve and SEC held 1720 reported meetings with the public on Dodd-Frank. The Progress Report includes each regulator's top five topics of discussion at those meetings.
• Davis Polk is pleased to announce the launch of the DavisPolkReg Twitter feed, which will provide real-time updates on key Dodd-Frank rulemaking activities and relevant Davis Polk publications.

Volcker Rule Proposed Regulations: Proprietary Trading Summary

Volcker Rule Proposed Regulations: Proprietary Trading Summary with Annexes

Generally, the FDIC and the Federal Reserve have agreed on an integrated single plan approach to the resolution plans, and the two resolution plan rules are intended to work in tandem. Though the earliest resolution plans will be due by July 1, 2012, the FDIC and the Federal Reserve have adopted an approach of staggered initial submissions to allow some firms to submit their resolution plans later than others based on a test linked to the size of nonbank assets. Moreover, resolution plans will be built on an iterative, tailored approach, recognizing that plans will develop over time and in successive submissions, and that plans will vary depending on the size and complexity of the covered company or covered insured depository institution. 

This memo describes key themes in both rulemakings, as well as key differences between the resolution plan rules as previously proposed and the rules as approved by the FDIC.

In the Interim Final Rule, the Board has sought to conform regulation of SLHCs as much as possible to the Board’s approach to regulation of bank holding companies (“BHCs”) under the Board’s Regulation Y. Notably:

• Subject to the exemptions provided by the Home Owners’ Loan Act, SLHC activities and the regulatory process for engaging in such activities will now largely mirror those for BHCs. Gramm-Leach-grandfathered unitary savings and loan holding companies, however, retain their ability to conduct commercial activities consistent with their grandfather.
• The standards and procedures applicable to determinations of control of SLHCs are largely conformed (subject to the open issues discussed in this memorandum) to those applied by the Board under Regulation Y, which, among other things, will have the effect of requiring significant investors in SLHCs to file notices with the Board under the Change in Bank Control Act and will eliminate the rebuttal of control process previously available under the OTS regulations implementing the Savings and Loan Holding Company Act.
• Existing SLHC ownership structures, however, will not be revisited by the Board, except in the limited circumstances noted in this memorandum.

If defined and implemented properly, living wills have the potential to be a highly effective tool for improving risk management, reducing systemic risk and mitigating the too big to fail and too big to save problems. However, there are also drawbacks and risks that need to be carefully considered. Getting living wills right is a high-stakes problem for supervisors and regulated institutions.

On March 29, 2011, the FDIC released a joint notice of proposed rulemaking that would implement the resolution plan requirements in Section 165(d) of the Dodd-Frank Act. The NPR provides comprehensive guidance on what the FDIC and the Federal Reserve expect to be contained in resolution plans submitted under Section 165(d), who must submit them, when they must be submitted and how the credibility of such plans are to be judged. But it also raises a number of very serious legal and policy issues and leaves a number of fundamental issues unanswered.

The Financial Stability Oversight Council’s (“FSOC” or the “Council”) studyon the Volcker Rule calls for robust implementation of the core proprietary trading prohibition while acknowledging the existence of difficult gray areas, especially in the areas of market making and hedging.  It also contemplates differential treatment of different asset classes.  The study strongly supports the use of quantitative metrics as one compliance and supervisory tool and envisions the creation of a brand-new and strikingly intense compliance structure to constrain impermissible proprietary trading while also providing the regulatory authorities charged with implementing the Volcker Rule (collectively, the “Agencies”) with the ability to engage in supervisory oversight and enforcement.

from multiple stakeholders about which companies the Financial Stability Oversight Council (“FSOC” or

the “Council”) should designate, when such designation should happen and what criteria the FSOC

should use, particularly in response to the FSOC’s October 6, 2010 Advance Notice of Proposed

Rulemaking (the “ANPR”). The main takeaway from the January 18, 2011 Notice of Proposed

Rulemaking (the “NPR”) is that the key regulators, who recently lived through the financial crisis, are

reluctant to adopt a formal rule that would limit their discretion to designate nonbank financial companies

as systemically important. The actual text of the proposed rule, as opposed to the commentary in the

proposal, is notable for the fact that it adds almost no new content to the broad statutory text in the Dodd-

Frank Act.