On October 31, 2018, driven by “EGRRCPA” (Economic Growth, Regulatory Relief and Consumer Protection Act) the U.S. FRB ― along with the OCC and FDIC ― issued a joint notice of proposed rulemaking (NPR) “to establish a revised framework for applying prudential standards to large U.S. bank holding companies (BHCs) based on risk.”
The proposed new relief framework would impact LCR, proposed NSFR, stress-testing (liquidity and CCAR) and reporting requirements.
With the comments period open through January 22, 2018, new rules could be issued as early as mid-2019. Therefore, it is worth taking a moment to consider the proposed changes and how they would impact financial institutions’ regulatory risk assessment and reporting.
Under the proposed framework, prudential standards will be applied according to an institution’s risk category. Four new categories are determined by a combination of the BHC’s total asset size and certain risk thresholds that encompass the nature and location of its business activities. Firms that fall into the new Categories III and IV would experience regulatory relief; those in Category IV would experience the most relief.
As projected by the FRB, U.S. banking organizations impacted by the NPR are categorized in the table below along with a summary of the associated new proposed requirements for capital, liquidity and stress-testing.
The FRB specifically stated this NPR does not apply to FBOs but will be addressed in a separate proposed ruling.
Don Mumma, AxiomSL’s subject-matter expert on liquidity-related matters, put the FRB’s proposed changes in perspective.
“Through EGRRCPA, the government desires to stimulate the economy by reducing regulatory encumbrance. Clearly, we see that objective playing out in the proposed changes to capital, liquidity and stress-testing requirements. When it comes, this relief will be welcomed by the financial institutions most impacted.”
“However, we need to recognize that the proposed framework and relief would come into play alongside Basel-driven requirements and other existing regulation including Dodd-Frank stress-testing. The demands on FIs to better manage their risk and answer to regulatory requirements across a complex landscape remain significant.”
“We live in a changing regulatory and business-model environment where firms must deal with the ebb and flow of requirements for both. To succeed, FIs must command their regulatory and risk data, and that requires technology innovation.”
Innovative technology and regulatory solutions
AxiomSL’s data integrity and control platform is designed to ingest volumes of disparate source data without need to transform it and is equipped with dynamic data-lineage and tracing capabilities. The ‘Platform for Change’ empowers FIs to have command over their risk and regulatory data, gain business insight from trusted information, withstand audits, and easily adapt to regulatory changes.
To assess and plan for impacts of change upon FIs’ risk and regulatory data-management and reporting needs, AxiomSL proactively surveils the regulatory landscape. Its subject-matter experts will continue to monitor the FRB’s NPR through the comments phase and onward, and reflect those changes in its capital, liquidity and stress-testing solutions.
Contact AxiomSL’s experts here.