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Dodd-Frank Act Reforms

March 23, 2017

Authors

Robert Klingler

Dodd-Frank Act Reforms

March 23, 2017

by: Robert Klingler

Much of the discussion we’re having with our clients and other professionals relates to the prospects for financial regulatory reform.  To that end, and looking at it from the political rather than industry perspective, Bryan Cave’s Public Policy and Government Affairs Team has put together a brief client alert examining the political, legislative and regulatory issues currently under consideration.

In his first weeks in office, President Trump has taken steps to undo or alter major components of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). These include delaying implementation of the “Fiduciary Rule,” which regulates the relationship between investors and their financial advisors, directing the Treasury Secretary to review the Dodd-Frank Act in its entirety, and signing a resolution passed by Congress that repeals a Dodd-Frank regulation on disclosures of overseas

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The OCC Rises, the FSOC Dies, and Other Regulatory Predictions

November 17, 2016

Authors

Dan Wheeler

The OCC Rises, the FSOC Dies, and Other Regulatory Predictions

November 17, 2016

by: Dan Wheeler

Eight bold regulatory predictions on the direction of U.S. Banking and Fintech regulation in light of the election results.

1.   The era of “outside the law” Federal regulation is over. Critics of the CFPB (exclusively Republicans) have criticized and challenged the agency’s structure and tactics.  These challenges include criticism of the agency’s broad jurisdiction and rulemaking power as an unconstitutional delegation by Congress of its legislative power.  Members of Congress and private litigants have assailed the CFPB’s reliance on enforcement actions instead of true rulemaking as undercutting due process and basic fairness.  Republicans have been united in believing that the agency’s existence and actions violated the Constitution, the agency’s grant of power under Dodd-Frank and the Administrative Procedures Act.  Increasingly, the courts have dealt the agency significant setbacks.  This author believes that Director Cordray only persisted in his aggressive pursuit of policy goals because he believed that pursuit was

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Second Circuit Adopts Broad Interpretation of Dodd-Frank’s Anti-Retaliation Provision

November 4, 2015

Authors

Bryan Cave

Second Circuit Adopts Broad Interpretation of Dodd-Frank’s Anti-Retaliation Provision

November 4, 2015

by: Bryan Cave

On September 10, 2015, a divided Second Circuit appeals court held in Berman v. Neo@Ogilvy LLC, that an employee who reports wrongdoing internally to management is considered a “whistleblower” under the Dodd-Frank Act, thereby strengthening retaliation protections for employee whistleblowers.

There has been a history of tension between the Dodd-Frank statutory definition of “whistleblower” and the applicability of the Dodd-Frank anti-retaliation provisions to employees who report suspected misconduct internally.    The Act defines a “whistleblower” as “any individual who provides…information relating to a violation of the securities laws to the Commission…”  However, section 78u-6(h)(1)(A)(iii) of the Act prohibits retaliation against “a whistleblower” who makes disclosures “required or protected” by the Sarbanes-Oxley Act.  The U.S. Securities and Exchange Commission’s regulations interpret the term “whistleblower” to include for retaliation purposes employees who report or disclose potential wrongdoing either internally or to the SEC (SEC Rule 21F-2(b)(1)).  This has led to a Circuit split

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Regulators Provide Creative Volcker Rule Fix for TruPS

January 14, 2014

Authors

Robert Klingler

Regulators Provide Creative Volcker Rule Fix for TruPS

January 14, 2014

by: Robert Klingler

In facing Congressional and industry backlash related to the effect of the Volcker Rule on TruPS CDOs, federal regulators were expected to choose between two options.  Door 1 was to provide an exemption for TruPS CDOs held by all institutions.  Door 2 was to provide an exemption only for TruPS CDOs held by banks with less than $15 billion in assets, consistent with the Collins Amendment to Dodd-Frank.

The regulators chose neither door, instead opening Door 3: the regulators have exempted TruPS CDOs for all institutions, so long as the TruPS CDO primarily holds TruPS of banks with less than $15 billion in assets.  It will likely take a few days for the full analysis to come in, but I would expect that this has the effect of exempting all TruPS CDOs, as the CDO structure was primarily used in conjunction with private offerings of TruPS by smaller financial institutions.

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Regulators Poised to Remove TRuPS CDOs from Volcker Rule Grasp

January 3, 2014

Authors

Robert Klingler

Regulators Poised to Remove TRuPS CDOs from Volcker Rule Grasp

January 3, 2014

by: Robert Klingler

According to a story in the American Banker (subscription required), the federal banking regulators are looking at exempting all existing collateralized debt obligations backed by trust-preferred securities from compliance with the Volcker Rule.

From a technical perspective, it seems likely that the regulators would effect such an exemption by excluding the debt tranches of CDO’s backed by TRuPS from the definition of an “ownership interest” under the Volcker Rule, thereby allowing continued ownership by banking entities.  Whether the revision is limited to existing TRuPS CDO’s or all is likely largely irrelevant, as the elimination of preferred capital treatment for Trust Preferred securities has eliminated the creation of new TRuPS CDO’s.

As previewed by the regulators’ late Christmas gift, the regulators are considering limiting the relief to banking entities with less than $15 billion in total assets.  Without

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Banking Regulators Agree to (Re)Examine TRuPS CDOs and the Volcker Rule

December 27, 2013

Authors

Robert Klingler

Banking Regulators Agree to (Re)Examine TRuPS CDOs and the Volcker Rule

December 27, 2013

by: Robert Klingler

In a late Christmas present (or perhaps it was just delayed in delivery), the federal banking agencies and the SEC (although apparently not the Commodity Future Trading Commission) announced they would be reviewing whether it would be appropriate to exempt CDOs backed by Trust Preferred Securities from the Volcker Rule’s ban on covered funds.

The agencies have stated that they intend to address the matter no later than January 15, 2014, and believe that, consistent with GAAP, any actions taken in January 2014 should be effective in addressing year-end financial statements so long as such actions are taken before the issuance of such financial statements.

In the statement released by the regulators, the agencies emphasize the grandfathering of TRuPS provided by the Dodd-Frank Act for institutions with consolidated assets of less than $15 billion, and suggest that action to revise the Volcker Rule may be appropriate  to avoid

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Ambiguity Regarding TRuPS CDOs and the Volcker Rule

December 23, 2013

Authors

Robert Klingler

Ambiguity Regarding TRuPS CDOs and the Volcker Rule

December 23, 2013

by: Robert Klingler

On December 19, 2013, the Federal Reserve, FDIC and OCC issued an Interagency FAQ Regarding Collateralized Debt Obligations Backed by Trust Preferred Securities under the Final Volcker Rule.  While roundly criticized by most trade associations and others following the industry as constituting “Frequently Asked Questions Without Answers,” the FAQ does provide additional potential insight on whether banks will ultimately need to dispose of their investments in CDOs backed by TRuPS portfolios (as well as other CDOs).

The greatest weakness in the FAQ, and a generally nasty side-effect of issuing final Volcker Rules shortly before calendar (and thus fiscal) year-ends, is whether accounting firms will force institutions to recognize unrealized market losses, based on an inability to hold the investment to maturity.  This question will ultimately be answered by the accounting firms, although still subject to second guessing by the banking regulators.  The tone and style of the December 19,

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Volcker Rule Adds Another Nail in TRUPs’ Coffin

December 16, 2013

Authors

Robert Klingler

Volcker Rule Adds Another Nail in TRUPs’ Coffin

December 16, 2013

by: Robert Klingler

On December 10, 2013, the final Volcker Rule was adopted by the federal banking regulators, the SEC, and the CFTC to implement Section 619 of the Dodd-Frank Act.  The Volcker Rule generally prohibits banking entities from engaging in “proprietary trading” and making investments and conducting certain other activities with “private equity funds and hedge funds.”

One unintended consequence appears to be the treatment of Collateralized Debt Obligations (CDOs) backed by Trust Preferred Securities (TRUPs) as “covered funds” under the Volcker Rule.  As a covered fund, banking entities of all sizes will no longer be able to own TRUPs CDOs as of July 21, 2015.  Moreover, because of this obligation to divest by July 21, 2015, banks are no longer able to say they will hold such investments to maturity and therefore will not be able to split out their other than temporary impairment between credit losses and market losses.  Any

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Regulators Propose Statement on Diversity Policies

December 10, 2013

Authors

Marilyn Fish and Aiten McPherson

Regulators Propose Statement on Diversity Policies

December 10, 2013

by: Marilyn Fish and Aiten McPherson

Throughout 2012 a series of roundtable discussions were held in order to assess the current diversity programs and polices in place within the financial industry. As a result of these talks, six financial agencies: the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Consumer Financial Protection Bureau, and the Securities and Exchange Commission (the “Agencies”), proposed a set of diversity and inclusion standards. These standards, titled the “Proposed Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies and Request for Comment” (the “Policy Statement”), were published on October 25, 2013, with the 60-day comment period to end on December 24, 2013.  This Policy Statement helps to implement a part of the Dodd-Frank Act, which requires each financial agency to

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CFPB Issues Balloon Mortgage and Other Small Creditor Ability-to-Repay Relief

May 29, 2013

Authors

Bryan Cave

CFPB Issues Balloon Mortgage and Other Small Creditor Ability-to-Repay Relief

May 29, 2013

by: Bryan Cave

On May 29, 2013, the Consumer Financial Protection Bureau (CFPB) issued a final rule amending the Ability-to-Repay (ATR) and Qualified Mortgage (QM) rules it issued on January 10, 2013.  Within this final rule are two new categories of small creditor QMs.  The first, for small creditor portfolio loans, was adopted exactly as proposed alongside the January ATR rule and permits small creditors in all markets to make portfolio loans that are QMs even though the borrower’s DTI ratio exceeds the general QM 43% cap.  As a reminder, small creditors for these purposes are those with less than $2 billion in assets at the end of the preceding calendar year that, together with their affiliates, made 500 or fewer covered first-lien mortgages during that year.

The second new QM is a welcome even if only temporary category of balloon mortgages.  Unlike the small creditor portfolio QM, this interim QM was not an express part

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