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U.S. Banking System
Regulatory Framework
Integrity. Objectivity. Performance.
New York State Society of CPAs Banking Committee
August 10, 2010
Financial Regulatory Reform
Clarifying Roles of Bank Regulators
Proposed Rule Changes Impacting Banks
Non Bank Regulatory Oversight
CAMELS Rating Overview
Q & A
Agenda
Financial Regulatory Reform
REG REFORM
House Bill Wall Street Reform
& Consumer Protection Act
Senate Bill Restoring
American Financial Stability Act
Regulatory Body Anticipated Lines of Responsibility
Federal Reserve
Regulates bank and thrift holding companies with assets over $50 billion
Vice-Chair responsible for supervision and reports to Congress semi-annually
FDIC Regulates state banks and thrifts of all sizes Regulates bank holding companies of state banks with
assets below $50 billion
OCC
Regulates national banks and Federal thrifts of all sizes Regulates holding companies of national banks and Federal
thrifts with assets below $50 billion OTS is eliminated
State Banking Departments
Regulates state banks State banking system governs most of community banks
Clarifying Roles of Primary Bank Regulators
CAMELS rating for Domestic US Banks
ROCA rating for Foreign Branches & Agencies
Assign Ratings of 1 to 5
Confidential Rating
Regulatory Supervisory Approach
C Capital Adequacy
A Asset Quality
M Management
E Earnings
L Liquidity
S Sensitivity to Market Risk
CAMELS Rating
R Risk Management
O Ops Controls
C Compliance
A Asset Quality
ROCA Rating
Capital Implications
Bank Tax
Volker Rule
Derivatives Transparency
Corporate Governance
Executive Compensation and Accountability
Proposed Rule Changes Impacting Banks
Capital Implications - Capital Adequacy Ratios
Capital Adequacy Ratios
For Capital AdequacyPurposes
To Be Well Capitalized
Total Capital (To Risk Weighted Assets)
8% 10%
Tier 1 Capital(To Risk Weighted Assets)
4% 6%
Tier 1 Leverage Capital (To Average Assets)
4% 5%
Currently Applicable to all Banks and Proposed to apply to all Bank Holding Companies Grandfathering and Transition
Periods Expected
9
Trust Preferred and Hybrid Securities may only be
included in Tier 2 Capital
TARP Preferred securities may only be included in
Tier 2 Capital
Capital Implications - Tier I Capital Impact
Risk Management Committees at Public
Companies required for:
Publically traded bank holding companies with
total consolidated assets $10 billion
Requires risk committees for systemically
important publically traded bank holding
companies
Corporate Governance
Enhancements Proposed Provisions
Shareholders Voice
Granted a non-binding vote on executive pay Proxy access to nominate directors in certain cases Directors must win majority vote in uncontested proxy
elections
Claw-back Provisions Companies will be required to claw-back executive pay if based on inaccurate financials
Clearer Disclosures
SEC to require companies to disclosures including charts comparing executive compensation with stock performance over a 5 year period
Independent
Compensation
Committees
Listed Companies to have compensation committees sourced with only independent directors that have authority to hire compensation consultants
Executive Compensation and Accountability
Original proposal has been Watered Down
Would have eliminated proprietary trading for the any systemically important bank holding company as well as investments in hedge funds and private equity vehicles
Amended Proposal Limits Bank Holding Companies ability to Invest in Hedge Funds and Private Equity Funds
3% of the hedge fund and private equity vehicles capital at the individual investment level
3% of Tier 1 capital for all aggregate investments in hedge funds and private equity vehicles
(Paul) Volker Rule
Grants SEC and CFTC authority to regulate OTC derivatives
Requires data collection and publication through clearing houses or swap repositories
Requires central clearing and exchange trading for derivatives that can be cleared
Requires margin for OTC derivatives not eligible for centralized clearing
Derivatives Transparency
Original House Bill would have taxed large Banks and Hedge Funds ~ $20b
In lieu of Bank Tax Large Banks with more than $10b in assets will pay a higher
FDIC assessment on insured deposits proposed 1.35% vs. 1.15% current
assessment
Bank Tax
9 member council of Federal financial regulators and an independent member will
be chaired by the Treasury Secretary and
made up of regulators including: Fed, SEC,
CFTC, OCC, FDIC, FHFA and the new
Consumer Financial Protection Bureau
Council will have ability to subject large non-banks financial companies to be regulated by
the Federal Reserve
Non-Bank Regulatory Oversight
C Capital Adequacy
A Asset Quality
M Management
E Earnings
L Liquidity
S Sensitivity to Market Risk
CAMELS RATING
CAMELS RATING OVERVIEW
SENSITIVITY TO
MARKET RISK
EARNINGS
LIQUIDITY
Quality of Earnings
Trends
Peer Group Comparison
Funding Sources
Core Deposits
Asset Liability Management
Interest Rate Risk Stress Testing
Risk Management Integrity
Adequate Resources
TOTAL CAPITAL 8% / 10%
TIER 1 Capital 4% / 6%
LEVERAGE RATI0 4% / 5%ASSET QUALITY
Investment Portfolio Quality
Loan Portfolio Quality
Adequacy of ALLL
CAMELS
CAPITAL ADEQUACY
Corporate Governance
Vendor Due Diligence
Internal Audit Function
Independent Loan Review Function
Segregation of Duties
MANAGEMENT
19
THANK YOU
Phil Musacchio
1.212.375.6605 (o)
Q & A