Rethinking compliance management
Dodd-Frank Act push-out
Enhanced prudential standards
The final rule
The approval of the enhanced prudential standards represents a significant step on the part of the Fed toward improving the framework for supervising and regulating large financial institutions, both domestic and foreign. It addresses the risks that large financial institutions could pose to the financial stability of the United States.
On February 16, 2014, the Federal Reserve Board approved a final rule strengthening the supervision and regulation of large US bank holding companies and foreign banking organizations (FBOs) under section 165 of the Dodd-Frank Act.
These final rules will likely jumpstart much of the preplanning and analysis efforts that US bank holding companies and FBOs have taken on to date. The race for implementation is next. To help kick start that race, Deloitte has developed two papers that outline changes and implications for US bank holding companies and FBOs that are designed to serve as a primer for understanding the rule’s potential impact.
Domestic bank rules
Two years into the process, domestic banks—particularly those with more than $50 billion in consolidated assets—are unlikely to find many surprises in the recent Federal Reserve (Fed) announcement on the final enhanced prudential standards (EPS) rules. Banks may already be moving down the path laid out by the Fed, particularly in the areas of capital planning, stress testing, liquidity risk management, and risk governance. Although continuing improvements and additional oversight by the board and senior management will be required, the Fed has already adopted many of these requirements (in areas such as stress testing) as part of its current supervisory toolkit.
Foreign bank rules
As foreign banking organizations (FBOs) gain familiarity with the final enhanced prudential standards (EPS) the Federal Reserve Board (Fed) announced more than one year after the proposal, FBOs are likely to conclude that these rules usher in a new era of supervision and enforcement. After nearly a decade of the Fed administering its supervisory program for FBOs, these regulations mark a significant landmark in its oversight of foreign banks’ operations in the United States. While the Fed’s statements in past years have pointed the way to a more vigorous role in regulating FBOs through its supervisory process, these more prescriptive rules finally make it official.