Federal Reserve’s New Supervision Framework for Large Financial Institutions
On December 17, the Federal Reserve issued a letter that set forth a new framework for the consolidated supervision of large financial institutions. The framework has two primary objectives: i) enhancing resiliency of a firm to lower the probability of its failure or inability to serve as a financial intermediary and ii) reducing the impact on the financial system and the broader economy in the event of a firm’s failure or material weakness. The framework addresses a firm’s management of critical operations, support for banking offices, resolution planning and coordinated regulatory examinations.
The framework applies to the Large Institution Supervision Coordinating Committee (LISCC) firms (the largest financial organizations and nonbank financial companies designated by the Financial Stability Oversight Council (FSOC) for supervision by the Federal Reserve as well domestic and foreign banking organizations with $50 billion or more in consolidated assets.
OCC Highlights Risks Facing National Banks
On December 20, the OCC released its latest Semiannual Risk Perspective detailing key issues facing national banks and federal savings associations. The report presents data in four main areas: the operating environment; condition and performance of the banking system; funding, liquidity, and interest rate risk; and regulatory actions.
The report focuses on issues that pose threats to the safety and soundness of those financial institutions regulated by the OCC and is intended as a resource to the industry and the general public. Some of the noted risks included threats to business models from low interest rates, sluggish economic growth and the historic volume of new banking regulations. The report reflects dates as of June 30, 2012.
SEC Staff Paper on Money Market Fund Reform Published
On November 30, staff of the SEC Division of Risk, Strategy, and Financial Innovation released a report addressing questions posed by Commissioners Aguilar, Paredes, and Gallagher in a memo to SEC Chairman Schapiro and Director Lewis. The report categorized the Commissioners’ questions and the staff’s response into three groups: redemptions and movement to Treasury Funds during the 2008 financial crisis; efficacy of 2010 money market reforms; and impact of future reforms.
This report followed Schapiro’s decision to withdraw a money market fund reform proposal due to a lack of support from a majority of the Commissioners. The FSOC also approved proposed recommendations for the structural reform of money market funds in order to advance the issue. However, after Schapiro’s SEC departure (December 14, 2012) and until a fifth Commissioner is appointed, the SEC is left with just four commissioners – two of whom opposed the earlier reforms.
American Taxpayer Relief Act of 2012
On January 1, a “fiscal cliff bill” was passed which averted most impending tax increases and postponed certain spending cuts. The bill did not change any corporate tax rates nor address any specific plans to reduce or eliminate corporate tax “loopholes.” Since the legislation is not a comprehensive budget measure, a host of issues were left off the table; therefore, continued budget clashes in Congress are expected.
As we’ve noted in the past, previous Obama budget proposals have all included plans to reduce certain corporate tax loopholes. A number of insurance-related measures were repeatedly proposed including a prospective expansion of the pro rata interest expense disallowance for corporate-owned life insurance. We will continue to monitor for legislative developments that may impact BOLI policyholders.
Baker v. American Greetings
On January 2, plaintiffs Theresa Baker and Kevin Collier and defendant American Greetings filed a joint motion to stay the actions for a period of 60 days. The parties have agreed to proceed to private mediation. Both plaintiffs are seeking money damages for American Greetings allegedly using the personal and private information (e.g., social security number, age, etc.) of its employees to secure COLI policies without the employees’ permission or consent. Collier was transferred from Oklahoma federal court to Ohio last July.
Case numbers: Baker v. American Greetings Corp., No. 1:12-cv-00065 (N.D. Ohio); Collier v. American Greetings Corp., No. 1:12-cv-1760 (N.D. Ohio.)