RE: Effective Date of Regulatory Tailoring Final Rules
Dear Chairman McWilliams, Comptroller Otting, and Vice Chairman Quarles:
The American Bankers Association1 (ABA) appreciates the work the banking agencies have done to tailor their regulations to match the risks and business models of individual institutions better. Given that the timing of implementation is so close to year-end, we urge the agencies to clarify that the effective date of the tailoring regulations is January 1, 2020. Pushing the effective date past the first of the year may result in an uneven transition, diminishing some of the intended results of tailoring.
Compliance with the capital and liquidity regulations, and their related reporting and disclosure regimes, are complex undertakings and require significant resources to ensure that systems updates are complete and any reported data are accurate and subject to necessary controls. Typically such changes are effective at the start of a calendar quarter to align with financial and regulatory reporting periods. A post January 1, 2020, effective date would likely be confusing for investors and other market participants as well as for bank supervision. For example, Category IV firms could be required to disclose information about a rule with which they no longer need to comply. Category III firms, which are moving from a full liquidity coverage ratio (LCR) to a more appropriately tailored LCR, may have to disclose numbers for a quarter based on two different LCR calculations.
While the preamble states the agencies’ intent for the rules to be effective January 1, 2020, the stated effective date of the rules is written as 60 days following publication in the Federal Register, creating unintended confusion. Given the materiality of the changes, clarity is important to regulation, the industry, and markets. We understand that the agencies need to work together with the Office of the Federal Register to make certain that the final draft is ready to be published. Because the stated effective date of the rule is 60 days after publication in the Federal Register, the notice must be published in the Federal Register no later than November 1, 2019, in order for the currently stated effective date to fall on or before January 1, 2020. We request that the agencies take appropriate action to clarify the ability of affected firms to adopt relevant provisions of the tailoring rules as of January 1, 2020.
ABA also recommends that the Federal Reserve amend Reporting Form FR Y-15 so that it aligns with the definitions under the tailoring rule. For example, the final rule instructs foreign banking organizations to calculate their intermediate holding company (IHC) category using the four quarters of data from 2019 as reported on their current FR Y-15. However, the line items for cross jurisdictional assets (CJA) do not exclude inter-affiliate claims secured by financial collateral as allowed under the final tailoring rule. Without the allowable exclusions, some IHCs could unintentionally be bumped up to Category II contrary to the Federal Reserve’s own estimates. This would require these IHCs to comply heightened Category II requirements beginning in January 2020, and remain in Category II for the four quarters after the FR Y-15 form changes take effect in June 2020. We urge the Federal Reserve to update the FR Y-15 so that the initial categorization of institutions is determined by the final rule’s definition of CJA.
Thank you very much for considering these issues. If the agencies would like additional information regarding these comments, please contact Hugh Carney at (202) 663-5324.
Sincerely,
Hugh C. Carney
Senior Vice President, Prudential Regulation and Asset Management
American Bankers Association