Category Archives: Federal Reserve System

The Supreme Court’s Business Docket: October Term 2023 in Review

by John F. Savarese, Kevin S. Schwartz, Noah B. Yavitz, Adam L. Goodman, and Akua Abu

Left to right: John F. Savarese, Kevin S. Schwartz, Noah B. Yavitz, Adam L. Goodman, and Akua F. Abu. (Photos courtesy of the authors)

In early July, the Supreme Court concluded its most consequential Term in years, with a flood of decisions on contentious issues ranging from abortion access to the regulation of social media companies and gun possession to presidential immunity. The Court’s business docket was no less active. While the Consumer Financial Protection Bureau narrowly survived a constitutional challenge to its funding mechanism, the Court’s conservative majority elsewhere struck body blows to the administrative state—including the long-anticipated reversal of the Chevron doctrine of judicial deference to agency interpretation of ambiguous statutes. Beyond this headline-grabbing showstopper, the Court issued a string of commercially significant decisions, affecting bankruptcy, arbitration, securities, and employment law. We summarize below the key business decisions from this Term and flag a few key cases to watch in the coming Term.

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Overhaul of Regulatory Capital Requirements Proposed by US Banking Regulators

by Matthew Bisanz, Jeffrey P. Taft, Andrew Olmem, Anna T. Pinedo, Angela M. Ulum, Stuart M. Litwin, Jerry R. Marlatt, Brian L. Kuhl, and Eric M. Reilly

Top left to right: Matthew Bisanz, Jeffrey P. Taft, Andrew Olmem, Anna T. Pinedo, and Angela M. Ulum.
Bottom left to right: Stuart M. Litwin, Jerry R. Marlatt, Brian L. Kuhl, and Eric M. Reilly.
(Photos courtesy of Mayer Brown)

On July 27, 2023, US federal banking regulators issued proposals to (i) significantly revise the risk-based regulatory capital requirements for certain midsize and larger US banking organizations (the “Capital Proposal”) and (ii) change the method for calculating the capital surcharge for globally systemically important banking organizations (“G-SIBs”) (the “G-SIB Surcharge Proposal”).[1] These proposals are of critical importance because the amount of capital a bank must maintain with respect to any particular loan, investment or activity is typically a significant – if not the most significant – factor in determining whether the relationship is profitable or even feasible.[2] Comments on both proposals are due by November 30, 2023.

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Federal Reserve Imposes $186 Million in Civil Money Penalties Against Deutsche Bank for Violations of OFAC and AML Orders and Danske Bank-Related Failures

by Jonathan J. Rusch

Photo courtesy of the author

Within the past year, federal law enforcement and regulatory agencies have repeatedly signaled that recidivist violations of law by corporate entities are likely to result in substantial penalties. Those signals include recidivism-specific policy statements, such as the Justice Department’s revision of its Corporate Enforcement Policy[1] to reflect its “more holistic approach to corporate recidivism”[2] and the Office of the Comptroller of the Currency’s (OCC’s) recent revisions of its Policies and Procedures Manual to address banks’ failure to correct persistent weaknesses.[3]

But those signals also include specific enforcement actions that carried substantial financial penalties, such as the Justice Department’s $315 million criminal penalty against ABB[4] and $206.7 million criminal penalty against Ericsson[5], and the Consumer Financial Protection Bureau/OCC $250 million enforcement actions against Bank of America for illegal activity in its consumer business.[6]

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Key Takeaways from Interagency Guidance on Banks’ Risk-Management of Fintech Relationships

by Margaret E. Tahyar and Ledina Gocaj

Left to right: Margaret E. Tahyar and Ledina Gocaj (Photos courtesy of Davis Polk & Wardwell LLP)

On June 6, 2023, the Federal Reserve, FDIC and OCC (the Agencies) released final interagency guidance on banking organizations’ management of risks associated with third-party relationships. Davis Polk’s memo on the guidance is linked here. Our key takeaways:

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Recent Government Bank Failure Reports Point to Increased Regulation and Examination Scrutiny

Editor’s Note: The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is watching the recent banking crisis and failures of Silicon Valley Bank, Signature Bank, and First Republic Bank. In this post, lawyers at Cleary Gottlieb Steen & Hamilton LLP analyze the reports released by the Federal Reserve, the FDIC, and GAO, and the NYDFS.

by Derek Bush, Hugh C. Conroy, Jr., Patrick Fuller, Lauren E. Semrad, Julia A. Knight, Megan Lindgren, Rishi Kumar, and Abby Shamray

From top left to right: Derek Bush, Hugh C. Conroy, Jr., Patrick Fuller, and Lauren E. Semrad.
From bottom left to right: Julia A. Knight, Megan Lindgren, and Rishi Kumar.
(Photos courtesy of Cleary Gottlieb Steen & Hamilton LLP)

In late April, several banking regulators and the Government Accountability Office released reports analyzing factors that contributed to the failures of Silicon Valley Bank and Signature Bank, while at the same time suggesting areas of forthcoming supervisory focus and regulatory change.[1] The “FRB Report,” led by Federal Reserve Board (“FRB”) Vice Chair for Supervision Michael Barr, analyzes the supervision and failure of SVB Financial Group and Silicon Valley Bank (together, “SVB”).[2] The “FDIC Report,” led by the Federal Deposit Insurance Corporation’s (“FDIC”) Chief Risk Officer, and the “NYDFS Report,” led by the New York Department of Financial Services (“NYDFS”) Office of General Counsel, examine the supervision and failure of Signature Bank.[3] The “GAO Report” focuses on how the responsible bank regulatory agencies regulated and supervised SVB and Signature Bank, and how the agencies responded to the March 2023 turmoil.[4]

These reports offer a detailed look into the bank supervisory process and provide important insights into regulatory and supervisory changes that may be on the horizon. In this post, we summarize our expectations for potential regulatory and supervisory developments.

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Federal Reserve and FDIC Reports—Next Steps

Editor’s Note: The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is watching the recent banking crisis and failures of Silicon Valley Bank, Signature Bank, and, most recently, First Republic Bank. PCCE is looking to publish additional posts in this area and those interested should contact joseph.facciponti@nyu.edu.

by Dana Seesel Bayersdorfer, Jung Eun Choi, Luigi L. De Ghenghi, Ledina Gocaj, Randall D. Guynn, Eric McLaughlin, Daniel E. Newman, David L. Portilla, Gabriel D. Rosenberg, and Margaret E. Tahyar

From top left to right: Dana Seesel Bayersdorfer, Jung Eun Choi, Luigi L. De Ghenghi, Ledina Gocaj, and Randall D. Guynn.
From bottom left to right: Eric McLaughlin, Daniel E. Newman, David L. Portilla, Gabriel D. Rosenberg, and Margaret E. Tahyar. (photos courtesy of Davis Polk & Wardwell LLP)

The Federal Reserve and the FDIC reports on their supervision of Silicon Valley Bank and Signature Bank provide insight into potential upcoming shifts in regulatory and supervisory focus.

The Board of Governors of the Federal Reserve System (Federal Reserve or Board) released the results of its review of the supervision and regulation of Silicon Valley Bank (SVB), which was led by Vice Chair for Supervision Michael S. Barr (the Board Report),[1] and the FDIC released the results of its review of the supervision of Signature Bank,[2] which was led by FDIC Chief Risk Ofﬁcer E. Marshall Gentry (the FDIC Report).[3]

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Experts Comment on Government Reports on Recent Bank Failures

Editor’s Note: The NYU School of Law Program on Corporate Compliance and Enforcement (PCCE) is watching the recent banking crisis and failures of Silicon Valley Bank, Signature Bank, and, most recently, First Republic Bank. PCCE is looking to publish additional posts in this area and those interested should contact joseph.facciponti@nyu.edu.

From left to right: Jonathan Rusch, Ijeoma Okoli, and Frederic Krieger (photos courtesy of authors)

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Geneses of a Banking Crisis in 2023

Editor’s Note: The NYU Program on Corporate Compliance and Enforcement (PCCE) has been following the recent banking crisis and will be publishing articles exploring the reasons for the banks’ failures and the broader regulatory, policy, and legal implications arising therefrom.

by Ijeoma Okoli

Ijeoma Okoli (photo courtesy of the author)

Introduction

On March 8^,2023, Silvergate Bank entered into voluntary liquidation. Two days later, Silicon Valley Bank (“SVB”), after experiencing a severe bank run, was taken over by regulators and with it, the most fraught weekend in global banking since the 2008 financial crisis began. Regulators in the US and UK (SVB had a UK banking subsidiary) scrambled to ensure that there were solutions in place before Asian markets opened Sunday night, East Coast time. Tech founders in Silicon Valley and the many venture capital firms (“VCs”) backing them used social media to rally the troops to put pressure on governments to ensure that they had access to their money by open of business the following Monday morning.

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Moving on from Three Bank Failures: Addressing Concentration Risk, Contagion, and Moral Hazard

Editor’s Note: The NYU Program on Corporate Compliance and Enforcement (PCCE) has been following the recent collapse of three banks in the U.S. and will be publishing articles exploring the reasons for the banks’ failures and the broader regulatory, policy, and legal implications arising therefrom.

by Maria T. Vullo

Maria T. Vullo (Photo courtesy of the author)

Over the past ten days, three midsize U.S. banks have failed: Silvergate Capital (Silvergate), a $12 billion bank, announced its voluntary liquidation on March 8, 2023[1]; Silicon Valley Bank (SVB), a $210 billion bank, was closed by its California state regulator with the Federal Deposit Insurance Corporation (FDIC) appointed receiver on March 10, 2023[2]; and Signature Bank (Signature), a $110 billion bank, was closed by its New York state regulator with the FDIC appointed receiver on March 12, 2023. While Silvergate voluntarily closed its doors with a promise to return all depositor funds, for both SVB and Signature, the FDIC triggered the “systemic risk” exception to the “least costly” requirement of receivership, in order to provide full insurance protection to all depositors.[3] As receiver, the FDIC has removed senior management, appointed new chief executive officers, and bank operations are continuing while the FDIC considers possible acquisitions and other remedies.[4]

Media reports are littered with opinions as to the potential causes of these bank failures, and some of the reporting includes finger pointing at the crypto industry. While additional facts undoubtedly will be disclosed in the weeks and months ahead, based on current information, it would be overly simplistic to blame the failures of SVB and Signature on any one cause, given that various market, regulatory and human factors appear to have contributed to their demise.

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Flurry of Announcements by the Federal Reserve on Crypto Activities

by Michael Held, Tiffany J. Smith, Franca Harris Gutierrez, Cory C. Hansen, and Andy V. Reynolds

(photos courtesy of WilmerHale) From left to right: Michael Held, Tiffany J. Smith, Franca Harris Gutierrez, Cory C. Hansen, and Andy V. Reynolds

A flurry of activity on January 27 signaled continued skepticism from the Federal Reserve of crypto-asset-related activities generally and open, public or decentralized networks in particular.

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