us system

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


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


Vendor Due Diligence

Internal Audit Function

Independent Loan Review Function

Segregation of Duties

MANAGEMENT

19

THANK YOU

Phil Musacchio

[email protected]

1.212.375.6605 (o)

Q & A

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