FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in the USA

Financial institutions in the United States need to report to a large number of regulators, namely:

• FFIEC: Federal Financial Institutions Examination Council
• FDIC: Federal Deposit Insurance Corporation
• FRB: Federal Reserve Board
• OTS: Office of Thrift Supervision
• Treasury Department
• OCC: Office of the Comptroller of the Currency
• SEC: Securities Exchange Commission
• NCUA: National Credit Union Administration
• Department of Commerce

The Financial Reform Bill signed by President Obama in July of 2010 creates several new agencies. A consumer financial protection bureau will be created at the Federal Reserve to monitor banks and financial-services businesses for credit-card and mortgage lending abuses. The bill also establishes the Financial Stability Oversight Council. The nine member council will be led by Treasury Department and include regulators from other agencies. The council will monitor Wall Street’s largest firms and other market participants to spot and respond to emerging systemic risks.

FRSGlobal in the USA

The U.S. economy has recently been affected by a downturn triggered by the global ‘credit crunch’, following the longest period of sustained economic growth for more than 150 years. The global economic meltdown with the sub-prime mortgage crisis, investment bank failures, declining home prices, and tight credit plunged the United States into a recession by mid-2008. The longest downturn since the Great Depression, it caused the GDP to contract until the third quarter of 2009.

This crisis has led to the global demand for tighter regulation of financial services firms in order to help stabilise the market.

To help stabilise the country’s financial market, the US congress set up a $700 billion Troubled Asset Relief Program (TARP) in October 2008. Some of these funds were used to purchase equity in US banks and other industrial corporations.

Lawmakers have also responded to the demand for tighter regulations by passing a bill in January 2009 providing an additional $787 billion fiscal stimulus to create jobs and help the economy recover. It is to be used over the next ten years: two-thirds on additional spending and one-third on tax cuts. Roughly two-thirds of these funds will have been injected into the economy by the end of 2010.

The lawmakers again responded by passing the sweeping financial reform bill (a.k.a The Dodd Bill) in July 2010.

We know that In the months ahead, regulators will use the expansive outlines in the bill to conduct numerous studies and initiate hundreds of new rules.

These new rules will affect all financial services firms regardless of size.

Firms will face significant challenges to keep up with the massive volume of new regulatory reporting requirements that will be mandated by the various regulatory authorities.

Regulatory Environment — USA

Statutory

Federal Reserve
These reports cover a series of breakdown reports which zoom in on specific items from the balance sheet or P&L. They include information on assets and liabilities, interest rates, deposits, lending, transactions accounts, Bank holding companies, vault cash etc. Depending on the requirements the reports have to be submitted to the Federal Reserve on demand, weekly, monthly, quarterly, annually or bi annually.

Thrift financial reporting
This report is required by the Office of Thrift Supervision (OTS) on a quarterly basis. It covers a series of schedules with detailed consolidated information on cash flows, loans, assets, liability and equity capital, income and expenses etc.

Balance sheet reporting
These reports include balance sheet and off-balance-sheet information with detailed supporting schedule items, from all U.S. branches and agencies of foreign banks and non US banks. Mandated by International Banking Act, 1978, these reports are required on a quarterly basis by the Federal Financial institutions examination council (FFIEC).

Prudential

Capital adequacy reporting
This report provides information on the components of a reporting entity’s regulatory capital, risk weighted assets by type of credit risk exposure under the Advanced Internal Ratings-Based Approach, and risk weighted assets and operational losses under the Advanced Measurement Approach. Capital adequacy reporting needs to be done on a quarterly basis.

FFIEC Call reports
This report collects basic consolidated financial data from commercial banks with domestic and foreign offices in the form of a balance sheet (assets and liabilities), an income statement (income and expenses), and supporting schedules are required on quarterly basis by FFIEC. It also covers information on structure and geographic distribution of foreign branch assets, liabilities, derivatives, and off-balance-sheet data to be reported on annual basis.

Statistical

Deposits statistics
This report includes a summary of deposit amounts for each authorized office of an insured bank with branches and is required by Federal Deposits Insurance Corporation (FDIC) on June 30 each year.

Country exposure report
These are quarterly reports based on information collected by country, from U.S. branches and agencies of foreign banks on distribution of claims on foreigners and direct, indirect, and total adjusted claims on foreign residents.

Transactional

Direct investment reporting
These reports are required on a quarterly basis by the US department of Commerce for economic analysis. They provide reliable and up-to-date information on U.S. international transactions (BE 577) and Foreign Direct Investment in the United States (BE 605).

Foreign exchange
These are consolidated weekly (FC1) and monthly (FC2) reports based on foreign exchange contracts and actively managed positions of major market participants (Bank and non bank).

Treasury international capital reporting

• TIC B reports
  These are monthly reports based on US dollar claims (TIC BC), U.S. Dollar Liabilities (TIC BL1) and Customers' U.S. Dollar denominated liabilities to foreigners (TIC BL2). In addition it includes quarterly reports on Customer’s U.S. Dollar Claims (TIC BQ 1), Own (Part 1) and Customer’s( Part 2) Foreign Currency denominated Claims and Liabilities(TIC BQ 2)and Maturities of selected Liabilities to foreign residents collected by Federal reserve acting as an agency of US department of Treasury.
• TIC D reports
  The TIC D report is a quarterly report of holdings and transactions in derivative contracts undertaken between foreign resident counterparties and major U.S.-resident participants in derivative markets.
• TIC S reports
  The TIC S report is a monthly report of purchases and sales of long-term securities, including equities and shares of mutual funds, directly from or to foreigners.

What’s Coming Up : United States

Dodd-Frank Wall Street Reform and Consumer Protection Act

After months of heavy regulatory requirement changes, US Regulators are now focusing on the upcoming legal requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act that became law in the US on July 21, 2010. From a reporting perspective, possibly the greatest change was the elimination of an entire regulatory body, the Office of Thrift Supervision, and its subsequent consolidation into other regulators, particularly the OCC, FDIC, and Federal Reserve. After much debate, the regulators have decreed that the Thrifts will start filing bank reports as of March 31, 2012.This changes the reporting status and requirements of hundreds of financial institutions in the US as well as adding significant review and control burdens upon the regulators.

Thrift Supervision

The functions of Office of Thrift Supervision (OTS) are been transferred to Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Bureau of Consumer Financial Protection by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) effective from July 21, 2011.

The proposed changes by the board are:

• The branch office data through the Summary of Deposits with the FDIC needs to be reported from June 30, 2011 by the savings association. The OTS branch office survey will be eliminated from then.
• The savings association needs to file Consolidated Reports of Conditions and Income (Call reports) on a quarterly basis from March 31, 2012. The Thrift Financial Report including schedules CMR and HC would be eliminated.
• Cease collection of the monthly mediation cost of funds needs to be reported from January 31, 2012 by the savings association. The publication of cost of funds by the OTS will be eliminated from December 31, 2011.
• The savings and loan holding companied need to report the same reports submitted by the bank holding companies to the Federal Reserve as of March 31, 2012.

FRSGlobal provides Asset & Liability Management solutions tailored to meet your specific requirements

Background

In light of the recent financial crisis US banks of all sizes are re-evaluating the way in which they currently model their ALM risk. Boards and regulators want to see ALM simulations and liquidity linked to Earnings at Risk models and income projections.

ALM models should meet requirements with regards to:

• The institution’s inability to renew or replace maturing funding liabilities.
• Customers unexpectedly exercising options to withdraw deposits or exercise off-balance sheet commitments.
• Stressing changes in market value and price volatility of various asset types.
• Changes in economic conditions, market perception, or dislocations in the financial markets.

Interagency guidance for US financial institutions

On March 17^th 2010 the Office of the Comptroller (OCC), Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), National Credit Union Administration (NCUA), and Conference of State Bank Supervisors (CSB) issued guidance to provide consistent interagency expectations on sound practices for managing funding and liquidity risk.

The guidance reiterates the process that financial institutions should follow to identify, measure, monitor, and control their funding and liquidity risk. The guidance re-emphasizes the importance of cash flow projections, stress testing, and well-developed contingency funding plan for measuring and managing liquidity risk.

FRSGlobal enables financial institutions of all sizes put in place sound practices and processes to manage their ALM and liquidity risk that are in line with the interagency guidelines.

FRSGlobal 6-step process for ALM

Institutions can select which capabilities that they want to implement in the various areas. For a complete listing of capabilities download the FRSGlobal Asset & Liability Management solution sheet »

Basel II Reporting (Standardized and Advanced Approach)

FRSGlobal is prepared to solve and maintain the U.S. Basel II Reporting burden for both the standardized and advanced approaches, including all local requirements. The solution is a complete resolution for data storage, data assessment and reporting of regulatory capital requirements as directed under the US Basel II accord. We offer regulatory capital analytics (including local discretions), Ad-hoc Analysis & Reporting, and full utilization of LGD, EAD, CRM, RWA, and Capital Ratio calculations. The solution includes a centralized, standard data repository consisting of market, credit, operational and capital consolidated data. US Basel II reporting can be fully automated and will result in a significant reduction in cost, inaccuracy and man-hours associated with producing the reports.

IFRS

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have been
working together since 2002 to achieve convergence of IFRS and the U.S. generally accepted accounting principles (GAAP). With a priority of high quality global standards of both the IASB and the FASB the target date for substantial convergence of US GAAP with IFRS is 2011. Adopting IFRS has been allowed for foreign issuers in the US since 2007 and a decision about possible adoption for US companies is expected in 2011.The FRSGlobal solution meets the full requirements of IFRS along with greater insight into organisational strengths and exposures.

Risk Platform

FRSGlobal provides to financial institutions in the U.S. a comprehensive risk platform that incorporates a calculation engine. Our RiskPro solution covers Asset Liability Management (ALM), liquidity risk management, market risk analysis, and credit risk analytics including exposure analysis, value at risk, funds transfer pricing, dynamic simulation, limits, historisation, Basel I and II, risk-adjusted performance analysis, credit exposure, credit loss and IAS 39. .

Statutory Reporting (US and Foreign Branch Reporting)

FRSGlobal offers a comprehensive automated regulatory reporting solution that satisfies requirements as set forth by the FFIEC, Federal Reserve, FDIC and U.S. Department of Treasury. For many reasons, it makes strategic business sense to have an automated, rapid and centralized regulatory reporting solution:

• Automating the reporting for periodic reports controlled from a central hub will bring down the cost for these processes in terms of staff and time required.
• Automate aggregation and reporting to a variety of international and local GAAP standards
• Automatically generate reports in standard XBRL format for the regulator
• Speed up the reporting and consolidation process, ending the traditional period-end scramble
• Centralize all relevant data for regulatory and business reporting processes in a consolidated platform