Wolters Kluwer Financial Services

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

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.

Asset & Liability Management

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.

The 6-step process for ALM

Basel II

To strengthen global capital and liquidity regulations, the Basel Committee on Banking Supervision (BCBS) proposed a consultative document covering the following areas:

• Quality, consistency and transparency of the capital base
• Risk coverage of the capital framework
• Leverage ratio
• Countercyclical capital framework and built-up of capital buffers
• Minimum liquidity standards

The primary goal of the committee is to strengthen the resilience of the banking sector over the long term and avoid the negative impact on bank lending activity which can affect economic recovery.

The measures taken by the Federal Reserve to manage different risk in the recent periods are:

Market Risk

The Federal Reserve system’s board of governors, under delegated authority from the Office of Management and Budget (OMB) proposed the revision of risk based capital standards to market risk.

The suggestions in the proposal would reduce pro-cyclicality in market risk capital requirements, enhance the rules sensitivity to the risks that are not adequately captured by the current regulatory measurement methodologies and will increase market discipline through enhanced disclosures.

Operational Risk

The Federal Reserve system and the other federal banking agencies are issuing interagency guidance on the Advanced Measurement Approach (AMA) for operational risk to provide clarity on implementation issues related to the advanced measurement approach. The guidance addresses certain aspects of the minimum risk-based capital requirements for operational risk.

The consultation focuses on the four required AMA data elements:

• Internal operational loss event data
• External operational loss event data
• Scenario analysis
• Business environment and internal control factors

We are prepared to solve and maintain the U.S. Basel II reporting challenge 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 risks and capital consolidated data. Basel II reporting for the US can be fully automated and will result in a significant reduction in cost, inaccuracy and man hours associated with generating 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

Wolters Kluwer Financial Services 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)

Wolters Kluwer Financial Services 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