Welcome to The Clearing House Association’s Banking Brief. Bank regulation continues to be a highly technical
field—and one in which Congress plays a crucial policymaking and oversight role. The Clearing House is committed
to serving as a valuable resource on bank regulatory and payments issues, and to providing regular issue updates
to policymakers that are timely, accessible, and technically‐focused.

In December, the Federal Reserve Board (FRB) issued a proposed rule implementing enhanced prudential
standards and early remediation procedures for large financial institutions, as required by Sections 165 and 166 of
the Dodd‐Frank Act. The rule would generally apply to bank holding companies (BHCs) with $50 billion or more in
consolidated total assets and nonbank financial companies designated as systemically important by the Financial
Stability Oversight Council (together “covered companies”). The Clearing House is coordinating with other trade
associations to analyze and offer thorough comments on the proposal.

Risk‐Based Capital Requirements and Leverage Limits

BHCs and designated nonbank financial companies must meet a minimum Tier 1 Common Equity Ratio of 5% and
comply with the FRB’s capital planning rule that went into effect on December 30, 2011. The FRB also intends to
implement in 2014 the surcharge on global systemically important banks (G‐SIB surcharge) as promulgated by the
Basel Committee.

Liquidity Requirements

Covered companies must maintain a liquidity buffer of highly liquid assets to meet projected net cash outflows
over a 30‐day period under various scenarios of liquidity stress. Covered companies must create Contingency
Funding Plans to react to a liquidity crisis and engage in monthly liquidity stress testing.

Stress Testing

The Federal Reserve will conduct annual stress tests for covered companies. In addition, all BHCs with $10 billion
or more in assets must conduct annual internal stress tests, and covered companies must do so semi‐annually. The
FRB would publish summary results for each company.

Single‐Party Credit Exposure Limits

No covered company may sustain an aggregate net credit exposure to any single unaffiliated counterparty in
excess of 25% of its capital stock and surplus. The maximum allowed aggregate net credit exposure of a major
covered company ($500 billion or more in assets) to a major counterparty is 10%.

Risk Management

All publicly traded companies with over $10 billion in assets must establish a Risk Committee chaired by an
independent director to document and oversee risk management practices. Each covered company must appoint a
Chief Risk Officer to report directly to the CEO and Board of Directors.

Debt‐to‐Equity Limits

A maximum debt‐to‐equity ratio of 15‐to‐1 would be imposed on companies that the FSOC determines pose a
grave threat to U.S. financial stability that cannot otherwise be mitigated.

Early Remediation

Covered companies could be subject to early remediation measures, triggered by capital, leverage, stress test, risk
management compliance, liquidity, and market indicators. The four “levels” of remediation would include
restrictions on growth, dividends, the establishment of new business lines, and the acquisition of a controlling
interest in any company.

TCH will examine these components in greater detail in the coming weeks and consider how they would interact
with other Dodd‐Frank requirements intended to mitigate systemic risk, and with international accords that the
FRB has agreed to implement in the U.S.

The Clearing House is the nation’s oldest banking association and payments company established in 1853 to bring order to
clearing and settling between banks. For more information see theclearinghouse.org/issues/banking-regulations/dodd-frank