U.S. Implementation of Basel III: Current Developments

Transcription

1 U.S. Implementation of Basel III: Current Developments Practicing Law Institute March 12, 2012 Charles M. Horn Dwight C. Smith 2010 Morrison & Foerster LLP All Rights Reserved mofo.com

2 Topics Current U.S. Requirements History Basel II Basel III U.S. Implementation Impact of Dodd-Frank This is MoFo. 2

3 Current U.S. Requirements All U.S. banks continue to follow Basel I as revised. U.S. has adopted Basel II, but only for approximately 20 large banks. Basel II-eligible banks continue to conduct parallel runs and have not begun to use Basel II exclusively. U.S. regulators have established a capital floor for all U.S. banks, including Basel II banks. Basel II-type proposal for all banks has been pending since This is MoFo. 3

4 Current U.S. Requirements U.S. has not adopted Basel III, although certain Basel III standards already are in place. Leverage ratio Supervisory liquidity standards Basel 2.5 rule pending This is MoFo. 4

5 History Basel I First international effort to regulate the financial condition of multinational banks on a global basis. Basel Committee on Banking Supervision ( BCBS ) issued Basel I accord in July Basel I was designed to assess capital adequacy in relation to credit risk. Two key ratios 4% Tier 1 capital to risk-weighted assets 8% total capital (Tier 1 plus Tier 2) to same group of risk-weighted assets Different weights assigned to different assets to reflect differences in credit risk. This is MoFo. 5

6 History Basel I BCBS has continually revised Basel I. New risk weights to account for new assets particularly securitization positions Recognition of credit risk mitigants New forms of capital and new deductions from capital Additional U.S. developments: Leverage ratio Interest rate risk This is MoFo. 6

7 History Basel II Regulators realized need for more comprehensive approach to capital adequacy and its role in risk management. Process began in Core Basel II document was finalized in June Three pillars of capital adequacy, only one of which is quantitative: Minimum capital requirements Supervisory review Market discipline This is MoFo. 7

8 History Basel II U.S. has adopted that portion of Basel II that applies to the most complex banks ( advanced approach ). Rule covers approximately 20 large and complex U.S. banks. First U.S. banks began three-year parallel runs in No U.S. bank has been permitted to use solely advanced approach for determining credit and operational risk capital requirements. To preserve competitive balance between the Basel II banks and all other U.S. banks, federal banking agencies proposed Basel IA in June Basel IA based largely but not entirely on the Basel II standardized approach. Basel IA never finalized. This is MoFo. 8

9 History Basel II The financial crisis prompted several changes to Basel II. January 2009 proposed new requirements Trading book exposures, including complex and illiquid credit products. Complex securitizations e.g., CDOs of ABS. Exposures to off-balance sheet vehicles e.g., ABCP conduits. July 2009 final enhancements of Basel II Higher capital requirements for resecuritizations More rigorous credit analysis of externally rated securitizations Improvements to Pillars 2 and 3 This is MoFo. 9

10 History Basel III Financial crisis revealed broader deficiencies in the management of bank capital. Insufficient capital in general Inadequate analysis of credit risk Internationally, no leverage measure Over-estimates of the loss-absorbing function of hybrid instruments Opacity of certain complex financial instruments Need for additional liquidity This is MoFo. 10

11 History Basel III September 2009: BCBS releases a comprehensive response to the global banking crisis. BCBS recommendations cover: Higher quality Tier 1 capital Leverage ratio Liquidity ratios Countercyclical capital buffers Framework for cross-border resolutions Capital surcharges This is MoFo. 11

12 History Basel III December 2009: Consultative documents on Basel III and liquidity risk management Increased capital for counterparty credit risk August 2010: Consultative documents on gone concern capital requirements This is MoFo. 12

13 History Basel III December 2010: Basel III largely completed Composition of capital Risk coverage counterparty credit risk and reliance on external credit ratings Capital conservation buffer Countercyclical buffer Leverage ratio Liquidity buffers January 2011: Requirements relating to loss absorbency at point of non-viability published This is MoFo. 13

14 History Dodd-Frank Act Statute enacted mid-way through the Basel III consultative process For banks with more than $50 billion in consolidated assets, Dodd-Frank Act is generally consistent with the Basel III reforms. Enhanced capital ratios generally Higher leverage ratio Liquidity Contingent capital study This is MoFo. 14

15 History Dodd-Frank Act Dodd-Frank also applies certain elements of Basel III to all banks Composition of capital and minimum leverage capital floor Collins Amendment Countercyclicality requirement Capital-related qualitative reforms Stress tests and capital and resolution planning Financial holding company requirements and source of strength Early remediation This is MoFo. 15

16 History Basel 2.5 Weighting of assets in the trading book to reflect market rather than credit risk Market risk originally addressed in 1996 amendment to Basel I July 2009 revised market risk framework released Feb new market risk rule proposed in U.S., without the securitization and re-securitization portions of the Basel document. These portions relied on external credit ratings, which is prohibited by Dodd-Frank. Dec market risk rule re-proposed with new provisions on creditworthiness to replace references to external credit ratings This is MoFo. 16

17 Basel II This is MoFo. 17

18 Basel II Pillar 1 Minimum Capital Requirements Basel II focused on more granular approach to determining the credit risk of particular assets. Two different methods for calculating risk weights: Standardized approach risk weights assigned by regulators, with greater range than under Basel I. Available to all banks, except large and complex banks. Internal ratings-based (IRB) approach internal calculations based on three key elements: risk parameters; risk weight functions; minimum requirements. Available only to largest and most complex banks. IRB approach has two subcomponents: foundation IRB and advanced IRB. This is MoFo. 18

19 Basel II Pillar 1 Minimum Capital Requirements Internal ratings-based (IRB) methodology Key risk parameters are probability of default (PD), loss given default (LGD), exposure at default (EAD, and maturity (M). Under foundation IRB, banks internally calculate PD and supervisors provide LDG, EAD and M. Under advanced IRB, banks internally all risk parameters subject to supervisory review. Securitization exposures Traditional and synthetic securitization exposures Treatment of different types of exposures, credit facilities and credit risk mitigants This is MoFo. 19

20 Basel II Pillar 1 Minimum Capital Requirements Operational risk: the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Two calculation approaches for operational risk Standardized approach Advanced measurement approach (AMA) Components of capital, however, remained substantively the same as those in Basel I, with some adjustments. This is MoFo. 20

21 Basel II Pillar 2 Supervisory Review Based on four key principles: Bank processes for assessing overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels. Supervisory review and evaluation of internal capital adequacy assessments and strategies. Supervisory expectation that bank operate above minimum regulatory capital ratios. Early intervention and remediation for inadequate capital ratios. This is MoFo. 21

22 Basel II Pillar 2 Supervisory Review Specific issues to be addressed: Interest rate risk in the banking book Credit risk, including stress testing, risks associated with collateral and guarantees, credit concentrations, counterparty credit risk Operational risk Market risk This is MoFo. 22

23 Basel II Pillar 3 Market Discipline Complements Pillars 1 and 2. Market discipline is disclosure-based. Guiding principles for disclosure: Board-approved disclosure policies and procedures. Pillar 3 applies to top level of consolidated banking group. Qualitative and quantitative disclosures. Disclosure elements: capital structure and adequacy; risk disclosures (general qualitative disclosures, credit, market, operational, equity positions, interest rate). This is MoFo. 23

24 Basel III This is MoFo. 24

25 Basel III Key Provisions (new provisions in red) Components of capital Risk coverage Leverage ratio Liquidity coverage requirements Pillar 2 risk management and supervision Pillar 3 market discipline This is MoFo. 25

26 Capital Capital quality Level of capital Capital conservation buffer Countercyclical buffer Loss absorption at the point of non-viability Basel III This is MoFo. 26

27 Chart prepared by BCBS and available at This is MoFo. 27

28 Capital Quality Three types of qualifying capital Tier 1 common equity Tier 1 additional equity Tier 2 capital The emphasis of Basel III plainly is on Tier 1 common equity. This is MoFo. 28

29 Capital Quality Tier 1 common equity Bank s common shares meeting criteria for such classification (or equivalent for non-joint stock companies) Stock surplus/share premium on common equity Tier 1 instruments Retained earnings and other disclosed reserves Common shares issued by bank s consolidated subsidiaries and held by third parties (as minority interests) that meet certain additional criteria for inclusion in common equity Tier 1 after regulatory adjustments (deductions) This is MoFo. 29

30 Capital Quality Criteria for common equity The most subordinated claim in liquidation of the bank Entitled to a claim on the residual assets that is proportional with its share of issued capital, after all senior claims have been repaid in liquidation (i.e. has an unlimited and variable claim, not a fixed or capped claim). Principal is perpetual and never repaid outside of liquidation (other than discretionary repurchases or other allowable discretionary capital reductions under relevant law). No expectation is created at issuance that the instrument will be bought back, redeemed or cancelled nor do the statutory or contractual terms provide any feature which might give rise to such an expectation. This is MoFo. 30

31 Capital Quality Criteria for common equity Distributions paid out of distributable items and not tied or linked to the amount paid in at issuance and not subject to a contractual cap No circumstances under which the distributions are obligatory (no event of default for non-payment) Distributions paid only after all legal/contractual obligations have been met (including payments on more senior capital instruments). Therefore no preferential distributions This is MoFo. 31

32 Capital Quality Criteria for common equity It takes the first and proportionately greatest share of any losses as they occur and absorbs losses on a going concern basis proportionately and pari passu with all the other instruments within the Tier 1 common category. The paid-in amount is recognised as equity capital (i.e., not as a liability) for determining balance sheet insolvency. The paid-in amount is classified as equity under the relevant accounting standards. It is directly issued and paid-in and the bank cannot directly or indirectly have funded the purchase of the instrument. This is MoFo. 32

33 Capital Quality Hybrid Tier 1 capital To qualify as Tier 1 capital, hybrid instruments must be: subordinated to all depositors and all creditors not secured or guaranteed perpetual, with no incentives to redeem and no investor put option fully discretionary non-cumulative dividends/coupons callable by bank only after 5 years any return of capital only with prior supervisory authorisation capable of principal loss absorption on a going concern basis Several hybrid Tier 1 instruments will be phased out, including step-up instruments, cumulative preferred stock, and trust preferred stock. This is MoFo. 33

34 Capital Quality New deductions from Tier 1 capital: -Minority interests in consolidated subsidiaries of banks -Banks own non-controlling, minority investments in financial institutions -Deferred tax assets up to a limit -Shortfall in reserves -Mortgage serving rights -Goodwill and other intangibles -Gains on sale in securitization transactions -Gains and losses due to changes in banks own credit risk -Defined benefit pension fund assets and liabilities. This is MoFo. 34

35 Capital Quality Tier 2 Capital Requirements Original maturity of at least 5 years, with no incentive to redeem Callable only by the issuer and only after 5 years, with prior supervisory approval Dividends/Coupons may not have a credit-sensitive dividend feature In liquidation, subordinated to all non-subordinated creditors This is MoFo. 35

36 Level of Capital Minimum common equity -Current Basel requirement is 2%. -New requirement of 3.5% will take effect Jan. 1, 2013, rising to 4.5% by Jan. 1, Minimum Tier 1 capital -Current requirement is 4%. -Requirement of 4.5% will take effect Jan. 1, 2013, rising to 6% by Jan. 1, Minimum total capital requirement Remains at 8% New ratios based on more stringent definition of capital This is MoFo. 36

37 Conservation Buffer Requires banks to build up capital outside periods of stress which can be drawn down as losses are incurred Ratio of Tier 1 common equity to risk-weighted assets Buffer is phased in in equal increments over three year period, beginning with 0.625% on Jan. 1, 2016 On Jan. 1, 2019, permanent buffer of 2.5% takes effect Restraints on dividends and discretionary bonuses if buffer falls below 2.5% This is MoFo. 37

38 Conservation Buffer Surcharge As part of the capital conservation buffer for 29 global systemically important banks (G-SIBs), BCBS has established an additional loss absorbency surcharge. G-SIBs will be allocated initially to four buckets, from 1.0% to 2.5%. A fifth bucket of 3.5% has been created as a penalty box. Allocations depend on scoring system that takes into account several factors, including levels of cross-border activity, size, interconnectedness, substitutability, and complexity. General supervisory judgment is also a factor. G-SIBs may use certain instruments in addition to Tier 1 to satisfy surcharge requirement. Surcharge phases in between 2016 and This is MoFo. 38

39 Countercyclical Buffer Buffer is to be employed when excess credit growth is judged to be associated with a build-up of system-wide risk. Buffer is an extension of the capital conservation buffer. Buffer is set on a national basis; buffers will not be internationally uniform. Buffer requirement should be announced 12 months in advance of effective date. Phase-in along the same time frame and in the same amounts as conservation buffer. Ceiling will be 2.5% as of Jan. 1, Requirements higher than the phase-in amounts presumably could not be imposed. This is MoFo. 39

40 Capital Phase-ins % of Risk Weighted Assets This is MoFo. 40

41 Phase-in arrangements (all dates are of January 1 of each year) Capital Phase-ins (%) Minimum Common Equity Capital Ratio Capital Conservation Buffer Minimum Common Equity plus Capital Conservation Buffer Minimum Tier 1 Capital Minimum Tier 1 Capital plus Capital Conservation Buffer Minimum Total Capital Minimum Total Capital plus Capital Conservation Buffer Phase-in of deductions from Tier 1(including amounts exceeding limit for DTAs, MSRs and certain investments) Phase-out capital instruments no longer qualifying as Tier 1 capital or Tier 2 capital Phased out over 10 year horizon (10 per year beginning 2013) Public Sector Capital Injections Included in Capital Not included in capital (as of Jan ) Leverage Ratio Supervisory monitoring Parallel run Jan Jan Disclosure starts Jan Final Adjustments 3.0 (Unless Adjusted) Liquidity Coverage Ratio (LCR) Observation period begins Introduce minimum standard Net Stable Funding Ratio (NSFR) Observation period begins Introduce minimum standard Source: BCBS Press release, Group of Governors and Heads of Supervision announces higher global minimum capital standards, Annex 2 (Sept. 12, 2010), available at This is MoFo. 41

42 Loss Absorption Contractual terms of instruments should allow for either the permanent write-down of principal or conversion to common equity when a bank is viewed as non-viable. Non-viability is when a public sector injection or the equivalent is needed, without which the bank would become non-viable, or a write-off is required, without which the firm would become non-viable Local regulators would have discretion to specify a conversion rate and also whether to implement either a write-off or a conversion EU regulators are considering more onerous bail-in measures. US position on bail-in capital is not fully developed. This is MoFo. 42

43 Securitizations and credit ratings Risk Coverage BCBS believes aspects of existing capital framework encouraged investors to place too much reliance on external credit ratings. Requirements Issue-specific rating assessment may only be applied to unrated issues by the same issuer that ranks pari passu or senior to rated issue. Banks must develop methodologies to assess credit risk of securitization exposures even if rated. Eligibility criteria for entities providing credit protection have been amended. Banks should use ratings of credit rating agencies consistently for both risk weighting and risk management purposes. This is MoFo. 43

44 Trading Book Risk Coverage Revisions to the Basel II market risk framework (Feb. 2011) Guidelines for computing capital for incremental risk in the trading book (July 2009) This is MoFo. 44

45 Risk Coverage Counterparty Credit Risk ( CCR ) Measures designed to strengthen risk coverage include: expected positive exposure with stressed parameters to address wrong-way risk requirement that banks determine capital charges for CCR using stressed inputs capital charge for mark-to-market losses associated with a deterioration in the creditworthiness of a counterparty (credit valuation adjustment) higher capital charges for bilateral OTC exposures to financial institutions Measures take effect in Banks determine capital charges for CCR using stressed inputs asset value correlation multiplier to large regulated financial institutions whose total assets are at least U.S.$100bn This is MoFo. 45

46 Exposures to Central Counterparties Risk Coverage Ongoing work on this topic by International Organization of Securities Commissions Standards were to be finalised during 2011; action now hoped for by the end of BCBS consultative document relating to capitalisation of exposures to CCPs. This is MoFo. 46

47 Leverage Leverage ratio new to Basel process but well-established in U.S. U.S. requirement already at 4%; 3% for very highly rated banks Lengthy phase-in of 3% ratio; fully effective Jan. 1, 2018 Capital Measure: numerator of the leverage ratio (capital) would consist of only high quality capital that is generally consistent with the revised definition of Tier 1 capital. Total Exposure Measure: generally, denominator of the leverage ratio (the total exposures) would be determined in accordance with applicable accounting rules. This is MoFo. 47

48 Leverage Ratio Tier 1 leverage ratio to be set at 3% during parallel run period between 2013 and 2017 Bank level disclosure of leverage ratio and components to start in January 2015 Supervisory monitoring period to commence on 1 January 2011 Leverage ratio not to become binding until early 2018 Current proposal is to base leverage ratio on banks capital (the numerator) compared to their exposure (the denominator) on new definition of tier 1 capital. Exposure should follow accounting standards. This is MoFo. 48

49 Leverage Ratio High quality liquid assets include cash and cash-like instruments in the measure of exposure. Securitisation exposures will be counted in a manner generally consistent with accounting treatment. Derivatives exposures will either follow the applicable accounting treatment or use the current exposure method. Other off-balance sheets are included: commitments unconditionally cancellable commitments direct credit substitutes 10% credit conversion factor for any commitments that are unconditionally cancellable at any time by the bank. This is MoFo. 49

50 Liquidity Liquidity requirements under Basel II consist of two key liquidity ratios: Liquidity Coverage Ratio, which is a short term measure of liquidity Net Stable Funding Ratio, which is a medium term measurement of liquidity This is MoFo. 50

51 Liquidity Liquidity Coverage Ratio Ratio: Ratio of high quality liquid assets to total net cash outflows over next 30 days Must be equal to or greater than 100%. Builds on traditional internal methodologies used by banks to assess exposure to contingent liability events. Defined as stock of high quality liquid assets divided by total net cash outflows for next 30 days. Certain high quality liquid assets ( level 1 assets ) to be included on asset side on an unlimited undiscounted basis. Level 2 assets must comprise no more than 40% of the overall stock and must have a minimum 15% haircut. Observation period for liquidity coverage ratio commences in 2011 and ratio to be introduced at start of This is MoFo. 51

52 Liquidity Net Stable Funding Ratio Final version has been published but still under discussion. Net stable funding ratio: Ratio of available amount of stable funding ( ASF ) to required amount of stable funding ( RSF ) Must exceed 100% Designed to promote resilience over a period of one year Builds on net liquid asset and cash capital methodologies used by internationally active banks Ratio should be reported at least quarterly Minimum standard will be required by Jan. 1, This is MoFo. 52

53 Liquidity Principles for Sound Liquidity Risk Management (2008) Five subject matter areas; 17 principles Fundamental principle for management and supervision Governance Measurement and management of liquidity risk Public disclosure Role of supervisors Supervisory Monitoring Metrics Contractual maturity mismatches Concentration of funding Available unencumbered assets Currencies Market information This is MoFo. 53

54 Pillar 2 Several enhancements to supervisory review Firm-wide governance and risk management Off-balance sheet exposures Securitizations Risk concentrations Management of risks versus rewards Compensation Valuation Stress testing Accounting standards Corporate governance Supervisory colleges This is MoFo. 54

55 Pillar 3 Enhancements to market discipline and disclosures New requirements for securitization exposures and sponsorship of off-balance sheet vehicles Other enhanced disclosure requirements Components of regulatory capital Reconciliation to reported accounts Comprehensive explanation of how bank calculates its capital ratios This is MoFo. 55

56 U.S. Implementation This is MoFo. 56

57 U.S. Implementation Current U.S. regulatory intentions with respect to implementation of Basel II revisions and Basel III: Adoption of 6-year transition period for Basel III requirements: U.S. banking organizations would not be expected to meet fully phased-in Basel III requirements prior to their effective times, but would be expected to take affirmative steps to increase capital levels in order to meet applicable deadlines, and improve their capital ratios through prudent earnings retention policies. U.S. may look to progress towards Basel III in evaluting capital adequacy for various purposes. This is MoFo. 57

58 U.S. Implementation Basel III tasks for U.S. regulators Capital surcharges for systemically important financial firms Coordination with Basel Committee on identification of, and surcharges for, G-SIBs More stringent capital requirements for large U.S. banking organizations consistent with the requirements of the Dodd-Frank Act. This is MoFo. 58

59 Impact of Dodd-Frank This is MoFo. 59

60 Dodd-Frank and Capital The Dodd-Frank Act does not expressly address Basel II or Basel III capital requirements, but it contains several provisions that (i) impose requirements that either are harmonious with the Basel Committee regime, or (ii) create capital requirements that are greater than those imposed by Basel III. Issues addressed under Dodd-Frank: Quality of capital Contingent capital Capital levels Leverage This is MoFo. 60

61 Dodd-Frank Capital Quality Primary but by no means the only Dodd-Frank provision affecting regulatory capital is the Collins Amendment. Requires the establishment of new minimum leverage and riskbased capital requirements for bank and thrift holding companies. The floor for the new standards is the current set of rules applicable to insured banks and thrifts under the prompt corrective action rules. Effectively disqualifies trust preferred and other hybrid capital securities from treatment as Tier 1 primary capital. But unclear how the U.S. regulators will treat new holding company instruments that are modeled on earlier capital instruments. This is MoFo. 61

62 Dodd-Frank Capital Quality Collins Amendment rules will exclude trust preferreds and other hybrids from the numerator of Tier 1, subject to limited exceptions: - Exclusion applies to all hybrid securities issued on or after May 19, Mutual holding companies and thrift and bank holding companies with less than $15 billion in total consolidated assets may include hybrids issued before May 19, 2010, until they mature. - Bank holding companies with assets of $50 billion or more and systemically important nonbank financial companies must phase out from Tier 1 hybrids issued before May 19, 2010 from January 2013 to January Intermediate U.S. holding companies of foreign banks have a five-year transition period to phase out pre-may 19, 2010, hybrid securities from Tier 1 capital. This is MoFo. 62

63 Dodd-Frank Capital Quality New capital-related requirements under section 165 for bank holding companies with more than $50 billion in consolidated assets and nonbank financial companies deemed systemically important ( SIFIs ) Higher capital levels than required for other banks Stress testing Capital and resolution planning This is MoFo. 63

64 Dodd-Frank Capital Quality Hybrids Within 18 months of enactment, GAO must conduct a study of the use of hybrid capital instruments as a component of Tier 1, which shall consider, among other things: -the benefits and risks of allowing instruments to be used to comply with Tier 1 requirements -the economic impact of prohibiting the use of hybrids -possible specific recommendations for legislative or regulatory actions regarding the treatment of hybrids This is MoFo. 64

65 Dodd-Frank Contingent Capital Within two years of enactment, the Financial Stability Oversight Council ( FSOC ) must conduct a study on contingent capital that evaluates, among other things: the effect on safety and soundness of a contingent capital requirement the characteristics and amounts of contingent capital that should be required the standards for a triggering requirement This is MoFo. 65

66 Dodd-Frank Contingent Capital FSOC may make recommendations to the Federal Reserve on contingent capital requirements for bank holding companies with consolidated assets more than $50 billion and systemically important non-bank financial companies. Federal Reserve authorized but not required to set a contingent capital requirement. This is MoFo. 66

67 Dodd-Frank Capital Levels Other than the Collins Amendment and section 165, the Dodd-Frank Act does not call for any specific regulatory capital levels for banking organizations. Dodd-Frank does address regulatory capital levels in an indirect manner: Countercyclical buffer: regulators are directed to set capital requirements with countercyclicality in mind. Dodd-Frank imposes direct source-of-strength requirements on bank and savings and loan holding companies. Financial holding companies now must be and remain wellcapitalized in order to engage in expanded financial activities under the Bank Holding Company Act. This is MoFo. 67

68 Dodd-Frank Leverage 4% requirement at bank level already in effect and predates Dodd-Frank. Collins amendment elevates 4% requirement to the holding company level. 4% requirement is one of the floors for Basel II capital calculations. Dodd-Frank addresses leverage in other ways Possible limits on short term debt. Specific debt-to-equity limit of 15% for bank holding companies with consolidated assets of $50 billion or more and systemically important nonbank financial companies. This is MoFo. 68

69 Dodd-Frank Liquidity Section 165 requires Federal Reserve to set liquidity requirements for SIFIs. Proposed enhanced prudential standards include liquidity buffers and stress testing specifically for liquidity. FSOC may make recommendations. This is MoFo. 69

70 Dodd-Frank and Pillar 2 New requirements as part of supervisory review Concentration limits Counterparty credit risk exposure limits Risk committees These requirements are fully harmonious with Basel II and III. This is MoFo. 70

71 Dodd-Frank and Pillar 3 New disclosure requirements for SIFIs, including Stress test results Capital plans Resolution plans These requirements also are fully harmonious with Basel II and III. This is MoFo. 71

72 Contacts Charles M. Horn Tel.: (202) Dwight C. Smith Tel.: (202) This is MoFo. 72