Systemic Risk Mitigation Act

To establish a market-based trigger to determine the capital adequacy of bank holding companies and decrease systemic risk, and for other purposes. 1. Short title This Act may be cited as the Systemic Risk Mitigation Act 2. Definitions In this Act: (1) Average daily closing price (A) In general The term average daily closing price (B) Regulations The Board, through regulations, shall develop a method to determine the daily closing price of a credit default swap on long-term subordinated debt of a bank holding company and shall calculate the average daily closing price accordingly. (2) Bank holding company The term bank holding company 12 U.S.C. 1841 (3) Board The term Board (4) Credit default swap The term credit default swap swap agreement (5) Long-term subordinated debt The term long-term subordinated debt (A) is subordinated to the claims of depositors or general creditors; and (B) has a maturity date not less than 5 years. (6) Stress test (A) In general The term stress test (i) has the capital, on a total consolidated basis, necessary to absorb losses as a result of adverse economic conditions; and (ii) is sufficiently capitalized to meet systemically important obligations. (B) Regulations The term systemically important obligation (7) Tier 1 capital The term tier 1 capital 3. Market-based trigger to determine adequacy of capital (a) Market-Based trigger (1) Greater than 50 basis points (A) In general In the case that the average daily closing price exceeds 50 basis points— (i) the Board shall notify the bank holding company that it needs to raise additional tier 1 capital in order to reduce such closing price below 50 basis points; (ii) not later than 14 days (or less if the Board makes a determination that conditions warrant a shorter period of time) after such notification under clause (i), such company shall submit to the Board an action plan detailing how the company intends on remediating its capital deficiency; (iii) such company has 30 days to implement the plan submitted under clause (ii) after such plan is approved by the Board; and (iv) if after the end of the 30-day period described in clause (iii) the average daily closing price exceeds 50 basis points, the Board and such company shall repeat clause (i) through (iii) until such closing price is less than or equal to 50 basis points. (B) Appeal (i) In general A bank holding company may appeal the findings of the Board under subparagraph (A) and request that the Board conduct a stress test. (ii) Tolling An appeal made pursuant to clause (i) shall toll any deadline specified under subparagraph (A) until the conclusion of the appeals process. (iii) Capital deficiency If the Board determines, after conducting a stress test pursuant to clause (i), that the bank holding company has a capital deficiency, the Board and the bank holding company shall repeat clause (i) through (iii) of subparagraph (A) in accordance with clause (iv) of such subparagraph. (2) Greater than 75 basis points In the case that the average daily closing price exceeds 75 basis points— (A) the Board shall notify the bank holding company in accordance with clause (i) of paragraph (1)(A); (B) such company shall submit and implement an action plan in accordance with clause (ii) and (iii) of paragraph (1)(A); (C) the Board may suspend or limit dividends paid by the bank holding company until such company’s average daily closing price is less than or equal to 50 basis points; (D) the Board shall notify the company that it will be placed into receivership in accordance with paragraph (3) if the average daily closing price exceeds 100 basis points; (E) the Board shall conduct a stress test; and (F) if the Board determines, after conducting a stress test pursuant to subparagraph (E), that such company has a capital deficiency, not later than 14 days (or less if the Board makes a determination that conditions warrant a shorter period of time) after such stress test is completed, such company shall submit and implement an action plan in accordance with clause (ii) and (iii) of paragraph (1)(A). (3) Greater than 100 basis points In the case that the average daily closing price exceeds 100 basis points, the Board shall place the company into receivership in accordance with the orderly liquidation authority provided under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( 12 U.S.C. 5381 et seq. (b) Failure To submit action plan A failure by a bank holding company to submit an action plan pursuant to subsection (a) within the time period required under such subsection shall result in the Board placing such company into receivership as described in subsection (a)(3). (c) Limitation on claims for holders of long-Term subordinated debt Any entity that is a holder of long-term subordinated debt of a bank holding company that has been placed into receivership pursuant to this section shall receive the lesser of— (1) 80 percent of the face value of such debt; or (2) the residual value of such company after all other claims of other creditors have been satisfied. (d) Subordinated debt requirement (1) In general The Board shall require each bank holding company to issue and maintain long-term subordinated debt in an amount greater than or equal to 15 percent of the total consolidated assets of such company. (2) Deadline A bank holding company shall meet the requirement set forth in paragraph (1) no later than the effective date of this section. (3) Failure to meet requirement If a bank holding company fails to meet the requirement set forth in paragraph (1), such company shall submit a plan to the Board describing the steps the company will take to meet such requirement. (e) Effective date This section shall take effect 2 years after the date of the enactment of this Act. 4. Repeal (a) Prohibitions on proprietary trading Section 13 of the Bank Holding Company Act of 1956 ( 12 U.S.C. 1851 (b) Enhanced Prudential Standards Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( 12 U.S.C. 5365

Summary: Systemic Risk Mitigation Act - Establishes a framework for a market-based trigger to monitor and regulate the adequacy of bank capital of those bank holding companies whose total consolidated assets are $50 billion or more. Directs the Board of Governors of the Federal Reserve System to notify a bank holding company whose average daily closing price exceeds either 50 basis points, or 75 basis points, that it must raise additional tier 1 capital in order to reduce such thresholds. Requires the Board to place into receivership a bank holding company whose average daily closing price exceeds 100 basis points, in accordance with the orderly liquidation authority provided under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Subjects to receivership a bank holding company that, after notification by the Board, fails to submit an action plan required under this Act. Sets forth a limitation upon claims of holders of the long-term subordinated debt of a bank holding company that has been placed into receivership. Directs the Board to require each bank holding company to issue and maintain long-term subordinated debt of at least 15% of its total consolidated assets. Amends the Bank Holding Company Act of 1956 to repeal prohibitions against proprietary trading and certain relationships with hedge funds and private equity funds. Amends the Dodd-Frank Wall Street Reform and Consumer Protection Act to repeal requirements for enhanced supervision and prudential standards for Board-supervised nonbank financial companies and certain bank holding companies.