June 14, 2012Regina A. Stone

Deputy Superintendent

For Discussion Purposes Only

New York State Department of Financial Services

Risk Management

Resolution Planning

A g e n d a

For Discussion Purposes Only

Effective October 3, 2011 – New York State Banking and Insurance Departments merged into the Department of Financial Services

Encompassing Financial Products or Services offered in New York State

Five Divisions: Banking Division Insurance Division Markets Division Real Estate Finance Division Financial Fraud and Consumer Protection Unit

N e w Yo r k S t a t e D e p a r t m e n t o f F i n a n c i a l S e r v i c e s

R i s k M a n a g e m e n t

For Discussion Purposes Only

Emerging Risks Science/technology trends Social trends Regulatory trends

Full nature and effects of new type of risk area is not yet known

Risk of uncertainty Traditional Risks Emerging Risks Risk of Uncertainty

D i ff e r e n t T y p e s o f R i s k s

For Discussion Purposes Only

Risk Management Assessments General assessment of business risk BSA/AML risk assessment

– incorporating customer profiles and products and services Audit risk assessment

Do the above reconcile?

The days of internal audit simply “ticking and tying” to existing policies and procedures are past. Internal audit needs to be trained in risk management to be able to identify holes within the risk management system.

R i s k M a n a g e m e n t a n d I n t e r n a l A u d i t

S Y S T E M I C R I S K A N D

R E S O L U T I O N P L A N N I N G

Single Chartered Institution I.e. clearing organization

A Foreign Branch Part of a Globally Systemic Entity NY Branch is systemically important to the global entity NY branch is not systemically important to the global entity

– However, may be interdependent or interconnected

S Y S T E M I C I M P O R TA N C E VA R I AT I O N S

For Discussion Purposes Only

For Consideration: Is the entity globally significant? Is the entity significant to the U.S.? Is the entity significant to New York State, i.e. local jurisdiction? If no to all of the above,

– Are there critical functions locally?– Are there interdependencies with the whole?

S e r i e s o f Q u e s ti o n s

R e s o l u ti o n A u t h o r i t y

Banking Law Article XIII Merger Voluntary Dissolution Superintendent’s Taking Possession Reorganization Liquidation

For Discussion Purposes

Ta k i n g P o s s e s s i o n C o n d i ti o n

B.L. 605 Violation of Law Business in an unauthorized or unsafe manner Unsound and unsafe condition Cannot continue safe and sound business Has a capital impairment Has suspended payments Failed to follow a Superintendent’s Order Refused to submit records and affairs for inspection Refused to be examined Failed to take or continue a voluntary liquidation

For Discussion Purposes

Types of resolution scenarios

Recovery Orderly Wind-down Liquidation (Closure)

Dependent Upon

Speed and nature of deterioration– Liquidity vs. Non-liquidity

Market allowance Importance of the payment systems

Final Resolution May Rest with the Primary Regulator

However, recognizing a changing regulatory reform landscape

R E S O L U T I O N S C E N A R I O S

For Discussion Purposes Only

Risk Matrix basis vs. Legal Entity basis

Interconnected risk

Interdependence risk

Being able to “unplug” a business unit from the organization

Pre- and Post reviews of organizational changes

I n t e r n a l A u d i t

For Discussion Purposes Only