UPDATE: Regulatory Burden on Corporate Treasurers January 2013

1. UPDATE: Regulatory Burden on Corporate TreasurersJanuary 2013

2. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Rules Status (January 2, 2013) Rules Finalized:136 (out of 398 total rules) Rules Proposed But Not Finalized: 133 Rules not proposed: 129 142 Rules Have Missed Deadlines

3. The Burden on Corporate Treasurers Derivative Regulations: Reduced ability to manage day—to-day business risk Money Market Fund Reform: Reduced ability to raise and invest short-term capital Increased Capital Standards (Basel III): Reduced ability to borrow capital from financial institutions The Volcker Rule: Reduced ability to raise capital from the public debt markets

4. Money Market Fund Reform Status: The SEC and FSOC are moving along parallel regulatory paths on money market mutual funds. • The SEC completed a study responding to questions posed by Commissioners Aguilar, Paredes, and Gallagher on MMMFs and is expected to issue a proposal late Q1 2013. • The Financial Stability Oversight Council voted unanimously to advance proposed recommendations for public comment on November 13, 2012. The FSOC proposal will have a 60 day comment period closing Friday, January 18th.

5. Money Market Fund Reform Reform Options • Options under consideration by FSOC • Floating Net Asset Value. Require MMFs to have a floating net asset value (“NAV”) by removing the special exemption that currently allows MMFs to utilize amortized cost accounting and / or penny rounding to maintain a stable NAV • Stable NAV with NAV Buffer and “Minimum Balance at Risk.”Require MMFs to have an NAV buffer with a tailored amount of assets of up to 1 percent to absorb day-to-day fluctuations in the value of the funds’ portfolio securities and allow the funds to maintain a stable NAV.  The NAV buffer would be paired with a requirement that 3 percent of a shareholder’s highest account value in excess of $100,000 during the previous 30 days — a minimum balance at risk (MBR) — be made available for redemption on a delayed basis • Stable NAV with NAV Buffer and Other Measures. Require MMFs to have a risk-based NAV buffer of 3 percent to provide explicit loss-absorption capacity that could be combined with other measures

6. Minimum Balance at Risk and NAV Buffer • Minimum Balance at Risk (“MBR”) • For account balances over $100,000 • MBR is 3% of “high water mark” for 30 days • High water mark is the highest balance in the previous 30 days • Feature is always in play – no trigger • That 3% is the constant “minimum balance at risk” • NAV Buffer • Three tiered approach for the buffer: • No buffer for cash or treasury securities • 75bps/225bps buffer for daily liquid assets • 100 bps/300 bps buffer for all other assets

7. Derivative RegulationsDodd-Frank calls for 109 rulemakings regarding the regulation of derivatives Key Issues in Implementation: Margin Requirements , Inter-Affiliate Swaps, Cross-Border Issues Status: • Compliance with certain reporting/registration rules has begun for swap dealers and MSPs. • End Users need to update their documentation with their counterparties by May 1st and begin making preparations to claim the clearing exception. • Waiting Game: a number of big rules are yet to be finalized: margin, inter-affiliate swaps, cross border guidance. 

8. Derivative Regulation End-User Exemption: Chairman Bernanke says creating a margin exemption for end-users will require legislation – cannot be accomplished in a Fed reg. Legislation: • Margin exemption legislation passed the House in March 2012 with very strong bipartisan support • Bipartisan companion bill introduced in the Senate in July, but was not passed in the lame duck • Legislation will have to be re-introduced in the new Congress Coalition for Derivatives End-Users is weighing in on outstanding regulations, and is working to restart the legislative process on the margin exemption bill and the inter-affiliate exemption bill in the new congress. 

9. The Volcker Rule Status: Comment Period is closed and the 5 regulators (Federal Reserve, FDIC, OCC, SEC, and CFTC) are still working to finalize the Volcker Rule. Timing: Final rule expected early 2013 Most Controversial Part: The Market Making and Underwriting Exemptions Rep. King (R-NY) introduced a bill that would prevent enforcement of the Rule pending a certification by the Treasury Secretary that major trading partners have also implemented their version of the Volcker Rule. This will have to be reintroduced in the new congress

10. Capital Requirements/Basel III • Domestic Status: (January 6, 2013) Comment period closed. The Federal Reserve, FDIC, and OCC are working to finalize requirements • International Status: BASEL Committee eased BASEL III requirements. • Expanded qualified assets to include blue chip stocks and bonds backed by mortgages • Extended the compliance deadline to 2019 • Lowered withdraw assumptions in a crisis This is the start of a multi-year implementation process, but it should be noted that the United States never fully implemented Basel II due to process concerns.

11. Macroeconomic Impact of Basel III (summary) Macroeconomic Impact of Basel III (summary) The estimated medium-term impact of Basel III implementation on GDP growth is in the range of −0.05 to −0.15 percentage point per annum. Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in bank funding costs, due to higher capital requirements, to their customers. To meet the capital requirements effective in 2015 (4.5% for the common equity ratio, 6% for the Tier 1 capital ratio), banks are estimated to increase their lending spreads on average by about 15 basis points. The capital requirements effective as of 2019 (7% for the common equity ratio, 8.5% for the Tier 1 capital ratio) could increase bank lending spreads by about 50 basis points. The estimated effects on GDP growth assume no active response from monetary policy. To the extent that monetary policy will no longer be constrained by the zero lower bound, the Basel III impact on economic output could be offset by a reduction (or delayed increase) in monetary policy rates by about 30 to 80 basis points.

14. FDIC Deposit Insurance Coverage • The Federal Deposit Insurance Corporation (FDIC) is an independent agency of theUnited States government that protects the funds depositors place in banks and savings associations • FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. • FDIC insurance does not cover other financial products and services that banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or securities. • The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. • The FDIC provides separate coverage for deposits held in different account ownership categories. Depositors may qualify for more coverage if they have funds in different ownership categories and all FDIC requirements are met.

15. FDIC Deposit Insurance Coverage Limits

16. Have you heard about EDIE? Electronic Deposit Insurance Estimator www.fdic.gov/edie

17. www.CenterForCapitalMarkets.com