[Federal Register Volume 77, Number 195 (Tuesday, October 9, 2012)]
[Rules and Regulations]
[Pages 61238-61248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-24608]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 46

[Docket ID OCC-2011-0029]
RIN 1557-AD58


Annual Stress Test

AGENCY: Office of the Comptroller of the Currency (``OCC''), Treasury.

ACTION: Final rule.

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SUMMARY: This final rule implements section 165(i) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'') 
which requires certain companies to conduct annual stress tests 
pursuant to regulations prescribed by their respective primary 
financial regulatory agencies. Specifically, this final rule requires 
national banks and Federal savings associations with total consolidated 
assets over $10 billion (defined as ``covered institutions'') to 
conduct an annual stress test as prescribed by this rule.
    Under the final rule covered institutions are divided into two 
categories: covered institutions with total consolidated assets between 
$10 and $50 billion, and covered institutions with total consolidated 
assets over $50 billion. Based on these categories, covered 
institutions are subject to different stress test requirements and 
deadlines for reporting and disclosures. A key difference between these 
categories is that a national bank or Federal savings association that 
qualifies as an over $50 billion covered institution as of October 9, 
2012 must conduct the annual stress test under this final rule 
beginning this year; other covered institutions that qualify as $10 to 
$50 billion covered institutions are not subject to the stress test 
requirements under this final rule until 2013.

DATES: This rule is effective on October 9, 2012.

FOR FURTHER INFORMATION CONTACT: Darrin Benhart, Deputy Comptroller, 
Credit and Market Risk, (202) 874-1711; Robert Scavotto, Lead 
International Expert, International Analysis and Banking Condition, 
(202) 874-4943; William Russell, National Bank Examiner, (202) 874-
5224; Akhtarur Siddique, Deputy Director, Enterprise Risk Analysis 
Division, (202) 874-4665; Ron Shimabukuro, Senior Counsel, or Alexandra 
Arney, Attorney, Legislative and Regulatory Activities Division, (202) 
874-5090, Office of the Comptroller of the Currency, 250 E Street SW., 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 165(i) of the Dodd-Frank Act \1\ requires two types of 
stress testing: (1) Stress tests conducted by the company and (2) 
stress tests conducted by the Board of Governors of the Federal Reserve 
System (``Board''). Section 165(i)(2) requires certain financial 
companies, including national banks and Federal savings associations, 
to conduct stress tests and requires the Federal primary financial 
regulatory agency \2\ of those financial companies to issue regulations 
implementing the stress test requirements. A national bank or Federal 
savings association must conduct a stress test if its total 
consolidated assets are more than $10 billion. Under section 165(i)(2), 
a financial company is required to submit to the Board and to its 
primary financial regulatory agency a report at such time,

[[Page 61239]]

in such form, and containing such information as the primary financial 
regulatory agency may require.\3\ The primary financial regulatory 
agency is required to define ``stress test,'' establish methodologies 
for the conduct of the company-conducted stress test that must include 
at least three different sets of conditions (baseline, adverse, and 
severely adverse), establish the form and content of the institution's 
report, and compel the institution to publish a summary of the results 
of the Dodd-Frank Act institutional stress tests.\4\
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ 12 U.S.C. 5301(12).
    \3\ 12 U.S.C. 5365(i)(2)(B).
    \4\ 12 U.S.C. 5365(i)(2)(C).
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    In addition to the company-run stress tests required under section 
165(i)(2), section 165(i)(1) requires the Board to conduct annual 
analyses of nonbank financial companies supervised by the Board and 
bank holding companies with total consolidated assets equal to or 
greater than $50 billion to determine whether such companies have the 
capital, on a total consolidated basis, necessary to absorb losses as a 
result of adverse economic conditions.\5\ The Board published a 
proposed rule implementing this supervisory stress testing on January 
5, 2012.\6\
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    \5\ 12 U.S.C. 5365(i)(1)(A).
    \6\ Enhanced Prudential Standards and Early Remediation 
Requirements for Covered Companies, 77 FR 594 (January 5, 2012).
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II. Discussion of Comments on Proposed Rule

    The OCC published a notice of proposed rulemaking in the Federal 
Register on January 24, setting forth definitions and rules for scope 
of application, scenarios, data collection, reporting, and 
disclosure.\7\ The OCC received 19 comment letters on the proposal. 
Commenters included banks, industry groups, nonprofit organizations, 
and individuals. Commenters generally expressed support for the 
proposed rule and stress testing in general, but several recommended 
changes to certain provisions of the proposed rule. Many commenters 
also strongly urged the OCC to coordinate with the Board and Federal 
Deposit Insurance Corporation (``FDIC'') (collectively, the 
``agencies'') to make the agencies' rules on annual stress tests 
consistent. After careful consideration of these comments, the OCC has 
modified the proposed rule in certain respects in response to the 
comments.
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    \7\ See 77 FR 3408 (January 24, 2012).
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A. Coordination With Other Agencies

    As noted, section 165(i)(2) of the Dodd-Frank Act requires the 
primary financial regulators to issue regulations that include 
requirements defining ``stress test,'' establishing methodologies for 
the conduct of company-run stress tests under at least three different 
sets of conditions, establishing the form and content of the 
institution's report, and compelling the institution to publish a 
summary of the results. One commenter raised concerns that the OCC 
would impose unnecessary, multiple stress testing requirements and 
subject institutions to uncoordinated testing parameters, data 
requests, and disclosure formats. Other commenters urged consistency 
and comparability across the agencies' rules and reconciliation of 
inconsistencies among the rules of the agencies.
    The OCC has worked to minimize any potential duplication related to 
the annual stress test requirements. In particular, the OCC worked 
closely with the other agencies to make consistent and comparable the 
rules' standards in the areas of scope of application, scenarios, data 
collection and reporting forms. Each of these areas is discussed in 
further detail below.

B. Scope of Application and Effective Date of the Rule

    In the proposed rule, the OCC defined a ``covered institution'' as 
a national bank or Federal savings association with average 
consolidated assets that exceed $10 billion, with implementation of the 
stress testing requirements to begin in late 2012. Several commenters 
suggested that the OCC delay implementation of the rule, particularly 
for institutions that have not been previously subject to other stress 
testing requirements such as the Board's Comprehensive Capital Analysis 
and Review (``CCAR'') stress tests. One commenter suggested that the 
OCC introduce stress test requirements on a rolling basis according to 
asset size and begin with the largest institutions. Only one commenter 
indicated that an immediate effective date would provide sufficient 
time for an institution to conduct its first stress test.
    The OCC recognizes that institutions are at different stages in 
developing their stress testing frameworks and that the agencies only 
recently issued stress testing guidance.\8\ Therefore, although this 
rule will apply to all covered institutions, this final rule 
establishes two categories of covered institutions. The first category 
consists of national banks and Federal savings associations with 
average total consolidated assets greater than $10 billion but less 
than $50 billion, hereinafter referred to as ``$10 to $50 billion 
covered institutions.'' The second category consists of national banks 
and Federal savings associations with average total consolidated assets 
of $50 billion or more, hereinafter referred to as ``over $50 billion 
covered institutions.'' The OCC is providing a one year delay for $10 
to $50 billion covered institutions. This delay will allow these 
covered institutions to continue to develop and implement a robust 
stress testing framework.
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    \8\ Final joint guidance on Stress Testing for Banking 
Organizations with More Than $10 Billion in Total Consolidated 
Assets. See 77 FR 29458 (May 17, 2012).
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    Most national banks with consolidated assets of $50 billion or more 
have been subject to previous stress testing, including the 2009 
Supervisory Capital Assessment Program (``SCAP'') and the Board's CCAR 
stress tests, and consequently, have in place a framework necessary to 
conduct the stress tests required by this rule. Furthermore, given the 
size and importance of these covered institutions to the safety and 
soundness of the United States banking system, the OCC believes it is 
appropriate for these covered institutions to begin conducting company-
run stress tests as soon as possible. Consequently, most national banks 
and Federal savings associations with consolidated total assets equal 
to or exceeding $50 billion will be required to conduct their first 
annual stress tests under this final rule in the fall of 2012.
    The OCC notes, however, that some national banks and Federal 
savings associations with assets of $50 billion or more may not be able 
or ready to conduct the annual stress test this year in a manner that 
would yield meaningful results. For example, covered institutions that 
were not subject to SCAP and CCAR may need more time to develop and 
implement a robust stress testing framework. Therefore the OCC is 
reserving authority in the rule to permit these national banks and 
Federal savings associations to delay the application of the 
requirements under this final rule on a case-by-case basis, subject to 
such conditions as the OCC may deem appropriate.
    One commenter recommended expanding the scope of the rule to 
include national banks and Federal savings associations with 
consolidated assets of less than $10 billion. The OCC believes that 
stress testing is a good risk management tool that national banks and 
Federal savings associations of all sizes should consider using in 
their risk management practices. Moreover, there may be certain 
situations where, as a supervisory matter, the OCC believes it

[[Page 61240]]

is important for an institution with assets less than $10 billion to 
conduct a stress test. Therefore, under its general rulemaking 
authority in 12 U.S.C. 93a and 1463(a)(2), the OCC is reserving 
authority in the rule to designate a national bank or Federal savings 
association as a covered institution even if it is not otherwise 
subject to this final rule.
    In addition, the OCC reserves the right to exempt an otherwise 
covered institution from certain stress test requirements under this 
final rule to the degree consistent with the requirements of the Dodd-
Frank Act.

C. Scenario Development

    Several commenters urged the agencies to coordinate regarding the 
scenarios required to be used by bank holding companies, savings and 
loan holding companies, banks, and savings associations in conducting 
the stress tests. The OCC, the Board and the FDIC expect to consult 
closely to provide common scenarios for use at both the depository 
institution and holding company levels. As part of the annual scenario 
development process, the OCC expects to update, make additions to, or 
otherwise modify the scenarios as appropriate. This process will 
culminate with the distribution of the scenarios to all covered 
institutions no later than November 15 of each year. The OCC originally 
proposed an October 15 date for distribution of the scenarios but 
believes that a November 15 date will better align the development and 
issuance of the scenarios with the other agencies.
    Several of the commenters also suggested a review process relating 
to scenario development. The OCC believes that a lengthy annual review 
process for scenarios is impractical if scenarios are to be finalized 
and issued without becoming outdated due to economic and financial 
developments. However, the OCC believes that it is important to have a 
consistent and transparent framework to support scenario design. 
Consequently, the OCC expects to consult with the Board and the FDIC as 
well as public and private sector experts to obtain views on salient 
risks and to obtain suggestions for the behavior of key economic 
variables under the stress conditions reflected in the scenarios. The 
OCC expects to publish for one-time notice and comment a guidance 
document setting out the annual procedures to be used by the OCC in 
development of the scenarios.
    A question posed in the notice of proposed rulemaking regarding 
whether to permit covered institutions to develop their own scenarios 
generated comments on each side of the issue. After reviewing the 
comments, the OCC believes that the most compelling argument is that 
all covered institutions should use the same set of scenarios so that 
the OCC can better compare results. Therefore, the OCC intends to 
provide one set of scenarios for use by all covered institutions.
    However, the OCC believes there may be circumstances that would 
warrant the use of different or additional scenarios. For this reason, 
the OCC reserves the authority to require a covered institution to use 
different or additional scenarios as the OCC may deem appropriate. For 
example, a covered institution may conduct business activities or have 
risk exposures for which different or additional scenarios might better 
meet the objectives of this rule. Alternatively, at a more systemic 
level, although the agencies expect to consult closely on scenario 
development, the agencies may have different views of the risks that 
should be reflected in the stress scenarios that covered institutions 
use for the annual stress test. While recognizing this possibility, the 
OCC anticipates making every effort to avoid differences in the 
scenarios required by each agency and to distribute the same scenarios 
to all covered institutions.

D. Definition of Stress Test and Use of Stress Test Results

    One commenter noted that the OCC's proposed rule defined ``stress 
test'' as a process to assess the impact of scenarios on capital, 
whereas the Board and FDIC definitions also referred to impact on 
consolidated earnings and losses. The OCC has modified its definition 
in the final rule to include impact on consolidated earnings and losses 
to be consistent with the other agencies' definitions. In addition, the 
OCC proposal defined a ``stress test'' to require taking into account 
several factors including ``material'' risks, whereas the Board and 
FDIC proposals did not expressly require the risk to be ``material.'' 
The OCC has deleted the term ``material'' from its definition. Thus, 
under the final rule, a covered institution must be able to assess the 
potential impact of scenarios on the consolidated earnings, losses, and 
capital of a covered institution over the planning horizon, taking into 
account the covered institution's current condition, risks, exposures, 
strategies, and activities.
    The final rule states that covered institutions must consider the 
results of stress tests conducted under the rule in the normal course 
of business, including, but not limited to, the covered institution's 
capital planning, assessment of capital adequacy, and risk management 
practices. The OCC believes, as discussed in interagency guidance on 
stress testing published in May 2012, that stress tests are an 
important tool for a variety of decisions made by covered 
institutions.\9\ Such decisions include those related to capital 
planning and capital adequacy processes, as well as risk management 
more generally. However, as that guidance notes, such decisions should 
not be based solely on the results of any single set of stress tests. 
Rather, covered institutions should consider a range of relevant 
information when determining appropriate actions. With regard to stress 
testing, the interagency guidance notes that an effective stress 
testing framework is part of broader risk management and governance 
processes and should encompass a broader set of activities and 
exercises rather than relying on any single test or type of test.
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    \9\ Supervisory Guidance on Stress Testing for Banking 
Organizations With More Than $10 Billion in Total Consolidated 
Assets, 77 FR 29458 (May 17, 2012).
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E. Reporting

    One commenter urged the agencies to develop common reporting 
requirements. The OCC recognizes that many covered institutions with 
consolidated total assets of $50 billion or more have been subject to 
stress testing requirements under the Board's CCAR. The OCC also 
recognizes that these institutions' stress tests will be applied to 
more complex portfolios and therefore warrant a broader set of reports 
to capture adequately the results of the company-run stress tests. 
These reports will necessarily require more detail than would be 
appropriate for smaller, less complex institutions. Therefore, in 
response to comments, the OCC has decided to specify separate reporting 
templates for covered institutions with total consolidated assets 
between $10 and $50 billion and for covered institutions with total 
consolidated assets of $50 billion or more. The OCC published for 
notice and comment specific annual stress test reporting requirements 
for over $50 billion covered institutions in a separate final 
information collection under the Paperwork Reduction Act (44 U.S.C. 
3501-3521).\10\ The OCC, in consultation

[[Page 61241]]

with the other agencies, is working to develop a more streamlined 
reporting template to be used by $10 to $50 billion covered 
institutions subject to the annual stress test rule. The OCC does not 
expect the reporting requirements for covered institutions to differ 
materially across agencies.
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    \10\ Agency Information Collection Activities: Proposed 
Information Collection; Comment Request, ``Company-Run Annual Stress 
Test Reporting Template and Documentation for Covered Institutions 
with Total Consolidated Assets of $50 Billion or More under the 
Dodd-Frank Wall Street Reform and Consumer Protection Act,'' 77 FR 
49485 (August 16, 2012).
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    The OCC notes, however, as discussed in the Paperwork Reduction Act 
notice for the reporting templates for the over $50 billion covered 
institutions, that the OCC will require covered institutions to submit 
supporting documentation that: (i) clearly describes the methodology 
used to produce the stress test projections; (ii) explains how the 
macroeconomic factors were translated into a covered institution's 
projections; and (iii) explains the technical details of any underlying 
statistical methods used. Where company-specific assumptions are made 
that differ from the broad macroeconomic assumptions incorporated in 
stress scenarios provided by the OCC, the documentation must also 
describe such assumptions and how those assumptions relate to reported 
projections.\11\
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    \11\ Id. at 49487 (Description of Supporting Documentation).
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    One commenter suggested a planning horizon of two years with 
financial projections for each year rather than each quarter. However, 
the OCC believes that quarterly projections provide important 
supervisory information for the evaluation of the covered institutions' 
stress testing models and underlying assumptions over the course of the 
scenario. Some commenters suggested that the period of time between the 
distribution of scenarios by the OCC and the required reporting date 
was too short. The OCC plans to provide the annual stress test 
scenarios to covered institutions approximately seven weeks prior to 
the date by which an over $50 billion covered institution must report 
the results of its annual stress test. The OCC believes, based on its 
supervisory experience with over $50 billion covered institutions, that 
this should provide adequate time for these institutions to carry out 
the required stress tests. For the $10 to $50 billion covered 
institutions, the final rule extends the reporting date to March 31. 
The OCC believes this later reporting date should provide adequate time 
for the $10 to $50 billion covered institutions to conduct stress tests 
and report the results.

F. Disclosure

    Several commenters expressed concern with disclosing baseline 
forecasts because these forecasts may be interpreted as earnings 
guidance. The OCC agrees with this concern and has revised the final 
rule to require the disclosure of losses only for the severely adverse 
scenario.
    Several commenters noted that an immediate effective date for all 
institutions with consolidated assets over $10 billion could impose a 
significant burden on institutions that had not been subject to 
disclosure requirements such as those in CCAR. In light of these 
concerns, the OCC is implementing a one-year delay for application of 
the annual stress test requirement to covered institutions with 
consolidated assets between $10 billion and $50 billion, and a two-year 
delay of the disclosure requirement for those covered institutions. 
Therefore, these institutions would conduct the stress tests required 
under this rule for the first time in late 2013; the first disclosure 
of a summary of stress test results would occur in 2015, based on the 
results of the 2014 stress tests. National banks and Federal savings 
associations with consolidated assets of $50 billion or more that are 
subject to this final rule as of the effective date of this final rule 
must conduct their first stress test this year, with disclosure 
required in 2013. However, the OCC retains discretion to delay or 
otherwise modify the application of the disclosure requirements where 
the covered institution lacks the ability to conduct stress tests that 
provide meaningful and useful results.

III. Overview of the Final Rule

    This final rule implements the company-conducted stress test 
requirements for national banks and Federal savings associations as 
required by section 165(i)(2). Under this final rule, a national bank 
or a Federal savings association with total consolidated assets of more 
than $10 billion, defined as a ``covered institution,'' would be 
required to conduct an annual stress test as prescribed by this final 
rule. The OCC is delaying the application of the annual stress test 
requirements to national banks and Federal savings associations with 
total consolidated assets between $10 billion and $50 billion for one 
year.
    The OCC developed this rule in coordination with the Board and the 
Federal Insurance Office, as required by section 165(i)(2)(C). The 
Board and FDIC will issue separate final rules with respect to their 
supervised entities. For purposes of this rule, ``stress test'' is 
defined as a process to assess the potential impact of hypothetical 
economic conditions (``scenarios'') on the consolidated earnings, 
losses, and capital of a covered institution over a set period (the 
``planning horizon''), taking into account the current condition of the 
covered institution including its risks, exposures, strategies, and 
activities.

A. The Purpose of Stress Tests

    The OCC views the stress tests conducted by covered institutions 
under the final rule as providing forward-looking information to 
supervisors to assist in their overall assessments of a covered 
institution's capital adequacy and to aid in identifying downside risks 
and the potential impact of adverse outcomes on the covered 
institution's capital adequacy. In addition, the OCC may use stress 
tests to determine whether additional analytical techniques and 
exercises are appropriate for a covered institution to employ in 
identifying, measuring, and monitoring risks to the financial soundness 
of the covered institution, and may require a covered institution to 
implement such techniques and exercises in conducting its stress tests. 
Further, these stress tests are expected to support ongoing improvement 
in a covered institution's stress testing practices with respect to its 
internal assessments of capital adequacy and overall capital planning.
    The OCC expects that the annual stress tests required under the 
final rule will be only one component of the broader stress testing 
activities conducted by covered institutions. In this regard, the OCC 
notes that the agencies have recently issued final joint guidance on 
``Stress Testing for Banking Organizations with More Than $10 Billion 
in Total Consolidated Assets.'' \12\ These broader stress testing 
activities should address the impact of a range of potentially adverse 
outcomes across a set of risk types affecting aspects of the covered 
institution's financial condition including, but not limited to, 
capital adequacy. In addition, a full assessment of a covered 
institution's capital adequacy should take into account a range of 
factors, including evaluation of its capital planning processes, the 
governance over those processes, regulatory capital measures, results 
of supervisory stress tests where applicable, and market assessments.
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    \12\ See 77 FR 29458 (May 17, 2012).

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[[Page 61242]]

B. Covered Institutions

1. National Banks and Federal Savings Associations
    Under this final rule, a covered institution includes a national 
bank or Federal savings association for which total consolidated assets 
exceed $10 billion. Covered institutions are required to conduct annual 
stress tests as prescribed by this final rule. However, under this 
final rule covered institutions are divided into two categories: $10 to 
$50 billion covered institutions and over $50 billion covered 
institutions. Under this final rule, covered institutions in these 
different categories may be subject to differing stress test 
requirements and deadlines for reporting and disclosures.
    The OCC recognizes that some of the under $50 billion covered 
institutions may be affiliated with larger institutions also subject to 
requirements for stress testing, reporting and disclosure. In such 
cases, it may be less burdensome and more appropriate for the covered 
institution to follow the requirements applicable to over $50 billion 
covered institutions. The final rule permits a $10 to $50 billion 
covered institution to choose to conduct its stress test under this 
part using the requirements applicable to an over $50 billion covered 
institution under those circumstances.
    The determination as to whether a national bank or Federal savings 
association is a covered institution is based upon the institution's 
total consolidated assets averaged over the four most recent 
consecutive quarters, as reported on the institution's Call Reports for 
those quarters.\13\ The exact date on which the institution becomes a 
covered institution is the as-of date of the fourth consecutive Call 
Report. Unless the OCC determines otherwise, a covered institution will 
remain subject to the annual stress test requirements under this final 
rule until its total consolidated assets for each of the four most 
recent consecutive quarters, as reported on the institution's Call 
Reports for those quarters, are $10 billion or less.
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    \13\ However, the final rule requires a covered institution that 
has not filed a Call Report in each of the four most recent quarters 
must calculate total consolidated assets based on the average total 
consolidated assets reported in the most recent Call Reports that 
have been filed.
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    The date by which a national bank or Federal savings association 
must conduct its first annual stress test under this final rule depends 
on its size category and whether it becomes a covered institution 
before or after October 9, 2012, the effective date of this final rule. 
A national bank or Federal savings association that is subject to this 
final rule as of October 9, 2012 must conduct the annual stress test 
under this final rule beginning this year if it is an over $50 billion 
covered institution; a $10 to $50 billion covered institution would 
conduct its first annual stress test in 2013.
    A national bank or Federal savings association that becomes a 
covered institution after October 9, 2012 would be required to conduct 
its first annual stress test in the calendar year following the year in 
which it becomes a covered institution. For example, a bank for which 
the four-quarter average of total consolidated assets exceeded $10 
billion on its June 2013 Call Report (based on the average from its 
September 2012, December 2012, March 2013, and June 2013 Call Reports) 
would become a covered institution on June 30, 2013. Assuming that the 
bank's total consolidated assets were less than $50 billion, this bank 
would be required to fully implement the stress testing requirements of 
the rule and conduct its first stress test in the testing cycle 
beginning in the following calendar year, 2014. The actual time between 
the date on which a national bank or Federal savings association 
becomes a covered institution and the as-of date for the institution's 
first stress test would range from 9 to 18 months, depending on the 
specific quarter in which the bank triggered the $10 billion threshold.
    In order to maintain necessary supervisory flexibility, the final 
rule reserves the authority to permit the OCC to designate a national 
bank or Federal savings association, not otherwise subject to this 
rule, as a covered institution. Conversely, the OCC also may exempt an 
otherwise covered institution from, or delay application of, certain of 
the annual stress test requirements, consistent with the requirements 
of the Dodd-Frank Act, based on the covered institution's level of 
complexity, risk profile, or scope of operations. Additionally, the OCC 
may accelerate or extend any specified deadline for stress testing, 
reporting or publication of the stress test results, or require 
additional stress tests, if the OCC determines that such modification 
of a deadline or additional testing is appropriate in light of the 
covered institution's activities, operations, risk profile, or 
regulatory capital. The OCC will apply notice and response procedures 
consistent with the procedures under 12 CFR 3.12 with respect to the 
exercise of reservation of authority in this final rule.
2. Federal Branches or Agencies of a Foreign Bank Not Covered
    While the requirement to conduct annual stress tests applies to all 
national banks and Federal savings associations with total consolidated 
assets of more than $10 billion, the OCC will not apply the annual 
stress test requirements of this final rule to Federal branches or 
agencies of a foreign bank. The company stress test provisions under 
section 165(i)(2) of the Dodd-Frank Act are intended primarily to 
assess the impact of stress conditions on a covered institution's 
capital. Because Federal branches and agencies are not separately 
capitalized, the application of these requirements to such entities 
would not be meaningful.
3. Shell Holding Companies and Multi-Bank Holding Companies
    When a covered institution comprises the bulk of the assets for a 
given parent holding company, the inputs to the stress tests conducted 
by that institution and the holding company, and the conclusions 
reached, would be expected to be similar. The OCC expects to take this 
into account in applying the requirements of this rule. For example, 
for a bank holding company that is essentially a shell holding company 
with a single national bank that has total consolidated assets of more 
than $10 billion, the Board and the OCC would coordinate efforts and 
communicate with the bank holding company and the bank on how to 
adequately address their respective stress testing requirements while 
avoiding duplication of effort.
    The OCC recognizes that certain parent company structures may 
include one or more subsidiary banks or savings associations, each with 
total consolidated assets greater than $10 billion. The stress test 
requirements of section 165(i)(2) apply to the parent company and to 
each subsidiary bank or savings association of the covered company that 
has $10 billion or more in total consolidated assets. The OCC 
anticipates addressing, on a case-by-case basis through the supervisory 
process, instances in which it may be appropriate to modify stress 
testing requirements when there are multiple covered institutions 
within a single parent organization. In this regard, the OCC notes that 
even where such a covered institution is required to conduct its own 
stress test, the OCC does not believe that the covered institution must 
duplicate unnecessary stress testing systems and processes. A covered 
institution that is a subsidiary of a holding company subject to the 
Board's annual stress testing rule

[[Page 61243]]

generally may use the stress testing systems and processes of the 
holding company. For example, the covered institution may use the same 
data collection processes, and methods and models for projecting and 
calculating potential losses, pre-provision net revenues, provisions 
for loan and lease losses, and pro forma capital positions over the 
stress testing planning horizon, where appropriate.

C. Stress Test Scenarios

    Under the final rule, each covered institution would be required to 
conduct an annual stress test using its financial data as of September 
30th of that year, unless the OCC communicates, in the fourth quarter 
of that year, a different required as-of date for any or all categories 
of financial data. The stress test must assess the potential impact of 
different scenarios on the capital of the covered institution and 
certain related items over a forward-looking, nine-quarter planning 
horizon (that is, through the December 31 reporting date of the second 
calendar year following the year containing the September 30 as-of 
date), taking into account all relevant exposures and activities.
    The OCC will provide a minimum of three economic scenarios, 
reflecting baseline, adverse, and severely adverse conditions, or such 
additional conditions as the OCC determines appropriate, no later than 
November 15, which the covered institution must use for the stress 
test. While each scenario includes the paths of a number of economic 
variables that are typically considered in stress test models, the OCC 
expects that covered institutions may use all or a subset of the 
economic variables provided, and may extrapolate other variables (such 
as local economic variables) from the paths of the economic variables 
provided, as appropriate, to conduct the stress test.
    The OCC notes that certain provisions within the final rule relate 
to covered institutions with significant trading activities. While most 
covered institutions will follow the stress test procedures outlined, 
certain covered institutions with significant amounts of trading 
activities (as determined by the OCC) may be required to include 
trading and counterparty components in its adverse and severely adverse 
scenarios. For these covered institutions, the OCC will select an as-of 
date between October 1 and December 1 of that calendar year for the 
data used in this component. This date will be communicated to the 
covered institution no later than December 1 of the calendar year. This 
provision is necessary to allow the OCC to tailor the trading and 
counterparty components for those covered institutions to ensure that 
the stress tests provide a meaningful identification of downside risks 
and assessment of the potential impact of adverse outcomes on the 
covered institution's capital.
    The OCC anticipates that the annual stress test scenarios will be 
revised as appropriate to ensure that each scenario remains relevant 
under prevailing economic and industry conditions. The OCC will consult 
closely with the Board and FDIC on the development of the annual stress 
test scenarios to ensure consistent and comparable stress tests for all 
covered financial institutions and to minimize regulatory burden. 
Absent specific supervisory concerns, the OCC anticipates that the 
annual stress test scenarios will be identical for all covered 
financial institutions and will be the same as or nearly identical to 
the scenarios developed by the Board for the supervisory stress tests 
conducted by the Board under section 165(i)(1).
    The OCC anticipates issuing proposed guidance and procedures for 
scenario development for comment at a later date.

D. Stress Test Methodologies and Practices

    The final rule requires each covered institution to use the annual 
stress test scenarios provided by the OCC in conducting its annual 
stress tests. Each covered institution must use a planning horizon of 
at least nine quarters over which the impact of specified scenarios 
would be assessed. The nine-quarter planning horizon would permit the 
covered institution to make informed projections of its financial and 
capital positions for a two-calendar-year period. The covered 
institution is required to calculate, for each quarter-end within the 
planning horizon, estimates of pre-provision net revenues (``PPNR''), 
potential losses, loan loss provisions, and net income that result from 
the conditions specified in each scenario. A covered institution also 
is required to calculate, for each quarter-end within the planning 
horizon, the potential impact on its regulatory capital levels and 
ratios applicable to the institution under 12 CFR part 3 or 12 CFR part 
167, incorporating the effects of any expected capital actions over the 
planning horizon. The applicable regulatory capital levels and ratios 
include, for national banks, Minimum Leverage Capital Ratio Requirement 
(12 CFR 3.6), Risk-Based Capital Guidelines based on Basel I (Appendix 
A to Part 3), Risk-Based Capital Guidelines; Market Risk Adjustment 
(Appendix B to Part 3), and Internal-Ratings-Based and Advanced 
Measurement Approaches under Basel II (Appendix C to Part 3), and for 
Federal savings associations, Regulatory Capital Requirements (12 CFR 
part 167) and Risk-Based Capital Requirements and Internal-Ratings-
Based and Advanced Measurement Approaches (Appendix C to part 167).\14\ 
A covered institution also is required to calculate the potential 
impact on any other capital ratios specified by the OCC. The stress 
test must incorporate maintenance by the institution of an allowance 
for loan losses that would be appropriate for credit exposures 
throughout the planning horizon.
---------------------------------------------------------------------------

    \14\ The capital adequacy requirements for national banks and 
Federal savings associations are in the process of being revised to 
implement changes to the Basel III Capital Framework. See 77 FR 
52792 (August 30, 2012), 77 FR 52888 (August 30, 2012), 77 FR 52978 
(August 30, 2012).
---------------------------------------------------------------------------

    The final rule also requires each covered institution to establish 
and maintain a system of controls, oversight, and documentation, 
including policies and procedures, designed to ensure that the stress 
testing processes used by the covered institution are effective in 
meeting the requirements of the final rule. The covered institution's 
policies and procedures must, at a minimum, outline the covered 
institution's stress testing practices and methodologies, and processes 
for validating and updating its stress testing practices consistent 
with relevant supervisory guidance.\15\ The covered institution's board 
of directors, or a committee thereof, must approve and review the 
policies and procedures related to stress testing of the covered 
institution as frequently as economic conditions or the condition of 
the institution may warrant, but at least annually. The covered 
institution's senior management must establish and maintain a system of 
controls, oversight, and documentation designed to ensure that the 
stress test processes satisfy the requirements under this final rule. 
The board of directors and senior management must be provided with a 
summary of the stress test results.
---------------------------------------------------------------------------

    \15\ See Supervisory Guidance on Stress Testing for Banking 
Organizations With More Than $10 Billion in Total Consolidated 
Assets, 77 FR 29458 (May 17, 2012).
---------------------------------------------------------------------------

E. Reporting and Disclosures

    Section 165(i)(2)(B) requires a covered institution to submit a 
report to the Board and its primary financial regulatory agency at such 
time, in such form, and containing such information as the primary 
financial regulatory agency shall require. Section 165(i)(2)(C)(iv) 
compels the primary financial regulatory agencies to require

[[Page 61244]]

a covered institution to publish a summary of its stress test results. 
This final rule implements the statutory reporting and disclosure 
requirements.
    Specifically, the final rule requires that each over $50 billion 
covered institution submit a report of the stress test results and 
documentation to the OCC and to the Board by January 5. The OCC 
published for notice and comment specific annual stress test reporting 
requirements for over $50 billion covered institutions in a separate 
final information collection under the Paperwork Reduction Act (44 
U.S.C. 3501-3521).\16\ For $10 to $50 billion covered institutions, the 
final rule requires that each institution submit a report of the stress 
test results to the OCC and to the Board by March 31. This final rule 
makes clear that the annual stress test report, and any other 
information that the OCC may require to be provided on a supplemental 
basis, will be confidential and exempt from disclosure under the 
Freedom of Information Act pursuant to 12 CFR 4.32(b) as a record 
created or obtained by the OCC in connection with the OCC's performance 
of its responsibilities, such as a record concerning supervision, 
licensing, regulations, and examination, of a national bank, a Federal 
savings association, a bank holding company, a savings and loan holding 
company, or an affiliate. The report is the property of the OCC and 
unauthorized disclosure of the report is generally prohibited pursuant 
to 12 CFR 4.37.
---------------------------------------------------------------------------

    \16\ See 77 FR 49485 (August 16, 2012).
---------------------------------------------------------------------------

    Consistent with section 165(i)(2), the final rule also requires 
each covered institution to publish a summary of the results of its 
annual stress tests after submitting its annual stress test report to 
the OCC and the Board. Specifically, under the final rule, a $10 to $50 
billion covered institution must publish a summary of the results of 
its annual stress test before June 30, but no earlier than June 15. For 
an over $50 billion covered institution, disclosures must be made 
before March 31, but no earlier than March 15.
    The final rule reflects two significant changes from the proposed 
rule. First, the proposed rule would have required all disclosures to 
be made no later than April 5. The proposed rule did not distinguish 
between a $10 to $50 billion covered institution and an over $50 
billion covered institution. Consistent with the OCC's efforts to 
minimize the regulatory burden on the $10 to $50 billion covered 
institutions, the final rule extends the disclosure due date for these 
institutions to June 30. Second, this final rule replaces the specific 
disclosure due date with a 15-day period in which disclosures must be 
made. This change ensures adequate time for review of stress test 
results prior to disclosure.
    As for the form and content of the publication of the summary of 
results, at a minimum the summary of the severely adverse scenario 
shall include a description of the types of risks (such as credit 
default losses and non-default credit losses by portfolio, trading 
losses, and risks to non-interest revenue) included in the stress test; 
a summary description of the methodologies used in the stress test; 
estimates of aggregate losses, PPNR, provisions, and pro forma capital 
ratios (including regulatory and any other capital ratios specified by 
the OCC) at the end of the planning horizon; and an explanation of the 
most significant causes of the changes in regulatory capital ratios. 
The institution must make summary results readily accessible to the 
public, for example, by publishing those results on a covered 
institution's Web site. In order to reduce burden and avoid duplicative 
regulatory requirements, the OCC is permitting disclosure of the 
summary of the stress test results by the parent bank holding company 
or savings and loan holding company of a covered institution if the 
parent holding company satisfactorily complies with the disclosure 
requirements under the Board's Company-Run Stress Test rule. However, 
the OCC reserves the right to require additional disclosures if the OCC 
believes that the disclosures at the holding company level do not 
accurately capture the potential impact of the scenarios on the 
condition of the covered institution.

F. Process and Timing of Annual Stress Test

    As discussed above, covered institutions are subject to an annual 
stress test cycle under this final rule. Table 1--Process Overview of 
Annual Stress Test Cycles for Covered Institutions sets out the key 
dates in the annual stress test cycle under the final rule, with 
differences as noted for over $50 billion covered institutions and $10 
to $50 billion covered institutions. As shown in Table 1, the annual 
stress test cycle consist of three key events: (1) Distribution of the 
stress test scenarios by the OCC, (2) conducting of the stress test and 
submission of the Annual Stress Test Report, and (3) publication of 
required disclosures.

   Table 1--Process Overview of Annual Stress Test Cycles for Covered
                              Institutions
------------------------------------------------------------------------
            Key step               Over $50 billion   $10 to $50 billion
------------------------------------------------------------------------
1. OCC distributes scenarios for  By November 15....  By November 15.
 annual stress tests.
2. Covered institutions conduct   By January 5......  By March 31.
 annual stress test and submit
 Annual Stress Test Report to
 the OCC and the Board.
3. Covered institutions make      Between March 15    Between June 15
 required public disclosures.      and March 31.       and June 30.
------------------------------------------------------------------------

IV. Regulatory Analysis

A. Administrative Procedure Act

    This final rule is effective immediately upon publication in the 
Federal Register. Section 553(d)(3) of the Administrative Procedure Act 
(``APA'') provides for a delayed effective date after publication of a 
rule, except ``as otherwise provided by the agency for good cause found 
and published with the rule.'' Consistent with section 553(d)(3) and 
for the reasons discussed below, the OCC finds good cause exists to 
publish this final rule with an immediate effective date.
    Stress tests are a critical supervisory tool that will provide 
important forward-looking information to supervisors to assist in the 
overall assessment of a covered institution's capital adequacy. Stress 
tests also help determine whether additional analytical techniques and 
exercises are appropriate for a covered institution to employ in 
identifying, measuring, and monitoring risks to the financial soundness 
of the covered institution. Further, stress tests serve as an ongoing 
risk management tool that support a covered institution's forward-
looking assessment of its risks and better equips such institutions to 
address a range of adverse outcomes.
    It is necessary for a final rule be in place this fall to ensure 
that certain

[[Page 61245]]

large and systemically important covered institutions with assets of 
$50 billion or more can begin conducting annual stress tests this year. 
An immediate effective date will allow the OCC to have in place a 
stress testing framework to permit a covered institution to begin to 
build and modify the necessary systems and processes and to integrate 
such systems with the stress testing systems and processes of its 
parent bank holding company. These systems and processes establish the 
basis for a covered institution's stress testing framework and will 
permit the institution to provide critical supervisory information in a 
timely manner and help to ensure that covered institutions are prepared 
for adverse economic situations. The OCC believes that these stress 
testing systems and processes are essential for the health of such 
institutions and the overall financial stability of the economy. In 
addition, an immediate effective date permits the OCC to synchronize 
its supervisory efforts related to stress testing with the Board and 
the FDIC, especially where a national bank or Federal savings 
association is a part of a larger holding company with state nonmember 
affiliates. Accordingly, the OCC finds good cause for the final rule to 
take effect immediately upon publication in the Federal Register.

B. Riegle Community Development and Regulatory Improvement Act

    Section 302 of Riegle Community Development and Regulatory 
Improvement Act (``RCDRIA'') generally requires that regulations 
prescribed by Federal banking agencies which impose additional 
reporting, disclosures or other new requirements on insured depository 
institutions take effect on the first day of a calendar quarter which 
begins on or after the date on which the regulations are published in 
final form unless an agency finds good cause that the regulations 
should become effective sooner. The final rule will be effective 
immediately upon publication in the Federal Register. The first day of 
a calendar quarter which begins on or after the date on which the 
regulations are published will be January 1, 2013. Accordingly, the OCC 
invokes the good cause exception to the publication requirement because 
the final rule is necessary to address the continuing exposure of the 
banking industry to potentially adverse economic factors. For the same 
reasons discussed in support of the good cause waiver from the 30-day 
delayed effective date required by the APA, the OCC finds that good 
cause exists for an immediate effective date for the final rule.

C. Paperwork Reduction Act

Request for Comment on Final Information Collection
    In accordance with section 3512 of the Paperwork Reduction Act 
(``PRA'') of 1995 (44 U.S.C. 3501-3521), the OCC may not conduct or 
sponsor, and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (``OMB'') control number. The information collection 
requirements contained in this final rule were submitted by the OCC to 
OMB for review and approval in connection with the proposed rule under 
section 3506 of the PRA and Sec.  1320.11 of OMB's implementing 
regulations (5 CFR part 1320 et seq.).
    In accordance with 5 CFR 1320, OMB withheld approval of the 
collection instructing the OCC to examine public comment in response to 
the proposed rule and include in the supporting statement of the next 
information collection request (``ICR'')--to be submitted to OMB at the 
final rule stage--a description of how the OCC has responded to any 
public comments on the ICR, including comments on maximizing the 
practical utility of the collection and minimizing the burden. The OCC 
received no comments on the ICR and is resubmitting it with the 
issuance of the final rule, as instructed by OMB.
    In addition, a 60-day Federal Register notice under the PRA for the 
reporting templates referenced in this rule was issued on August 16, 
2012 (77 FR 49485) and is open for comment until October 15, 2012. 
Subsequent to the closing of the comment period, the information 
collection requirements contained in this final rule will be 
consolidated with the information collection requirements contained in 
the reporting templates into a single OMB control number.
    Title of Information Collection: Recordkeeping and Disclosure 
Provisions Associated with Annual Stress Test.
    Frequency of Response: Annually.
    Affected Public: Businesses or other for-profit.
    Respondents: National banks and Federal savings associations.
    Description of Requirements:
    Section 46.6(a) specifies the calculations of the potential impact 
on capital that must be made during each quarter of a planning horizon. 
Section 46.6(c) requires that each covered institution must establish 
and maintain a system of controls, oversight, and documentation, 
including policies and procedures that, at a minimum, describe the 
covered institution's stress test practices and methodologies, and 
processes for updating the covered institution's stress test practices. 
The board of directors of the covered institution shall approve and 
review the policies and procedures of the covered institution, as 
frequently as economic conditions or the condition of the institution 
may warrant, but no less than annually. The senior management of the 
covered institution shall establish and maintain a system of controls, 
oversight, and documentation designed to ensure that the stress test 
processes satisfy the requirements in this part.
    Section 46.7 provides that each covered institution shall report to 
the OCC and to the Board annually the results of the stress test in the 
time, manner and form specified by the OCC.
    Section 46.8 requires that a covered institution shall publish a 
summary of the results of its annual stress tests on its Web site or in 
any other forum that is reasonably accessible to the public. For a $10 
to $50 billion covered institution the summary must be published in the 
period from June 15 to June 30 after the date of the report; for an 
over $50 billion covered institution the summary must be published in 
the period from March 15 to March 31 after the date of the report. The 
summary must include a description of the types of risks being included 
in the stress test and estimates of aggregate losses, net income, and 
pro forma capital ratios (including regulatory and any other capital 
ratios specified by the OCC) over the planning horizon, under the 
severely adverse scenario.
    Estimated PRA Burden:
    Rule:
    Estimated Number of Respondents: 61.
    Estimated Burden per Respondent: 1,040 hours.
    Total Annual Burden: 63,440 hours.
    Templates:
    Estimated Number of Respondents: 20.
    Estimated Burden per Respondent: 480 hours.
    Total Annual Burden: 9,600 hours.

D. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (``RFA''), 
generally requires that, in connection with a notice of proposed 
rulemaking, an agency prepare and make available for public comment an 
initial regulatory flexibility analysis that describes the impact of a 
proposed rule on small entities.\17\ The Small Business

[[Page 61246]]

Administration has defined ``small entities'' for banking purposes to 
include a bank or savings association with $175 million or less in 
assets.\18\
---------------------------------------------------------------------------

    \17\ See 5 U.S.C. 603(a).
    \18\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    The final rule would apply only to national banks and Federal 
savings associations with more than $10 billion in total consolidated 
assets. No small banking organizations satisfy these criteria. No small 
entities would be subject to this rule. Therefore, the OCC certifies 
that the final rule will not have a significant economic impact on a 
substantial number of small entities.

E. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.S.C. 1532) (``Unfunded Mandates Act''), requires that an 
agency prepare a budgetary impact statement before promulgating any 
rule likely to result in a Federal mandate that may result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC has determined that this final rule will not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, this 
final rule is not subject to section 202 of the Unfunded Mandates Act.

F. Solicitation of Comments and Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \19\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The OCC invited comment on how to make 
the proposed rule easier to understand. The OCC received one public 
comment advocating the use of plain language and has made an effort to 
address this comment in the final rule.
---------------------------------------------------------------------------

    \19\ Public Law 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809.
---------------------------------------------------------------------------

List of Subjects in Part 46

    Banking, Banks, Capital, Disclosures, National banks, 
Recordkeeping, Reporting, Risk, Stress test.

Authority and Issuance

    For the reasons stated in the preamble, the OCC is adding part 46 
to Title 12, Chapter I of the Code of Federal Regulations to read as 
follows:

PART 46--ANNUAL STRESS TEST

Sec.
46.1 Authority and purpose.
46.2 Definitions.
46.3 Applicability.
46.4 Reservation of authority.
46.5 Annual stress test.
46.6 Stress test methodologies and practices.
46.7 Reports to the Office of the Comptroller of the Currency and 
the Federal Reserve Board.
46.8 Publication of disclosures.

    Authority:  12 U.S.C. 93a; 12 U.S.C. 1463(a)(2); 12 U.S.C. 
5365(i)(2); 12 U.S.C. 5412(b)(2)(B).


Sec.  46.1  Authority and purpose.

    (a) Authority. 12 U.S.C. 93a; 12 U.S.C. 1463(a)(2); 12 U.S.C. 
5365(i)(2); 12 U.S.C. 5412(b)(2)(B).
    (b) Purpose. This part implements 12 U.S.C. 5365(i)(2), which 
requires a national bank or Federal savings association with total 
consolidated assets of more than $10 billion to conduct an annual 
stress test and establishes a definition of stress test, methodologies 
for conducting stress tests, and reporting and disclosure requirements.


Sec.  46.2  Definitions.

    For purposes of this part, the following definitions apply:
    $10 to $50 billion covered institution means a national bank or 
Federal savings association with average total consolidated assets, 
calculated as required under this part, that are greater than $10 
billion but less than $50 billion.
    Call Report means the Consolidated Report of Condition and Income.
    Covered institution means a $10 to $50 billion covered institution 
or an over $50 billion covered institution.
    Federal savings association has the same meaning as in 12 U.S.C. 
1813(b)(2).
    Over $50 billion covered institution means a national bank or 
Federal savings association with average total consolidated assets, 
calculated as required under this part, that are not less than $50 
billion.
    Planning horizon means a set period of time over which the impact 
of the scenarios is assessed.
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Scenarios means sets of conditions that affect the U.S. economy or 
the financial condition of a covered institution that the OCC annually 
determines are appropriate for use in the stress tests under this part, 
including, but not limited to, baseline, adverse, and severely adverse 
scenarios.
    Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a 
covered institution over the planning horizon, taking into account the 
covered institution's current condition, risks, exposures, strategies, 
and activities.


Sec.  46.3  Applicability.

    (a) Measurement of average total consolidated assets for a covered 
institution. A covered institution's average total consolidated assets 
is calculated as the average of the covered institution's total 
consolidated assets, as reported on the covered institution's Call 
Reports, for the four most recent consecutive quarters. If the covered 
institution has not filed a Call Report for each of the four most 
recent consecutive quarters, the covered institution's average total 
consolidated assets is calculated as the average of the covered 
institution's total consolidated assets, as reported on the covered 
institution's Call Reports, for the most recent one or more consecutive 
quarters. The date on which a national bank or Federal savings 
association becomes a covered institution shall be the as-of date of 
the most recent Call Report used in the calculation of the average.
    (b) First stress test for covered institutions subject to stress 
testing requirements as of October 9, 2012. (1) A national bank or 
Federal savings association that is a $10 to $50 billion covered 
institution, as defined in Sec.  46.2 of this part, as of October 9, 
2012 must conduct its first stress test under this part using financial 
statement data as of September 30, 2013, and report the results of its 
stress test on or before March 31, 2014.
    (2) A national bank or Federal savings association that is an over 
$50 billion covered institution, as defined in Sec.  46.2 of this part, 
as of October 9, 2012 must conduct its first stress test under this 
part using financial statement data as of September 30, 2012, and 
report the results of its stress test on or before January 5, 2013.
    (c) Covered institutions that become subject to stress testing 
requirements after October 9, 2012. A national bank or Federal savings 
association that becomes a covered institution, as defined in Sec.  
46.2 of this part, after October 9, 2012 shall conduct its first annual 
stress test under this part beginning in the next calendar year after 
the date the national bank or Federal savings association becomes a 
covered institution.

[[Page 61247]]

    (d) Ceasing to be a covered institution or changing categories. (1) 
A covered institution shall remain subject to the stress test 
requirements based on its applicable category, as defined in Sec.  46.2 
of this part, unless and until total consolidated assets of the covered 
institution falls below the relevant size threshold for each of four 
consecutive quarters as reported by the covered institution's most 
recent Call Reports. The calculation shall be effective on the ``as 
of'' date of the fourth consecutive Call Report.
    (2) Notwithstanding paragraph (d)(1) of this section, a national 
bank or Federal savings association that migrates from a $10 to $50 
billion covered institution to an over $50 billion covered institution 
shall be subject to the stress test requirements applicable to an over 
$50 billion covered institution immediately as of the date the national 
bank or Federal savings association satisfies the size threshold for an 
over $50 billion covered institution, as defined in Sec.  46.2 of this 
part.
    (e) Covered institution under bank holding company subject to 
annual stress test requirements. (1) Notwithstanding the requirements 
applicable to a $10 to $50 billion covered institution under this part, 
a $10 to $50 billion covered institution that is controlled by a bank 
holding company or savings and loan holding company that is subject to 
annual stress test requirements pursuant to applicable regulations of 
the Board of Governors of the Federal Reserve System may elect to 
conduct its stress test under this part pursuant to the requirements 
applicable to an over $50 billion covered institution.
    (2) Any $10 to $50 billion covered institution that elects to apply 
the requirements of an over $50 billion covered institution under this 
paragraph shall remain subject to the requirements applicable to an 
over $50 billion covered institution until otherwise approved by the 
OCC.


Sec.  46.4  Reservation of authority.

    (a) Generally. The OCC may require a national bank or Federal 
savings association not otherwise subject to this part to comply with 
the stress test requirements of this part. With respect to any national 
bank or Federal savings association subject to the stress test 
requirements of this part pursuant to Sec.  46.3(a), the OCC may modify 
or delay some or all of the requirements of this part which include:
    (1) Timing of stress test. The OCC may accelerate or extend any 
specified deadline for stress testing, reporting, or publication of 
disclosures of the stress test results.
    (2) Stress tests. The OCC may require additional stress tests not 
otherwise required by this part or may require or permit different or 
additional analytical techniques and methods, different scenarios, or 
different assumptions, as appropriate for the covered institution to 
use in meeting the stress test requirements of this part. In addition, 
the OCC may specify a different as-of date for any or all categories of 
financial data used by the stress test.
    (3) Reporting and disclosures. The OCC may modify the reporting 
date or any reporting requirement of a report required by this part, or 
may require any additional reports relating to stress testing as may be 
appropriate. The OCC may delay or otherwise modify the publication 
requirements of this part if the disclosure of stress test results 
under this part would not provide sufficiently meaningful or useful 
information to the public. In addition, the OCC may require different 
or additional disclosures not otherwise required by this part, if the 
existing disclosures do not adequately address one or more material 
elements of the stress test.
    (b) Factors considered. Any exercise of authority under this 
section by the OCC will be in writing and will consider the nature and 
level of the activities, complexity, risks, operations, and regulatory 
capital of the national bank or Federal savings association, in 
addition to any other relevant factors.
    (c) Notice and comment procedures. In making a determination under 
paragraph (a) of this section, the OCC will apply notice and response 
procedures, in the same manner and to the same extent as the notice and 
response procedures in 12 CFR 3.12, as appropriate.


Sec.  46.5  Annual stress test.

    Each covered institution must conduct the annual stress test under 
this part subject to the following requirements:
    (a) Financial data. A covered institution must use financial data 
as of September 30 of that calendar year.
    (b) Scenarios provided by the OCC. In conducting the stress test 
under this part, each covered institution must use the scenarios 
provided by the OCC. The scenarios provided by the OCC will reflect a 
minimum of three sets of economic and financial conditions, including 
baseline, adverse, and severely adverse scenarios. The OCC will provide 
a description of the scenarios required to be used by each covered 
institution no later than November 15 of that calendar year.
    (c) Significant trading activities. The OCC may require a covered 
institution with significant trading activities, as determined by the 
OCC, to include trading and counterparty components in its adverse and 
severely adverse scenarios. The trading and counterparty position data 
to be used in this component will be as of a date between October 1 and 
December 1 of that calendar year that will be selected by the OCC and 
communicated to the covered institution no later than December 1 of the 
calendar year.
    (d) Use of stress test results. The board of directors and senior 
management of each covered institution must consider the results of the 
stress tests conducted under this section in the normal course of 
business, including but not limited to the covered institution's 
capital planning, assessment of capital adequacy, and risk management 
practices.


Sec.  46.6  Stress test methodologies and practices.

    (a) Potential impact on capital. During each quarter of the 
planning horizon, a covered institution shall estimate the following 
for each scenario required to be used:
    (1) Pre-provision net revenues, losses, loan loss provisions, and 
net income, and
    (2) The potential impact on the covered institution's regulatory 
capital levels and ratios applicable to the covered institution under 
12 CFR part 3 or part 167, as applicable, and any other capital ratios 
specified by the OCC, incorporating the effects of any capital actions 
over the planning horizon and maintenance by the covered institution of 
an allowance for loan losses appropriate for credit exposures 
throughout the planning horizon.
    (b) Planning horizon. A covered institution must use a minimum 
planning horizon of at least nine quarters, beginning with the first 
day of the period covered by the stress tests.
    (c) Controls and oversight of stress test processes. (1) The senior 
management of the covered institution must establish and maintain a 
system of controls, oversight, and documentation, including policies 
and procedures, designed to ensure that the stress test processes used 
by the covered institution satisfy the requirements in this part. These 
policies and procedures must, at a minimum, describe the covered 
institution's stress test practices and methodologies, and processes 
for validating and updating the covered institution's stress test 
practices and methodologies consistent with

[[Page 61248]]

applicable laws, regulations, and supervisory guidance.
    (2) The board of directors of the covered institution, or a 
committee thereof, shall approve and review the policies and procedures 
of the covered institution's stress testing processes as frequently as 
economic conditions or the condition of the institution may warrant, 
but no less than annually. The board of directors and senior management 
must be provided with a summary of the stress test results.


Sec.  46.7  Reports to the Office of the Comptroller of the Currency 
and the Federal Reserve Board.

    (a) $10 to $50 billion covered institution. A $10 to $50 billion 
covered institution must report to the OCC and to the Board of 
Governors of the Federal Reserve System, on or before March 31, the 
results of the stress test in the manner and form specified by the OCC.
    (b) Over $50 billion covered institution. An over $50 billion 
covered institution must report to the OCC and to the Board of 
Governors of the Federal Reserve System, on or before January 5, the 
results of the stress test in the manner and form specified by the OCC.
    (c) Confidentiality of Reports. As provided by Sec.  4.32(b) of 
this title, the report required under this section is non-public OCC 
information because it is deemed to be a record created or obtained by 
the OCC in connection with the OCC's performance of its 
responsibilities, such as a record concerning supervision, licensing, 
regulations, and examination, of a national bank, a Federal savings 
association, a bank holding company, a savings and loan holding 
company, or an affiliate. The report is the property of the OCC and 
unauthorized disclosure of the report is generally prohibited pursuant 
to Sec.  4.37 of this part.


Sec.  46.8  Publication of disclosures.

    (a) Publication date. (1) An over $50 billion covered institution 
must publish a summary of the results of its annual stress tests in the 
period starting March 15 and ending March 31 of the next calendar year.
    (2) A $10 to $50 billion covered institution must publish a summary 
of the results of its annual stress test in the period starting June 15 
and ending June 30 of the next calendar year.
    (3) A $10 to $50 billion covered institution that is subject to its 
first annual stress test pursuant to Sec.  46.3(b)(1) of this part must 
make its initial public disclosure in the period starting June 15 and 
ending June 30 of 2015 by disclosing the results of a stress test 
conducted in 2014, using financial statement data as of September 30, 
2014.
    (b) Publication method. The summary required under this section may 
be published on the covered institution's Web site or in any other 
forum that is reasonably accessible to the public. A covered 
institution controlled by a bank holding company that is required to 
conduct an annual company-run stress test under applicable regulations 
of the Board of Governors of the Federal Reserve System will be deemed 
to have satisfied the publication requirement of this section when the 
bank holding company publicly discloses summary results of its annual 
stress test in satisfaction of the requirements of applicable 
regulations of the Board of Governors of the Federal Reserve System, 
unless the OCC determines that the disclosures at the holding company 
level do not adequately capture the potential impact of the scenarios 
on the capital of the covered institution.
    (c) Information to be disclosed in the summary. The information 
disclosed shall, at a minimum, include--
    (1) A description of the types of risks included in the stress test 
under this part;
    (2) A summary description of the methodologies used in the stress 
test;
    (3) Estimates of aggregate losses, pre-provision net revenue, 
provisions for loan and lease losses, net income, and pro forma capital 
ratios (including regulatory and any other capital ratios specified by 
the OCC); and
    (4) An explanation of the most significant causes of the changes in 
regulatory capital ratios.
    (d) Disclosure of estimates for the planning horizon. (1) The 
disclosure of the estimates of aggregate losses, pre-provision net 
revenue, provisions for loan and lease losses, net income, and pro 
forma capital ratios (including regulatory and any other capital ratios 
specified by the OCC), as required by paragraph (b) of this section, 
must reflect the estimated cumulative effects, as well as the estimated 
capital ratios, at the end of the planning horizon for the severely 
adverse scenario.
    (2) With respect to the capital ratio disclosure required in 
paragraph (d)(1) of this section, the disclosure must also include the 
value at the beginning of the planning horizon, and the minimum over 
the planning horizon of the estimated quarter-end values of each ratio.

    Dated: October 1, 2012.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2012-24608 Filed 10-5-12; 8:45 am]
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