[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Rules and Regulations]
[Pages 62378-62396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-24987]
[[Page 62377]]
Vol. 77
Friday,
No. 198
October 12, 2012
Part IV
Federal Reserve System
-----------------------------------------------------------------------
12 CFR Part 252
Company-Run Stress Test Requirements; Final Rules
Federal Register / Vol. 77 , No. 198 / Friday, October 12, 2012 /
Rules and Regulations
[[Page 62378]]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 252
[Regulation YY; Docket No. 1438]
RIN 7100-AD-86
Supervisory and Company-Run Stress Test Requirements for Covered
Companies
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act or Act) requires the Board to conduct annual stress
tests of bank holding companies with total consolidated assets of $50
billion or more and nonbank financial companies the Financial Stability
Oversight Council (Council) designates for supervision by the Board
(nonbank covered companies, and together, with bank holding companies
with total consolidated assets of $50 billion or more, covered
companies) and also requires the Board to issue regulations that
require covered companies to conduct stress tests semi-annually. The
Board is adopting this final rule to implement the stress test
requirements for covered companies established in the Dodd-Frank Act.
This final rule does not apply to any banking organization with total
consolidated assets of less than $50 billion. Furthermore,
implementation of the stress testing requirements for bank holding
companies that did not participate in the Supervisory Capital
Assessment Program is delayed until September 2013.
DATES: The rule is effective on November 15, 2012.
FOR FURTHER INFORMATION CONTACT: Tim Clark, Senior Associate Director,
(202) 452-5264, Lisa Ryu, Assistant Director, (202) 263-4833, Constance
Horsley, Manager, (202) 452-5239, or David Palmer, Senior Supervisory
Financial Analyst, (202) 452-2904, Division of Banking Supervision and
Regulation; Laurie Schaffer, Associate General Counsel, (202) 452-2272,
Benjamin W. McDonough, Senior Counsel, (202) 452-2036, or Christine E.
Graham, Senior Attorney, (202) 452-3005, Legal Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
II. Overview of Comments
III. Description of Final Rule
A. Scope of Application
B. Effective Date
C. Overview of Stress Test Requirements
D. Annual Supervisory Stress Tests Conducted by the Board
E. Annual and Mid-Cycle Stress Tests Conducted by the Covered
Companies
IV. Administrative Law Matters
A. Use of Plain Language
B. Paperwork Reduction Act Analysis
C. Regulatory Flexibility Act Analysis
I. Background
The Board has long held the view that a banking organization, such
as a bank holding company or insured depository institution, should
operate with capital levels well above its minimum regulatory capital
ratios and commensurate with its risk profile.\1\ A banking
organization should also have internal processes for assessing its
capital adequacy that reflect a full understanding of its risks and
ensure that it holds capital commensurate with those risks.\2\
Moreover, a banking organization that is subject to the Board's
advanced approaches risk-based capital requirements must satisfy
specific requirements relating to their internal capital adequacy
processes in order to use the advanced approaches to calculate its
minimum risk-based capital requirements.\3\ Stress testing is one tool
that helps both bank supervisors and a banking organization measure the
sufficiency of capital available to support the banking organization's
operations throughout periods of stress.\4\ The Board and the other
federal banking agencies previously have highlighted the use of stress
testing as a means to better understand the range of a banking
organization's potential risk exposures.\5\
---------------------------------------------------------------------------
\1\ See 12 CFR part 225, Appendix A; see also Supervision and
Regulation Letter SR 99-18, Assessing Capital Adequacy in Relation
to Risk at Large Banking Organizations and Others with Complex Risk
Profiles (July 1, 1999), available at http://www.federalreserve.gov/boarddocs/srletters/1999/SR9918.HTM (hereinafter SR 99-18).
\2\ See Supervision and Regulation Letter SR 09-4, Applying
Supervisory Guidance and Regulations on the Payment of Dividends,
Stock Redemptions, and Stock Repurchases at Bank Holding Companies
(Mar. 27, 2009), available at http://www.federalreserve.gov/boarddocs/srletters/2009/SR0904.htm (hereinafter SR 09-4).
\3\ See 12 CFR part 225, Appendix G, section 22(a); see also,
Supervisory Guidance: Supervisory Review Process of Capital Adequacy
(Pillar 2) Related to the Implementation of the Basel II Advanced
Capital Framework, 73 FR 44620 (July 31, 2008).
\4\ A full assessment of a company's capital adequacy must take
into account a range of risk factors, including those that are
specific to a particular industry or company.
\5\ See, e.g., Supervisory Guidance on Stress Testing for
Banking Organizations With More Than $10 Billion in Total
Consolidated Assets, 77 FR 29458 (May 17, 2012); Supervision and
Regulation Letter SR 10-6, Interagency Policy Statement on Funding
and Liquidity Risk Management (March 17, 2010), available at http://www.federalreserve.gov/boarddocs/srletters/2010/sr1006.htm;
Supervision and Regulation Letter SR 10-1, Interagency Advisory on
Interest Rate Risk (January 11, 2010), available at http://www.federalreserve.gov/boarddocs/srletters/2010/sr1001.htm; SR 09-4,
supra note 2; Supervision and Regulation Letter SR 07-1, Interagency
Guidance on Concentrations in Commercial Real Estate (Jan. 4, 2007),
available at http://www.federalreserve.gov/boarddocs/srletters/2007/SR0701.htm; Supervision and Regulation Letter SR 12-7, Supervisory
Guidance on Stress Testing for Banking Organizations With More Than
$10 Billion in Total Consolidated Assets (May 14, 2012), available
at http://www.federalreserve.gov/bankinforeg/srletters/sr1207.htm;
SR 99-18, supra note1; Supervisory Guidance: Supervisory Review
Process of Capital Adequacy (Pillar 2) Related to the Implementation
of the Basel II Advanced Capital Framework, 73 FR 44620 (July 31,
2008); The Supervisory Capital Assessment Program: SCAP Overview of
Results (May 7, 2009), available at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf; and Comprehensive
Capital Analysis and Review: Objectives and Overview (Mar. 18,
2011), available at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20110318a1.pdf.
---------------------------------------------------------------------------
In particular, as part of its effort to stabilize the U.S.
financial system during the recent financial crisis, the Board, along
with other federal financial regulatory agencies and the Federal
Reserve system, conducted stress tests of large, complex bank holding
companies through the Supervisory Capital Assessment Program (SCAP).
The SCAP was a forward-looking exercise designed to estimate revenue,
losses, and capital needs under an adverse economic and financial
market scenario. By looking at the broad capital needs of the financial
system and the specific needs of individual companies, these stress
tests provided valuable information to market participants, reduced
uncertainty about the financial condition of the participating bank
holding companies under a scenario that was more adverse than that
which was anticipated to occur at the time, and had an overall
stabilizing effect.
Building on the SCAP and other supervisory work coming out of the
crisis, the Board initiated the annual Comprehensive Capital Analysis
and Review (CCAR) in late 2010 to assess the capital adequacy and the
internal capital planning processes of large, complex bank holding
companies and to incorporate stress testing as part of the Board's
regular supervisory program for assessing capital adequacy and capital
planning practices at large bank holding companies. The CCAR represents
a substantial strengthening of previous approaches to assessing capital
adequacy and promotes thorough and robust processes at large banking
organizations for measuring capital needs and for managing and
allocating capital resources. The CCAR focuses on the risk measurement
and management
[[Page 62379]]
practices supporting organizations' capital adequacy assessments,
including their ability to deliver credible inputs to their loss
estimation techniques, as well as the governance processes around
capital planning practices. On November 22, 2011, the Board issued an
amendment (capital plan rule) to its Regulation Y to require all U.S.
bank holding companies with total consolidated assets of $50 billion or
more to submit annual capital plans to the Board to allow the Board to
assess whether they have robust, forward-looking capital planning
processes and have sufficient capital to continue operations throughout
times of economic and financial stress.\6\
---------------------------------------------------------------------------
\6\ See Capital Plans, 76 FR 74631 (Dec. 1, 2011) (codified at
12 CFR 225.8).
---------------------------------------------------------------------------
In the wake of the financial crisis, Congress enacted the Dodd-
Frank Act, which requires the Board to implement enhanced prudential
supervisory standards, including requirements for stress tests, for
covered companies to mitigate the threat to financial stability posed
by these institutions.\7\ Section 165(i)(1) of the Dodd-Frank Act
requires the Board to conduct an annual stress test of each covered
company to evaluate whether the covered company has sufficient capital,
on a total consolidated basis, to absorb losses as a result of adverse
economic conditions (supervisory stress tests). The Act requires that
the supervisory stress test provide for at least three different sets
of conditions--baseline, adverse, and severely adverse conditions--
under which the Board would conduct its evaluation. The Act also
requires the Board to publish a summary of the supervisory stress test
results.\8\
---------------------------------------------------------------------------
\7\ See 12 U.S.C. 5365(a). As defined above, a ``covered
company'' includes any bank holding company with total consolidated
assets of $50 billion or more and each nonbank financial company
that the Council has designated for supervision by the Board.
\8\ See 12 U.S.C. 5365(i)(1).
---------------------------------------------------------------------------
In addition, section 165(i)(2) of the Dodd-Frank Act requires the
Board to issue regulations that require covered companies to conduct
stress tests semi-annually and require financial companies with total
consolidated assets of more than $10 billion that are not covered
companies and for which the Board is the primary federal financial
regulatory agency to conduct stress tests on an annual basis
(collectively, company-run stress tests).\9\ The Act requires that the
Board issue regulations that: (i) Define the term ``stress test''; (ii)
establish methodologies for the conduct of the company-run stress tests
that provide for at least three different sets of conditions, including
baseline, adverse, and severely adverse conditions; (iii) establish the
form and content of the report that companies subject to the regulation
must submit to the Board; and (iv) require companies to publish a
summary of the results of the required stress tests.\10\
---------------------------------------------------------------------------
\9\ 12 U.S.C. 5365(i)(2). In this final rule, the Board is
implementing the requirements for covered companies only. The
requirements applicable to other banking organizations with total
consolidated assets of more than $10 billion and for which the Board
is the primary federal financial regulatory agency are contained in
a concurrently issued final rule being published in this issue of
the Federal Register.
\10\ See 12 U.S.C. 5365(i)(2)(C).
---------------------------------------------------------------------------
On January 5, 2012, the Board invited public comment on a notice of
proposed rulemaking (proposal or NPR) that would implement the enhanced
prudential standards required to be established under section 165 of
the Dodd-Frank Act and the early remediation requirements established
under Section 166 of the Act, including proposed rules regarding
supervisory and company-run stress tests.\11\ Under the proposed rules,
the Board would conduct an annual supervisory stress test of covered
companies under three sets of scenarios, using data as of September 30
of each year as reported by covered companies, and publish a summary of
the results of the supervisory stress tests in early April of the
following year. In addition, the proposed rule required each covered
company to conduct two company-run stress tests each year: An
``annual'' company-run stress test using data as of September 30 of
each year and the three scenarios provided by the Board, and an
additional company-run stress test using data as of March 31 of each
year and three scenarios developed by the company. The proposed rule
required each covered company to publish the summary of the results of
its company-run stress tests within 90 days of submitting the results
to the Board.
---------------------------------------------------------------------------
\11\ Enhanced Prudential Standards and Early Remediation
Requirements for Covered Companies, 77 FR 594 (Jan. 5, 2012).
---------------------------------------------------------------------------
Together, the supervisory stress tests and the company-run stress
tests are intended to provide supervisors with forward-looking
information to help identify downside risks and the potential effect of
adverse conditions on capital adequacy at covered companies. The stress
tests will estimate the covered company's net income and other factors
affecting capital and how each covered company's capital resources
would be affected under the scenarios and will produce pro forma
projections of capital levels and regulatory capital ratios in each
quarter of the planning horizon, under each scenario. The publication
of summary results from these stress tests will enhance public
information about covered companies' financial condition and the
ability of those companies to absorb losses as a result of adverse
economic and financial conditions. The Board will use the results of
the supervisory stress tests and company-run stress tests in its
supervisory evaluation of a covered company's capital adequacy and
capital planning practices. In addition, the stress tests will also
provide a means to assess capital adequacy across companies more fully
and support the Board's financial stability efforts.
The Dodd-Frank Act mandates that the OCC and the FDIC adopt rules
implementing stress testing requirements for the depository
institutions that they supervise, and the OCC and FDIC invited public
comment on proposed rules in January of 2012.\12\
---------------------------------------------------------------------------
\12\ Annual Stress Test, 77 FR 3408 (Jan. 24, 2012) (OCC);
Annual Stress Test, 77 FR 3166 (Jan. 17, 2012) (FDIC).
---------------------------------------------------------------------------
The Board is finalizing the stress testing frameworks in two
separate rules. First, the Board is issuing this final rule, which
implements the supervisory and company-run stress testing requirements
for covered companies (final rule).
Second, the Board is concurrently issuing a final rule implementing
annual company-run stress test requirements for bank holding companies,
savings and loan holding companies, and state member banks with
consolidated assets greater than $10 billion that are not otherwise
covered by this rule.
The Board is issuing this final rule implementing the stress
testing requirements in advance of the other enhanced prudential
standards and early remediation requirements in order to address the
timing of when the stress testing requirements will apply to various
banking organizations and to require large bank holding companies to
publicly disclose the results of their company-run stress tests
conducted in the fall of 2012.
II. Overview of Comments
The Board received approximately 100 comments on its NPR on
enhanced prudential standards and early remediation requirements.
Approximately 40 of these comments pertained to the proposed stress
testing requirements. Commenters ranged from individual banking
organizations to trade and industry groups and public interest groups.
In general, commenters
[[Page 62380]]
expressed support for stress testing as a valuable tool for identifying
and managing both micro- and macro-prudential risk. However, several
commenters recommended changes to, or clarification of, certain
provisions of the proposed rule, including its timeline for
implementation, reporting requirements, and disclosure requirements.
Commenters also urged greater interagency coordination regarding stress
tests and requested more information on the scenario design process and
the models and methodologies that the Board intends to use in the
supervisory stress tests.
A. Delayed Compliance Date
Commenters suggested that covered companies that have not
previously been subject to stress testing requirements need more time
to develop systems and procedures to be able to conduct the stress
tests and collect the information that the Board may require in
connection with these tests. In response to these comments and to
reduce burden on these institutions, the final rule provides that firms
that have not previously participated in SCAP will begin conducting
stress tests in the fall of 2013, and non-bank covered companies will
begin conducting stress tests in the calendar year after the year in
which the company first becomes subject to the Board's minimum
regulatory capital requirements. Similarly, the rule requires any bank
holding company that becomes a covered company after the effective date
of this rule to comply with the requirements beginning in the fall of
the calendar year that follows the year the company becomes a covered
company, unless that time is extended by the Board in writing.\13\
---------------------------------------------------------------------------
\13\ In extending a time period under the final rule, the Board
will consider the activities, level of complexity, risk profile,
scope of operations, and the regulatory capital of the covered
company, and any other relevant factors.
---------------------------------------------------------------------------
B. Tailoring
The proposed rule would have applied consistent annual company-run
stress test requirements, including the compliance date and the
disclosure requirements, to all banking organizations with total
consolidated assets of more than $10 billion and nonbank financial
companies.\14\ The Board sought public comment on whether the stress
testing requirements should be tailored, particularly for financial
companies that are not large bank holding companies.
---------------------------------------------------------------------------
\14\ Under the proposal, savings and loan holding companies
would not have been subject to the proposed requirements, including
timing of required submissions to the Board, until savings and loan
holding companies were subject to minimum risk-based capital and
leverage requirements.
---------------------------------------------------------------------------
Several commenters expressed concern that the NPR would have
applied stress testing requirements previously applicable only to large
bank holding companies, such as those conducted under the CCAR, to
smaller, less complex banking organizations with smaller systemic
footprints and to nonbank financial companies. Furthermore, commenters
indicated that there are substantial differences between bank holding
companies and nonbank financial companies, and that the Board should
tailor the proposed prudential standards to account for these
differences.
The Board recognizes that the population of covered companies is
diverse and that certain covered companies may pose more material risk
to U.S. financial stability than others. Furthermore, section 165 of
the Dodd-Frank Act directs the Board to implement enhanced prudential
standards that increase in stringency with the systemic footprint of
each company.\15\ As a result, the Board expects to use a tailored
approach in implementing the stress test requirements for covered
companies, using their systemic footprint as the basis for tailoring.
For example, the Board is delaying the compliance date for covered
companies that did not participate in SCAP. In addition, the Board
expects to require a subset of large, complex covered companies to
include additional components in their adverse and severely adverse
scenarios or to apply additional scenarios beyond the macroeconomic
scenarios applied to all covered companies.
---------------------------------------------------------------------------
\15\ See 12 U.S.C. 5365(a)(1).
---------------------------------------------------------------------------
With respect to nonbank financial companies, several commenters
requested that the Board either further tailor the requirements for
nonbank covered companies in the final rule or issue a separate rule
for these companies. For example, some commenters requested that the
Board develop standards that were ``insurance-centric'' rather than
``bank-centric,'' noting that stress test scenarios relevant for bank
holding companies would ignore salient risks to insurers, such as the
possibility of a natural disaster.\16\ The Board may, by order or
regulation, tailor the application of the enhanced standards to nonbank
covered companies on an individual basis or by category, as
appropriate. As noted in the proposal, the Board expects to take into
account differences among bank holding companies and nonbank covered
companies supervised by the Board when applying enhanced supervisory
standards, including stress testing requirements. Following designation
by the Council, the Board will assess the business model, capital
structure, and risk profile of a designated nonbank financial company
to determine how the enhanced prudential standards, including the
stress test requirements in this final rule, and the early remediation
requirements should apply.
---------------------------------------------------------------------------
\16\ A number of commenters on the NPR expressed concerns about
the application of the proposed standards to nonbank covered
companies. Several of these commenters raised a concern that the NPR
does not afford nonbank financial companies a meaningful opportunity
to comment on how the Board should tailor the standards to nonbank
financial companies. Commenters indicated that there are substantial
differences between bank holding companies and nonbank financial
companies, and that the Board should tailor the proposed prudential
standards to account for these differences on a case-by-case basis
following the rulemaking process.
---------------------------------------------------------------------------
Finally, the Board plans to issue supervisory guidance to provide
more detail describing supervisory expectations for company-run stress
tests. This guidance will be tailored based on the size and complexity
of a covered company.
C. Coordination
Many commenters emphasized the need for the federal banking
agencies to coordinate stress testing requirements for parent holding
companies and depository institution subsidiaries and more generally in
regard to stress testing frameworks. Commenters recommended that the
Board, the Office of the Comptroller of the Currency (OCC), and the
Federal Deposit Insurance Corporation (FDIC) coordinate in implementing
the Dodd-Frank Act stress testing requirements in order to minimize
regulatory burden. Commenters asked that the agencies eliminate
duplicative requirements and use an interagency forum, like the Federal
Financial Institutions Examination Council, to develop common forms,
policies, procedures, assumptions, methodologies, and application of
results.
The Board has coordinated closely with the FDIC and the OCC to help
to ensure that the company-run stress testing regulations are
consistent and comparable across depository institutions and depository
institution holding companies and to address any burden that may be
associated with having multiple entities within one organizational
structure having to meet stress testing requirements. The Board
anticipates that it will continue to consult with the FDIC and OCC in
the
[[Page 62381]]
implementation of the final rule, and in particular, in the development
of stress scenarios. The Board plans to develop scenarios each year in
close consultation with the FDIC and the OCC, so that, to the greatest
extent possible, a common set of scenarios can be used for the
supervisory stress tests and the annual company-run stress tests across
various banking entities within the same organizational structure.
D. Consolidated Publication and Group-Wide Systems and Models
In addition to requesting better coordination, commenters inquired
as to whether a company-run stress test conducted by a parent holding
company would satisfy the stress testing requirements applicable to
that holding company's subsidiary depository institutions. Commenters
recommended that in order to reduce burden the Board develop and
require the use of a single set of scenarios for a bank holding company
and any depository institution subsidiary of the bank holding company,
if the Board imposed separate stress testing requirements on both the
bank holding company and bank.
In order to reduce burden on banking organizations, the final rule
provides that a subsidiary depository institution will disclose its
stress testing results as part of the results disclosed by its bank
holding company parent. Disclosure by the bank holding company of its
stress test results and those of any subsidiary state member bank will
generally satisfy any disclosure requirements applicable to the state
member bank subsidiary.
Moreover, a state member bank that is controlled by a bank holding
company may rely on the systems and models of its parent bank holding
company if its systems and models fully capture the state member bank's
risks. For example, under those circumstances, the bank holding company
and state member bank may use the same data collection processes and
methods and models for projecting and calculating potential losses,
pre-provision net revenues, provision for loan and lease losses, and
pro forma capital positions over the stress testing planning horizon.
III. Description of the Final Rule
A. Scope of Application
This final rule applies to any bank holding company (other than a
foreign banking organization) that has $50 billion or more in average
total consolidated assets \17\ and to any nonbank financial company
that the Council has determined under section 113 of the Dodd-Frank Act
must be supervised by the Board and for which such determination is in
effect.
---------------------------------------------------------------------------
\17\ The final rule applies only to U.S.-domiciled bank holding
companies that are covered companies, including, for example, the
U.S.-domiciled bank holding company subsidiary of a foreign banking
organization, but does not apply to any foreign banking
organization.
---------------------------------------------------------------------------
Average total consolidated assets for bank holding companies is
based on the average of the total consolidated assets as reported on
the bank holding company's four most recent Consolidated Financial
Statement for Bank Holding Companies (FR Y-9C). If the bank holding
company has not filed the FR Y-9C for each of the four most recent
consecutive quarters, average total consolidated assets will be based
on the average of the company's total consolidated assets, as reported
on the company's FR Y-9C, for the most recent quarter or consecutive
quarters. In either case, average total consolidated assets are
measured on the as-of date of the relevant regulatory report.
Once the average total consolidated assets of a bank holding
company exceed $50 billion, the company will remain subject to the
final rule's requirements unless and until the total consolidated
assets of the company are less than $50 billion, as reported on four FR
Y-9C reports consecutively filed. Average total consolidated assets are
measured on the as-of date of the FR Y-9C.
The final rule does not apply to foreign banking organizations. The
Board expects to issue for public comment a separate rulemaking on the
application of enhanced prudential standards and early remediation
requirements established under the Dodd-Frank Act, including enhanced
capital and stress testing requirements, to foreign banking
organizations at a later date. A U.S.-domiciled bank holding company
subsidiary of a foreign banking organization that has total
consolidated assets of $50 billion or more is subject to the
requirements of this final rule. \18\
---------------------------------------------------------------------------
\18\ A U.S.-domiciled bank holding company subsidiary of a
foreign banking organization that is currently relying on
Supervision and Regulation Letter SR 01-01 issued by the Board (as
in effect on May 19, 2010) is not required to comply with the final
rule's requirements until July 21, 2015.
---------------------------------------------------------------------------
B. Effective Date
Under the proposal, the stress testing requirements would have
become effective upon adoption of a final rule. A bank holding company
that was a covered company as of the effective date of the rule would
have been required to immediately comply with its requirements. A bank
holding company became a covered company after adoption of the rule but
more than 90 days before September 30 of a given year would have been
subject to the supervisory and company-run stress test requirements
starting that year. With respect to the mid-cycle company-run stress
test, bank holding companies that met the proposal's asset threshold
more than 90 days before March 31 of a given year would need to satisfy
the requirements of the mid-cycle stress tests that year (e.g.,
reporting and publication requirements). Nonbank financial companies
designated for supervision by the Council more than 180 days before
September 30 of a given year would have been required to comply with
the stress test requirements starting that year.
Commenters indicated that the Board should give companies that have
not participated in CCAR additional time before subjecting such
companies to stress test requirements. Commenters argued that delaying
implementation for these companies is necessary to allow sufficient
time to develop the systems and procedures to collect the information
requested by the Board in connection with these tests. In response to
these comments, the Board is delaying the compliance date of stress
test requirements under the final rule for certain bank holding
companies that have not previously participated in stress testing
through SCAP or CCAR. Under the final rule, a bank holding company that
participated in SCAP, or successor to such bank holding company, is
required to comply with the supervisory and company-run stress test
requirements beginning on November 15, 2012, unless that time is
extended by the Board in writing.\19\ All other bank holding companies
that are covered companies will be required to comply with the
supervisory and company-run stress test requirements beginning in the
fall of 2013, unless that time is extended by the Board in writing.\20\
---------------------------------------------------------------------------
\19\ The bank holding companies that participated in SCAP were:
American Express Company, Bank of America Corporation, BB&T
Corporation, Bank of New York Mellon Corporation, Capital One
Financial Corp., Citigroup, Inc., Fifth Third Bancorp, GMAC LLC (now
Ally Financial Inc.), Goldman Sachs Group Inc., JPMorgan Chase &
Co., KeyCorp, MetLife Inc., Morgan Stanley, PNC Financial Services
Group, Regions Financial Corporation, State Street Corp., SunTrust
Banks, Inc., US Bancorp, and Wells Fargo & Company.
\20\ Covered companies are required to submit FR Y-14 data as of
September 30, 2012. In addition, all bank holding companies with
total consolidated assets of $50 billion or more remain subject to
the requirements of the Board's capital plan rule (12 CFR 225.8).
---------------------------------------------------------------------------
Commenters similarly expressed concern that bank holding companies
and nonbank financial companies that
[[Page 62382]]
become covered companies after the effective date of the final rule
would not have sufficient time to build the systems, contract with
outside vendors, recruit experienced personnel, and develop stress
testing models that are unique to their organization under the proposed
compliance date. In addition, the Federal Advisory Council recommended
that the Board phase in disclosure requirements to minimize risk, build
precedent, and allow banks and supervisors to gain experience,
expertise, and mutual understanding of stress testing models.
In response to these comments, the Board extended the compliance
date applicable to bank holding companies that become covered companies
after the effective date of the rule. Under the final rule, such a bank
holding company will be required to conduct its first stress tests
beginning in the fall of the calendar year after the company becomes a
covered company, unless that time is extended by the Board in writing.
The Board also is extending the compliance date applicable to
nonbank covered companies to provide that all nonbank covered companies
will be required to conduct their first stress test in the calendar
year after the year in which the nonbank covered company becomes
subject to the Board's minimum regulatory capital requirements, unless
the Board accelerates or extends the compliance date. The extended
timeline for nonbank financial companies supervised by the Board will
allow those companies and the Board to build and adapt stress testing
systems and processes for application to specific nonbank businesses.
C. Overview of Stress Test Requirements Applicable to Both Supervisory
and Company-Run Stress Tests
The Board designed the final rule in a manner to integrate the
supervisory stress tests and company-run stress tests with the Board's
capital plan rule in order to achieve a streamlined regime that
minimizes regulatory burden. The following discussion describes three
of these integrated aspects: Timing, reporting, and scenario design.
1. Timing of the Stress Testing Requirements
Under the proposal, the Board would have required an as-of date of
September 30 of information to be submitted to the Board, provided
covered companies with scenarios for the supervisory and annual
company-run stress tests by mid-November of each year, required the
filing of regulatory reports by January 5, and provided for publication
of summary results of the annual company-run stress test and
supervisory stress tests in early April. For the mid-cycle company-run
stress test, the Board proposed to require regulatory reports by July 5
and publication of summary results by early October.
Several commenters provided suggestions on the proposed timeline
for the supervisory and company-run stress tests. Comments included
those relating to the as-of date for data to be submitted by covered
companies, the date for submitting results to the Board, and the dates
when public disclosures of stress test results are to be made. For
instance, some commenters suggested that the Board should use data
collected at as-of dates other than September 30, such as June 30 or
December 31, and make corresponding changes to the timing of public
disclosure in order to reduce burden on companies during the year-end
period. One commenter suggested having a floating submission date,
allowing organizations to submit their results at the point in the year
when it is most convenient. Some commenters also requested that the
Board release the scenarios earlier to provide banking organizations
more time to prepare the required reports for the stress tests.
In order to integrate the supervisory and company-run stress tests
with the capital plan rule, the final rule generally maintains the
timing for the supervisory and company-run stress tests set forth in
the proposal. The capital plan rule requires bank holding companies to
submit their capital plan to the Board by January 5 using a September
30 as-of date in order to provide the Board sufficient time to review
the bank holding company's capital plan and to provide its assessment
to the bank holding company within the first quarter, minimizing the
potential to disrupt the bank holding company's ability to make capital
distributions in subsequent quarters of that year. Accordingly, the
final rule maintains a September 30 as-of date and the January 5th date
for submission of the report to the Board in order to align the
requirements and reduce any undue burden for covered companies.\21\
Correspondingly, the final rule maintains the March 31 as-of date for
the mid-cycle company-run stress tests.
---------------------------------------------------------------------------
\21\ As described below in section III.E.1 of this SUPPLEMENTARY
INFORMATION, the Board may require a covered company with
significant trading activity, as determined by the Board and
specified in the Capital Assessments and Stress Testing information
collection (FR Y-14), to include a trading and counterparty scenario
in its stress test. The data used in this scenario will be as of a
date between October 1 and December 1 of that calendar year selected
by the Board, and the Board will communicate the as-of date and a
description of the component to the company no later than December 1
of the calendar year.
---------------------------------------------------------------------------
Commenters requested that the Board release the scenarios earlier
in the annual stress test cycle to provide covered companies more time
to prepare the reports for supervisory stress tests and company-run
stress tests. Under the final rule, the Board will provide descriptions
of the baseline, adverse, and severely adverse scenarios generally
applicable to covered companies no later than November 15 of each year,
and provide any additional components or scenarios by December 1. The
Board believes that providing scenarios earlier than November could
result in the scenarios being stale, particularly in a rapidly changing
economic environment, and that it is important to incorporate economic
or financial market data that are as current as possible while
providing sufficient time for covered companies to incorporate the
scenarios in their annual company-run stress tests.
Commenters also noted that the proposed public disclosure deadlines
(early April for annual supervisory and company-run stress tests and
early October for mid-cycle company-run stress tests) would interfere
with so-called ``quiet periods'' that some publicly-traded banking
organizations enforce in the lead up to earnings announcements. These
quiet periods are designed to limit communications that could
disseminate proprietary company information prior to earnings
announcements.
In light of these comments, the Board adjusted the disclosure date
to avoid interfering with firms' quiet periods. Under the final rule,
covered companies are required to disclose the results of their annual
company-run stress tests between March 15 and March 31 and to disclose
the results of their mid-cycle company-run stress tests between
September 15 and September 30.
Table 1 describes the annual supervisory and company-run stress
test cycles, including the anticipated general timeframes for each step
in 2013.
[[Page 62383]]
[GRAPHIC] [TIFF OMITTED] TR12OC12.009
2. Reporting
To the greatest extent possible, the final rule's reporting
framework has been designed to minimize burden on the covered company
and to avoid duplication, particularly in light of other reporting
requirements that may be imposed by the Board. Accordingly, the final
rule will require each covered company to file a single set of
regulatory reports with the Board by January 5 that contains
information that will support the Board's supervisory stress tests as
well as report the results of the company-run stress tests.\23\ In a
separate Federal Register notice, the Board has invited comment on
these reports, the Capital Assessments and Stress Testing information
collection (FR Y-14Q, FR Y-14M, and FR Y-14A, together, FR Y-14). For
purposes of the mid-cycle company-run stress test, a covered company
will file a regulatory report with the Board by July 5. The Board
expects that this report will be identical to or modeled on the FR Y-
14A, and will seek public comment on it.
---------------------------------------------------------------------------
\22\ Covered companies must disclose their results in the period
between March 15 and March 31.
\23\ The FR Y-14 contains information that the Board has
determined is necessary in order for the Board to derive the
relevant pro forma estimates of the covered company over the
planning horizon for purposes of both this rule and the Board's
capital plan rule. The Board expects to apply the FR Y-14 to a
nonbank financial company supervised by the Board upon such a
company's designation.
---------------------------------------------------------------------------
In addition, the Board may require a covered company to submit any
other information on a consolidated basis that the Board deems
necessary in order to ensure that the Board has sufficient information
to conduct supervisory stress test; and project a company's losses,
pre-provision net revenue, provision for loan and lease losses, pro
forma capital levels, regulatory capital ratios, and tier 1 common
ratio under the scenarios it provides. In addition, the Board may
obtain supplemental information from covered companies, as needed,
through the supervisory process.
The confidentiality of any information submitted to the Board for
the supervisory and company-run stress tests will be determined in
accordance with the Board's rules regarding availability of
information.\24\
---------------------------------------------------------------------------
\24\ See generally 12 CFR part 261; see also 5 U.S.C. 552(b).
---------------------------------------------------------------------------
3. Scenarios
The proposal provided that the Board would publish a minimum of
three different sets of economic and financial conditions, including
baseline, adverse, and severely adverse scenarios, under which the
Board would conduct its annual analyses and companies would conduct
their annual company-run stress tests. The Board would update, make
additions to, or otherwise revise
[[Page 62384]]
these scenarios as appropriate, and would publish any such changes to
the scenarios in advance of conducting each year's stress test.
Commenters suggested that significant changes in scenarios from
year to year could cause a banking organization's stress testing
results to dramatically change. To ameliorate this volatility,
commenters suggest that the federal banking agencies have a uniform
approach for identifying stress scenarios or establish a ``quantitative
severity limit'' in the final rule to ensure that scenarios do not
drastically change from year to year. Commenters pointed out that
consistency in annual scenario development will make comparability of
stress test results between institutions and across time periods more
accurate, increase market confidence in the results of stress tests,
and make for more dependable capital planning by banking organizations.
Commenters also requested the opportunity to provide input on the
scenarios.
The Board believes that it is important to have a consistent and
transparent framework to support scenario design. To further this goal,
the final rule clarifies the definition of ``scenarios'' and includes
definitions of baseline, adverse, and severely adverse scenarios.
Scenarios are defined as those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board,
or with respect to the mid-cycle stress test, the covered company,
annually determines are appropriate for use in the company-run stress
tests, including, but not limited to, baseline, adverse, and severely
adverse scenarios.
The baseline scenario is defined as a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that reflect the consensus views of the economic and financial outlook.
The adverse scenario is defined as a set of conditions that affect the
U.S. economy or the financial condition of a covered company that are
more adverse than those associated with the baseline scenario and may
include trading or other additional components. The severely adverse
scenario is defined as a set of conditions that affect the U.S. economy
or the financial condition of a covered company and that overall are
more severe than those associated with the adverse scenario and may
include trading or other additional components.
In general, the baseline scenario will reflect the consensus views
of the macroeconomic outlook expressed by professional forecasters,
government agencies, and other public-sector organizations as of the
beginning of the annual stress-test cycle. The Board expects that the
severely adverse scenario will, at a minimum, include the paths of
economic variables that are generally consistent with the paths
observed during severe post-war U.S. recessions. Each year the Board
expects to take into account of salient risks that affect the U.S.
economy or the financial condition of a covered company that may not be
observed in a typical severe recession. The Board expects that the
adverse scenario will, at a minimum, include the paths of economic
variables that are generally consistent with mild to moderate
recessions. The Board may vary the approach it uses for the adverse
scenario each year so that the results of the scenario provide the most
value to supervisors, given the current conditions of the economy and
the banking industry. Some of the approaches the Board may consider
using include, but are not limited to, a less severe version of the
severely adverse scenario or specifically capturing, in the adverse
scenario, risks that the Board believes should be understood better or
should be monitored.
The scenarios will consist of a set of conditions that affect the
U.S. economy or the financial condition of a covered company over the
stress test planning horizon. These conditions will include projections
for a range of macroeconomic and financial indicators, such as real
Gross Domestic Product (GDP), the unemployment rate, equity and
property prices, and various other key financial variables, and will be
updated each year to reflect changes in the outlook for economic and
financial conditions. The paths of these economic variables could
reflect risks to the economic and financial outlook that are especially
salient but were not prevalent in recessions of the past.
Depending on the systemic footprint and scope of operations and
activities of a company, the Board may use, and require that company to
use, additional components in the adverse and severely adverse
scenarios or additional or more complex scenarios that are designed to
capture salient risks to specific lines of business. For example, the
Board recognizes that certain trading positions and trading-related
exposures are highly sensitive to adverse market events, potentially
leading to large short-term volatility in covered companies' earnings.
To address this risk, the Board may require covered companies with
significant trading activities to include market price and rate
``shocks'' in their adverse and severely adverse scenarios as specified
by the Board, that are consistent with historical or other adverse
market events. In addition, the scenarios, in some cases, may also
include stress factors that may not be directly correlated to
macroeconomic or financial assumptions but nevertheless can materially
affect covered companies' risks, such as factors that affect
operational risks. The process by which the Board may require a covered
company to include additional components in its adverse and severely
adverse scenarios or to use additional scenarios is described under
section III.E.2 of this SUPPLEMENTARY INFORMATION. The Board plans to
publish for comment a policy statement that describes its framework for
developing scenarios.
Some commenters suggested that the Board adopt a tailored approach
to scenarios to better capture idiosyncratic characteristics of each
company. For example, commenters representing the insurance industry
suggested that any stress testing regime applicable to insurance
companies incorporate shocks relating to the exogenous factors that
actually impact a particular company, such as a shock to the insurance
company's insurance policy portfolio arising from a natural disaster,
and de-emphasize shocks arising from traditional banking activities.
In the Board's view, a generally uniform set of scenarios is
necessary to provide a basis for comparison across companies. However,
the Board expects that each company's stress testing practices will be
tailored to its business model and lines of business, and that the
company may not use all of the variables provided in the scenario, if
those variables are not appropriate to the firm's line of business, or
may add additional variables, as appropriate.\25\ In addition, the
Board expects banking organizations to consider other scenarios that
are more idiosyncratic to their operations and associated risks as part
of their ongoing internal analyses of capital adequacy and include
company-specific vulnerabilities in their scenarios when complying with
the Board's requirements for mid-cycle company-run stress test as
described in section 252.145.
---------------------------------------------------------------------------
\25\ The Board expects banking organizations will ensure that
the paths of such additional variables are consistent with the
scenarios the Board provided. For example, the path of any local
economic variable should be consistent with the path of a national
economic variable that the Board provides.
---------------------------------------------------------------------------
D. Annual Supervisory Stress Tests Conducted by the Board
The following discussion describes the Board's methodologies for
the conduct of the stress tests, the process the Board intends to use
to
[[Page 62385]]
communicate the results to the company, the post-assessment actions
that a company is expected to take in response to the supervisory
stress tests, and the Board's publication of the stress test results.
1. Methodology for Estimating Losses and Revenues
In the NPR, the Board proposed that it would use the analytical
techniques it determines to be appropriate to identify, measure, and
monitor risks of covered companies that may affect the financial
stability of the United States. The Board also outlined in the proposal
the general framework it would use to analyze the projected losses,
pre-provision net revenue, provision for loan and lease losses, and pro
forma, post-stress capital levels and regulatory capital ratios in
conducting a stress test for covered companies.
The Board received numerous comments requesting greater clarity
with respect to the application of the supervisory stress test models.
For example, commenters requested that the Board increase the
transparency of the Board's analysis, modeling techniques, and
assumptions used to analyze the banks by stress tests in the final
rule. Commenters further recommended that these models and applications
should be subject to a final public consultative process prior to
implementation and that the Board should provide a detailed description
of models in the form of consultative ``white papers.''
The Board is currently considering how to provide more transparency
with respect to its models while not reducing incentives on the part of
covered companies to develop better internal stress test models that
factor in their idiosyncratic risks and to consider the results of such
models in their capital planning process. At a minimum, the Board plans
to publish an overview of its stress testing methodologies each year.
In addition, the Board expects to communicate the extent and timing of
disclosure of information about supervisory models at a later date.
The Board has established an independent, internal model validation
group to review supervisory models and their implementation, which is
intended to foster continuing improvements in supervisory modeling
practices. In addition, the Board formed the Model Validation Council
earlier this year, composed of independent, external experts who
provide input to the Board's internal model validation process used to
assess the effectiveness of the models used in the supervisory stress
tests.\26\ The Model Validation Council is intended to improve the
quality of the Board's model validation process, and, thereby,
strengthen confidence in the Board's stress tests.
---------------------------------------------------------------------------
\26\ The Board published a press release on the Model Validation
Council on April 20, 2012. See Press Release, Board of Governors of
the Federal Reserve System, Federal Reserve Board announces the
formation of the Model Validation Council (Apr. 20, 2012) available
at http://www.federalreserve.gov/newsevents/press/bcreg/20120420a.htm.
---------------------------------------------------------------------------
As described in the proposal, the anticipated framework to be used
in supervisory stress tests has a number of elements. The Board will
calculate each covered company's projected losses, pre-provision net
revenue, provision for loan and lease losses and other factors
affecting capital using a series of models and estimation techniques
that relate the economic and financial variables in the baseline,
adverse, and severely adverse scenarios to the company's losses and
revenues. The Board has developed a series of models to estimate losses
on various types of loans and securities held by the covered company,
using data submitted by that company. These models may be adjusted over
time. The Board will use a separate methodology or a combination of
methodologies--potentially including covered companies' internal
models, if appropriate--to estimate projected losses related to covered
companies' trading portfolio or counterparty credit-risk exposures in
the event of an adverse market shock, taking into account the
complexity and idiosyncrasies of each covered company's positions. The
methodology may also incorporate an approach to estimate potential
losses from stress factors specifically affecting the covered
companies' other risks. Finally, the framework will include a set of
methodologies to assess the effect of losses, pre-provision net
revenue, provision for loan and lease losses, and other factors on pro
forma capital levels and ratios.
In response to commenters' requests for more clarity regarding the
Board's assumptions used to calculate a covered company's stress test
results, the Board is providing additional detail on the assumptions it
intends to use to describe how a company's capital positions would
change over time. To help ensure that the publicly disclosed results of
supervisory stress tests are comparable across institutions and reflect
the effect of common macroeconomic scenarios on net income and capital
but not company-specific assumptions about capital distributions, the
Board is applying a consistent approach to assumptions across
companies.
For the first quarter of the planning horizon, the Board will take
into account the company's actual capital actions as of the end of the
calendar quarter. For each of the second through ninth quarters of the
planning horizon, the Board will include the following items in the
projections of capital: (i) Common stock dividends equal to the
quarterly average dollar amount of common stock dividends that the
company paid in the previous year (that is, the first quarter of the
planning horizon and the preceding three calendar quarters); (ii)
payments on any other instrument that is eligible for inclusion in the
numerator of a regulatory capital ratio equal to the stated dividend,
interest, or principal due on such instrument during the quarter; and
(iii) an assumption of no redemption or repurchase of any capital
instrument that is eligible for inclusion in the numerator of a
regulatory capital ratio.
These assumptions are the same assumptions that covered companies
are required to use in conducting their company-run stress tests, as
described below in section III.E.3 of this SUPPLEMENTARY INFORMATION.
Adopting a consistent, standardized approach across covered companies
and across the supervisory and company-run stress tests will provide
for improved comparability across companies and between the supervisory
and company-run stress tests.
Another element of the supervisory-stress test framework is a set
of assumptions or models to describe how a covered company's balance
sheet would change over time.\27\ Information about planned future
acquisitions and divestitures by the companies will also be
incorporated. These projections will then be analyzed to assess their
combined effect on the covered company's capital position, including
projected capital levels and capital ratios, at the end of each quarter
in the planning horizon. The framework will incorporate all regulatory
capital measures and the tier 1 common ratio. These projections used in
the supervisory stress tests also will incorporate, as appropriate, any
significant changes in or the significant effects of accounting
requirements during the planning period.
---------------------------------------------------------------------------
\27\ At times, the Board may assume in its supervisory stress
tests that the covered company's balance sheet would change over
time, following the paths projected by the company.
---------------------------------------------------------------------------
[[Page 62386]]
2. Description of Supervisory Assessment
The Board, through its annual analyses, will evaluate each covered
company as to whether the covered company has the capital, on a total
consolidated basis, necessary to continue operating under economic and
financial market conditions as contained in the designated scenarios.
This evaluation will include, but will not be limited to, a review of
the covered company's estimated losses, pre-provision net revenue,
provision for loan and lease losses, and the extent of their effect on
the company's capital levels and ratios, including pro forma regulatory
capital ratios and the tier 1 common ratio.
3. Communication of Results to Covered Companies
Under the Dodd-Frank Act, the Board is required to disclose a
summary of the results of its annual analyses.\28\ In the NPR, the
Board proposed that, prior to publishing a summary of the results of
its annual analyses, the Board would convey to each covered company the
results of the Board's analyses of that company and explain to the
company any information that the Board expected to make public.
---------------------------------------------------------------------------
\28\ 12 U.S.C. 5365(i)(1)(B)(v).
---------------------------------------------------------------------------
Numerous commenters requested that the final rule include a formal
appeals process to dispute the Board's findings prior to public release
of stress test results. According to these commenters, banking
organizations should have the opportunity to defend the results of
their internal models against the results of supervisory stress tests,
and explain any major differences in assumptions or potential drivers
of divergent results between the two to the Board in a confidential
manner prior to publication.
The final rule does not provide for a process whereby a company
would be able to appeal the results of its supervisory stress test. The
Board's supervisory stress tests reflect the Board's independent
estimates of revenue, losses, and capital under various scenarios,
using consistent models and assumptions across all companies. Covered
companies are separately required to disclose the results of their own
stress tests, which will provide the company's own assessment of its
capital adequacy under stress conditions that are consistent with those
included in the Board's supervisory stress test.
The Board expects to communicate the results of its supervisory
stress tests to a company before it publicly discloses a summary of
such results.
4. Post-Assessment Actions by Covered Companies
Under the final rule, subsequent to receiving the results of the
Board's annual analyses, each covered company must take the results of
such analysis conducted by the Board into account in making changes, as
appropriate, to the company's capital plan and capital structure
(including the level and composition of capital) and its exposures,
concentrations, and risk positions; and any plans of the company for
recovery or resolution. In addition, each covered company must make
such updates to its resolution plan (required to be submitted annually
to the Board and FDIC pursuant to the Board's Regulation QQ (12 CFR
part 243) and the FDIC's Part 381 (12 CFR part 381)) as the Board,
based on the results of its analyses of the company, determines
appropriate.
5. Publication of Results by the Board
In the NPR, the Board proposed that, within a reasonable period of
time after completing the annual analyses of covered companies (but no
later than by mid-April of each calendar year), the Board would
disclose a summary of the results of such analyses. The Board also said
that it expected to disclose quarter-end results over the specified
planning horizon that included estimated losses on a variety of lines
of business, estimated allowance for loan and lease losses, and
estimated pro forma regulatory and other capital ratios.
In response, nearly all commenters advocated that the Board use
more limited disclosures requirements for the supervisory and company-
run stress tests, suggesting that the disclosures proposed in the NPR
go beyond what is mandated in the Act. In particular, nearly all
commenters strongly recommended against the disclosure of the results
under the baseline scenario. Commenters indicated the baseline scenario
results would be perceived as earnings guidance, which may compel the
banking organization to prioritize short-term results over more
appropriate longer-term risk management and sustained long term
results. Commenters also indicated that disclosure of baseline results
may force the premature disclosure of future plans by the institution,
create confusion among investors and the public, and give rise to
liability under securities laws.
Several commenters also suggested that the Board disclose the
results using the template used to disclose the CCAR results, which
they likened to publication of only the severely adverse results.
Commenters expressed the view that the CCAR disclosure regime was
appropriately balanced by providing useful information to market
participants while simultaneously ensuring that disclosure of stress
tests results does not result in providing earnings guidance.
As noted above, the Board believes that public disclosure is a key
component of stress test requirements mandated by the Act, and helps to
provide valuable information to market participants, enhance
transparency, and promote market discipline. However, the Board
understands the concern that the disclosure of results (particularly
baseline results) could be viewed as earnings guidance to the market.
Thus, for the stress test conducted in 2012, the Board expects that,
similar to the public disclosure following CCAR in early 2012, the
Board will disclose results under the severely adverse scenario for
each company that will include estimates of the following information:
Pre-provision net revenue and other revenue;
Provision for loan and lease losses, realized losses or
gains on available-for-sale and held-to-maturity securities, trading
and counterparty losses, and other losses or gains; \29\
---------------------------------------------------------------------------
\29\ Other losses and gains include, but are not limited to
projected losses on loans that are held-for-sale and held-for-
investment measured under the fair value option, and goodwill
impairment.
---------------------------------------------------------------------------
Net income before taxes;
Loan losses (dollar amount and as a percentage of average
portfolio balance) in aggregate and by subportfolio, including:
Domestic closed-end first-lien mortgages; domestic junior lien
mortgages and home equity lines of credit; commercial and industrial
loans; commercial real estate loans; credit card exposures; other
consumer loans; and all other loans; and
Pro forma regulatory and other capital ratios (including
the tier 1 common ratio, as defined in the capital plan rule, and any
other capital ratios specified by the Board).
The Board expects that the results relating to pre-provision net
revenue and other revenue; provision for loan and lease losses,
realized losses/gains on available-for-sale and held-to-maturity
securities, trading and counterparty losses, and other losses or gains;
net income before taxes; loan losses in the aggregate and by
subportfolio will include the cumulative total over the planning
horizon, and the regulatory and other capital ratios will include at
least the actual capital ratio
[[Page 62387]]
as of September 30, 2012, and the minimum and ending capital ratios
over the planning horizon. In addition, the Board may include
additional elements under the severely adverse scenario, as it deems
appropriate. The Board will disclose these summary results no later
than March 31 of a calendar year.
As the Board implements the Dodd-Frank stress testing requirements,
it intends to evaluate whether public disclosure of the results of the
adverse and baseline would assist in informing the company and market
participants about the condition of the banking organization. The Board
expects to revisit the scope of the disclosure from time to time, and
may disclose the results under the adverse and baseline scenario in the
future.
In response to commenters' concerns that market participants may
misunderstand the published results of the Board's analyses, the Board
emphasizes that there are certain factors to bear in mind when
interpreting these published results. For example, the outputs of the
analyses might not align with those produced by other parties
conducting similar exercises, even if a similar set of scenarios were
used, due to differences in methodologies and assumptions used to
produce those outputs. In addition, the outputs under the severely
adverse scenarios should not be viewed as forecasts or expected
outcomes or as a measure of any covered company's solvency. Instead,
those outputs are the estimates from forward-looking exercises that
consider possible outcomes based on a set of hypothetical scenarios.
E. Annual and Mid-Cycle Stress Tests Conducted by the Covered Companies
1. Overview
The final rule requires each covered company to conduct an annual
stress test by January 5 of each calendar year and a mid-cycle stress
test by July 5 of each calendar year. A stress test is defined as a
process to assess the potential impact of scenarios on the consolidated
earnings, losses, and capital of a covered company over the planning
horizon, taking into account its current condition, risks, exposures,
strategies, and activities.
A covered company is required to run its annual stress test using
financial data as of September 30 of the preceding calendar year and
its mid-cycle stress test using financial data as of March 31 of the
preceding calendar year. The following discussion describes the
scenarios, methodology, and practices that a company will use in
conducting the annual and mid-cycle stress tests and disclosure
requirements applicable to the company.
2. Scenarios
For the annual stress test, covered companies will use the same
scenarios as the Board will use for its supervisory stress analysis.
The scenarios will include a minimum of three different sets of
economic and financial conditions, including baseline, adverse, and
severely adverse scenarios, which covered companies will be required to
use to conduct their annual company-run stress tests. The Board will
publish baseline, adverse, and severely adverse scenarios by no later
than November 15 of each year, except with respect to additional
components or scenarios described below.
As discussed in section III.C.3 of the SUPPLEMENTARY INFORMATION,
the Board may require a covered company with significant trading
activity, as determined by the Board and reflected on the FR Y-14, to
include a global market shock component in its adverse and severely
adverse scenario that measures potential stress losses from trading
activities and counterparty exposures in its stress test.\30\ The data
used in this component for purposes of the annual company-run stress
test will have an as-of date between October 1 and December 1 of that
calendar year selected by the Board and the as-of date will be
communicated to the company no later than December 1 of the calendar
year.
---------------------------------------------------------------------------
\30\ As of September 30, 2012, companies subject to the global
market shock scenario included those bank holding companies with
total consolidated assets of $500 billion or more that are subject
to the market-risk measure set forth in Appendix E of the Board's
Regulation Y (12 CFR Part 225, Appendix E).
---------------------------------------------------------------------------
In addition, depending on the systemic footprint and scope of
operations and activities of a covered company, the Board may require
the company to use additional components in its adverse and severely
adverse or to use additional or more complex scenarios that are
designed to capture salient risks stemming from specific lines of
business.\31\ Scenarios may also include stress factors, such as
operational risk, that materially affect the financial condition of a
covered company but are not directly correlated to macroeconomic or
financial assumptions.
---------------------------------------------------------------------------
\31\ In making this assessment, the Board will consider the
financial condition, size, complexity, risk profile, scope of
operations, or activities, or risks to the U.S. economy of the
company.
---------------------------------------------------------------------------
The Board will notify a covered company in writing no later than
September 30 that it will be required to include additional components
in its adverse and severely adverse scenarios or additional scenarios
in its stress test. The notification will include the basis for
requiring the company to include the additional components or
additional scenarios in its stress test. Within 14 calendar days of
receipt of a notification, a covered company may request in writing
that the Board reconsider the requirement that the company include
additional components or additional scenarios in its stress test,
including an explanation as to why the reconsideration should be
granted. The Board will respond in writing within 14 calendar days of
receipt of the covered company's request. The Board will provide a
covered company with a description of any additional components or
additional scenarios, including the trading component described above,
by December 1.
Under the final rule, the Board will not provide scenarios to
covered companies for the mid-cycle company-run stress tests. Rather,
for the mid-cycle company-run stress test, a covered company will be
required to develop and use a minimum of three sets of its own
scenarios--a baseline, adverse, and severely adverse scenario. The
Board anticipates that covered companies may use a variety of
quantitative and qualitative approaches to develop the scenarios. The
adverse and severely adverse scenarios used in mid-cycle stress tests
should reflect a company's unique vulnerabilities to factors that
affect its firm-wide activities and risk exposures, including
macroeconomic, market-wide, and firm-specific events. The Board expects
the companies to consider their own risk profiles and operations in
designing specific elements of the adverse and severely adverse
scenarios. If appropriate, the Board will publish additional guidance
to covered companies describing the considerations they should take
into account in developing the scenarios for the mid-cycle company-run
stress tests.
The Board may require a covered company to include additional
components or scenarios in its stress test based on the company's
financial condition, size, complexity, risk profile, scope of
operations, or activities, or risks to the U.S. economy. The notice and
response procedures are parallel to those applicable in the annual
company-run stress test.
3. Methodologies and Practices
Under the final rule, a covered company will be required to use the
applicable scenarios discussed above in conducting its stress tests to
calculate, for each quarter-end within the
[[Page 62388]]
planning horizon, potential losses, pre-provision net revenue,
provision for loan and lease losses, and capital levels over the
planning horizon. Each covered company will also be required to
calculate, for each quarter in the planning horizon, the potential
effect of the specific scenarios on its regulatory capital ratios and
tier 1 common ratio.
Several commenters asked that the Board generally adopt the
disclosure approach it used in CCAR 2012, which provided for a uniform
set of assumptions of capital actions across bank holding companies. In
response to these commenters and to enable comparisons across firms and
between the company-run and supervisory stress tests, the final rule
requires a covered company to make the following assumptions regarding
its capital actions over the planning horizon. For the first quarter of
the planning horizon, the covered company must take into account its
actual capital actions as of the end of the calendar quarter. For each
of the second through ninth quarters of the planning horizon, the
covered company must include the following items in the projections of
capital: (i) Common stock dividends equal to the quarterly average
dollar amount of common stock dividends that the company paid in the
previous year (that is, the first quarter of the planning horizon and
the preceding three calendar quarters); (ii) payments on any other
instrument that is eligible for inclusion in the numerator of a
regulatory capital ratio equal to the stated dividend, interest, or
principal due on such instrument during the quarter; and (iii) an
assumption of no redemption or repurchase of any capital instrument
that is eligible for inclusion in the numerator of a regulatory capital
ratio. The Board is requiring companies to adopt a standard approach to
developing these assumptions to ensure that the publicly disclosed
results of company-run stress tests are comparable across institutions
and reflect the effect of common macroeconomic scenarios on net income
and capital but not company-specific assumptions about capital
distributions.
The proposed rule would have required a covered company to
establish and maintain a system of controls, oversight, and
documentation, including policies and procedures, designed to ensure
that the stress testing processes were effective. It also would have
required the board of directors and senior management of the covered
company to annually review the controls, oversight, and documentation
established pursuant to the final rule.
Several commenters asked for clarification on the roles of the
board of directors and senior management in establishing and reviewing
these controls. In response to these commenters, the final rule
clarifies that the senior management is responsible for establishing
and maintaining a system of controls, oversight, and documentation,
including policies and procedures, designed to ensure that the stress
testing processes used by the company are effective in meeting the
requirements of the final rule. The board of directors, or an
appropriate committee thereof, is responsible for approving and
reviewing the policies and procedures of the stress testing processes
as frequently as economic conditions or the condition of the company
may warrant, but no less than annually. The board of directors and
senior management of the company must receive a summary of the results
of the stress test.
The company's policies and procedures must, at a minimum, outline
the company's stress testing practices and methodologies, and processes
for validating and updating the company's stress testing practices and
methodologies consistent with applicable laws, regulations, and
supervisory guidance. Each covered company must also include in its
policies information describing its processes for scenario development
for the mid-cycle stress test required under the final rule.
The final rule also requires that the board of directors and senior
management of each covered company to consider the results of the
stress tests when developing and maintaining the covered company's
capital plan and capital planning processes and any plans for recovery
and resolution, and assessing the exposures, concentration, and risk
positions, including under times of stress, in light of the bank's risk
profile.
4. Publication of Results by the Company
Under the proposal, consistent with the requirements of the Dodd-
Frank Act, a covered company would have been required to disclose a
summary of the results of its company-run stress tests within 75 days
of submitting its required report to the Board.
Consistent with comments on the supervisory stress testing
disclosure, nearly all commenters suggested that companies should not
be required to disclose information relating to their baseline results
or on a quarter-by-quarter basis, and that the Board adopt the template
used in reporting the CCAR results.
As noted above, the Board believes that public disclosure is a key
component of stress test requirements mandated by the Act, and helps to
provide valuable information to market participants, enhance
transparency, and facilitate market discipline. However, the Board also
understands the concern that the disclosure of results (particularly
baseline results) could be viewed as earnings guidance to the market.
Thus, the final rule requires banking organizations to disclose only
the severely adverse results. As companies begin conducting company-run
stress tests, submitting the results of all scenarios to the Board, and
disclosing a summary of their results under the severely adverse
scenario, the Board expects to evaluate whether public disclosure of
the results of the adverse and baseline scenarios would assist the
public in understanding the condition of the banking organization.
Thus, the Board expects to revisit the scope of required public
disclosure from time to time, and may determine to require disclosure
of the results under the adverse and baseline scenarios in the future.
At a minimum, the publication of summary results by a covered
company must include with respect to the severely adverse scenario:
(i) A description of the types of risks included in the stress
test;
(ii) A general description of the methodologies used in the stress
test, including those employed to estimate losses, revenues, provision
for loan and lease losses, and changes in capital positions over the
planning horizon;
(iii) Results of company-run stress tests, including, but not
limited to estimated:
Pre-provision net revenue and other revenue;
Provision for loan and lease losses, realized losses/gains
on available-for-sale and held-to-maturity securities), trading and
counterparty losses, and other losses/gains; \32\
---------------------------------------------------------------------------
\32\ Other losses and gains include, but are not limited to
projected losses on loans that are held-for-sale and held-for-
investment measured under the fair value option, and goodwill
impairment.
---------------------------------------------------------------------------
Net income before taxes;
Loan losses (dollar amount and as a percentage of average
portfolio balance) in the aggregate and by subportfolio, including:
Domestic closed-end first-lien mortgages; domestic junior lien
mortgages and home equity lines of credit; commercial and industrial
loans; commercial real estate loans; credit card exposures; other
[[Page 62389]]
consumer loans; and all other loans; \33\ and
---------------------------------------------------------------------------
\33\ In the proposed rule, the Board noted that it expected
covered companies to disclose the loan loss results of their
company-run stress tests in the aggregate and by subportfolio. In
response to commenters' requests for clarity on disclosure
expectations, the final rule specifies the subportfolios for which a
company will be required to disclose loan losses.
---------------------------------------------------------------------------
Pro forma regulatory capital ratios and the tier 1 common
ratio; and
(iv) An explanation of the most significant causes for the changes
in regulatory capital ratios and tier 1 common ratio.
The results disclosed by covered companies must include the
cumulative total for (1) pre-provision net revenue and other revenue;
(2) provision for loan and lease losses, realized losses/gains on
available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains; (3) net income before
taxes; and (4) loan losses in the aggregate and by subportfolio over
the planning horizon. The disclosure of pro forma capital ratios must
include at least the actual beginning ratios (as of September 30 for
annual stress tests and as of March 31 for mid-cycle stress tests), the
ending ratios, and the minimum ratios over the planning horizon.
Several commenters suggested that regulatory agencies coordinate
disclosure requirements for multiple banking organizations within a
single parent company as the release of conflicting test results could
confuse market participants. Additionally, commenters recommended more
limited disclosure requirements for depository institution
subsidiaries.
In response to these comments, the final rule requires bank holding
companies that are covered companies to include in their public
disclosure a summary of any company-run stress test conducted by a
depository institution subsidiary that is required to disclose a
summary of stress test results under applicable regulations.\34\ The
public disclosures with respect to a depository institution subsidiary
must include changes in pro forma regulatory capital ratios of the
depository institution subsidiary over the planning horizon, including
an explanation of the most significant causes for the changes in those
ratios. For subsidiary state member banks, the Board expects that this
disclosure will include a general description of methodologies used to
estimate capital actions over the planning horizon. As described in the
concurrently issued final rule applicable to state member banks with
total consolidated assets of more than $10 billion, disclosure by a
bank holding company of the results of its state member bank
subsidiary's stress test will satisfy public disclosure requirements
applicable to that subsidiary under section 165(i)(2) of the Dodd-Frank
Act, unless the Board determines that the disclosures at the holding
company level do not adequately capture the potential impact of the
scenarios on the capital of the state member bank.
---------------------------------------------------------------------------
\34\ See, e.g., 12 CFR 252.157(b)(2).
---------------------------------------------------------------------------
IV. Administrative Law Matters
A. Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board invited comment on whether the proposed rule
was written plainly and clearly, or whether there were ways the Board
could make the rule easier to understand. The Board received no
comments on these matters and believes that the final rule is written
plainly and clearly.
B. Paperwork Reduction Act Analysis
Request for Comment on Final Information Collection
In accordance with section 3512 of the Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3521) (PRA), the Board 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 OMB control number will be
assigned. The Board reviewed the final rule under the authority
delegated to the Board by OMB.
The final rule contains requirements subject to the PRA. The
recordkeeping requirements are found in section 252.146(c)(1) \35\
(formerly section 252.145(b)(1) in the proposed rule) and the
disclosure requirements are found in section 252.148. These information
collection requirements will implement sections 165(i)(1) and (2) of
the Dodd-Frank Act for covered companies, as mentioned in the Abstract
below.
---------------------------------------------------------------------------
\35\ Some of the recordkeeping requirements for Subpart G--
Company-Run Stress Test Requirements for Covered Companies have been
addressed in the proposed Recordkeeping and Disclosure Provisions
Associated with Stress Testing Guidance (FR 4202). See the Federal
Register notice published on June 15, 2011 (76 FR 35072). Only new
recordkeeping requirements are being addressed with this proposed
rulemaking
---------------------------------------------------------------------------
The reporting requirements found in section 252.137(b) have been
addressed in the Resolution Plans Required Regulation (Reg QQ; OMB No.
7100-0346).\36\ The reporting requirements found in sections
252.135(a), 252.144, 252.146(a), and 252.147(a)(1) have been
incorporated into the Capital Assessments and Stress Testing (FR Y-14;
OMB No. 7100-0341). The reporting requirements found in sections
252.145 and 252.147(a)(2) will be addressed as separate Federal
Register notice for the FR Y-14 at a later date. The recordkeeping
requirements found in section 252.137(a)(1) have been incorporated into
the Capital Plans Regulation (Reg Y-13; OMB No. 7100-0342).
---------------------------------------------------------------------------
\36\ See the Federal Register notice published on November 1,
2011 (76 FR 67323).
---------------------------------------------------------------------------
The Board received general comments regarding the burden of the
proposed rule. In response to these comments and to reduce burden, only
covered companies that are bank holding companies and that participated
in SCAP will be required to conduct a stress test under the final rule
this year. Other bank holding companies that are covered companies with
$50 billion or more in total consolidated assets will not begin
conducting stress tests under the final rule until fall 2013.
The Board has an ongoing interest in your comments.
Comments are invited on:
(a) Whether the proposed collections of information are necessary
for the proper performance of the Federal Reserve's functions,
including whether the information has practical utility;
(b) The accuracy of the Federal Reserve's estimate of the burden of
the proposed information collections, including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start up costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on
aspects of this notice that may affect reporting, recordkeeping, or
disclosure requirements and burden estimates should be sent to the
addresses listed in the ADDRESSES section. A copy of the comments may
also be submitted to the OMB desk officer for the Agencies: By mail to
U.S. Office of Management and Budget, 725 17th Street NW.,
10235,
[[Page 62390]]
Washington, DC 20503 or by facsimile to 202-395-5806, Attention,
Commission and Federal Banking Agency Desk Officer.
Title of Information Collection: Recordkeeping and Disclosure
Requirements Associated with Regulation YY (Subparts F and G).
Frequency of Response: Annual and semiannual.
Affected Public: Businesses or other for-profit.
Respondents: U.S. bank holding companies and nonbank financial
companies.
Abstract: Section 165 of the Dodd-Frank Act implements the enhanced
prudential standards. The enhanced standards include risk-based capital
and leverage requirements, liquidity standards, requirements for
overall risk management (including establishing a risk committee),
single-counterparty credit limits, stress test requirements, and debt-
to-equity limits for companies that the Council has determined pose a
grave threat to financial stability.
Section 252.146(c)(1) requires that each covered company must
establish and maintain a system of controls, oversight, and
documentation, including policies and procedures, that are designed to
ensure that its stress testing processes are effective in meeting the
requirements in Subpart G. These policies and procedures must, at a
minimum, describe the covered company's stress testing practices and
methodologies, and processes for validating and updating the covered
institution's stress test practices and methodologies consistent with
applicable laws, regulations, and supervisory guidance. Policies of
covered companies must describe processes for scenario development for
the mid-cycle stress test required under section 252.145.
Section 252.148 requires a covered company to publish a summary of
the results of the stress test required under section 252.144 in the
period beginning on March 15 and ending on March 31, unless that time
is extended by the Board in writing. A covered company must also
publish a summary of the results of the stress test required under
section 252.145 in the period beginning on September 15 and ending on
September 30, unless that time is extended by the Board in writing. The
information disclosed by each covered company, at a minimum, include
the following information regarding the severely adverse scenario: (1)
A description of the types of risks being included in the stress test;
(2) a general description of the methodologies used in the stress test,
including those employed to estimate losses, revenues, provision for
loan and lease losses, and changes in capital positions over the
planning horizon; (3) estimates of pre-provision net revenue and other
revenue; provisions for loan and lease losses, realized losses/gains on
available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains; net income before
taxes; loan losses (dollar amount and as a percentage of average
portfolio balance) in the aggregate and by subportfolio, including:
Domestic first-lien mortgages; domestic junior lien and home equity
lines of credit; commercial and industrial loans; commercial real
estate loans; credit cards; other consumer loans; and all other loans;
and regulatory capital ratios and the tier 1 common ratio; (4) an
explanation of the most significant causes for the changes in
regulatory capital ratios and tier 1 common ratio; and (5) with respect
to a stress test conducted by an insured depository institution
subsidiary of the covered company pursuant to subpart H of this part
252, changes in regulatory capital ratios of the depository institution
subsidiary over the planning horizon, including an explanation of the
most significant causes for the changes in regulatory capital ratios.
Estimated Paperwork Burden
Estimated Burden per Response:
Section 252.146(c)(1) recordkeeping--40 hours (Initial setup 280
hours for U.S. bank holding companies $50 billion and over in total
consolidated assets).
Section 252.148 disclosure--80 hours (Initial setup 200 hours).
Number of respondents: 34 U.S. bank holding companies with total
consolidated assets of $50 billion or more.
Total estimated annual burden: 29,920 hours (23,120 hours for
initial setup and 6,800 hours for ongoing compliance).
C. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires each federal agency to prepare a final regulatory flexibility
analysis in connection with the promulgation of a final rule, or
certify that the final rule will not have a significant economic impact
on a substantial number of small entities.\37\ The Board believes that
the final rule will not have a significant economic impact on a
substantial number of small entities, but nonetheless is conducting the
RFA analysis for this final rule.
---------------------------------------------------------------------------
\37\ See 5 U.S.C. 603, 604 and 605.
---------------------------------------------------------------------------
In accordance with section 165(i)(1) and (2) of the Dodd-Frank Act,
the Board is adopting the final rule as Regulation YY and adding new
Part 252 (12 CFR part 252) to establish the requirements that a covered
company provide data to support the Board's annual supervisory stress
test and conduct company-run stress tests semi-annually.\38\ The
reasons and justification for the final rule are described in the
SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
\38\ See 12 U.S.C. 5365(i)(1) and (2).
---------------------------------------------------------------------------
Under regulations issued by the Small Business Administration
(SBA), a ``small entity'' includes those firms within the ``Finance and
Insurance'' sector with asset sizes that vary from $7 million or less
in assets to $175 million or less in assets.\39\ The Board believes
that the Finance and Insurance sector constitutes a reasonable universe
of firms for these purposes because such firms generally engage in
actives that are financial in nature. Consequently, bank holding
companies or nonbank financial companies with assets sizes of $175
million or less are small entities for purposes of the RFA.
---------------------------------------------------------------------------
\39\ 13 CFR 121.201.
---------------------------------------------------------------------------
As discussed in the SUPPLEMENTARY INFORMATION, the final rule
applies to a ``covered company,'' which includes only bank holding
companies with $50 billion or more in total consolidated assets, and
nonbank financial companies that the Council has determined under
section 113 of the Dodd-Frank Act must be supervised by the Board and
for which such determination is in effect. Bank holding companies that
are subject to the final rule therefore substantially exceed the $175
million asset threshold at which a banking entity is considered a
``small entity'' under SBA regulations. The final rule will apply to a
nonbank financial company supervised by the Board regardless of such a
company's asset size. Although the asset size of nonbank financial
companies may not be the determinative factor of whether such companies
may pose systemic risks and would be designated by the Council for
supervision by the Board, it is an important consideration.\40\ It is
therefore unlikely that a financial firm that is at or below the $175
million asset threshold would be designated by the Council under
section 113 of the Dodd-Frank Act because material financial distress
at such firms, or the nature,
[[Page 62391]]
scope, size, scale, concentration, interconnectedness, or mix of it
activities, are not likely to pose a threat to the financial stability
of the United States.
---------------------------------------------------------------------------
\40\ See Authority To Require Supervision and Regulation of
Certain Nonbank Financial Companies, 77 FR 21637 (April 11, 2012)
(to be codified at 12 CFR part 1310).
---------------------------------------------------------------------------
As noted above, because the final rule is not likely to apply to
any company with assets of $175 million or less, the final rule is not
expected to apply to any small entity for purposes of the RFA.
Moreover, as discussed in the SUPPLEMENTARY INFORMATION, the Dodd-Frank
Act requires the Board to adopt rules implementing the provisions of
section 165(i)(2) of the Dodd-Frank Act. The Board does not believe
that the final rule would have a significant economic impact on a
substantial number of small entities or that the final rule duplicates,
overlaps, or conflicts with any other Federal rules.
List of Subjects in 12 CFR Part 252
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Holding companies, Nonbank Financial Companies
Supervised by the Board, Reporting and recordkeeping requirements,
Securities, Stress Testing.
Authority and Issuance
For the reasons stated in the preamble, the Board of Governors of
the Federal Reserve System adds 12 CFR part 252 to read as follows:
PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)
Sec.
Subparts A--E [Reserved]
Subpart F--Supervisory Stress Test Requirements for Covered Companies
252.131 Authority and purpose.
252.132 Definitions.
252.133 Applicability.
252.134 Annual analysis conducted by the Board.
252.135 Data and information required to be submitted in support of
the Board's analyses.
252.136 Review of the Board's analysis; publication of summary
results.
252.137 Use requirement.
Subpart G--Company-Run Stress Test Requirements for Covered Companies
252.141 Authority and purpose.
252.142 Definitions.
252.143 Applicability.
252.144 Annual stress test.
252.145 Mid-cycle stress test.
252.146 Methodologies and practices.
252.147 Reports of stress test results.
252.148 Disclosure of stress test results.
Subpart H [Reserved]
Subpart I [Reserved]
Authority: 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1, 1844(b),
1844(c), 5361, 5365, 5366.
Subparts A--E [Reserved]
Subpart F--Supervisory Stress Test Requirements for Covered
Companies
Sec. 252.131 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements section 165(i)(1) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(1)), which requires the Board to conduct
annual analyses of nonbank financial companies supervised by the Board
and bank holding companies with $50 billion or more in total
consolidated assets to evaluate whether such companies have the
capital, on a total consolidated basis, necessary to absorb losses as a
result of adverse economic conditions.
Sec. 252.132 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Adverse scenario means a set of conditions that affect the U.S.
economy or the financial condition of a covered company that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(b) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C for each of the four most recent
consecutive quarters, average total consolidated assets means the
average of the company's total consolidated assets, as reported on the
company's FR Y-9C, for the most recent quarter or consecutive quarters.
Average total consolidated assets are measured on the as-of date of the
most recent FR Y-9C used in the calculation of the average.
(c) Bank holding company has the same meaning as in section
225.2(c) of the Board's Regulation Y (12 CFR 225.2(c)).
(d) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered company and that
reflect the consensus views of the economic and financial outlook.
(e) Covered company means:
(1) A bank holding company (other than a foreign banking
organization) with average total consolidated assets of $50 billion or
more; and
(2) A nonbank financial company supervised by the Board.
(f) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(g) Foreign banking organization has the same meaning as in section
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(h) Nonbank financial company supervised by the Board means a
nonbank financial company that the Financial Stability Oversight
Council has determined under section 113 of the Dodd-Frank Act (12
U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
(i) Planning horizon means the period of at least nine quarters,
beginning on the first day of a stress test cycle (on October 1) over
which the relevant projections extend.
(j) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(k) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the covered company on the FR Y-
9C.
(l) Regulatory capital ratio means a capital ratio for which the
Board established minimum requirements by regulation or order,
including a company's leverage ratio and tier 1 and total risk-based
capital ratios as calculated under the Board's regulations, including
appendices A, D, E, and G to 12 CFR part 225 or any successor
regulation.
(m) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board
annually determines are appropriate for use in the supervisory stress
tests, including, but not limited to, baseline, adverse, and severely
adverse scenarios.
(n) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that overall are more severe than those associated with the adverse
scenario and may include trading or other additional components.
(o) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year. For the
purposes of the stress test cycle commencing in 2012, such cycle will
begin on November 15, 2012.
[[Page 62392]]
(p) Subsidiary has the same meaning as in section 225.2(o) of the
Board's Regulation Y (12 CFR 225.2).
(q) Tier 1 common ratio has the same meaning as in section
225.8(c)(9) of the Board's Regulation Y (12 CFR 225.8(c)(9)).
Sec. 252.133 Applicability.
(a) Compliance date for bank holding companies that are covered
companies as of November 15, 2012. (1) In general. Except as provided
in paragraph (a)(2) or (a)(3) of this section, a bank holding company
that is a covered company as of November 15, 2012, must comply with the
requirements of this subpart beginning with the stress test cycle that
commences on October 1, 2013, unless that time is extended by the Board
in writing.
(2) 2009 Supervisory Capital Assessment Program. A bank holding
company that participated in the 2009 Supervisory Capital Assessment
Program, or a successor to such a bank holding company, must comply
with the requirements of this subpart beginning with the stress test
cycle that commences on November 15, 2012, unless that time is extended
by the Board in writing.
(3) SR Letter 01-01. A U.S.-domiciled bank holding company that is
a covered company as of November 15, 2012, and is a subsidiary of a
foreign banking organization that is currently relying on Supervision
and Regulation Letter SR 01-01 issued by the Board (as in effect on May
19, 2010) must comply with the requirements of this subpart beginning
with the stress test cycle that commences on October 1, 2015, unless
that time is extended by the Board in writing.
(b) Compliance date for institutions that become covered companies
after November 15, 2012. (1) Bank holding companies. A bank holding
company that becomes a covered company after November 15, 2012, must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
the bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
(2) Nonbank financial companies supervised by the Board. A company
that becomes a nonbank financial company supervised by the Board must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
the company first becomes subject to the Board's minimum regulatory
capital requirements, unless the Board accelerates or extends the
compliance date.
(c) Ongoing application. A bank holding company that is a covered
company will remain subject to the requirements of this subpart unless
and until its total consolidated assets fall below $50 billion for each
of four consecutive quarters, as reported on the FR Y-9C. The
calculation will be effective on the as-of date of the fourth
consecutive FR Y-9C.
Sec. 252.134 Annual analysis conducted by the Board.
(a) In general. (1) On an annual basis, the Board will conduct an
analysis of each covered company's capital, on a total consolidated
basis, taking into account all relevant exposures and activities of
that covered company, to evaluate the ability of the covered company to
absorb losses in specified economic and financial conditions.
(2) The analysis will include an assessment of the projected
losses, net income, and pro forma capital levels and regulatory capital
ratios, tier 1 common ratio, and other capital ratios for the covered
company and use such analytical techniques that the Board determines
are appropriate to identify, measure, and monitor risks of the covered
company that may affect the financial stability of the United States.
(3) In conducting the analyses, the Board will coordinate with the
appropriate primary financial regulatory agencies and the Federal
Insurance Office, as appropriate.
(b) Economic and financial scenarios related to the Board's
analysis. The Board will conduct its analysis under this section using
a minimum of three different scenarios, including a baseline scenario,
adverse scenario, and severely adverse scenario. The Board will notify
covered companies of the scenarios that the Board will apply to conduct
the analysis for each stress test cycle by no later than November 15 of
each year, except with respect to trading or any other components of
the scenarios and any additional scenarios that the Board will apply to
conduct the analysis, which will be communicated by no later than
December 1.
Sec. 252.135 Data and information required to be submitted in support
of the Board's analyses.
(a) Regular submissions. Each covered company must submit to the
Board such data, on a consolidated basis, that the Board determines is
necessary in order for the Board to derive the relevant pro forma
estimates of the covered company over the planning horizon under the
scenarios described in Sec. 252.134(b).
(b) Additional submissions required by the Board. The Board may
require a covered company to submit any other information on a
consolidated basis that the Board deems necessary in order to:
(1) Ensure that the Board has sufficient information to conduct its
analysis under this subpart; and
(2) Project a company's pre-provision net revenue, losses,
provision for loan and lease losses, and net income; and, pro forma
capital levels, regulatory capital ratios, tier 1 common ratio, and any
other capital ratio specified by the Board under the scenarios
described in section 252.134(b).
(c) Confidential treatment of information submitted. The
confidentiality of information submitted to the Board under this
subpart and related materials shall be determined in accordance with
the Freedom of Information Act (5 U.S.C. 552(b)) and the Board's Rules
Regarding Availability of Information (12 CFR part 261).
Sec. 252.136 Review of the Board's analysis; publication of summary
results.
(a) Review of results. Based on the results of the analysis
conducted under this subpart, the Board will conduct an evaluation to
determine whether the covered company has the capital, on a total
consolidated basis, necessary to absorb losses and continue its
operation by maintaining ready access to funding, meeting its
obligations to creditors and other counterparties, and continuing to
serve as a credit intermediary under baseline, adverse and severely
adverse scenarios, and any additional scenarios.
(b) Communication of results to covered companies. The Board will
convey to a covered company a summary of the results of the Board's
analyses of such covered company within a reasonable period of time,
but no later than March 31.
(c) Publication of results by the Board. By March 31 of each
calendar year, the Board will disclose a summary of the results of the
Board's analyses of a covered company.
Sec. 252.137 Use requirement.
(a) In general. The board of directors and senior management of
each covered company must consider the results of the analysis
conducted by the Board under this subpart, as appropriate:
(1) As part of the covered company's capital plan and capital
planning process, including when making changes to the covered
company's capital structure (including the level and composition of
capital);
(2) When assessing the covered company's exposures, concentrations,
and risk positions; and
[[Page 62393]]
(3) In the development or implementation of any plans of the
covered company for recovery or resolution.
(b) Resolution plan updates. Each covered company must update its
resolution plan as the Board determines appropriate, based on the
results of the Board's analyses of the covered company under this
subpart.
Subpart G--Company-Run Stress Test Requirements for Covered
Companies
Sec. 252.141 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a covered company to
conduct annual and semi-annual stress tests. This subpart also
establishes definitions of stress test and related terms, methodologies
for conducting stress tests, and reporting and disclosure requirements.
Sec. 252.142 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Adverse scenario means a set of conditions that affect the U.S.
economy or the financial condition of a covered company that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(b) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C for each of the four most recent
consecutive quarters, average total consolidated assets means the
average of the company's total consolidated assets, as reported on the
company's FR Y-9C, for the most recent quarter or consecutive quarters.
Average total consolidated assets are measured on the as of date of the
most recent FR Y-9C used in the calculation of the average.
(c) Bank holding company has the same meaning as in section
225.2(c) of the Board's Regulation Y (12 CFR 225.2(c)).
(d) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered company and that
reflect the consensus views of the economic and financial outlook.
(e) Capital action has the same meaning as in section 225.8(c)(1)
of the Board's Regulation Y (12 CFR 225.8(c)(1)).
(g) Covered company means:
(1) A bank holding company (other than a foreign banking
organization) with average total consolidated assets of $50 billion or
more; and
(2) A nonbank financial company supervised by the Board.
(h) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(i) Foreign banking organization has the same meaning as in section
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(j) Nonbank financial company supervised by the Board means a
nonbank financial company that the Financial Stability Oversight
Council has determined under section 113 of the Dodd-Frank Act (12
U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
(k) Planning horizon means the period of at least nine quarters,
beginning on the first day of a stress test cycle (on October 1 or
April 1, as appropriate) over which the relevant projections extend.
(l) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(m) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the covered company on the FR Y-
9C.
(n) Regulatory capital ratio means a capital ratio for which the
Board established minimum requirements by regulation or order,
including a company's leverage ratio and tier 1 and total risk-based
capital ratios as calculated under the Board's regulations, including
appendices A, D, E, and G to 12 CFR part 225, and appendices A, B, E,
and F to part 208 or any successor regulation.
(o) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board,
or with respect to the mid-cycle stress test required under section
252.145 of this subpart, the covered company, annually determines are
appropriate for use in the company-run stress tests, including, but not
limited to, baseline, adverse, and severely adverse scenarios.
(p) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that overall are more severe than those associated with the adverse
scenario and may include trading or other additional components.
(q) Stress test means a process to assess the potential impact of
scenarios on the consolidated earnings, losses, and capital of a
covered company over the planning horizon, taking into account its
current condition, risks, exposures, strategies, and activities.
(r) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year. For the
purposes of the stress test cycle commencing in 2012, such cycle will
begin on November 15, 2012.
(s) Subsidiary has the same meaning as in section 225.2(o) the
Board's Regulation Y (12 CFR 225.2).
(t) Tier 1 common ratio has the same meaning as in section
225.8(c)(9) of the Board's Regulation Y (12 CFR 225.8(c)(9)).
Sec. 252.143 Applicability.
(a) Compliance date for bank holding companies that are covered
companies as of November 15, 2012--(1) In general. Except as provided
in paragraph (a)(2) or (a)(3) of this section, a bank holding company
that is a covered company as of November 15, 2012, must comply with the
requirements of this subpart beginning with the stress test cycle
commencing on October 1, 2013, unless that time is extended by the
Board in writing.
(2) 2009 Supervisory Capital Assessment Program. A bank holding
company that participated in the 2009 Supervisory Capital Assessment
Program, or a successor to such a bank holding company, must comply
with the requirements of this subpart beginning with the stress test
cycle commencing on November 15, 2012, unless that time is extended by
the Board in writing.
(3) SR Letter 01-01. A U.S.-domiciled bank holding company that is
a covered company as of November 15, 2012, and is a subsidiary of a
foreign banking organization that is currently relying on Supervision
and Regulation Letter SR 01-01 issued by the Board (as in effect on May
19, 2010) must comply with the requirements of this subpart beginning
with the stress test cycle commencing on October 1, 2015, unless that
time is extended by the Board in writing.
(b) Compliance date for institutions that become covered companies
after November 15, 2012--(1) Bank holding companies. A bank holding
company that becomes a covered company after November 15, 2012, must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
the bank holding company becomes a covered company,
[[Page 62394]]
unless that time is extended by the Board in writing.
(2) Nonbank financial companies supervised by the Board. A company
that becomes a nonbank financial company supervised by the Board must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
company first becomes subject to the Board's minimum regulatory capital
requirements, unless the Board accelerates or extends the compliance
date.
(c) Ongoing application. A bank holding company that is a covered
company will remain subject to the requirements of this subpart unless
and until its total consolidated assets fall below $50 billion for each
of four consecutive quarters, as reported on the FR Y-9C. The
calculation will be effective on the as-of date of the fourth
consecutive FR Y-9C.
Sec. 252.144 Annual stress test.
(a) In general. A covered company must conduct an annual stress
test by January 5 during each stress test cycle based on data as of
September 30 of the preceding calendar year, unless the time or the as
of date is extended by the Board in writing.
(b) Scenarios provided by the Board. (1) In general. In conducting
a stress test under this section, a covered company must use the
scenarios provided by the Board. Except as provided in paragraphs
(b)(2) and (3) of this section, the Board will provide a description of
the scenarios to each covered company no later than November 15 of that
calendar year.
(2) Additional components. (i) The Board may require a covered
company with significant trading activity, as determined by the Board
and specified in the Capital Assessments and Stress Testing report (FR
Y-14), to include a trading and counterparty component in its adverse
and severely adverse scenarios in the stress test required by this
section. The data used in this component will be as of a date between
October 1 and December 1 of that calendar year selected by the Board,
and the Board will communicate the as-of date and a description of the
component to the company no later than December 1 of the calendar year.
(ii) The Board may require a covered company to include one or more
additional components in its adverse and severely adverse scenarios in
the stress test required by this section based on the company's
financial condition, size, complexity, risk profile, scope of
operations, or activities, or risks to the U.S. economy.
(3) Additional scenarios. The Board may require a covered company
to use one or more additional scenarios in the stress test required by
this section based on the company's financial condition, size,
complexity, risk profile, scope of operations, or activities, or risks
to the U.S. economy.
(4) Notice and response. If the Board requires a covered company to
include one or more additional components in its adverse and severely
adverse scenarios under paragraph (b)(2)(ii) of this section or to use
one or more additional scenarios under paragraph (b)(3) of this
section, the Board will notify the company in writing no later than
September 30. The notification will include a general description of
the additional component(s) or additional scenario(s) and the basis for
requiring the company to include the additional component(s) or
additional scenario(s). Within 14 calendar days of receipt of a
notification under this paragraph, the covered company may request in
writing that the Board reconsider the requirement that the company
include the additional component(s) or additional scenario(s),
including an explanation as to why the reconsideration should be
granted. The Board will respond in writing within 14 calendar days of
receipt of the company's request. The Board will provide the covered
company with a description of any additional component(s) or additional
scenario(s) by December 1.
Sec. 252.145 Mid-cycle stress test.
(a) Mid-cycle stress test requirement. In addition to the stress
test required under section 252.144 of this subpart, a covered company
must conduct a stress test by July 5 during each stress test cycle
based on data as of March 31 of that calendar year, unless the time or
the as-of date is extended by the Board in writing.
(b) Scenarios related to mid-cycle stress tests--(1) In general. A
covered company must develop and employ a minimum of three scenarios,
including a baseline scenario, adverse scenario, and severely adverse
scenario, that are appropriate for its own risk profile and operations,
in conducting the stress test required by this section.
(2) Additional components. The Board may require a covered company
to include one or more additional components in its adverse and
severely adverse scenarios in the stress test required by this section
based on the company's financial condition, size, complexity, risk
profile, scope of operations, or activities, or risks to the U.S.
economy.
(3) Additional scenarios. The Board may require a covered company
to use one or more additional scenarios in the stress test required by
this section based on the company's financial condition, size,
complexity, risk profile, scope of operations, or activities, or risks
to the U.S. economy.
(4) Notice and response. If the Board requires a covered company to
include one or more additional components in its adverse and severely
adverse scenarios under paragraph (b)(2) of this section or one or more
additional scenarios under paragraph (b)(3) of this section, the Board
will notify the company in writing no later than March 31. The
notification will include a general description of the additional
component(s) or additional scenario(s) and the basis for requiring the
company to include the additional component(s) or additional
scenario(s). Within 14 calendar days of receipt of a notification under
this paragraph, the covered company may request in writing that the
Board reconsider the requirement that the company include the
additional component(s) or additional scenario(s), including an
explanation as to why the reconsideration should be granted. The Board
will respond in writing within 14 calendar days of receipt of the
company's request. The Board will provide the covered company with a
description of any additional component(s) or additional scenario(s) by
June 1.
Sec. 252.146 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
Sec. Sec. 252.144 and 252.145, for each quarter of the planning
horizon, a covered company must estimate the following for each
scenario required to be used:
(1) Losses, pre-provision net revenue, provision for loan and lease
losses, and net income; and
(2) The potential impact on pro forma regulatory capital levels and
pro forma capital ratios (including regulatory capital ratios, the tier
1 common ratio, and any other capital ratios specified by the Board),
incorporating the effects of any capital actions over the planning
horizon and maintenance of an allowance for loan losses appropriate for
credit exposures throughout the planning horizon.
(b) Assumptions regarding capital actions. In conducting a stress
test under Sec. Sec. 252.144 and 252.145, a covered company is
required to make the following assumptions regarding its capital
actions over the planning horizon--
[[Page 62395]]
(1) For the first quarter of the planning horizon, the covered
company must take into account its actual capital actions as of the end
of that quarter; and
(2) For each of the second through ninth quarters of the planning
horizon, the covered company must include in the projections of
capital:
(i) Common stock dividends equal to the quarterly average dollar
amount of common stock dividends that the company paid in the previous
year (that is, the first quarter of the planning horizon and the
preceding three calendar quarters);
(ii) Payments on any other instrument that is eligible for
inclusion in the numerator of a regulatory capital ratio equal to the
stated dividend, interest, or principal due on such instrument during
the quarter; and
(iii) An assumption of no redemption or repurchase of any capital
instrument that is eligible for inclusion in the numerator of a
regulatory capital ratio.
(c) Controls and oversight of stress testing processes--(1) In
general. The senior management of a covered company must establish and
maintain a system of controls, oversight, and documentation, including
policies and procedures, that are designed to ensure that its stress
testing processes are effective in meeting the requirements in this
subpart. These policies and procedures must, at a minimum, describe the
covered company's stress testing practices and methodologies, and
processes for validating and updating the company's stress test
practices and methodologies consistent with applicable laws,
regulations, and supervisory guidance. Policies of covered companies
must also describe processes for scenario development for the mid-cycle
stress test required under Sec. 252.145.
(2) Oversight of stress testing processes. The board of directors,
or a committee thereof, of a covered company must approve and review
the policies and procedures of the stress testing processes as
frequently as economic conditions or the condition of the covered
company may warrant, but no less than annually. The board of directors
and senior management of the covered company must receive a summary of
the results of any stress test conducted under this subpart.
(3) Role of stress testing results. The board of directors and
senior management of each covered company must consider the results of
the analysis it conducts under this subpart, as appropriate:
(i) As part of the covered company's capital plan and capital
planning process, including when making changes to the covered
company's capital structure (including the level and composition of
capital);
(ii) When assessing the covered company's exposures,
concentrations, and risk positions; and
(iii) In the development or implementation of any plans of the
covered company for recovery or resolution.
Sec. 252.147 Reports of stress test results.
(a) Reports to the Board of stress test results. (1) A covered
company must report the results of the stress test required under
section 252.144 to the Board by January 5 of each calendar year in the
manner and form prescribed by the Board, unless that time is extended
by the Board in writing.
(2) A covered company must report the results of the stress test
required under section 252.145 to the Board by July 5 of each calendar
year in the manner and form prescribed by the Board, unless that time
is extended by the Board in writing.
(b) Confidential treatment of information submitted. The
confidentiality of information submitted to the Board under this
subpart and related materials shall be determined in accordance with
applicable exemptions under the Freedom of Information Act (5 U.S.C.
552(b)) and the Board's Rules Regarding Availability of Information (12
CFR part 261).
Sec. 252.148 Disclosure of stress test results.
(a) Public disclosure of results--(1) In general. (i) A covered
company must disclose a summary of the results of the stress test
required under section 252.144 in the period beginning on March 15 and
ending on March 31, unless that time is extended by the Board in
writing.
(ii) A covered company must disclose a summary of the results of
the stress test required under section 252.145 in the period beginning
on September 15 and ending on September 30, unless that time is
extended by the Board in writing.
(2) Disclosure method. The summary required under this section may
be disclosed on the Web site of a covered company, or in any other
forum that is reasonably accessible to the public.
(b) Summary of results. A covered company must disclose, at a
minimum, the following information regarding the severely adverse
scenario:
(1) A description of the types of risks included in the stress
test;
(2) A general description of the methodologies used in the stress
test, including those employed to estimate losses, revenues, provision
for loan and lease losses, and changes in capital positions over the
planning horizon;
(3) Estimates of--
(i) Pre-provision net revenue and other revenue;
(ii) Provision for loan and lease losses, realized losses or gains
on available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains;
(iii) Net income before taxes;
(iv) Loan losses (dollar amount and as a percentage of average
portfolio balance) in the aggregate and by subportfolio, including:
domestic closed-end first-lien mortgages; domestic junior lien
mortgages and home equity lines of credit; commercial and industrial
loans; commercial real estate loans; credit card exposures; other
consumer loans; and all other loans; and
(v) Pro forma regulatory capital ratios and the tier 1 common ratio
and any other capital ratios specified by the Board;
(4) An explanation of the most significant causes for the changes
in regulatory capital ratios and the tier 1 common ratio; and
(5) With respect to a stress test conducted pursuant to section
165(i)(2) of the Dodd-Frank Act by an insured depository institution
that is a subsidiary of the covered company and that is required to
disclose a summary of its stress tests results under applicable
regulations, changes in regulatory capital ratios and any other capital
ratios specified by the Board of the depository institution subsidiary
over the planning horizon, including an explanation of the most
significant causes for the changes in regulatory capital ratios.
(c) Content of results. (1) The following disclosures required
under paragraph (b) of this section must be on a cumulative basis over
the planning horizon:
(i) Pre-provision net revenue and other revenue;
(ii) Provision for loan and lease losses, realized losses/gains on
available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains;
(iii) Net income before taxes; and
(iv) Loan losses in the aggregate and by subportfolio.
(2) The disclosure of pro forma regulatory capital ratios, the tier
1 common ratio, and any other capital ratios specified by the Board
that is required under paragraph (b) of this section must include the
beginning value, ending value, and minimum value of each ratio over the
planning horizon.
[[Page 62396]]
Subpart H [Reserved]
Subpart I [Reserved]
By order of the Board of Governors of the Federal Reserve
System, October 5, 2012.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2012-24987 Filed 10-11-12; 8:45 am]
BILLING CODE 6210-01-P