[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Rules and Regulations]
[Pages 62396-62409]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-24988]
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FEDERAL RESERVE SYSTEM
12 CFR Part 252
[Regulation YY; Docket No. 1438]
RIN 7100-AD-86
Annual Company-Run Stress Test Requirements for Banking
Organizations With Total Consolidated Assets Over $10 Billion Other
Than Covered Companies
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
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SUMMARY: The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act or Act) requires the Board to issue regulations that
require financial companies with total consolidated assets of more than
$10 billion and for which the Board is the primary federal financial
regulatory agency to conduct stress tests on an annual basis. The Board
is adopting this final rule to implement the company-run stress test
requirements in the Dodd-Frank Act regarding company-run stress tests
for bank holding companies with total consolidated assets greater than
$10 billion but less than $50 billion and state member banks and
savings and loan holding companies with total consolidated assets
greater than $10 billion. This final rule does not apply to any banking
organization with total consolidated assets of less than $10 billion.
Furthermore, implementation of the stress testing requirements for bank
holding companies, savings and loan holding companies, and state member
banks with total consolidated assets of greater than $10 billion but
less than $50 billion is delayed until September 2013.
DATES: This rule is effective 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. Annual Stress Test Requirements
IV. Administrative Law Matters
A. Use of Plain Language
B. Riegle Community Development and Regulatory Improvement Act
C. Paperwork Reduction Act Analysis
D. 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\
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\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, 2011); Supervision and
Regulation Letter SR 10-6, Interagency Policy Statement on Funding
and Liquidity Risk Management (Mar. 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 (Jan. 11, 2010), available at http://www.federalreserve.gov/boarddocs/srletters/2010/sr1001.htm; SR 09-4,
supra note2note2170; 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; SR 99-18, supra note
11boarddocs/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, 77 FR 29458 (May 14, 2012), available at http://www.federalreserve.gov/bankinforeg/srletters/sr1207.htm; SR 99-18,
supra note 169; Supervisory Guidance: Supervisory Review Process of
Capital Adequacy (Pillar 2) Related to the Implementation of the
Basel II Advanced Capital Framework, 73 FR 44620 (Jul. 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.
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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
[[Page 62397]]
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 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.
In the wake of the financial crisis, Congress enacted the Dodd-
Frank Act, which requires the Board to issue regulations that require
bank holding companies with total consolidated assets of $50 billion or
more (large bank holding companies) and nonbank financial companies
that the Financial Stability Oversight Committee has designated to be
supervised by the Board (together, covered companies) to conduct stress
tests semi-annually, and requires other financial companies with total
consolidated assets of more than $10 billion and for which the Board is
the primary federal financial regulatory agency to conduct stress tests
on an annual basis (company-run stress tests).\6\ 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.\7\
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\6\ In this final rule, the Board is implementing the
requirements for bank holding companies with total consolidated
assets of greater than $10 billion but less than $50 billion and
savings and loan holding companies and state member banks with total
consolidated assets of greater than $10 billion. The requirements
applicable bank holding companies with $50 billion or more in total
consolidated assets are contained in a concurrently issued final
rule being published in today's issue of the Federal Register.
\7\ See 12 U.S.C. 5365(i)(2)(C).
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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
company-run stress tests.\8\ The proposed rules would have required
each bank holding company, state member bank, and savings and loan
holding company with more than $10 billion in total consolidated assets
to conduct an annual company-run stress test using data as of September
30 of each year and the three scenarios provided by the Board. In
addition, each state member bank, bank holding company, and savings and
loan holding company would be required to disclose a summary of the
results of its company-run stress tests within 90 days of submitting
the results to the Board.
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\8\ Enhanced Prudential Standards and Early Remediation
Requirements for Covered Companies, 77 FR 594 (Jan. 5, 2012).
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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.\9\
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\9\ Annual Stress Test, 77 FR 3408 (Jan. 24, 2012) (OCC); Annual
Stress Test, 77 FR 3166 (Jan. 17, 2012) (FDIC).
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The Board is finalizing the stress testing frameworks in two
separate rules. First, the Board is issuing this final rule, which
implements the company-run stress testing requirements applicable to
bank holding companies with total consolidated assets greater than $10
billion but less than $50 billion and savings and loan holding
companies and state member banks with total consolidated assets greater
than $10 billion. Second, the Board is concurrently issuing a final
rule implementing the supervisory and semi-annual company-run stress
testing requirements applicable to large bank holding companies and
nonbank financial companies supervised by the Board.
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 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.
A. Delayed Compliance Date
Commenters suggested that companies with total consolidated assets
less than $50 billion that have not previously been subject to stress-
testing requirements need more time to develop the systems and
procedures to be able to conduct company-run stress tests and to
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 requires most bank holding
companies, savings and loan holding companies, and state member banks
to conduct their first stress test in the fall of 2013. In addition,
the final rule requires bank holding companies, savings and loan
holding companies, and state member banks with less than $50 billion in
total consolidated assets to begin publicly disclosing their stress
test results in 2015 with respect to the stress test conducted in the
fall of 2014.\10\ Banking organizations that become subject to the
rule's requirements after November 15, 2012 must comply with the
requirements beginning in the fall of the calendar year that follows
the year the company meets the asset threshold, unless that time is
extended by the Board in writing.\11\ For example, a company that
becomes subject to the rule on March 31, 2013 must conduct its first
stress test in the fall of 2014 and report the results in 2015.
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\10\ A ``stress test cycle'' is defined as the period between
October 1 of a calendar year and September 30 of the following
calendar year.
\11\ 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 company, and
any other relevant factors.
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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.\12\ The Board sought
public comment on whether the stress testing requirements should be
tailored, particularly for
[[Page 62398]]
financial companies that are not large bank holding companies.
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\12\ 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.
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Several commenters expressed concern that the NPR that 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.
The Board recognizes that bank holding companies, savings and loan
holdings companies, and state member banks with total consolidated
assets less than $50 billion are generally less complex and pose more
limited risk to U.S. financial stability than larger banking
organizations. As a result, the Board has modified the requirements in
the final rule for these institutions, and expects to use a tailored
approach in implementation.
The final rule modifies the requirements for smaller banking
organizations in a number of ways. First, as noted above, most banking
organizations, other than state member bank subsidiaries of the large
bank holding companies that participated in the SCAP, are not required
to conduct their first stress test until 2013. The final rule also
provides a longer period for smaller banking organizations to conduct
their stress tests. Under the final rule, smaller banking
organizations, other than state member bank subsidiaries of SCAP bank
holding companies, are not required to report the results of the stress
test until March 31. The final rule also modifies the public disclosure
requirements, generally requiring less detailed disclosure for smaller
banking organizations than for larger banking organizations.
Separately, the Board intends to seek comment on reporting forms that
smaller banking organizations would use in reporting the results of
their stress tests to the Board, which are expected to be significantly
more limited than the reporting forms applicable to large banking
organizations.
As described in section III.C.3 of this preamble, banking
organizations may be required to include additional components in their
adverse and severely adverse scenarios or to use additional scenarios
in their stress tests. The Board expects to apply such additional
components and additional scenarios to large, complex banking
organizations. For example, the Board expects to require large banking
organizations with significant trading activities to include global
market shock components in their adverse and severely adverse
scenarios, and may require large or complex banking organizations to
use additional components in the adverse and severely adverse scenarios
or to use additional scenarios that are designed to capture salient
risks to specific lines of business.
Finally, the Board plans to issue supervisory guidance to provide
more detail describing supervisory expectation for company-run stress
tests. This guidance will be tailored to banking organizations with
total consolidated assets greater than $10 billion but less than $50
billion.
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 subject to stress testing requirements. The Board anticipates
that it will continue to consult with the FDIC and OCC in the
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 generally 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 generally will 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
The final rule applies to any bank holding company with average
total consolidated assets of greater than $10 billion but less than $50
billion, and any state member bank and savings and loan holding company
that have average total consolidated assets of more than $10 billion
(``asset threshold''). Average total consolidated assets is based on
the average of the total consolidated assets as reported on bank
holding company's or savings and loan holding company's four most
recent Consolidated Financial Statement for Bank Holding Companies (FR
Y-9C) or a state member bank's four most recent Consolidated Report of
Condition and Income (Call Report). If the bank holding company,
savings and loan holding company, or state member bank has not filed
the FR Y-9C or Call Report, as applicable, for each of the four most
recent 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 or Call Report, as applicable, for the most recent
quarter
[[Page 62399]]
or consecutive quarters. In either case, average total consolidated
assets are measured on the as-of date of the relevant regulatory
report.
Once a bank holding company, savings and loan holding company, or
state member bank meets the asset threshold, the company will remain
subject to the final rule's requirements unless and until the total
consolidated assets of the company are less than $10 billion, as
reported on four consecutively filed FR Y-9C or Call Report, as
applicable (measured on the as-of date of the relevant FR Y-9C or Call
Report, as applicable). A bank holding company, state member bank, or
savings and loan holding company that has reduced its total
consolidated assets to below $10 billion will again become subject to
the requirements of this rule if it meets the asset threshold again at
a later date.
However, if a bank holding company's total consolidated assets
equal or exceed $50 billion or a savings and loan holding company
becomes designated as a nonbank financial company supervised by the
Board, such companies will be required to conduct stress tests under
subpart G of the Board's Regulation YY (12 CFR part 252 subpart G).
Such a company will be required to comply with this final rule until it
is required to conduct stress tests under subpart G.
The final rule does not apply to foreign banking organizations. The
Board expects to issue a separate rulemaking on the application of
enhanced prudential standards to foreign banking organizations. A U.S.-
domiciled bank holding company subsidiary of a foreign banking
organization that has total consolidated assets of $10 billion or more
is subject to the requirements of this rule.\13\
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\13\ 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 October 1, 2015.
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B. Effective Date
Under the proposal, the company-run stress testing requirements
applicable to bank holding companies and state member banks would have
become effective upon adoption of the final rule. A bank holding
company, savings and loan holding company, or state member bank that
met the rule's asset threshold as of the adoption of the rule would
have been required to immediately comply with its requirements. A bank
holding company, savings and loan holding company, or state member bank
that met the proposal's asset threshold more than 90 days before
September 30 of a given year would be subject to stress testing
requirements beginning in that calendar year. The Board received
comments with regard to the timing of the first stress test for
institutions that meet the asset threshold upon the rule's effective
date and for institutions that meet the asset threshold at a later
date, and has modified both aspects of the final rule.
1. First Stress Test for Bank Holding Companies and State Member Banks
That Meet the Asset Threshold On or Before December 31, 2012
Commenters indicated that smaller and mid-sized banking
organizations need more time to develop the systems and procedures to
conduct company-run stress tests and to collect the information
requested by the Board in connection with these tests. In response to
these comments, the Board is delaying the date that existing, smaller
companies are required to conduct their first stress test, as described
below.
a. Bank Holding Companies
Under the final rule, a bank holding company that meets the asset
threshold on or before December 31, 2012, must conduct its first stress
test beginning in the fall of 2013, unless that time is extended by the
Board in writing.\14\ Such a bank holding company is not required to
publicly disclose the results of its stress test until June 2015.
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\14\ In exercising its authority to extend a deadline under the
final rule, the Board intends to consider the activities, level of
complexity, risk profile, scope of operations, and the regulatory
capital of the bank holding company or nonbank financial company in
addition to any other relevant factors.
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b. State Member Banks
Under the final rule, a state member bank that meets the asset
threshold on or before November 15, 2012, and is a subsidiary of a bank
holding company that participated in the SCAP, or successor to such
bank holding company,\15\ must comply with the requirements of this
subpart beginning in the fall of 2012, unless that time is extended by
the Board in writing.
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\15\ 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., U.S. Bancorp, and Wells Fargo & Company.
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Any other state member bank that meets the asset threshold on or
before December 31, 2012, must comply with the requirements of this
subpart beginning in the fall of 2013, unless that time is extended by
the Board in writing. If such a state member bank has total
consolidated assets of less than $50 billion as of December 31, 2012,
it is not required to publicly disclose the results of its stress test
until June 2015.
2. First Stress Test for Bank Holding Companies and State Member Banks
Subject to Stress Testing Requirements After December 31, 2012
Commenters similarly expressed concern that bank holding companies,
state member banks, and savings and loan holding companies met the
rule's asset threshold 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 and state member banks that
exceed the final rule's asset threshold after December 31, 2012. Under
the final rule, these companies will be required to conduct their first
stress tests beginning in the fall of the calendar year after they meet
the asset threshold, unless that time is extended by the Board in
writing.
3. First Stress Test for Savings and Loan Holding Companies
Under the final rule, a savings and loan holding company will not
be required to conduct its first stress test until after it is subject
to minimum capital requirements. A savings and loan holding company
that meets the asset threshold when it becomes subject to minimum
capital requirements will be required to conduct this first stress test
in the fall of the calendar year after it first becomes subject to
capital requirements, unless the Board accelerates or extends the time
in writing.\16\
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\16\ In accelerating or extending the time period for savings
and loan holding companies, the Board will consider the activities,
level of complexity, risk profile, scope of operations, and the
regulatory capital of the savings and loan holding company, and any
other relevant factors.
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A savings and loan holding company that meets the asset threshold
after it becomes subject to capital requirements
[[Page 62400]]
will be required to conduct its first stress test beginning in the fall
of the calendar year after it meets the asset threshold, unless that
time is extended by the Board in writing.
C. Annual Stress Tests Requirements
1. Timing of Stress Testing Requirements
The Board proposed the following timeline for company-run tests in
the NPR. The Board would have required an as-of date of September 30 of
information to be submitted to the Board. By no later than mid-November
of each calendar year, the Board would provide bank holding companies,
state member banks, and savings and loan holding companies with
scenarios for annual stress tests. By January 5 of the following
calendar year, these companies would be required to submit regulatory
reports to the Board on their stress tests. By early April of that
calendar year, companies would be required to make public disclosure of
results.
Several commenters provided suggestions on the proposed timeline.
Those comments focused on the as-of date for data to be submitted by
bank holding companies, state member banks, and savings and loan
holding 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.
The final rule maintains the as-of date for data for the purposes
of the annual company-run stress tests so that the same set of
scenarios can be used to conduct annual company-run stress tests for
large bank holding companies and their subsidiary state-member banks.
The Board believes, and several commenters noted, that such alignment
is beneficial. Furthermore, using the same scenarios for all firms
subject to stress testing requirements will decrease market confusion,
minimize burden on institutions, and provide for comparability across
institutions. As stated in the concurrent final rule for covered
companies, it was necessary to maintain the September 30 as-of date for
stress test requirements for large bank holding companies in order to
align the stress testing requirements with the capital planning
requirements applicable to these institutions under section 225.8 of
the Board's Regulation Y.\17\
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\17\ 12 CFR 225.8.
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Commenters requested that the Board release the scenarios earlier
in the annual stress test cycle to provide banking organizations more
time to prepare the reports for company-run stress tests. Under the
final rule, the Board will provide descriptions of the baseline,
adverse, and severely adverse scenarios generally applicable to
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 companies to incorporate the scenarios in their
annual company-run stress tests.
Commenters suggested that smaller banking organizations be allowed
additional time to conduct their company-run stress tests in light of
resource constraints faced by these institutions. In response to these
comments, the Board has delayed the timing of report submission to the
Board for most banking organizations.
Consistent with the requirements imposed on large bank holding
companies under subpart G, the final rule requires a state member bank
that is controlled by a bank holding company that has average total
consolidated assets of $50 billion or more and a savings and loan
holding company that has average total consolidated assets of $50
billion or more to conduct its stress test and submit its results to
the Board by January 5, unless that time is extended by the Board in
writing. All other bank holding companies, savings and loan holding
companies, and state member banks are required to conduct their stress
tests and submit the results to the Board by March 31.
Commenters also noted that the proposed public disclosure deadlines
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, a
savings and loan holding company with total consolidated assets of $50
billion or more or a state member bank that is a subsidiary of a bank
holding company with total consolidated assets of $50 billion or more
is required to disclose the results of its stress tests between March
15 and March 31 of each year. All other banking organizations will be
required to disclose their results between June 15 and June 31.
Table 1 below describes the steps for the company-run stress test
cycle for bank holding companies, state member banks, and savings and
loan holding companies, including general timeframes for each step.
Table 1--Process Overview of Annual Company-Run Stress Test
----------------------------------------------------------------------------------------------------------------
Company-run stress test steps Timeframe
----------------------------------------------------------------------------------------------------------------
Board publishes scenarios for upcoming annual cycle.... No later than November 15.
----------------------------------------------------------------------------------------------------------------
State member banks that are subsidiaries of large bank holding companies and savings and loan holding companies
with total consolidated assets of more than $50 billion
----------------------------------------------------------------------------------------------------------------
Companies complete stress test and submit required By January 5.
regulatory report to the Board on their stress tests.
[[Page 62401]]
Companies disclose summary results of the annual Between March 15 and March 31.
company-run stress test.
----------------------------------------------------------------------------------------------------------------
Bank holding companies, savings and loan holding companies with total consolidated assets of less than $50
billion, and state member banks that are not subsidiaries of large bank holding companies
----------------------------------------------------------------------------------------------------------------
Companies complete stress test and submit required By March 31.
regulatory report to the Board on their stress tests.
Companies disclose summary results of the annual Between June 15 and June 30.
company-run stress test.
----------------------------------------------------------------------------------------------------------------
2. Conduct of a Stress Test
Under the final rule, a bank holding company, savings and loan
holding company, or state member bank that meets the asset threshold
will be required to conduct an annual stress test using scenarios
provided by the Board. A stress test is defined as a process to assess
the potential impact of the scenarios provided by the Board on the
consolidated earnings, losses, and capital of a company over the
planning horizon, taking into account the current condition of the
company and the company's risks, exposures, strategies, and
activities.\18\
---------------------------------------------------------------------------
\18\ ``Planning horizon'' is defined as 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. One
commenter requested that the Board shorten the planning horizon. The
Board has maintained a nine-quarter planning horizon in the final
rule because it believes that a firm should be able to make informed
projections of its financial and capital position for a two-year
calendar period.
---------------------------------------------------------------------------
A bank holding company, savings and loan holding company, or state
member bank will be required to use the scenarios provided by the
Board, which will include, at minimum, baseline, adverse, and severely
adverse scenarios. The Board will provide descriptions of the baseline,
adverse, and severely adverse scenarios generally applicable to subject
companies no later than November 15 of a calendar year.
As described above in section E of this preamble, the Board may
require a company with significant trading activity, as determined by
the Board as specified in the Capital Assessments and Stress Testing
information collection (FR Y-14), to include a global market shock
component in the adverse and severely adverse scenarios that measures
potential stress losses from trading activities and counterparty
exposures in its stress test.\19\
---------------------------------------------------------------------------
\19\ 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 were 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 bank holding company, savings and loan
holding company, or state member bank, the Board may require the
company to include additional components in its adverse and severely
adverse scenarios or to use additional scenarios that are designed to
capture salient risks stemming from specific lines of business.\20\
Scenarios may also include stress factors, such as operational risk,
that materially affect the financial condition of a company but are not
directly correlated to macroeconomic or financial assumptions.
---------------------------------------------------------------------------
\20\ 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 company in writing no later than September
30 that it will be required to include an additional component in its
adverse and severely adverse scenarios or to use an additional scenario
in its stress test. The notification will include the basis for
requiring the company to include the additional component or additional
scenario in its stress test. Within 14 calendar days of receipt of a
notification, a company may request in writing that the Board
reconsider the requirement that the company include additional
components or use additional scenarios, 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 a company with a description of any additional
component or additional scenario by December 1.
3. Methodologies and Practices
Consistent with the proposal, in conducting a stress test, a
company will be required to calculate for each scenario, over each
quarter of the planning horizon, pre-provision net revenue, losses,
provision for loan and lease losses, and net income; and the potential
impact of the scenarios on pro forma regulatory capital levels and pro
forma capital ratios (including regulatory and any other capital ratios
specified by the Board). Estimates of pro forma capital levels and
capital ratios must incorporate 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.
Several commenters asked that the Board generally adopt the
disclosure approach it used in CCAR 2012, which included some common
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 test, the final rule
requires a bank holding company or savings and loan holding company to
make the following assumptions regarding its capital actions over the
planning horizon. For the first quarter of the planning horizon, the
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 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 providing for 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
[[Page 62402]]
and capital but not company-specific assumptions about capital
distributions.
The proposed rule would have required a subject 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 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 of a bank holding company, savings
and loan holding company, or state member bank is responsible for
establishing and maintaining the 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 governing 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 final rule also requires the board of directors and senior
management of each bank holding company, savings and loan holding
company, or state member bank to consider the results of the stress
tests in the normal course of business, including but not limited to,
the banking organization's capital planning, assessment of capital
adequacy, and risk management practices.\21\
---------------------------------------------------------------------------
\21\ The capital plan requirements under the Board's 12 CFR
225.8 of the Board's Regulation Y (12 CFR 225.8) apply only to bank
holding companies with $50 billion or more in total consolidated
assets.
---------------------------------------------------------------------------
4. Report to the Board of Stress Test Results and Related Information
As required by the Dodd-Frank Act, the final rule requires each
bank holding, state member bank, and savings and loan holding company
to report the results of the stress tests conducted by the company in
the manner and form prescribed by the Board.
Savings and loan holding companies with average total consolidated
assets of $50 billion or more and state member bank subsidiaries of
large bank holding companies are required to submit reports to the
Board by January 5. All other bank holding companies, savings and loan
holding companies, and state member banks are required to submit
reports to the Board by March 31.
The report of the results of the stress test must include, under
the baseline, adverse, and severely adverse scenarios, a description of
the types of risks included in the stress test, a summary description
of the methodologies used in the stress test, for each quarter of the
planning horizon, aggregate losses, pre-provision net revenue,
provision for loan and lease losses, net income, and pro forma capital
ratios (including regulatory and any other capital ratios specified by
the Board), an explanation of the most significant causes for the
changes in regulatory capital ratios; and any other information
required by the Board. This reporting requirement will remain
applicable until such time as the Board issues a reporting form to
collect the results of the company-run stress test.
In the future, the Board plans to publish, for notice and comment,
any new data schedules that would be used to report the results of
stress tests conducted under the rule. The Board expects that it would
tailor the data schedules for bank holding companies, state member
banks, and saving and loan holding companies with total consolidated
assets greater than $10 billion but less than $50 billion to reduce
reporting burden on those companies.
The Board may also request supplemental information, as needed.
5. Supervisory Review of Companies' Stress Test Processes and Results
Based on information submitted by a bank holding company, state
member bank, or savings and loan holding company, as well as other
relevant information, the Board will conduct an analysis of the quality
of the company's stress tests processes and related results. The Board
expects to provide feedback about such analysis to a company through
the supervisory process. The Board may also require other actions
consistent with safety and soundness of the company.
6. Publication of Results by the Company
Under the proposal, each bank holding company, state member bank,
and savings and loan holding company would be required to disclose a
summary of the results of its company-run stress tests within 90 days
of submitting its required report to the Board. The Board asked
commenters to provide information on the benefits and drawbacks
associated with company-specific disclosures, specific concerns about
the possible release of a company's proprietary information, and
alternatives to the company-specific disclosures being proposed.
In response, nearly all commenters advocated that the Board curtail
disclosure requirements for the company-run stress tests, in
particular, strongly recommending 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 a
banking organization to prioritize short-term results over more
appropriate longer-term risk management and sustained long term
results. Commenters also indicated that 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 suggested that the Board adopt the template used
in reporting 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 test 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 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 potentially baseline scenarios would
assist in informing the company and its investors about 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
[[Page 62403]]
require disclosure of the results under the adverse and baseline
scenario in the future.
Additionally, commenters recommended simpler and more limited
disclosure requirements, particularly for smaller companies, so that
these companies would not need to rely on vendors or third-party
professionals to produce the summary of results. In response to
commenters, the Board modified the disclosure requirements to include a
more limited set of information. Under the final rule, a bank holding
company, savings and loan holding company, or a state member bank not
controlled by a bank holding company is required to disclose a summary
of results under the severely adverse scenario, which must include, at
a minimum: (i) A description of the types of risks being included in
the stress test; (ii) a summary description of the methodologies used
in the stress test; (iii) estimates of aggregate losses, pre-provision
net revenue, provision for loan and lease losses, net income, and pro
forma capital ratios (including regulatory and any other capital ratios
specified by the Board); and, (iv) an explanation of the most
significant causes for the changes in regulatory capital ratios. The
Board expects the summary description under (ii) above to include a
general description of methodologies used to estimate losses, pre-
provision net revenue, net income, and changes in capital positions
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. In the final rule, bank holding companies
and savings and loan holding companies must disclose a summary of
results of the stress test conducted by any insured depository
institution subsidiary that meets the asset threshold.\22\ The summary
must include, with respect to the severely adverse scenario, any
changes in regulatory capital ratios of the depository institution
subsidiary and an explanation of the most significant causes for the
changes in regulatory capital 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. Such disclosure will be deemed to satisfy disclosure
requirements applicable to state member bank subsidiaries 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. In this case, the state member bank would be required to make the
same disclosure required of a state member bank not controlled by a
bank holding company.
---------------------------------------------------------------------------
\22\ A parallel provision is included in the final rule
applicable to bank holding companies with total consolidated assets
of $50 billion or more.
---------------------------------------------------------------------------
In addition, commenters requested that the Board not require
publication of information as of each quarter-end of the planning
horizon. In response to these comments, the rule clarifies that the
disclosure of aggregate losses, pre-provision net revenue, provision
for loan and lease losses, and net income requires disclosure of only
the cumulative totals over the planning horizon, and the disclosure of
regulatory capital ratios requires disclosure of the beginning value,
ending value and minimum value of each ratio over the planning horizon.
As in the proposed rule, the final rule provides that the summary
could be published on the Web site of the banking organization or in
any other forum that is reasonably accessible to the public.
7. 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 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. In
the final rule, ``scenarios'' are defined as those sets of conditions
that affect the U.S. economy or the financial condition of a bank
holding company, savings and loan holding company, or state member bank
that the Board 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 bank holding company,
savings and loan holding company, or state member bank, 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 bank holding company, savings
and loan holding company, or state member bank 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 bank holding company, savings and loan holding
company, or state member bank 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 bank holding company, savings
and loan holding company, and state member bank 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
[[Page 62404]]
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 bank holding company,
savings and loan holding company, or state member bank 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 require that company to include
additional components in its adverse or severely adverse scenarios or
to use additional scenarios or more complex scenarios that are designed
to capture salient risks to specific lines of business.\23\ 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 certain
companies' earnings. To address this risk, the Board will require
companies with significant trading activities to include market price
and rate ``shocks,'' as specified by the Board, that are consistent
with historical or other adverse market events. The final rule also
provides that the Board may impose this trading shock on a state member
bank that is subject to the Board's market risk rule (12 CFR part 208,
appendix E) and that is a subsidiary of a bank holding company subject
to the trading shock under the final rule or under the Board's company-
run stress test rule for covered companies (12 CFR 252.144(b)(2)(i)).
The Board is making this modification to allow for coordination of the
trading shock between a bank holding company and any state member bank
subsidiary that is subject to the market risk rule.
---------------------------------------------------------------------------
\23\ 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.
---------------------------------------------------------------------------
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 company to include additional
components or use additional scenarios is described under section D.2
of this preamble.
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.\24\ 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.
---------------------------------------------------------------------------
\24\ The Board expects banking organizations to 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.
---------------------------------------------------------------------------
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. Riegle Community Development and Regulatory Improvement Act
Section 302 of Riegle Community Development and Regulatory
Improvement Act (12 U.S.C. 4802) generally requires that regulations
prescribed by Federal banking agencies which impose additional
reporting, disclosures or other new requirements on insured depository
institutions take effect on the first day of a calendar quarter which
begins on or after the date on which the regulation is published in
final form unless the agency determines, for good cause published with
the regulation, that the regulation should become effective before such
time. The final rule will be effective on November 15, 2012. The first
day of a calendar quarter which begins on or after the date on which
the final rule will be published is January 1, 2013. As discussed
below, the Board has determined for good cause that the regulation
should take effect on November 15, 2012.
Stress tests provide important forward-looking information to the
Board to assist in the overall assessment of a state member bank's
capital adequacy. Stress tests also help determine whether additional
analytical techniques and exercises are appropriate for a state member
bank to employ in identifying, measuring, and monitoring risks to the
financial soundness of the bank. Further, stress tests serve as an
ongoing risk management tool that support a state member bank's
forward-looking assessment of its risks and better equip such
institutions to address a range of adverse outcomes.
It is necessary for a final rule to be in place this fall to ensure
that the six state member bank subsidiaries of bank holding companies
that participated in SCAP begin conducting annual stress tests this
year. A November 15, 2012, effective date will facilitate integration
of these state member banks' stress testing systems and processes with
the systems and processes of its parent bank holding company. These
systems and processes establish the basis for a bank's stress testing
framework and will permit the institution to provide critical
supervisory information in a timely manner and help to ensure that the
state member bank is prepared for adverse economic situations. In
addition, a November 15, 2012, effective date permits the Board to
synchronize its
[[Page 62405]]
supervisory efforts related to stress testing with the OCC and the
FDIC. Accordingly, the Board finds good cause for the final rule to
take effect on November 15, 2012, approximately one month after
publication in the Federal Register.
C. 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 252.155(c) (formerly
section 252.145(b)(1) in the proposed rule) and the reporting
requirements for state member banks are found in section 252.156
(formerly section 252.148 in the proposed rule). The burden for the
disclosure requirements for state member banks in section 252.157 is
accounted for in section 252.156. These information collection
requirements would implement section 165(i)(2) of the Dodd-Frank Act
for Board-regulated companies with $10 billion or more in total
consolidated assets that are not covered companies, as mentioned in the
Abstract below.
The reporting requirements for bank holding companies and saving
and loan holding companies in section 252.156 will be addressed in a
separate Federal Register notice at a later date.
The Board received general comments regarding the burden of the
proposed rule, particularly for companies with less than $50 billion in
total consolidated assets. Commenters suggested that companies with
total consolidated assets greater than $10 billion but less than $50
billion that have not previously been subject to stress-testing
requirements need more time to develop the necessary systems and
procedures to be able to conduct company-run stress tests and to
collect the information that the Board may require in connection with
these tests. In response to these comments and to reduce burden, the
final rule delays the compliance date for most smaller companies,
extends the timeline for most smaller companies to submit the results
of the test to the Board, tailors disclosure requirements, and
synchronizes the disclosure regime for bank holding companies and their
depository institution subsidiaries.
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, 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 (Subpart H).
Frequency of Response: Annual.
Affected Public: Businesses or other for-profit.
Respondents: U.S. bank holding companies, savings and loan holding
companies, and state member banks.
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 252.155(c) requires that each bank holding company, savings
and loan holding company, or state member bank 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
H. These policies and procedures must, at a minimum, describe the
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.
Section 252.156 requires state member banks with $50 billion or
more in total consolidated assets to report the results of the stress
test to the Board by March 31 of each calendar year, unless that time
is extended by the Board in writing. The report must include, under the
baseline scenario, adverse scenario, and severely adverse scenario, a
description of the types of risks being included in the stress test, a
summary description of the methodologies used in the stress test, for
each quarter of the planning horizon, estimates of aggregate losses,
pre-provision net revenue, provision for loan and lease losses, net
income, and regulatory capital ratios; an explanation of the most
significant causes for the changes in regulatory capital ratios; and
any other information required by the Board. This requirement will
remain applicable until such time as the Board issues a reporting form
to collect the results of the stress test required under section
252.154.
Estimated Paperwork Burden
Estimated Burden per Response:
Section 252.155(c) recordkeeping--40 hours (Initial setup 240 hours
for institutions over $10 million in total consolidated assets).
Section 252.156 reporting--80 hours (Initial setup 200 hours).
Number of respondents: For recordkeeping requirements--39 U.S. bank
holding companies with total consolidated assets over $10 billion and
less than $50 billion, 21 state member banks with total consolidated
assets over $10 billion, 39 savings and loan holding companies with
total consolidated assets over $10 billion.
For reporting requirements--6 large state member banks.
Total estimated annual burden: 29,400 hours (24,960 hours for
initial setup and 4,440 hours for ongoing compliance).
D. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA),
requires each
[[Page 62406]]
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.\25\ 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.
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\25\ See 5 U.S.C. 603, 604 and 605.
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In accordance with section 165(i) (2) of the Dodd-Frank Act, the
Board is adopting the final rule as Regulation YY and is adding new
Part 252 (12 CFR part 252) to establish the requirements that a holding
company, savings and loan holding company, or state member bank conduct
company-run stress tests annually.\26\ The reasons and justification
for the final rule are described in the SUPPLEMENTARY INFORMATION.
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\26\ See 12 U.S.C. 5365(d).
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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.\27\ 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, savings and loan holding companies, or state member
banks with assets sizes of $175 million or less are small entities for
purposes of the RFA.
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\27\ 13 CFR 121.201.
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As discussed in the SUPPLEMENTARY INFORMATION, the final rule
applies to bank holding companies with greater than $10 billion but
less than $50 billion in total consolidated assets and state member
banks and savings and loan holding companies with greater than $10
billion in total consolidated assets. 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.
As noted above, because the final rule will not apply to any
company with assets of $175 million or less, the final rule will not
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, 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 amends 12 CFR part 252 as follows:
PART 252--ENHANCED PRUDENTIAL STANDARDS (Regulation YY)
0
1. The authority citation for part 252 continues to read as follows:
Authority: 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1, 1831o,
1844(b), 1844(c), 5365.
0
2. Subpart H to part 252 is added to read as follows:
Subpart H--Company-Run Stress Test Requirements for Banking
Organizations With Total Consolidated Assets Over $10 Billion That
Are Not Covered Companies
Sec.
252.151 Authority and Purpose.
252.152 Definitions.
252.153 Applicability.
252.154 Annual stress test.
252.155 Methodologies and practices.
252.156 Reports of stress test results.
252.157 Disclosure of stress test results.
Sec. 252.151 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831o, 1831p-1,
1844(b), 1844(c), 3906-3909, 5365.
(b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a bank holding company
with total consolidated assets of greater than $10 billion but less
than $50 billion and savings and loan holding companies and state
member banks with total consolidated assets of greater than $10 billion
to conduct 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. 252.152 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 bank holding company, savings
and loan holding company, or state member bank that are more adverse
than those associated with the baseline scenario and may include
trading or other additional components.
(b) Asset threshold means--
(1) For a bank holding company, average total consolidated assets
of greater than $10 billion but less than $50 billion, and
(2) For a savings and loan holding company or state member bank,
average total consolidated assets of greater than $10 billion.
(c) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company,
savings and loan holding company, or state member bank on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
or Consolidated Report of Condition and Income (Call Report), as
applicable, for the four most recent consecutive quarters. If the bank
holding company, savings and loan holding company, or state member bank
has not filed the FR Y-9C or Call Report, as applicable, 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 or Call Report, as applicable, 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 or Call Report, as applicable, used in the calculation of the
average.
(d) Bank holding company has the same meaning as in section
225.2(c) of the Board's Regulation Y (12 CFR 225.2(c)).
(e) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a bank holding company,
savings and loan holding company, or state member bank, and that
reflect the consensus views of the economic and financial outlook.
(f) 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 subsidiary means a state member bank that is a
subsidiary of a covered company as defined in subpart F of this part.
(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
[[Page 62407]]
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(j) 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.
(k) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(l) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the bank holding company, savings
and loan holding company, or state member bank on the FR Y-9C or Call
Report, as appropriate.
(m) 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 12 CFR part 208 or any successor regulation.
(n) Savings and loan holding company has the same meaning as in
section 238.2(m) of the Board's Regulation LL (12 CFR 238.2(m)).
(o) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a bank holding company, savings
and loan holding company, or state member bank that the Board 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 bank holding company,
savings and loan holding company, or state member bank and that overall
are more severe than those associated with the adverse scenario and may
include trading or other additional components.
(q) State member bank has the same meaning as in section 208.2(g)
of the Board's Regulation H (12 CFR 208.2(g)).
(r) Stress test means a process to assess the potential impact of
scenarios on the consolidated earnings, losses, and capital of a bank
holding company, savings and loan holding company, or state member bank
over the planning horizon, taking into account the current condition,
risks, exposures, strategies, and activities.
(s) 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.
(t) Subsidiary has the same meaning as in section 225.2(o) the
Board's Regulation Y (12 CFR 225.2(o)).
Sec. 252.153 Applicability.
(a) Compliance date for bank holding companies and state member
banks that meet the asset threshold on or before December 31, 2012--(1)
Bank holding companies--(i) In general. Except as provided in paragraph
(a)(1)(ii) of this section, a bank holding company that meets the asset
threshold on or before December 31, 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.
(ii) SR Letter 01-01. A U.S.-domiciled bank holding company that 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.
(2) State member banks. (i) A state member bank that meets the
asset threshold as of November 15, 2012, and is a subsidiary of a bank
holding company that participated in the 2009 Supervisory Capital
Assessment Program, or a successor to such 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.
(ii) A state member bank that meets the asset threshold on or
before December 31, 2012, and is not described in paragraph (a)(2)(i)
of this section 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.
(b) Compliance date for bank holding companies and state member
banks that meet the asset threshold after December 31, 2012. A bank
holding company or state member bank that meets the asset threshold
after December 31, 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 company meets the asset
threshold, unless that time is extended by the Board in writing.
(c) Compliance date for savings and loan holding companies. (1) A
savings and loan holding company that meets the asset threshold on or
before the date on which it is subject to minimum regulatory capital
requirements 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 becomes subject to the Board's
minimum regulatory capital requirements, unless the Board accelerates
or extends the compliance date.
(2) A savings and loan holding company that meets the asset
threshold after the date on which it is subject to minimum regulatory
capital requirements 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 becomes subject to the Board's
minimum regulatory capital requirements, unless that time is extended
by the Board in writing.
(d) Ongoing application. A bank holding company, savings and loan
holding company, or state member bank that meets the asset threshold
will remain subject to the requirements of this subpart unless and
until its total consolidated assets fall below $10 billion for each of
four consecutive quarters, as reported on the FR Y-9C or Call Report,
as applicable. The calculation will be effective on the as-of date of
the fourth consecutive FR Y-9C or Call Report, as applicable.
(e) Interaction with 12 CFR part 252, subpart G. Notwithstanding
paragraph (d) of this section, a bank holding company or savings and
loan holding company that becomes a covered company as defined in
subpart G of this part and conducts a stress test pursuant to that
subpart is not subject to the requirements of this subpart.
Sec. 252.154 Annual stress test.
(a) General requirements--(1) Savings and loan holding companies
with average total consolidated assets of $50 billion or more and state
member banks that are covered company subsidiaries. A savings and loan
holding company with average total consolidated assets of $50 billion
or more or a state member bank that is a covered company subsidiary or
must conduct a stress test by January 5 of each calendar year 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.
(2) Bank holding companies, savings and loan holding companies with
total
[[Page 62408]]
consolidated assets of less than $50 billion, and state member banks
that are not covered company subsidiaries. Except as provided in
paragraph (a)(1) of this section, a bank holding company, savings and
loan holding company, or state member bank must conduct a stress test
by March 31 of each calendar year using financial statement 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 bank holding company, savings and
loan holding company, or state member bank 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 bank holding company, savings and loan holding company, or
state member bank no later than November 15 of that calendar year.
(2) Additional components. (i) The Board may require a bank holding
company, savings and loan holding company, or state member bank 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 Board may also require a state member bank that is subject to 12
CFR part 208, Appendix E and that is a subsidiary of a bank holding
company subject to this paragraph (b)(2)(i) or 12 CFR 252.144(b)(2)(i)
to include a trading and counterparty component in the state member
bank's 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 bank holding company, savings and loan
holding company, or state member bank 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 bank holding
company, savings and loan holding company, or state member bank to
include 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 bank holding
company, savings and loan holding company, or state member bank 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 bank holding company, savings
and loan holding company, or state member bank 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 bank holding company,
savings and loan holding company, or state member bank with a
description of any additional component(s) or additional scenario(s) by
December 1.
Sec. 252.155 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
Sec. 252.154, for each quarter of the planning horizon, a bank holding
company, savings and loan holding company, or state member bank 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 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. 252.154 of this part, a bank holding company or
savings and loan holding company is required to make the following
assumptions regarding its capital actions over the planning horizon--
(1) For the first quarter of the planning horizon, the bank holding
company or savings and loan holding 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 bank holding company or savings and loan holding 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 bank holding company, savings and
loan holding company, or state member bank 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
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.
(2) Oversight of stress testing processes. The board of directors,
or a committee thereof, of a bank holding company, savings and loan
holding company, or state member bank must approve and review 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 bank holding company, savings and loan holding company, or state
member bank must receive a summary of the results of the stress test
conducted under this section.
(3) Role of stress testing results. The board of directors and
senior management of a bank holding company, savings and loan holding
[[Page 62409]]
company, or state member bank must consider the results of the stress
test in the normal course of business, including but not limited to,
the banking organization's capital planning, assessment of capital
adequacy, and risk management practices.
Sec. 252.156 Reports of stress test results.
(a) Reports to the Board of stress test results--(1) Savings and
loan holding companies with average total consolidated assets of $50
billion or more and state member banks that are covered company
subsidiaries. A savings and loan holding company with average total
consolidated assets of $50 billion or more or a state member bank that
is a covered company subsidiary must report the results of the stress
test 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) Bank holding companies, savings and loan holding companies, and
state member banks. Except as provided in paragraph (a)(1) of this
section, a bank holding company, savings and loan holding company, or
state member bank must report the results of the stress test to the
Board by March 31 of each calendar year in the manner and form
prescribed by the Board, unless that time is extended by the Board in
writing.
(b) Contents of reports. The report required under paragraph (a) of
this section must include, under the baseline scenario, adverse
scenario, severely adverse scenario, and any other scenario required
under Sec. 252.154(b)(3) of this part, a description of the types of
risks being included in the stress test; a summary description of the
methodologies used in the stress test; and, for each quarter of the
planning horizon, estimates of aggregate losses, pre-provision net
revenue, provision for loan and lease losses, net income, and
regulatory capital ratios. In addition, the report must include an
explanation of the most significant causes for the changes in
regulatory capital ratios and any other information required by the
Board. This paragraph will remain applicable until such time as the
Board issues a reporting form to collect the results of the stress test
required under Sec. 252.154 of this part.
(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
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. 252.157 Disclosure of stress test results.
(a) Public disclosure of results--(1) In general. (i) Except as
provided in paragraph (a)(1)(ii) or (b)(2) of this section, a bank
holding company, savings and loan holding company, or state member bank
must disclose a summary of the results of the stress test in the period
beginning on June 15 and ending on June 30 unless that time is extended
by the Board in writing.
(ii) Except as provided in paragraph (b)(2) of this section, a
state member bank that is a covered company subsidiary or a savings and
loan holding company with average total consolidated assets of $50
billion or more must disclose a summary of the results of the stress
test in the period beginning on March 15 and ending on March 31, unless
that time is extended by the Board in writing.
(2) Initial disclosure. A bank holding company, savings and loan
holding company, or state member bank that has total consolidated
assets of less than $50 billion on or before December 31, 2012, must
comply with the requirements of this section beginning with the stress
test cycle commencing on October 1, 2014.
(3) Disclosure method. The summary required under this section may
be disclosed on the Web site of a bank holding company, savings and
loan holding company, or state member bank, or in any other forum that
is reasonably accessible to the public.
(b) Summary of results--(1) Bank holding companies and savings and
loan holding companies. A bank holding company or savings and loan
holding company must disclose, at a minimum, the following information
regarding the severely adverse scenario:
(i) A description of the types of risks included in the stress
test;
(ii) A summary description of the methodologies used in the stress
test;
(iii) Estimates of--
(A) Aggregate losses;
(B) Pre-provision net revenue;
(C) Provision for loan and lease losses;
(D) Net income; and
(E) Pro forma regulatory capital ratios and any other capital
ratios specified by the Board;
(iv) An explanation of the most significant causes for the changes
in regulatory capital ratios; and
(v) With respect to a stress test conducted by an insured
depository institution subsidiary of the bank holding company or
savings and loan holding company pursuant to section 165(i)(2) of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, 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.
(2) State member banks that are subsidiaries of bank holding
companies. A state member bank that is a subsidiary of a bank holding
company will satisfy the public disclosure requirements under section
165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection
Act when the bank holding company publicly discloses summary results of
its stress test pursuant to this section or section 252.148 of this
part, 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. In this case, the
state member bank must make the same disclosure as required by
paragraph (b)(3) of this section.
(3) State member banks that are not subsidiaries of bank holding
companies. A state member bank that is not a subsidiary of a bank
holding company must disclose, at a minimum, the following information
regarding the severely adverse scenario:
(i) A description of the types of risks being included in the
stress test;
(ii) A summary description of the methodologies used in the stress
test;
(iii) Estimates of--
(A) Aggregate losses;
(B) Pre-provision net revenue
(C) Provision for loan and lease losses;
(D) Net income; and
(E) Pro forma regulatory capital ratios and any other capital
ratios specified by the Board; and
(iv) An explanation of the most significant causes for the changes
in regulatory capital ratios.
(c) Content of results. (1) The disclosure of aggregate losses,
pre-provision net revenue, provision for loan and lease losses, and net
income that is required under paragraph (b) of this section must be on
a cumulative basis over the planning horizon.
(2) The disclosure of pro forma regulatory capital ratios 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.
By order of the Board of Governors of the Federal Reserve
System, October 5, 2012.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2012-24988 Filed 10-11-12; 8:45 am]
BILLING CODE 6210-01-P