[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.
---------------------------------------------------------------------------

    \25\ See 5 U.S.C. 603, 604 and 605.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \26\ See 12 U.S.C. 5365(d).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \27\ 13 CFR 121.201.
---------------------------------------------------------------------------

    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