[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Rules and Regulations]
[Pages 59791-59798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23619]
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FEDERAL RESERVE SYSTEM
12 CFR Part 252
[Docket No. R-1464; RIN 7100 AE 02]
Annual Company-Run Stress Tests at Banking Organizations With
Total Consolidated Assets of More Than $10 Billion But Less Than $50
Billion; One-Year Transition Period to Revised Regulatory Capital
Framework for 2013-2014 Stress Test Cycle
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Interim final rule with request for comment.
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SUMMARY: The Board invites comment on an interim final rule that
provides a one-year transition period during which bank holding
companies and most state member banks with more than $10 billion but
less than $50 billion in total consolidated assets would not be
required to reflect the revised regulatory capital framework that the
Board approved on July 2, 2013 (revised capital framework) in their
stress tests for the stress test cycle that begins October 1, 2013. For
this stress test cycle, these companies will be required to estimate
their pro forma capital levels and ratios over the full nine-quarter
planning horizon using the Board's current regulatory capital rules.
The interim final rule also clarifies when a banking organization would
estimate its minimum regulatory capital ratios using
[[Page 59792]]
the advanced approaches for a given stress test cycle.
DATES: This rule is effective on September 30, 2013. Comments must be
received on or before November 25, 2013.
ADDRESSES: You may submit comments, identified by Docket No.R-1464 and
RIN No. 7100 AE-02, by any of the following methods:
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal Rulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.
Email: [email protected]. Include docket number in
the subject line of the message.
Facsimile: (202) 452-3819 or (202) 452-3102.
Mail: Robert deV. Frierson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9:00 a.m. and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Deputy Associate Director,
(202) 263-4833, Constance Horsley, Manager, (202) 452-5239, David
Palmer, Senior Supervisory Financial Analyst, (202) 452-2904; Joseph
Cox, Financial Analyst, (202) 452-3216; or Keith Coughlin, Manager,
(202) 452-2056, Division of Banking Supervision and Regulation; Laurie
Schaffer, Associate General Counsel, (202) 452-2272, Benjamin W.
McDonough, Senior Counsel, (202) 452-2036, or Christine Graham, Senior
Attorney, (202) 452-3005, Legal Division, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD)
only, call (202) 263-4869.
SUPPLEMENTARY INFORMATION: On July 2, 2013, the Board approved revised
risk-based and leverage capital requirements for banking organizations
that implement the Basel III regulatory capital reforms and certain
changes required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (revised capital framework).\1\ The revised capital
framework introduces a new common equity tier 1 capital ratio and
supplementary leverage ratio, raises the minimum tier 1 ratio and, for
certain banking organizations, leverage ratio, implements strict
eligibility criteria for regulatory capital instruments, and introduces
a standardized methodology for calculating risk-weighted assets. The
new minimum regulatory capital ratios and the eligibility criteria for
regulatory capital instruments will begin to take effect as of January
1, 2014, subject to transition provisions, for banking organizations
that meet the criteria for the advanced approaches rule (advanced
approaches banking organizations).\2\ All other banking organizations
must begin to comply with the revised capital framework beginning on
January 1, 2015.
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\1\ See Regulatory Capital Rules: Regulatory Capital,
Implementation of Basel III, Capital Adequacy, Transition
Provisions, Prompt Corrective Action, Standardized Approach for
Risk-weighted Assets, Market Discipline and Disclosure Requirements,
Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital
Rule (July 2, 2013), available at: http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm (Revised capital framework).
\2\ A banking organization is subject to the advanced approaches
rule if it has consolidated assets greater than or equal to $250
billion, if it has total consolidated on-balance sheet foreign
exposures of at least $10 billion, or if it elects to apply the
advanced approaches rule.
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As the revised capital framework comes into effect, banking
organizations will be required to reflect the new capital rules in
their company-run stress tests conducted under the Board's rules
implementing the stress tests established by the Dodd-Frank Wall Street
Reform and Consumer Protection Act (stress tests rules).\3\
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\3\ See 77 FR 62378 (October 12, 2012) (codified at 12 CFR part,
252 subpart H) (stress test rule).
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I. Description of Interim Final Rule
A. Transition Period for Revised Capital Framework
Under the Board's stress test rules, each bank holding company with
more than $10 billion and less than $50 billion total consolidated
assets and each state member bank with more than $10 billion in total
consolidated assets must conduct a company-run stress test to estimate
the potential impact of three scenarios provided by the Board on its
regulatory capital ratios.\4\ In addition, each of these companies is
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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\4\ Savings and loan holding companies with more than $10
billion in total consolidated assets are also subject to the stress
test rules; however, savings and loan holding companies are not
subject to stress tests in this coming stress test cycle and thus
have been omitted from the discussion in this interim final rule. In
addition to the rule described above requiring annual company-run
stress tests, in October of 2012 the Board also issued stress
testing rules that apply to bank holding companies with $50 billion
or more in total consolidated assets and any non-bank financial
companies designated for supervision by the Board. Those rules set
out the process for an annual supervisory stress test by the Federal
Reserve and the requirements for semi-annual company run stress
tests. See 12 CFR part 225, subparts F and G.
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In this interim final rule, the Board is providing bank holding
companies and state member banks with total consolidated assets of more
than $10 but less than $50 billion (other than state member banks that
are subsidiaries of bank holding companies with total consolidated
assets of $50 billion or more) with a one-year transition period to
incorporate the revised capital framework into their company-run stress
tests. In the stress test cycle that begins on October 1, 2013, these
companies will estimate their pro forma capital levels and ratios over
the planning horizon using the capital rules in effect as of the
beginning of the stress test cycle beginning on October 1, 2013, and
will not reflect the impact of the revised capital framework in their
company-run stress tests. In particular, for this stress test cycle,
such a company will not calculate common equity tier 1 capital as
defined in the revised capital framework or incorporate the effects of
any changes to the definition of capital, any new or additional
deductions from capital, or any changes to the calculation of risk-
weighted assets.
The interim final rule does not provide the one-year transition
period for state member banks that are subsidiaries of bank holding
companies with total consolidated assets of $50 billion or more.
Consistent with the stress test rules applicable to their bank holding
company parents, these state member banks must project their regulatory
capital ratios for each quarter of the planning horizon in accordance
with the minimum capital requirements that will be in effect during
that quarter. The Board is concurrently issuing an interim final rule
clarifying this treatment for bank holding companies with total
consolidated assets of $50 billion or more and nonbank financial
companies supervised by the Board.
The Board is issuing this interim final rule to tailor the
application of the stress test rules for bank holding companies and
state member banks with total consolidated assets of more than $10 but
less than $50 billion (other than state member banks that are
subsidiaries of bank holding companies with total
[[Page 59793]]
consolidated assets of $50 billion or more). The Board believes that
requiring these companies to reflect the impact of the revised capital
framework during the planning horizon of the stress test cycle
beginning October 1, 2013, and to model alternative capital
calculations in the middle of planning horizon, would add operational
complexity and increase the likelihood of erroneous calculations or
assumptions without a sufficient corresponding benefit. The complexity
and increased risk of error could interfere with the ability of a these
company to conduct company-run stress tests that capture material risks
to the company and provide a meaningful forward-looking assessment of
its capital adequacy without providing a corresponding near-term
benefit.
In its stress test rules, the Board tailored the application of the
stress test rules for companies with total consolidated assets of more
than $10 but less than $50 billion in recognition of the fact that
those companies are generally less complex and pose more limited risk
to U.S. financial stability than larger banking organizations.
Specifically, the stress test rule provided virtually all companies
with total consolidated assets of more than $10 but less than $50
billion in 2012 with an additional year to begin conducting stress
tests, provided a longer period of time for these companies to conduct
their stress test each year, and does not require these billion
companies to publicly disclose the results of the stress test conducted
in the stress test cycle beginning October 1, 2013. In the preamble of
the stress test rule, the Board stated that it expected to further
tailor its approach for companies with total consolidated assets of
more than $10 but less than $50 billion during implementation of the
stress test rules. For example, the Board's regulatory reports that
these companies use in reporting the results of their company-run
stress tests (FR Y-16),\5\ which are being finalized at this time, are
shorter and simpler than the corresponding regulatory report, the FR Y-
14 report, that is applicable to bank holding companies with $50
billion or more in total consolidated assets.\6\
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\5\ See 78 FR 16502 (March 15, 2013).
\6\ In addition, in July 2013, the Board, jointly with the OCC
and the Federal Deposit Insurance Corporation (FDIC), issued
proposed supervisory guidance for companies the agencies supervise
with between $10 and $50 billion in assets that builds upon the
tailoring in the stress testing rule by further clarifying minimum
expectations for company-run stress test practices and providing
examples of satisfactory practices. See 78 FR 18716 (August 5,
2013).
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The OCC and FDIC both plan to implement the Dodd-Frank Act stress
testing requirements for the stress test cycle beginning October 1,
2013, in a similar manner for banks and savings associations under
their supervision with between $10 and $50 billion in total
consolidated assets.
B. Parallel Run Notification Date
In light of the issuance of the revised capital framework, the
Board is providing clarity on when a bank holding company, savings and
loan holding company, or state member bank would be required to
calculate its minimum regulatory capital ratios using the advanced
approaches for a given stress testing cycle.
A bank holding company, savings and loan holding company, or state
member bank that is an advanced approaches banking organization is
required to use the advanced approaches to calculate its minimum
regulatory capital ratios if it has conducted a satisfactory parallel
run, which is defined as a period of no less than four consecutive
calendar quarters during which a banking organization complies with
certain qualification requirements of the advanced approaches.\7\
Currently, all advanced approaches banking organizations are in
parallel run, but it is possible that firms could complete a
satisfactory parallel run in the near term and, as a result, be
required to calculate their regulatory capital ratios using the
advanced approaches. Under the current stress test rule, such a firm
arguably would be required to estimate its capital ratios over the
planning horizon using the advanced approaches if the firm is notified
any time before January 5, which is the date on which a banking
organization must submit its stress test results to the Board.
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\7\ 12 CFR Part 225, Appendix G, section 21(c).
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In order to provide sufficient notice to an advanced approaches
banking organization so that it could calculate its regulatory capital
ratios based on the advanced approaches in a given stress test cycle,
the interim final rule provides that a bank holding company, savings
and loan holding company, or state member bank must be notified that it
has completed its parallel run by September 30 of a given year in order
to be required to estimate its capital ratios using the advanced
approaches for the stress test cycle that begins on October 1 of that
year.
II. Effective Date; Solicitation of Comments
This interim final rule is effective October 1, 2013. Pursuant to
the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice
and comment are not required prior to the issuance of a final rule if
an agency, for good cause, finds that ``notice and public procedure
thereon are impracticable, unnecessary, or contrary to the public
interest.'' \8\ Similarly, a final rule may be published with an
immediate effective date if an agency finds good cause and publishes
such with the final rule.\9\
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\8\ 5 U.S.C. 553(b)(B).
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Consistent with section 553(b)(B) of the APA, the Board finds that
issuing this rule as an interim final rule is necessary to clarify the
process for bank holding companies and state member banks with total
consolidated assets of more than $10 but less than $50 billion
conducting Dodd-Frank Act stress tests in the stress test cycle that
begins on the effective date of the interim final rule. Obtaining
notice and comment prior to issuing the interim final rule would be
impracticable and contrary to the public interest. Furthermore, the
Board finds that there is good cause to publish the interim final rule
with an immediate effective date.
The approval by the Board of the revised capital framework in July
prompted a need to clarify how companies should incorporate the revised
capital framework into conducting their first Dodd-Frank Act company-
run stress test. Requiring bank holding companies and state member
banks with total consolidated assets of more than $10 but less than $50
billion (other than state member banks that are subsidiaries of bank
holding companies with total consolidated assets of $50 billion or
more) to reflect the impact of the revised capital framework during the
planning horizon of the stress test cycle beginning October 1, 2013,
and model alternative capital calculations in the middle of the
planning horizon, would add operational complexity and increase the
likelihood of erroneous calculations or assumptions without a
sufficient corresponding benefit. This complexity and increased risk of
error may interfere with the ability of a company to conduct company-
run stress tests that capture salient material risks to the company and
provide a meaningful forward-looking assessment of its capital
adequacy.
Moreover, the interim final rule should not impose any incremental
burden on these firms. The interim final rule relieves burden on these
companies by clarifying the process for their upcoming company-run
stress tests and allowing them additional time to build systems and
processes necessary to effectively implement the requirements of the
revised capital framework.
[[Page 59794]]
Although notice and comment are not required prior to the effective
date of this interim final rule, the Board invites comment on all
aspects of this rulemaking and will revise this interim final rule if
necessary or appropriate in light of the comments received. The Board
is interested in receiving comments on all aspects of the interim final
rule. In particular, are there any areas where the Board should further
clarify the process for incorporating accounting and regulatory changes
into a company's Dodd-Frank Act stress tests?
III. Regulatory Analysis
A. Regulatory Flexibility Act Analysis
The Board has considered the potential impact of the interim final
rule on small companies in accordance with the Regulatory Flexibility
Act (5 U.S.C. 603(b)). Based on its analysis and for the reasons stated
below, the Board believes that the interim final rule will not have a
significant economic impact on a substantial number of small entities.
Nevertheless, the Board is publishing a regulatory flexibility
analysis.
For the reason discussed in the Supplementary Information above,
the Board is issuing this interim final rule to clarify the
requirements for certain companies required to conduct Dodd-Frank Act
company run stress tests in the stress test cycle commencing on October
1, 2013. Under regulations issued by the Small Business Administration
(``SBA''), a small entity includes a depository institution, bank
holding company, or savings and loan holding company with total assets
of $500 million or less (a small banking organization). The interim
final rule would apply to state member banks, bank holding companies,
and savings and loan holding companies with more than $10 billion but
less than $50 billion in total consolidated assets. Companies that
would be subject to the interim finale rule therefore substantially
exceed the $500 million total asset threshold at which a company is
considered a small company under SBA regulations. In light of the
foregoing, the Board does not believe that the interim final rule would
have a significant economic impact on a substantial number of small
entities.
B. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act required the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The Board invites comment on how to
make this interim final rule easier to understand. For example:
Has the Board organized the material to suit your needs?
If not, how could the rule be more clearly stated?
Are the requirements in the rule clearly stated? If not,
how could the rule be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would make the regulation easier to
understand?
Would more, but shorter, sections be better? If so, which
sections should be changed?
What else could the Board do to make the regulation easier
to understand?
C. Paperwork Reduction Act
Request for Comment on Proposed Information Collection
This interim final rule references currently approved collections
of information under the Paperwork Reduction Act (44 U.S.C. 3501-3520)
provided for in the DFA stress test rules. This interim final rule does
not introduce any new collections of information nor does it
substantively modify the collections of information that Office of
Management and Budget (OMB) has approved. Therefore, no Paperwork
Reduction Act submissions to OMB are required.
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 Supplementary Information, the Board
of Governors of the Federal Reserve System amends 12 CFR chapter II 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,
1844(b), 1844(c), 5361, 5365, 5366.
0
2. Subpart H to part 252 is revised 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) Advanced approaches means the regulatory capital requirements
at 12 CFR part 225, appendix G, and 12 CFR part 217, subpart E, as
applicable, and any successor regulation.
(b) 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.
(c) 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.
(d) 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
[[Page 59795]]
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.
(e) Bank holding company has the same meaning as in section
225.2(c) of the Board's Regulation Y (12 CFR 225.2(c)).
(f) 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.
(g) Capital action has the same meaning as in section 225.8(c)(2)
of the Board's Regulation Y (12 CFR 225.8(c)(2)).
(h) Covered company subsidiary means a state member bank that is a
subsidiary of a covered company as defined in subpart F of this part.
(i) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(j) Foreign banking organization has the same meaning as in section
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(k) 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.
(l) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(m) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the bank holding company, savings
and loan holding company, or state member bank on the FR Y-9C or Call
Report, as appropriate.
(n) Regulatory capital ratio means a capital ratio for which the
Board established minimum requirements for the company by regulation or
order, including, as applicable, a company's tier 1 and supplementary
leverage ratio and common equity tier 1, 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 and 12 CFR part 217, as applicable, including
the transition provisions at 12 CFR 217.1(f)(4) and 12 CFR 217.300, or
any successor regulation. For state member banks other than covered
company subsidiaries and for all bank holding companies, for the stress
test cycle that commences on October 1, 2013, regulatory capital ratios
must be calculated pursuant to the regulatory capital framework set
forth in 12 CFR part 225, appendix A, and not the regulatory capital
framework set forth in 12 CFR part 217.
(o) Savings and loan holding company has the same meaning as in
Sec. 238.2(m) of the Board's Regulation LL (12 CFR 238.2(m)).
(p) 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.
(q) 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.
(r) State member bank has the same meaning as in Sec. 208.2(g) of
the Board's Regulation H (12 CFR 208.2(g)).
(s) 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.
(t) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year.
(u) Subsidiary has the same meaning as in Sec. 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.\10\
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\10\ See Sec. 252.152(m).
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(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.\11\
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\11\ See Sec. 252.152(m).
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(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
[[Page 59796]]
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.
(f) Advanced approaches. Notwithstanding any other requirement in
this section, for a given stress test cycle, a bank holding company,
savings and loan holding company, or state member bank's estimates of
its pro forma regulatory capital ratios over the planning horizon shall
not include estimates using the advanced approaches if the company is
notified on or after the first day of that stress test cycle that it is
required to calculate its risk-based capital requirements using the
advanced approaches.
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 consolidated assets of less than $50 billion, and state member
banks that are not covered company subsidiaries. Except as provided in
paragraph (a)(1), 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 Sec. 252.154(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
[[Page 59797]]
holding company is required to make the following assumptions regarding
its capital actions over the planning horizon--
(A) 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
(B) 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
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
[[Page 59798]]
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, September 24, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-23619 Filed 9-27-13; 8:45 am]
BILLING CODE 6210-01-P