[Federal Register Volume 79, Number 95 (Friday, May 16, 2014)]
[Notices]
[Pages 28598-28601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11397]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities: Information Collection 
Renewal; Submission for OMB Review; Capital Adequacy Standards

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

ACTION: Notice and request for comment.

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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork 
and respondent burden, invites the general public and other Federal 
agencies to take this opportunity to comment on a continuing 
information collection, as required by the Paperwork Reduction Act of 
1995 (PRA).
    In accordance with the requirements of the PRA, the OCC may not 
conduct or sponsor, and the 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 OCC is soliciting comment concerning renewal of its information 
collection titled, ``Capital Adequacy Standards.'' It is also giving 
notice that it has submitted the collection to OMB for review.

DATES: Comments must be submitted on or before June 16, 2014.

ADDRESSES: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email if possible. Comments may be sent to: Legislative and Regulatory 
Activities Division, Office of the Comptroller of the Currency, 
Attention: 1557-0318, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to 
(571) 465-4326 or by electronic mail to [email protected]. 
You may personally inspect and photocopy comments at the OCC, 400 7th 
Street SW., Washington, DC 20219. For security reasons, the OCC 
requires that visitors make an appointment to inspect comments. You may 
do so by calling (202) 649-6700. Upon arrival, visitors will be 
required to present valid government-issued photo identification and to 
submit to security screening in order to inspect and photocopy 
comments.
    All comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.
    Additionally, please send a copy of your comments by mail to: OCC 
Desk Officer, 1557-0318, U.S. Office of Management and Budget, 725 17th 
Street NW., 10235, Washington, DC 20503, or by email to: oira 
[email protected].

FOR FURTHER INFORMATION CONTACT: Johnny Vilela or Mary H. Gottlieb, OCC 
Clearance Officers, (202) 649-5490, for persons who are deaf or hard of 
hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities 
Division, Office of the Comptroller of the Currency, 400 7th Street 
SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.

SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal 
agencies must obtain approval from OMB for each collection of 
information they conduct or sponsor. ``Collection of information'' is 
defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency 
requests or requirements that members of the public submit reports, 
keep records, or provide information to a third party.
    In connection with issuance of the Basel III final rule,\1\ OMB 
provided a six-month approval for this information collection. The OCC 
is requesting that OMB extend approval of the collection for the 
standard three years.
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    \1\ 78 FR 62018 (October 11, 2013).
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    Title: Capital Adequacy Standards.
    OMB Control No.: 1557-0318.
    Frequency of Response: On occasion.
    Affected Public: Business or other for-profit.
    Estimated Number of Respondents: 823.
    Estimated Total Burden: 189,348.50 hours.

Section-by-Section-Analysis

    Twelve CFR part 3 sets forth the OCC's minimum capital requirements 
and overall capital adequacy standards for national banks and Federal 
savings associations.
    Section 3.3(c) allows for the recognition of netting across 
multiple types of transactions or agreements if the institution obtains 
a written legal opinion verifying the validity and enforceability of 
the agreement under certain circumstances and maintains sufficient 
written documentation of this legal review.
    Section 3.22(h)(2)(iii)(A) permits the use of a conservative 
estimate of the amount of an institution's investment in its own 
capital or the capital of unconsolidated financial institutions held 
through an index security with prior approval by the OCC.
    Section 3.35(b)(3)(i)(A) requires, for a cleared transaction with a 
qualified central counterparty (QCCP), that a client bank apply a risk 
weight of two percent, provided that the collateral posted by the bank 
to the QCCP is subject to certain arrangements and the client bank has 
conducted a sufficient legal review (and maintains sufficient written 
documentation of the legal review) to conclude with a well-

[[Page 28599]]

founded basis that the arrangements, in the event of a legal challenge, 
would be found to be legal, valid, binding, and enforceable under the 
law of the relevant jurisdictions.
    Section 3.37(c)(4)(i)(E), regarding collateralized transactions, 
requires that a bank have policies and procedures in place describing 
how it determines the period of significant financial stress used to 
calculate its own internal estimates for haircuts and be able to 
provide empirical support for the period used.
    Section 3.41(b)(3), which sets forth operational requirements for 
securitization exposures, allows a national bank or Federal savings 
association to recognize for risk-based capital purposes, in the case 
of synthetic securitizations, a credit risk mitigant to hedge 
underlying exposures if certain conditions are met, including a 
requirement that the national bank or Federal savings association 
obtain a well-reasoned opinion from legal counsel that confirms the 
enforceability of the credit risk mitigant in all relevant 
jurisdictions.
    Section 3.41(c)(2)(i) requires that a national bank or Federal 
savings association demonstrate its comprehensive understanding of a 
securitization exposure by conducting an analysis of the risk 
characteristics of each securitization exposure prior to its 
acquisition, taking into account a number of specified considerations 
and documenting the analysis within three business days after the 
acquisition.
    If a national bank or Federal savings association provides non-
contractual support to a securitization, Sec.  3.42(e)(2), regarding 
risk-weighted assets for securitization exposures, requires that a 
national bank or Federal savings association to publicly disclose that 
is has provided implicit support to a securitization and the risk-based 
capital impact to the bank of providing such implicit support.
    Section 3.62 sets forth disclosure requirements related to the 
capital requirements of a national bank or Federal savings association. 
Section 3.61 provides that these requirements apply only to a national 
bank or Federal savings association with total consolidated assets of 
$50 billion or more that is not a consolidated subsidiary of an entity 
that is itself subject to Basel III disclosures. For national banks and 
Federal savings associations subject to the disclosure requirements, 
section 3.62(a) requires quarterly disclosure of information in the 
applicable tables in section 3.63 and, if a significant change occurs, 
such that the most recent reported amounts are no longer reflective of 
the institution's capital adequacy and risk profile, section 3.62(a) 
requires the national bank or Federal savings association to disclose 
as soon as practicable thereafter, a brief discussion of the change and 
its likely impact. Section 3.62(a) permits annual disclosure of 
qualitative information that typically does not change each quarter, 
provided that any significant changes are disclosed in the interim. 
Section 3.62(b) requires that a national bank or Federal savings 
association have a formal disclosure policy approved by the board of 
directors that addresses its approach for determining the disclosures 
it makes. The policy must address the associated internal controls and 
disclosure controls and procedures. Section 3.62(c) permits a national 
bank or Federal savings association to disclose more general 
information about certain subjects if the national bank or Federal 
savings association concludes that the specific commercial or financial 
information required to be disclosed under Sec.  3.62 is exempt from 
disclosure under the Freedom of Information Act (5 U.S.C. 552), and 
national bank or Federal savings association provides the reason the 
specific items of information have not been disclosed.
    Section 3.63 sets forth the specific disclosure requirements for a 
non-advanced approaches national bank or Federal savings association 
with total consolidated assets of $50 billion or more that is not a 
consolidated subsidiary of an entity that is itself subject to Basel 
III disclosure requirements. Section 3.63(a) requires those 
institutions to make the disclosures in Tables 1 through 10 to Sec.  
3.63 and in Sec.  3.63(b) for each of the last three years beginning on 
the effective date of the rule. Section 3.63(b) requires quarterly 
disclosure of an institution's common equity tier 1 capital, additional 
tier 1 capital, tier 2 capital, tier 1 and total capital ratios, 
including the regulatory capital elements and all the regulatory 
adjustments and deductions needed to calculate the numerator of such 
ratios; total risk-weighted assets, including the different regulatory 
adjustments and deductions needed to calculate total risk-weighted 
assets; regulatory capital ratios during any transition periods, 
including a description of all the regulatory capital elements and all 
regulatory adjustments and deductions needed to calculate the numerator 
and denominator of each capital ratio during any transition period; and 
a reconciliation of regulatory capital elements as they relate to its 
balance sheet in any audited consolidated financial statements. Tables 
1 through 10 to Sec.  3.63 set forth qualitative and/or quantitative 
requirements for scope of application, capital structure, capital 
adequacy, capital conservation buffer, credit risk, counterparty credit 
risk-related exposures, credit risk mitigation, securitizations, 
equities not subject to Subpart F (Market Risk requirements) of the 
rule, and interest rate risk for non-trading activities.
    Section 3.121 requires a national bank or Federal savings 
association subject to the advanced approaches risk-based capital 
requirements to adopt a written implementation plan to address how it 
will comply with the advanced capital adequacy framework's 
qualification requirements and also develop and maintain a 
comprehensive and sound planning and governance process to oversee the 
implementation efforts described in the plan. Section 3.122 further 
requires these institutions to: develop processes for assessing capital 
adequacy in relation to an organization's risk profile; establish and 
maintain internal risk rating and segmentation systems for wholesale 
and retail risk exposures, including comprehensive risk parameter 
quantification processes and processes for annual reviews and analyses 
of reference data to determine their relevance; document its process 
for identifying, measuring, monitoring, controlling, and internally 
reporting operational risk; verify the accurate and timely reporting of 
risk-based capital requirements; and monitor, validate, and refine its 
advanced systems.
    Section 3.123 sets forth ongoing qualification requirements that 
require an institution to notify the OCC of any material change to an 
advance system and to establish and submit to the OCC a plan for 
returning to compliance with the qualification requirements.
    Section 3.124 requires a national bank of Federal savings 
association to submit to the OCC, within 90 days of consummating a 
merger or acquisition, an implementation plan for using its advanced 
systems for the merged or acquired company.
    Section 3.132(b)(2)(iii)(A) addresses counterparty credit risk of 
repo-style transactions, eligible margin loans, and over-the-counter 
(OTC) derivative contracts, and internal estimates for haircuts. With 
the prior written approval of the OCC, an institution may calculate 
haircuts (Hs and Hfx) using its own internal 
estimates of the volatilities of market prices and foreign exchange 
rates. The section requires national banks and Federal savings 
associations to satisfy certain minimum quantitative standards in order 
to receive OCC

[[Page 28600]]

approval to use its own internal estimates.
    Section 3.132(b)(3) covers counterparty credit risk of repo-style 
transactions, eligible margin loans, OTC derivative contracts, and 
simple Value-at-Risk (VaR) methodology. With the prior written approval 
of the OCC, a national bank or Federal savings association may estimate 
exposure at default (EAD) for a netting set using a VaR model that 
meets certain requirements.
    Section 3.132(d)(1) permits the use of the internal models 
methodology (IMM) to determine EAD for counterparty credit risk for 
derivative contracts with prior written approval from the OCC. Section 
3.132(d)(1)(iii) permits the use of the internal models methodology for 
derivative contracts, eligible margin loans, and repo-style 
transactions subject to a qualifying cross-product netting agreement 
with prior written approval from the OCC.
    Section 3.132(d)(2)(iv) addresses counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative 
contracts, and risk-weighted assets using IMM. Under the IMM, an 
institution uses an internal model to estimate the expected exposure 
(EE) for a netting set and then calculates EAD based on that EE. An 
institution must calculate two EEs and two EADs (one stressed and one 
unstressed) for each netting as outlined in this section. A national 
bank or Federal savings association may use a conservative measure of 
EAD subject to prior written approval of the OCC.
    Section 3.132(d)(3)(vi) addresses counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative 
contracts. To obtain OCC approval to calculate the distributions of 
exposures upon which the EAD calculation is based, a national bank or 
Federal savings association must demonstrate to the satisfaction of the 
OCC that it has been using for at least one year an internal model that 
broadly meets the minimum standards, with which the institution must 
maintain compliance. The institution must have procedures to identify, 
monitor, and control wrong-way risk throughout the life of an exposure 
and they must include stress testing and scenario analysis.
    Section 3.132(d)(3)(viii) addresses counterparty credit risk of 
repo-style transactions, eligible margin loans, and OTC derivative 
contracts. When estimating model parameters based on a stress period, a 
national bank or Federal savings association must use at least three 
years of historical data that include a period of stress to the credit 
default spreads of the institution's counterparties. The institution 
must review the data set and update the data as necessary, particularly 
for any material changes in its counterparties. The institution must 
demonstrate at least quarterly that the stress period coincides with 
increased credit default swap (CDS) or other credit spreads of the 
institution's counterparties. The institution must have procedures to 
evaluate the effectiveness of its stress calibration that include a 
process for using benchmark portfolios that are vulnerable to the same 
risk factors as the institution's portfolio. The OCC may require the 
institution to modify its stress calibration to better reflect actual 
historic losses of the portfolio.
    Section 3.132(d)(3)(ix), regarding counterparty credit risk of 
repo-style transactions, eligible margin loans, and OTC derivative 
contracts, requires that an institution must subject its internal model 
to an initial validation and annual model review process that includes 
consideration of whether the inputs and risk factors, as well as the 
model outputs, are appropriate. The section requires national banks and 
Federal savings associations to have a backtesting program for its 
model that includes a process by which unacceptable model performance 
will be determined and remedied.
    Section 3.132(d)(3)(x), regarding counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative 
contracts, provides that an national bank or Federal savings 
association must have policies for the measurement, management, and 
control of collateral and margin amounts.
    Section 3.132(d)(3)(xi), concerning counterparty credit risk of 
repo-style transactions, eligible margin loans, and OTC derivative 
contracts, states that an institution must have a comprehensive stress 
testing program that captures all credit exposures to counterparties, 
and incorporates stress testing of principal market risk factors and 
creditworthiness of counterparties.
    Section 3.141 relates to operational criteria for recognizing the 
transfer of risk in connection with a securitization. Section 
3.141(b)(3) requires a national bank or Federal savings association to 
obtain a well-reasoned legal opinion confirming the enforceability of 
the credit risk mitigant in all relevant jurisdictions in order to 
recognize the transference of risk in connection with a synthetic 
securitization. An institution must demonstrate its comprehensive 
understanding of a securitization exposure under Sec.  3.141(c)(2) for 
each securitization exposure by conducting an analysis of the risk 
characteristics of a securitization exposure prior to acquiring the 
exposure and document such analysis within three business days after 
acquiring the exposure. Sections 3.141(c)(2)(i) and (ii) require that 
institutions, on an on-going basis (at least quarterly), evaluate, 
review, and update as appropriate the analysis required under this 
section for each securitization exposure.
    Section 3.142(h)(2), regarding the capital treatment for 
securitization exposures, requires a national bank or Federal savings 
association to disclose publicly if it has provided implicit support to 
a securitization and the regulatory capital impact to the institution 
of providing such implicit support.
    Section 3.153(b), outlining the Internal Models Approach (IMA) for 
calculating risk-weighted assets for equity exposures, specifies that a 
national bank or Federal savings association must receive prior written 
approval from the OCC before it can use IMA.
    Section 3.172 specifies that each advanced approaches national bank 
or Federal savings association that has completed the parallel run 
process must publicly disclose its total and tier 1 risk-based capital 
ratios and their components.
    Section 3.173 addresses disclosures by an advanced approaches 
national bank or Federal savings association that is not a consolidated 
subsidiary of an entity that is subject to the Basel III disclosure 
requirements. An advanced approaches institution that is subject to the 
disclosure requirements must make the disclosures described in Tables 1 
through 12. The institution must make these disclosures publicly 
available for each of the last three years (that is, twelve quarters) 
or such shorter period beginning on the effective date of this subpart 
E.
    The tables to section 3.173 require qualitative and quantitative 
public disclosures for capital structure, capital adequacy, capital 
conservation and countercyclical buffers, credit risk, securitization, 
operational risk, equities not subject to the market risk capital 
requirements, and interest rate risk for non-trading activities.
    On February 28, 2014, the OCC issued a notice for 60 days of 
comment concerning renewal of this collection. 79 FR 11501. No comments 
were received. Comments continue to be invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the OCC's functions, including whether the 
information has practical utility;

[[Page 28601]]

    (b) The accuracy of the OCC's estimates of the burden of the 
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; and
    (d) Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.

    Dated: May 12, 2014.
Stuart E. Feldstein,
Legislative and Regulatory Activities Division.
[FR Doc. 2014-11397 Filed 5-15-14; 8:45 am]
BILLING CODE 4810-33-P