[Federal Register Volume 79, Number 126 (Tuesday, July 1, 2014)]
[Proposed Rules]
[Pages 37231-37235]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-14416]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 46

[Docket ID. OCC-2014-0015]
RIN 1557-AD85


Annual Stress Test--Schedule Shift and Adjustments to Regulatory 
Capital Projections

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Proposed rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) proposes 
to adjust the timing of the annual stress testing cycle and to clarify 
the method used to calculate regulatory capital in the stress tests. 
The proposal would shift the dates of the annual stress testing cycle 
by approximately three months. The proposal also would provide that 
covered institutions will not have to calculate their regulatory 
capital requirements using the advanced approaches method in 12 CFR 
part 3, subpart E until the stress testing cycle beginning on January 
1, 2016.

DATES: Comments must be received on or before September 2, 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 
the Federal eRulemaking Portal or email, if possible. Please use the 
title ``Annual Stress Test'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2014-0015'' in the Search 
Box and click ``Search.'' Results can be filtered using the filtering 
tools on the left side of the screen. Click on ``Comment Now'' to 
submit public comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: regs.comments@occ .treas.gov.
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th

[[Page 37232]]

Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2014-0015'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish those comments 
on the Regulations.gov Web site without change, including any business 
or personal information that you provide such as name and address 
information, email addresses, or phone numbers. 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.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2014-0015'' in the Search 
box and click ``Search.'' Comments can be filtered by Agency using the 
filtering tools on the left side of the screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
viewing public comments, viewing other supporting and related 
materials, and viewing the docket after the close of the comment 
period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC. 
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.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.

FOR FURTHER INFORMATION CONTACT: Robert Scavotto, Deputy Director, 
International Analysis and Banking Condition, (202) 649-5540; William 
Russell, National Bank Examiner, Large Bank Supervision, (202) 649-
7157; Kari Falkenborg, National Bank Examiner, Midsize and Community 
Bank Supervision, (202) 649-6831; Ron Shimabukuro, Senior Counsel, or 
Henry Barkhausen, Attorney, Legislative and Regulatory Activities 
Division, (202) 649-5490; for persons who are deaf or hard of hearing, 
TTY, (202) 649-5597.

SUPPLEMENTARY INFORMATION: 

I. Introduction and Background

    Section 165(i) of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') requires two types of stress tests. 
Section 165(i)(1) requires the Board of Governors of the Federal 
Reserve (Board) to conduct annual stress tests of holding companies 
with $50 billion or more in assets (``supervisory stress tests''). 
Section 165(i)(2) requires the federal banking agencies to issue 
regulations requiring financial companies with more than $10 billion in 
assets to conduct annual stress tests themselves (``company-run stress 
tests'').
    In October 2012, the OCC, the Board, and the Federal Deposit 
Insurance Corporation issued final rules implementing the company-run 
stress tests required by the Dodd-Frank Act. Under these final rules, 
covered institutions with $50 billion or more in assets are required to 
conduct the company-run stress tests at the end of the calendar year, 
when there are often other demands on resources. Under the current OCC 
stress testing rule, the OCC distributes stress scenarios by November 
15.\1\ Covered institutions use their financial position as of 
September 30 (``as of date'') and must make projections that estimate 
their financial position under the different stress scenarios. Covered 
institutions with $50 billion or more in assets must submit the results 
of their stress tests by January 5. Covered institutions with $50 
billion or more are required to publish a summary of their stress test 
results between March 15 and March 31. Covered institutions with 
between $10 and $50 billion in assets are required to submit their 
stress test results to the OCC by March 31 and publish a summary of 
their results between June 15 and June 30.
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    \1\ These scenarios provided by the OCC reflect a minimum of 
three set of economic and financial conditions, including baseline, 
adverse, and severely adverse scenarios.
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    On October 11, 2013, the OCC published revisions to its regulatory 
capital rules implementing the Basel III international capital 
standards (Basel III framework).\2\ The OCC is now proposing to adjust 
the schedule contained in its stress testing rule to relieve certain 
covered institutions of the burden associated with the January 5 
submission deadline and to clarify the method to be used to calculate 
regulatory capital in the stress tests.
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    \2\ 78 FR 62018.
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II. Description of the Proposed Rule

A. Shift in Stress Testing Cycle

    The OCC is proposing to shift the dates of the stress testing cycle 
by approximately three months. This will relieve covered institutions 
with $50 billion or more in assets of the obligation to complete their 
stress testing submissions by January 5, a time of year when these 
institutions have other year-end obligations. The OCC believes that the 
annual stress test is an important risk-management tool, and covered 
institutions should conduct these tests at a time when they are better 
able to manage their resources. The stress testing cycle that, under 
the current rule, begins on October 1, 2015, would instead begin on 
January 1, 2016. The following table summarizes the proposed date 
changes.

  Table 1--Revised Annual Stress Test Timeline for Covered Institutions
                   With $50 Billion or More in Assets
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       Action required            Current rule          Proposed rule
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``As of'' Date for Financial  September 30........  December 31.
 Data Used by Stress Test.
Distribution of Stress        By November 15......  By February 15.
 Scenarios by OCC.
Submission of Stress Test     By January 5........  By April 7.
 Results.
Disclosure of Results         Between March 15 and  Between June 15 and
 Summary.                      March 31.             July 15 except no
                                                     earlier than Board
                                                     publication of the
                                                     supervisory stress
                                                     test results of the
                                                     bank holding
                                                     company.
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[[Page 37233]]


  Table 2--Revised Annual Stress Test Timeline for Covered Institutions
               With Between $10 and $50 Billion in Assets
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       Action required            Current rule          Proposed rule
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``As of'' Date for Financial  September 30........  December 31.
 Data Used by Stress Test.
Distribution of Stress        By November 15......  By February 15.
 Scenarios by OCC.
Submission of Stress Test     By March 31.........  By July 31.
 Results.
Disclosure of Results         Between June 15 and   Between October 15
 Summary.                      June 30.              and October 31.
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    Under the proposed rule, covered institutions with $50 billion or 
more in assets must make the required disclosure of stress test results 
between June 15 and July 15; however, within this period a covered 
institution that is a consolidated subsidiary of a bank holding company 
subject to supervisory stress tests conducted by the Board pursuant to 
12 CFR part 252 may not disclose its results until the Board has 
published the supervisory stress test results of the covered 
institution's parent holding company. In addition, if the Board 
publishes the supervisory stress test results of the covered 
institution's parent holding company prior to June 15, then such 
covered institution may satisfy its publication requirement either 
through actual publication by the covered institution or through 
publication by the parent holding company pursuant to 12 CFR 46.8(b).
    With respect to covered institutions with assets between $10 and 
$50 billion, it should be noted that pursuant to 12 CFR 46.3(e) a 
covered institution may elect to conduct its stress test under the 
stress test requirements applicable to a covered institution with 
assets of $50 billion and over. In that case we note that the covered 
institution also would be subject to the proposed disclosure 
requirements applicable to covered institutions with $50 billion or 
more in assets.
    The proposed rule would also amend the applicability provisions in 
Sec.  46.3 of the Annual Stress Test rule to reflect the changed 
timeline. Currently, a national bank or Federal savings association 
that becomes a covered institution must conduct its first annual stress 
test beginning in the next calendar year after the date the national 
bank or Federal savings association becomes a covered institution. 
Under the new stress testing timeline, if this applicability provision 
were left unchanged, if a national bank or Federal savings association 
became a covered institution as of September 30 of a given year, the 
institution would be required to conduct its first stress test in the 
stress testing cycle beginning the following January 1, three months 
after becoming a covered institution. The current Annual Stress Test 
rule provides a minimum of nine months between the date on which a 
national bank or Federal savings association becomes a covered 
institution and the start date of the stress testing cycle in which the 
covered institution must conduct it first stress test. To preserve the 
nine-month minimum the proposed rule would establish a March 31 cutoff 
date. A national bank or Federal savings association that becomes a 
covered institution on or before March 31 of a given year would be 
required to conduct its first stress test in the next calendar year. 
For example, a national bank or Federal savings association that 
becomes a covered institution on March 31, 2015 would be required to 
conduct its first stress test in the stress testing cycle beginning 
January 1, 2016. A national bank or Federal savings association that 
becomes a covered institution after March 31 of a given year would be 
required to conduct its first stress test in the second calendar year 
after the date the national bank or Federal savings association becomes 
a covered institution. For example, a national bank or Federal savings 
association that becomes a covered institution on June 30, 2015 would 
be required to conduct its first stress test in the stress testing 
cycle beginning January 1, 2017.

B. Clarification on the Use of Basel III Advanced Approaches

    On October 11, 2013, the OCC published revised risk-based and 
leverage capital requirements that implement the Basel III 
framework.\3\ In light of the issuance of the Basel III framework, the 
OCC is clarifying when covered institutions would be required to 
estimate their minimum regulatory capital ratios over the stress-test 
planning horizon using the Basel III advanced approaches methodology. 
The current OCC stress testing rule requires covered institutions to 
estimate the impact of stress scenarios on ``the covered institution's 
regulatory capital levels and ratios applicable to the covered 
institution under 12 CFR part 3 (for national banks) or part 167 (for 
Federal savings associations), as applicable, and any other capital 
ratios specified by the OCC.'' \4\ A national bank or Federal savings 
association 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.\5\ This proposal would provide that no covered institution is 
required to use the advanced approaches in its stress testing 
projections until the stress testing cycle beginning on January 1, 
2016--even if an organization has previously exited parallel run.
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    \3\ 78 FR 62018.
    \4\ 12 CFR 46.6(a)(2).
    \5\ A satisfactory parallel run is defined as a period of no 
less than four consecutive calendar quarters during which a banking 
organization complies with certain qualification requirements. 12 
CFR 3.21(c).
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    On February 14, 2014, the OCC announced that certain national banks 
had completed a successful parallel run. Given the operational 
complexity associated with incorporating the advanced approaches into 
the stress testing process, the proposal would clarify that 
incorporating the advanced approaches into stress testing would be 
deferred for one stress testing cycle. The transition period will 
provide the OCC with sufficient time to integrate the advanced 
approaches into its stress testing examination processes and to provide 
guidance to advanced approaches banking organizations regarding 
supervisory expectations on the use of the advanced approaches in 
stress testing projections.

III. Request for Comment

    The OCC requests comment on all aspects of the proposal.

IV. Regulatory Analysis

Paperwork Reduction Act

    Under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501-3520), the 
OCC may not conduct or sponsor, and a person is not required to respond 
to, an information collection unless the information collection 
displays a valid Office of Management and Budget (OMB) control number. 
This notice of

[[Page 37234]]

proposed rulemaking amends 12 CFR part 46, which has an approved 
information collection under the PRA (OMB Control No. 1557-0311). The 
amendments proposed today do not introduce any new collections of 
information, nor do they amend 12 CFR part 46 in a way that modifies 
the collection of information that OMB has approved. Therefore, this 
proposal does not require a PRA submission to OMB.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
requires generally that, in connection with a notice of proposed 
rulemaking, an agency prepare and make available for public comment an 
initial regulatory flexibility analysis that describes the impact of a 
proposed rule on small entities. However, the regulatory flexibility 
analysis otherwise required under the RFA is not required if an agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities (defined in regulations 
promulgated by the Small Business Administration (SBA) to include 
banking organizations with total assets of less than or equal to $500 
million) and publishes its certification and a brief explanatory 
statement in the Federal Register together with the rule.
    Approximately 1,173 OCC-supervised banks are small entities based 
on the SBA's definition of small entities for RFA purposes (356 federal 
savings associations, 796 national banks, and 21 trust companies). As 
discussed in the SUPPLEMENTARY INFORMATION above, the proposed modified 
dates of the annual stress test cycle will only affect institutions 
with more than $10 billion in total assets. As such, pursuant to 
section 605(b) of the RFA, the OCC certifies that this proposal would 
not have a significant economic impact on a substantial number of small 
entities because no small national banks or Federal savings 
associations would be affected by the proposal. Accordingly, an initial 
regulatory flexibility analysis is not required.

Unfunded Mandates Reform Act

    The OCC has analyzed the proposed rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this 
analysis, the OCC considered whether the proposed rule includes a 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation). The 
OCC has determined that this proposed rule will not result in 
expenditures by State, local, and tribal governments, or the private 
sector, of $100 million or more in any one year. Accordingly, this 
proposal is not subject to section 202 of the Unfunded Mandates Act (2 
U.S.C. 1532).

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The OCC has sought to present the 
proposed rule in a simple and straightforward manner, and invites 
comment on the use of plain language. For example:
     Has the OCC organized the material to suit your needs? If 
not, how could the OCC present the proposed rule more clearly?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposed 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 achieve that?
     Is this section format adequate? If not, which of the 
sections should be changed and how?
     What other changes can the OCC incorporate to make the 
regulation easier to understand?

List of Subjects in 12 CFR Part 46

    Banking, Banks, Capital, Disclosures, National banks, 
Recordkeeping, Risk, Savings associations, Stress test.

Authority and Issuance

    For the reasons set forth in the preamble, the OCC proposes to 
amend 12 CFR part 46 as follows:

PART 46--ANNUAL STRESS TEST

0
1. The authority citation for part 46 continues to read as follows:

    Authority: 12 U.S.C. 93a; 12 U.S.C. 1463(a)(2); 12 U.S.C. 
5365(i)(2); 12 U.S.C. 5412(b)(2)(B).

0
2. Section 46.3 is amended by revising paragraph (c) to read as 
follows:


Sec.  46.3  Applicability.

* * * * *
    (c) Covered institutions that become subject to stress testing 
requirements after October 9, 2012. A national bank or Federal savings 
association that becomes a covered institution, as defined in Sec.  
46.2 of this part, after March 31, 2014 and on or before March 31, 2015 
shall conduct it first annual stress test in the stress test beginning 
January 1, 2016. A national bank or Federal savings association that 
becomes a covered institution on or before March 31 of a given year 
(after 2014) shall conduct its first annual stress test under this part 
in the next calendar year after the date the national bank or Federal 
savings association becomes a covered institution. A national bank or 
Federal savings association that becomes a covered institution after 
March 31 of a given year (after 2014) shall conduct its first annual 
stress test under this part in the second calendar year after the date 
the national bank or Federal savings association becomes a covered 
institution.
* * * * *
0
3. Section 46.5 is amended by revising paragraphs (a) through (c) to 
read as follows:


Sec.  46.5  Annual stress test.

* * * * *
    (a) Financial data. A covered institution must use financial data 
as of September 30 (for the stress test beginning October 1, 2014) or 
December 31 (for the stress test beginning January 1, 2016, and all 
stress tests thereafter) of that calendar year.
    (b) Scenarios provided by the OCC. In conducting the stress test 
under this part, each covered institution must use the scenarios 
provided by the OCC. The scenarios provided by the OCC will reflect a 
minimum of three sets of economic and financial conditions, including 
baseline, adverse, and severely adverse scenarios. The OCC will provide 
a description of the scenarios required to be used by each covered 
institution no later than November 15 (for the stress test beginning 
October 1, 2014) or February 15 (for the stress test beginning January 
1, 2016, and all stress tests thereafter) of that calendar year.
    (c) Significant trading activities. The OCC may require a covered 
institution with significant trading activities, as determined by the 
OCC, to include trading and counterparty components in its adverse and 
severely adverse scenarios. The trading and counterparty position data 
to be used in this component will be as of a date between October 1 and 
December 1 (for the stress test beginning October 1, 2014) or between 
January 1 and March 1 (for the stress test beginning January 1, 2016, 
and all stress tests thereafter) of that calendar year that will be 
selected by the OCC and communicated to the covered institution no 
later than

[[Page 37235]]

December 1 (for the stress test beginning October 1, 2014) or March 1 
(for the stress test beginning January 1, 2016, and all stress tests 
thereafter) of the calendar year.
* * * * *
0
4. Section 46.6 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  46.6  Stress test methodologies and practices.

    (a) * * *
    (2) The potential impact on the covered institution's regulatory 
capital levels and ratios applicable to the covered institution under 
12 CFR part 3 or part 167, as applicable, and any other capital ratios 
specified by the OCC, incorporating the effects of any capital actions 
over the planning horizon and maintenance by the covered institution of 
an allowance for loan losses appropriate for credit exposures 
throughout the planning horizon. Until December 31, 2015, or such other 
date specified by the OCC, a covered institution is not required to 
calculate its risk-based capital requirements using the internal 
ratings-based and advanced measurement approaches as set forth in 12 
CFR 3, subpart E.
* * * * *
0
5. Section 46.7 is amended by revising paragraphs (a) and (b) to read 
as follows:


Sec.  46.7  Reports to the Office of the Comptroller of the Currency 
and the Federal Reserve Board.

    (a) $10 to $50 billion covered institution. A $10 to $50 billion 
covered institution must report to the OCC and to the Board of 
Governors of the Federal Reserve System, on or before March 31 (for the 
stress test beginning October 1, 2014) and on or before July 31 (for 
the stress test beginning January 1, 2016, and all stress tests 
thereafter), the results of the stress test in the manner and form 
specified by the OCC.
    (b) Over $50 billion covered institution. An over $50 billion 
covered institution must report to the OCC and to the Board of 
Governors of the Federal Reserve System, on or before January 5 (for 
the stress test beginning October 1, 2014) and on or before April 7 
(for the stress test beginning January 1, 2016, and all stress tests 
thereafter), the results of the stress test in the manner and form 
specified by the OCC.
* * * * *
0
6. In Sec.  46.8, the heading for paragraph (a) is republished for 
reader reference, and paragraphs (a)(1), and (2) are revised to read as 
follows:


Sec.  46.8  Publication of disclosures

    (a) Publication date--(1) Over $50 billion covered institution. (i) 
Prior to January 1, 2016, an over $50 billion covered institution must 
publish a summary of the results of its annual stress test in the 
period starting March 15 and ending March 31 (for the stress test cycle 
beginning October 1, 2014).
    (ii) Effective January 1, 2016, an over $50 billion covered 
institution must publish a summary of the results of its annual stress 
test in the period starting June 15 and ending July 15 (for the stress 
test cycle beginning January 1, 2016, and for all stress tests 
thereafter) provided:
    (A) Unless the OCC determines otherwise, if the over $50 billion 
covered institution is a consolidated subsidiary of a bank holding 
company or savings and loan holding company subject to supervisory 
stress tests conducted by the Board of Governors of the Federal Reserve 
System pursuant to 12 CFR part 252, then within the June 15 to July 15 
period such covered institution may not publish the required summary of 
its annual stress test earlier than the date that the Board of 
Governors of the Federal Reserve System publishes the supervisory 
stress test results of the covered bank's parent holding company.
    (B) If the Board of Governors of the Federal Reserve System 
publishes the supervisory stress test results of the covered 
institution's parent holding company prior to June 15, then such 
covered institution may publish its stress test results prior to June 
15, but no later than July 15, through actual publication by the 
covered institution or through publication by the parent holding 
company pursuant to paragraph (b) of this section.
    (2) $10 to $50 billion covered institution. (i) Prior to January 1, 
2016, a $10 to $50 billion covered institution must publish a summary 
of the results of its annual stress test in the period starting June 15 
and ending June 30 (for the stress test cycle beginning October 1, 
2014).
    (ii) Effective January 1, 2016, a $10 to $50 billion covered 
institution must publish a summary of the results of its annual stress 
test in the period starting October 15 and ending October 31 (for the 
stress test cycle beginning January 1, 2016, and for all stress tests 
thereafter).
* * * * *

    Dated: June 11, 2014.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2014-14416 Filed 6-30-14; 8:45 am]
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