[Federal Register Volume 79, Number 243 (Thursday, December 18, 2014)]
[Proposed Rules]
[Pages 75473-75496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29330]


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FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Regulation Q; Docket No. R-1505]
RIN 7100 AE-26


Risk-Based Capital Guidelines: Implementation of Capital 
Requirements for Global Systemically Important Bank Holding Companies

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is inviting public comment on a framework to establish risk-based 
capital surcharges for the largest, most interconnected U.S.-based bank 
holding companies pursuant to section 165 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act. The proposal is based upon the 
international standard adopted by the Basel Committee on Banking 
Supervision, modified to reflect systemic risk concerns specific to the 
funding structures of large U.S. bank holding companies.
    The proposed framework would require a U.S. top-tier bank holding 
company with $50 billion or more in total consolidated assets to 
calculate a measure of its systemic importance and would identify a 
subset of those companies as global systemically important bank holding 
companies based on that measure. A global systemically important bank 
holding company would be subject to a risk-based capital surcharge that 
would increase its capital conservation buffer under the Board's 
regulatory capital rule. The proposed framework would be phased in 
beginning on January 1, 2016 through year-end 2018, becoming fully 
effective on January 1, 2019. The proposal would also revise the 
terminology used to identify the firms subject to the enhanced 
supplementary leverage ratio standards to ensure consistency of the 
scopes of application of both rulemakings.

DATES: Comments must be received no later than March 2, 2015.

[[Page 75474]]


ADDRESSES: When submitting comments, please consider submitting your 
comments by email or fax because paper mail in the Washington, DC area 
and at the Board may be subject to delay. You may submit comments, 
identified by Docket No. R-1505 and RIN 7100 AE-16, by any of the 
following methods:
     Agency Web site: www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Federal eRulemaking Portal: www.regulations.gov. Follow 
the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Robert de V. Frierson, Secretary, Board 
of Governors of the Federal Reserve System, 20th Street and 
Constitution Avenue NW., Washington, DC 20551.
    All public comments will be made available on the Board's Web site 
at www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP--500 of the Board's Martin Building (20th and C Streets NW., 
Washington, DC 20551) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Anna Lee Hewko, Deputy Associate 
Director, (202) 530-6260, Ann McKeehan, Senior Supervisory Financial 
Analyst, (202) 973-6903, Jordan Bleicher, Senior Supervisory Financial 
Analyst, (202) 973-6123, or Holly Kirkpatrick, Supervisory Financial 
Analyst, (202) 452-2796, Division of Banking Supervision and 
Regulation, or Christine Graham, Counsel, (202) 452-3005, or Mark 
Buresh, Attorney, (202) 452-5270, Legal Division. Board of Governors of 
the Federal Reserve System, 20th and C Streets NW., Washington, DC 
20551. For the hearing impaired only, Telecommunications Device for the 
Deaf (TDD) users may contact (202) 263-4869).

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
    A. Background
    B. Dodd-Frank Act
    C. Overview of the Proposal
    D. Integrated Set of Prudential Standards
    E. Global Framework
II. Description of the Proposal To Measure and Impose Capital 
Requirements Based Upon Global Systemic Importance
    A. Identification of a GSIB
    B. Using Systemic Indicators Reported on the FR Y-15
    C. Computing the Applicable GSIB Surcharge
    D. Augmentation of the Capital Conservation Buffer
    E. Implementation and Timing
    F. Periodic Review and Refinement of the Proposal
III. Indicators of Global Systemic Risk
    A. Size
    B. Interconnectedness
    C. Substitutability
    D. Complexity
    E. Cross-jurisdictional Activity
    F. Use of Short-term Wholesale Funding
IV. Amendments to the FR Y-15
V. Modifications to Related Rules
VI. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Plain Language

I. Introduction

A. Background

    The 2007-2008 financial crisis demonstrated that certain U.S. 
financial companies had grown so large, leveraged, and interconnected 
that their failure could pose a threat to financial stability in the 
United States and globally. The sudden collapse and near-collapse of 
major financial companies were among the most destabilizing events of 
the crisis. As a result, significant public sector intervention was 
needed to reduce the impact of, or prevent, the failure of these 
companies and the attendant consequences for the broader financial 
system. The crisis demonstrated that supervisors and other relevant 
authorities needed to take additional steps to prevent financial 
vulnerabilities from spreading among firms in a manner that could 
undermine national and global financial stability. In response, U.S. 
authorities have undertaken a comprehensive reform of financial 
regulation to enhance their ability to monitor and address threats to 
financial stability, strengthen the prudential oversight and 
resolvability of systemically important financial institutions, and 
improve the capacity of financial markets and infrastructures to absorb 
shocks.
    Despite those efforts, a perception persists in the markets that 
some companies remain too big to fail, which poses a significant threat 
to the financial system. The perception of too big to fail reduces 
incentives of shareholders, creditors, and counterparties of these 
companies to discipline excessive risk-taking by these companies and 
produces competitive distortions because these companies can often fund 
themselves at a lower cost than other companies. This distortion is 
unfair to smaller companies, damages fair competition, and may 
artificially encourage further consolidation and concentration in the 
financial system.
    The financial crisis also revealed dangers that can emerge as a 
result of firms' reliance on short-term wholesale funding. Short-term 
wholesale funding is used by a variety of financial firms, including 
commercial banks and broker-dealers, and can take many forms, including 
unsecured commercial paper, asset-backed commercial paper, wholesale 
certificates of deposits, and securities financing transactions. During 
normal times, short-term wholesale funding helps to satisfy investor 
demand for safe and liquid investments, lower funding costs for 
borrowers, and support the functioning of the financial markets. During 
periods of stress, however, reliance on short-term wholesale funding 
can leave firms vulnerable to runs that undermine financial stability.
    When short-term creditors lose confidence in a firm or believe 
other short-term creditors may lose confidence in that firm, those 
creditors have a strong incentive to withdraw funding quickly before 
withdrawals by other creditors drain the firm of its liquid assets. To 
meet its obligations, the borrowing firm may be required to rapidly 
sell less liquid assets, which it may be able to do only at fire sale 
prices that deplete the seller's capital and drive down asset prices 
across the market. In a post-default scenario, fire sale externalities 
could result if the defaulted firm's creditors seize and rapidly 
liquidate assets the defaulted firm has posted as collateral. Financial 
distress can spread among firms as a result of counterparty 
relationships or because of perceived similarities among firms, forcing 
firms to rapidly liquidate assets in a manner that places the financial 
system as a whole under significant strain.

B. Dodd-Frank Act

    In the wake of the financial crisis, Congress enacted the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 
in order to mitigate the risk to the financial stability of the United 
States that could arise from the material financial distress or failure 
of large, interconnected financial institutions.\1\ Section 165 of the 
Dodd-Frank Act directs the Board to establish

[[Page 75475]]

enhanced prudential standards for bank holding companies with $50 
billion or more in total consolidated assets and for nonbank financial 
companies the Financial Stability Oversight Council (Council) has 
designated for supervision by the Board (nonbank financial companies 
supervised by the Board).\2\ The enhanced prudential standards include 
heightened risk-based capital requirements, leverage limits, liquidity 
requirements, single-counterparty credit limits, stress testing 
requirements, and risk management requirements.\3\ These standards must 
be more stringent than those standards applicable to other bank holding 
companies and to nonbank financial companies that do not present 
similar risks to U.S. financial stability.\4\ The standards must also 
increase in stringency based on several factors, including the size and 
risk characteristics of a company subject to the rule, and the Board 
must take into account the difference among bank holding companies and 
nonbank financial companies based on the same factors.\5\ Section 165 
also permits the Board to establish other prudential standards in 
addition to the mandatory standards, including three enumerated 
standards--a contingent capital requirement, enhanced public 
disclosures, and short-term debt limits--and any ``other prudential 
standards'' that the Board determines are ``appropriate.''
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    \1\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \2\ See 12 U.S.C. 5365.
    \3\ Id.
    \4\ See 12 U.S.C. 5365(a)(1)(A).
    \5\ See 12 U.S.C. 5365(a)(1)(B). Under section 165(a)(1)(B) of 
the Dodd-Frank Act, the enhanced prudential standards must increase 
in stringency based on the considerations listed in section 
165(b)(3).
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C. Overview of the Proposal

    Pursuant to its authority to establish enhanced risk-based capital 
standards under section 165 of the Dodd-Frank Act, the Board is 
proposing to impose risk-based capital surcharges (GSIB surcharges) 
upon U.S. bank holding companies that are identified as global 
systemically important banking organizations (GSIBs). First, the 
proposal would establish a methodology to determine whether a U.S. top-
tier bank holding company is a GSIB based on five broad categories that 
are believed to be good proxies for, and correlated with, systemic 
importance--size, interconnectedness, cross-jurisdictional activity, 
substitutability, and complexity. If a bank holding company's score as 
calculated under the proposed methodology is 130 basis points or 
greater, then such a bank holding company would be designated as a 
GSIB. Under the proposed methodology, eight large U.S. bank holding 
companies currently would be identified as GSIBs.
    A firm that is designated as a GSIB under the proposed methodology 
would calculate a GSIB surcharge using two methods. The first method 
would be based on the sum of a firm's systemic indicator scores 
reflecting its size, interconnectedness, cross-jurisdictional activity, 
substitutability, and complexity (method 1). The second method would be 
based on the sum of the firm's systemic indicator scores reflecting its 
size, interconnectedness, cross-jurisdictional activity, and 
complexity, as well as a measure of use of short-term wholesale 
funding, but would exclude the systemic indicator scores reflecting the 
firm's substitutability (method 2), and would generally result in 
higher surcharges as compared to method 1. A GSIB's surcharge would be 
the higher of the two surcharges determined under the two methods.
    The proposal would amend the Board's regulatory capital rule to 
increase a GSIB's capital conservation buffer by the amount of its GSIB 
surcharge.\6\ For example, under the proposal, a bank holding company 
subject to a GSIB surcharge of 2.5 percent would have a capital 
conservation buffer of 5.0 percent, which is the sum of the 2.5 percent 
capital conservation buffer and its GSIB surcharge.\7\ The Board is 
proposing that the GSIB surcharge become effective pursuant to the same 
timeline as the capital conservation buffer, which will be phased in 
beginning in 2016 at a rate of 25 percent per year and become fully 
effective on January 1, 2019.\8\
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    \6\ See 12 CFR 217.11. Implementation of the GSIB surcharge as 
an expansion of the capital conservation buffer is also the method 
of implementation chosen by the BCBS in the BCBS global framework. 
See paragraph 129 of the Basel III framework and paragraph 46 of the 
BCBS Revised Document.
    \7\ This example assumes that any applicable countercyclical 
capital buffer amount is zero.
    \8\ 12 CFR 217.300(a).
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    The proposed GSIB surcharge is designed to reduce a GSIB's 
probability of default such that a GSIB's expected systemic impact is 
approximately equal to that of a large, non-systemic bank holding 
company. Distress at a GSIB would have substantially greater negative 
consequences on the financial system than the failure of other bank 
holding companies that may be large or interconnected, but that do not 
have comparable systemic risk profiles. Distress at a GSIB can lead to 
a domino effect, whereby a GSIB's counterparties are placed under 
severe strain when the GSIB does not meet its financial obligations. 
The inability of a counterparty of a GSIB to meet its obligations 
leads, in turn, to severe strains at its significant counterparties, 
leading to more firms being unable to fulfill their contractual 
obligations. In addition, distress at a GSIB can lead to fire sales in 
asset markets, when a GSIB engages in distressed sales in an effort to 
obtain needed liquidity. The sudden increase in market supply of assets 
drives down prices. This effect is transmitted not only to firms that 
must sell assets to meet immediate liquidity needs but, because of 
margin calls and mark-to-market accounting requirements, to many other 
firms as well. There can also be information contagion effects, where 
market participants conclude from a GSIB's distress that other firms 
holding similar assets or following similar business models are likely 
to also be facing distress. Taken together, these impacts indicate that 
the failure of a GSIB could affect not only those firms closely 
connected to the GSIB, but also the broader financial system. Because 
the systemic loss given default of a GSIB is much greater than that of 
a large, non-systemic bank holding company, its probability of default 
must be significantly lower than that of a large, non-systemic bank 
holding company in order to equalize the expected systemic impact of 
its failure or distress.
    The proposed GSIB surcharge increases in stringency based on a 
GSIB's risk characteristics, including size, complexity, 
interconnectedness, cross-jurisdictional activity, and use of short-
term wholesale funding. In this way, the calibration is designed to 
induce a GSIB to reduce its risk of failure, internalize the negative 
externalities it poses, and correct for competitive distortions created 
by the perception that it may be too big to fail. In addition, the 
proposed GSIB surcharge would place additional private capital at risk 
before the Federal Deposit Insurance Fund or the Federal government's 
resolution mechanisms would be called upon and would reduce the 
likelihood of economic disruptions as a result of financial distress at 
these institutions.

D. Integrated Set of Prudential Standards

    The proposed GSIB surcharge is one of several enhanced prudential 
standards that the Board has developed pursuant to section 165 of the 
Dodd Frank Act. In November 2011, the Board and the Federal Deposit 
Insurance Corporation (FDIC) issued a joint final rule that would 
require bank holding

[[Page 75476]]

companies and foreign banking organizations with $50 billion or more in 
total consolidated assets and nonbank financial companies designated by 
the Council for supervision by the Board to submit annual resolution 
plans.\9\ Also in November 2011, the Board issued a final rule 
requiring a bank holding company to submit an annual capital plan to 
the Board in which it demonstrates the ability to meet the Board's 
minimum regulatory capital requirements over a range of stressed 
conditions.\10\ In October 2012, the Board issued two final rules 
implementing stress testing requirements for certain bank holding 
companies, state member banks, and savings and loan holding companies 
pursuant to sections 165(i)(1) and (2) of the Dodd-Frank Act.\11\ In 
February 2014, the Board issued a final rule establishing liquidity and 
risk management standards for U.S. bank holding companies and capital, 
stress testing, liquidity, and risk management standards for foreign 
banking organizations.\12\ Finally, in September 2014, the Board, the 
FDIC, and the Office of the Comptroller of the Currency (OCC) issued 
the liquidity coverage ratio rule (LCR rule) that creates for the first 
time a standardized minimum liquidity coverage ratio requirement for 
the largest, most complex banking organizations.\13\
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    \9\ 12 CFR part 243.
    \10\ See 12 CFR 225.8. See 76 FR 74631 (December 1, 2011); 79 FR 
64026 (October 27, 2014); and 79 FR 13498 (March 11, 2014).
    \11\ See 12 U.S.C. 5365(i)(1) and 12 CFR 252, subparts E and F. 
See 77 FR 62378 (October 12, 2012); 79 FR 64026 (October 27, 2014); 
and 79 FR 13498 (March 11, 2014).
    \12\ See 79 FR 17240 (March 27, 2014).
    \13\ 79 FR 61440 (October 10, 2014).
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    In addition, the Board has adopted measures to strengthen the 
capital regulations applicable to all banking organizations. In July 
2013, the Board, the FDIC, and the OCC adopted a final rule revising 
the regulatory capital rule to increase the quality and quantity of 
regulatory capital that must be maintained by banking organizations, 
and to improve risk coverage by more accurately measuring the risk 
inherent in exposures.\14\ The final rule also established a capital 
conservation buffer that incentivizes banking organizations to hold 
capital in excess of regulatory minimums by imposing increasingly 
stringent limits on capital distributions and certain discretionary 
bonus payments as the banking organization's buffer falls below 
specified thresholds. For the case of banking organizations subject to 
the advanced approaches rule, the regulatory capital rule also includes 
a mechanism for increasing the capital conservation buffer when credit 
markets overheat (through the countercyclical buffer), and a 
supplementary leverage ratio that takes into account both on- and off-
balance sheet exposures.\15\ In April 2014, the Board, the FDIC, and 
the OCC issued enhanced supplementary leverage ratio standards for the 
largest, most complex bank holding companies (i.e., the bank holding 
companies that would be identified as GSIBs under the proposed rule) 
and their insured depository institution subsidiaries, under which such 
bank holding companies must maintain a supplementary leverage ratio of 
5 percent or more in order to avoid limitations on distributions and 
certain discretionary bonus payments, and such insured depository 
institution subsidiaries must maintain a supplementary leverage ratio 
of 6 percent or more to be ``well capitalized'' under the agencies' 
prompt corrective action regulations.\16\
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    \14\ The Board and the OCC issued a joint final rule on October 
11, 2013 (78 FR 62018) and the FDIC issued a substantially identical 
interim final rule on September 10, 2013 (78 FR 55340). In April 
2014, the FDIC adopted the interim final rule as a final rule with 
no substantive changes. 79 FR 20754 (April 14, 2014).
    \15\ Id. at 62170-62172.
    \16\ See 79 FR 24528 (May 1, 2014). The supplementary leverage 
ratio comes into effect on January 1, 2018 and applies to top-tier 
U.S. bank holding companies with more than $700 billion in total 
consolidated assets or more than $10 trillion in assets under 
custody (covered BHCs), as well as insured depository institution 
subsidiaries of the covered BHCs. As discussed in section IV of this 
preamble, the proposal would amend the supplementary leverage ratio 
rule to ensure consistency of the scopes of application for the 
supplementary leverage ratio rule and the GSIB proposal.
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    The Board continues to develop additional enhanced standards that 
will mitigate risks to U.S. financial stability posed by certain 
banking organizations.

E. Global Framework

    The proposed GSIB surcharge is consistent with global efforts to 
address the financial stability risks posed by the largest, most 
interconnected financial institutions. Following the financial crisis, 
the Group of Twenty Finance Ministers and Central Bank Governors (G-20) 
requested that the Financial Stability Board (FSB) develop a policy 
framework to address the systemic and moral hazard risks associated 
with systemically important financial institutions, and in particular, 
global systemically important financial institutions.\17\ In November 
2010, the G-20 endorsed an FSB policy framework for addressing these 
institutions, one element of which is a capital surcharge for global 
systemically important financial institutions.\18\ In November 2011, 
the FSB published an integrated set of policy measures to address the 
systemic and moral hazard risks associated with global systemically 
important financial institutions, intended to mitigate the impact of 
the failure of a global systemically important financial institution 
and reduce any competitive funding advantages these firms may have as a 
result of the perception that they are too big to fail.\19\ The FSB 
identified the global systemically important financial institutions 
using an assessment methodology and framework developed by the Basel 
Committee on Banking Supervision (BCBS framework).\20\ The BCBS 
calculates global firms' scores and releases the lists of global 
systemically important financial institutions, including global 
systemically important

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banking organizations, on an annual basis.\21\
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    \17\ The G-20 was established in 1999 to bring together 
industrialized and developing economies to discuss key issues in the 
global economy. Members include finance ministers and central bank 
governors of 19 countries (Argentina, Australia, Brazil, Canada, 
China, France, Germany, India, Indonesia, Italy, Japan, Mexico, 
Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, U.K., 
and U.S.) and the European Union. The FSB was established to 
coordinate at the international level the work of national financial 
authorities and international standard setting bodies and to develop 
and promote the implementation of effective regulatory, supervisory 
and other financial sector policies in the interest of financial 
stability. The FSB brings together national authorities responsible 
for financial stability in 24 countries and jurisdictions, 
international financial institutions, sector-specific international 
groupings of regulators and supervisors, and committees of central 
bank experts.
    \18\ For additional background on the November 2010 initiative, 
see www.financialstabilityboard.org/press/pr_101111a.pdf.
    \19\ See ``Policy Measures to Address Systemically Important 
Financial Institutions'' available at 
www.financialstabilityboard.org/publications/r_111104bb.pdf.
    \20\ The Basel Committee on Banking Supervision (BCBS) is a 
committee of banking supervisory authorities established by the 
central bank Governors of the Group of Ten countries in 1975. The 
committee's membership consists of senior representatives of bank 
supervisory authorities and central banks from Argentina, Australia, 
Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, 
India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the 
Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, 
Sweden, Switzerland, Turkey, the United Kingdom, and the United 
States. It usually meets at the Bank for International Settlements 
(BIS) in Basel, Switzerland, where its permanent Secretariat is 
located. See ``Global systemically important banks: Assessment 
methodology and the additional loss absorbency requirement'' 
available at www.bis.org/publ/bcbs201.htm. In July 2013, the BCBS 
published revisions to this document entitled, ``Global systemically 
important banks: Updated assessment methodology and the higher loss 
absorbency requirement,'' which provides certain revisions and 
clarifications to the initial framework. The document is available 
at www.bis.org/publ/bcbs255.htm.
    \21\ See http://www.bis.org/bcbs/gsib/gsibs_as_of_2014.htm.
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    The BCBS plans to review the BCBS framework, including the 
indicator-based measurement approach and the threshold scores for 
identifying global systemically important financial institutions, every 
three years in order to capture developments in the banking sector and 
any progress in methods and approaches for measuring systemic 
importance.\22\ The first three-year review has already begun. In 
connection with this review, the Board has encouraged the BCBS to 
consider including a measure of short-term wholesale funding within the 
BCBS framework.
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    \22\ See paragraph 39 of the Revised BCBS Document.
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II. Description of the Proposal To Measure and Impose Capital 
Requirements Based Upon Global Systemic Importance

    The proposal would establish a methodology for identifying a U.S. 
bank holding company as a GSIB based on the bank holding company's 
systemic risk profile and establishing the appropriate size of the GSIB 
surcharge.

A. Identification of a GSIB

    The proposal would require each U.S. top-tier bank holding company 
with total consolidated assets of $50 billion or more that is not a 
subsidiary of a non-U.S. banking organization to determine annually 
whether it is a GSIB by using five categories that measure global 
systemic importance: Size, interconnectedness, substitutability, 
complexity, and cross-jurisdictional activity. These proposed 
categories were chosen to measure whether the failure of a bank holding 
company, or the inability of a bank holding company to conduct regular 
course-of-business transactions, would likely impair financial 
intermediation or financial market functioning so as to inflict 
material damage on the broader economy. These factors are also 
consistent with the factors that the Board considers in reviewing 
financial stability implications of proposed mergers and acquisitions 
by banking organizations.\23\
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    \23\ The Dodd-Frank Act requires the Board to consider risks to 
U.S. financial stability when approving applications and notices by 
bank holding companies under sections 3 and 4 of the Bank Holding 
Company Act. Dodd-Frank Act, Sec.  604(d) and (e), codified at 12 
U.S.C. 1842(c)(7) and 1843(j)(2)(A). Other provisions of the Dodd-
Frank Act impose a similar requirement that the Board consider or 
weigh the risks to financial stability posed by a merger, 
acquisition, or expansion proposal by a financial institution. See 
sections 163, 173 of the Dodd-Frank Act.
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    The proposal identifies individual systemic indicators that measure 
the firm's profile within each category, set forth in Table 1 below, 
and sets forth a weighting for those indicators to compute a bank 
holding company's systemic indicator score. The advantages of a 
multiple indicator-based measurement approach is that it encompasses 
many dimensions of systemic importance and is transparent. These 
systemic indicators, and their relationship to financial stability, are 
described in section III of this preamble.

                      Table 1--Systemic Indicators
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                                                             Indicator
             Category                Systemic Indicator     weight (%)
------------------------------------------------------------------------
Size..............................  Total exposures.....              20
Interconnectedness................  Intra-financial                 6.67
                                     system assets.                 6.67
                                    Intra-financial                 6.67
                                     system liabilities.
                                    Securities
                                     outstanding.
Substitutability..................  Payments activity...            6.67
                                    Assets under custody            6.67
                                    Underwritten                    6.67
                                     transactions in
                                     debt and equity
                                     markets.
Complexity........................  Notional amount of              6.67
                                     over-the-counter
                                     (OTC) derivatives.
                                    Trading and                     6.67
                                     available-for-sale             6.67
                                     (AFS) securities.
                                    Level 3 assets6.67..
Cross-jurisdictional activity.....  Cross-jurisdictional              10
                                     claims.                          10
                                    Cross-jurisdictional
                                     liabilities.
                                                         ---------------
    Total for twelve indicators     ....................             100
     across five categories.
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    To determine whether it is a GSIB, a bank holding company would 
first identify values for each systemic indicator listed in Table 1 
that it reported on its most recent Banking Organization Systemic Risk 
Report (FR Y-15).\24\ The bank holding company would then divide each 
of these values by the corresponding aggregate global indicator amount 
published by the Board in the fourth quarter of that year. This 
aggregate global indicator amount corresponds to the amount released by 
the BCBS, converted from Euros to U.S. dollars using the conversion 
rate provided by the BCBS. The aggregate global indicator amount 
released by the BCBS is the sum of the systemic indicator amounts for 
each category listed in Table 1 above, as reported by a sample of the 
largest banking organizations in the world for each systemic 
indicator.\25\ The resulting quotient for each indicator would be

[[Page 75478]]

multiplied by the prescribed weighting indicated in Table 1 above, and 
then multiplied by 10,000 to reflect the result in basis points. For 
example, if a bank holding company's cross-jurisdictional claims 
divided by the associated aggregate global amount for that indicator is 
0.03 (that is, the firm's cross-jurisdictional claims amount is equal 
to 3 percent of the aggregate global amount for cross-jurisdictional 
claims), then its cross-jurisdictional claims indicator score would be 
30 basis points (0.03*0.1*10,000). A bank holding company would then 
sum the weighted values for the twelve systemic indicators to determine 
its aggregate systemic indicator score and whether it would be 
identified as a GSIB, provided that the value for the substitutability 
indicators would be capped at 100, as described in section III.C of 
this preamble.\26\ Under this methodology, a bank holding company's 
systemic importance depends on the amount of its activity in each 
systemic indicator relative to the global magnitude of the activity. 
The multi-indicator approach reflects the fact that there are multiple 
elements that contribute to systemic importance. The aggregate global 
indicator amounts released annually by the BCBS provide a simple and 
convenient means of comparing the global, consolidated activities of 
similarly situated global banking organizations.
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    \24\ Subject bank holding companies are required to file the FR 
Y-15. In addition, a bank holding company that is designated as a 
GSIB would be required to calculate its systemic score the following 
year, regardless of whether it has $50 billion in total assets that 
year. See Instructions for Preparation of Banking Organization 
Systemic Risk Report available at http://www.federalreserve.gov/reportforms/forms/FR_Y-1520131231_i.pdf. The Board intends to seek 
comment on a proposal to revise the measure of total exposure to 
align with recent revisions to the Board's supplementary leverage 
ratio rule. 79 FR 57725 (September 26, 2014).
    \25\ The sample of global banking organizations includes the 
following:
    (1) Banking organizations identified as the 75 largest global 
banking organizations, based on the financial year-end Basel III 
framework leverage ratio exposure measure; (2) banking organizations 
that were designated as GSIBs by the FSB in the previous year 
(unless supervisors agree that there is compelling reason to exclude 
them); and (3) banking organizations that have been added to the 
sample group by national supervisors using supervisory judgment 
(subject to certain criteria). See paragraph 26 of the BCBS Revised 
Document. The BCBS publishes annually the aggregate global indicator 
amount for each indicator. The Board will make this information 
available on its public Web site, through a press release, or by 
publication in the Federal Register.
    \26\ Relative to the other categories in the method 1 surcharge, 
the substitutability category has a greater-than-intended impact on 
the assessment of systemic importance for certain banking 
organizations that are dominant in the provision of asset custody, 
payment systems, and underwriting services. Accordingly, the 
proposal would cap the maximum weighted score for the 
substitutability category at 100 basis points so that the 
substitutability category does not have a greater than intended 
impact on a bank holding company's global systemic score.
---------------------------------------------------------------------------

    In determining the threshold for identifying a GSIB, the Board 
analyzed various potential metrics for evaluating the systemic 
importance of large banking organizations, including those in the BCBS 
framework.\27\ According to the Board's analysis, across many potential 
metrics, there is a clear separation in systemic risk profiles between 
the eight U.S. top-tier bank holding companies that would be identified 
as GSIBs under the proposed methodology and other bank holding 
companies. For example, using the estimated global systemic scores for 
the U.S. bank holding companies with over $50 billion of total 
consolidated as derived from data reported on the FR Y-15 filed in 
March 2014, there is a significant gap in scores among the largest bank 
holding companies, with all entities other than the eight bank holding 
companies that would currently be identified as GSIBs receiving 
aggregate systemic indicator scores of less than 50 points. Further, 
the bank holding company with the highest aggregate systemic indicator 
score that is not a GSIB received a score of approximately one third of 
that of the GSIB with the lowest aggregate systemic indicator score. 
The 130 basis point threshold is intended to capture the bank holding 
companies that are in this separate, higher systemic importance group. 
Bank holding companies with aggregate systemic indicator scores under 
the 130 basis point threshold would not be subject to a GSIB 
surcharge.\28\
---------------------------------------------------------------------------

    \27\ See Appendix 2 of the BCBS Initial Document and Appendix 2 
of the BCBS Revised Document for a detailed discussion of the 
empirical analysis conducted by BCBS.
    \28\ Scores would be rounded according to standard rounding 
rules for the purposes of assigning levels. That is, fractional 
amounts between zero and one-half would be rounded down to zero, 
while fractional amounts at or above one-half would be rounded to 
one.
---------------------------------------------------------------------------

    The proposal would require a bank holding company with total 
consolidated assets of $50 billion or more to begin calculating its 
aggregate systemic indicator score by December 31 of the year in which 
it crosses the $50 billion threshold. While the Board's other 
regulations implementing section 165 of the Dodd-Frank Act generally 
measure application of the enhanced prudential standards based on a 
four-quarter average of total consolidated assets, the proposal would 
adopt a June 30 measurement date of total consolidated assets to be 
consistent with the FR Y-15 reporting schedule.
    Question 1. What are commenters' views on the scope of application 
of the proposal? Is the $50 billion total consolidated asset threshold 
appropriate for requiring bank holding companies to calculate their 
systemic indicator scores, or should some higher asset threshold be 
considered? Is it appropriate to exclude bank holding companies that 
are subsidiaries of non-U.S. banking organizations from the proposal's 
scope of application?
    Question 2. What, if any, different or additional indicators should 
the Board consider for the identification of a bank holding company as 
a GSIB? In particular, should the Board take into account a bank 
holding company's use of short-term wholesale funding instead of or in 
addition to substitutability in determining whether it should be 
designated as a GSIB? Why or why not?
    Question 3. What, if any, different aggregate systemic indicator 
score threshold should the Board consider for the designation of a bank 
holding company as a GSIB?
    Question 4. If the proposed framework were applied to nonbank 
financial companies designated by the Financial Stability Oversight 
Council for Board oversight, how (if at all) should the framework be 
modified to capture the systemic risk profile of those companies?

B. Using Systemic Indicators Reported on the FR Y-15

    As noted above, the systemic indicators are aligned with those 
reported by a bank holding company on the FR Y-15. The FR Y-15, 
implemented on December 31, 2012, is an annual report that gathers data 
on components of systemic risk from large bank holding companies and 
provides firm-specific information to enable an analysis of the 
systemic risk profiles of such firms.\29\ The FR Y-15 was developed to 
facilitate the implementation of the GSIB surcharge through regulation, 
and also is used to analyze the systemic risk implications of proposed 
mergers and acquisitions and to monitor, on an ongoing basis, the 
systemic risk profiles of bank holding companies subject to enhanced 
prudential standards under section 165 of the Dodd-Frank Act. As of 
December 31, 2013, all U.S. top-tier bank holding companies with total 
consolidated assets of $50 billion or more are required to file the FR 
Y-15 on an annual basis. In connection with this proposal, the Board 
intends to modify the FR Y-15 to gather information on bank holding 
companies' use of short-term wholesale funding.
---------------------------------------------------------------------------

    \29\ See 77 FR 76487 (December 28, 2012). The Board subsequently 
revised the FR Y-15 in December 2013. See 78 FR 77128 (December 20, 
2013).
---------------------------------------------------------------------------

    Question 5. Is the proposed use of June 30 as the measurement date 
for the $50 billion total consolidated asset threshold appropriate? Is 
there an alternative measurement date that should be used?

C. Computing the Applicable GSIB Surcharge

    Under the proposal, a bank holding company with an aggregate 
systemic indicator score of 130 basis points or greater would be 
identified as a GSIB and as such, would be subject to the higher of the 
two surcharges calculated under method 1 and method 2, as described 
below.
1. Method 1 Surcharge
    A GSIB's method 1 surcharge would be the capital surcharge set 
forth in Table 2 below that corresponds to its

[[Page 75479]]

aggregate systemic indicator score. As discussed further in section 
II.C.3 of this preamble, the proposed method 1 surcharge reflects one 
method of calibrating the size of a surcharge based on the probable 
systemic impact from the failure of a GSIB as compared to a bank 
holding company that is large, but not systemically important.

                       Table 2--Method 1 Surcharge
------------------------------------------------------------------------
 Systemic  indicator score  (basis points)       Method 1 surcharge
------------------------------------------------------------------------
Less than 130.............................  0.0 percent (no surcharge).
130_229...................................  1.0 percent.
230_329...................................  1.5 percent.
330_429...................................  2.0 percent.
430_529...................................  2.5 percent.
530_629...................................  3.5 percent.
630 or greater............................  3.5 percent plus 1.0
                                             percentage point for every
                                             100 basis point increase in
                                             score.
------------------------------------------------------------------------

    For instance, if a GSIB's systemic indicator score were 250, the 
GSIB's method 1 surcharge would be 1.5 percent.
    As reflected in Table 2, the lowest method 1 surcharge would 
correlate to a method 1 score band ranging from 130 basis points to 229 
basis points and would increase in increments of 0.5 percentage points 
for each additional 100 basis-point band, up to a method 1 surcharge of 
2.5 percent. To account for the possibility that a GSIB's aggregate 
systemic indicator score could increase in the future beyond the fourth 
band, the proposal would require a one percentage point increase in the 
method 1 surcharge for each 100 basis point band at and above 530 basis 
points. An indefinite number of bands would give the Board the ability 
to assess an appropriate method 1 surcharge should a GSIB become 
significantly more systemically important, and would create 
disincentives for continued increases in global systemic scores.
    Calibrating the surcharge using bands, as set forth in the 
proposal, or using a continuous function that increases linearly based 
on the weighted average of a bank holding company's systemic indicator 
score was considered during the development of the proposal. While the 
continuous function is more sensitive to changes in a bank holding 
company's systemic risk profile, it could be less transparent to the 
public and may be misleading in its precision as a measure of systemic 
risk. Accordingly, the proposal uses bands because it is a simple, 
transparent method that enables a GSIB and the public to better 
anticipate the size of the method 1 surcharge for future periods. The 
bands are intended to be sufficiently large so that modest changes in a 
firm's systemic indicators would not cause a firm to move between 
surcharge amounts. However, to the extent that a marginal change in a 
bank holding company's systemic risk profile caused the bank holding 
company to have a higher method 1 score, the proposal would delay the 
effective date of the higher method 1 score for a full year after it 
was calculated.
2. Method 2 Surcharge
    As a second step to determining its GSIB surcharge, a GSIB would be 
required to compute its surcharge under method 2. Under method 2, the 
GSIB would calculate a score for the size, interconnectedness, 
complexity, and cross-jurisdictional activity systemic indicators in 
the same manner as undertaken to compute its aggregate systemic 
indicator score. However, rather than using the substitutability 
systemic indicator used under method 1, the GSIB would instead add to 
its score a quantitative measure of its use of short-term wholesale 
funding (short-term wholesale funding score).
    The proposal would include a firm's short-term wholesale funding 
score as a factor in the GSIB surcharge in order to address the 
systemic risks associated with short-term wholesale funding use. As 
described in section I.A. of this preamble, use of short-term wholesale 
funding generally increases a firm's probability of default by making 
the firm vulnerable to short-term creditor runs, and increases the 
likely social costs of the firm's distress, including by heightening 
the risk that the firm's significant stress or failure will give rise 
to fire sale externalities. Incorporating a short-term wholesale 
funding score into the GSIB surcharge framework would require a GSIB to 
hold more capital based on whether it relies more heavily on short-term 
wholesale funding. The increased capital charge would help increase the 
resiliency of the firm against runs on its short-term wholesale funding 
and help internalize the cost of using short-term wholesale funding. A 
GSIB may opt to modify its funding profile to reduce its use of short-
term wholesale funding, or continue to use short-term wholesale funding 
to the same degree but hold additional capital.
    The proposed method 2 would not rely on a measure of 
substitutability, even though the proposal would use substitutability 
to determine whether a bank holding company would be identified as a 
GSIB. A bank holding company's substitutability is relevant in 
determining whether a bank holding company is a GSIB, as the failure of 
a bank holding company that performs a critical function where other 
firms lack the expertise or capacity to do so can pose significant 
risks to U.S. financial stability. However, the capital surcharge 
imposed on a GSIB should be designed to address the GSIB's 
susceptibility to failure, and increasing a GSIB's surcharge based on 
short-term wholesale funding use rather than substitutability is a more 
effective means of requiring a GSIB to internalize the externalities it 
imposes on the broader financial system and reduce its probability of 
failure. A GSIB's short-term wholesale funding score would be based on 
the GSIB's average use of short-term wholesale funding sources over a 
calendar year. The proposed components of short-term wholesale funding 
would be weighted to account for the varying degrees of risk associated 
with different sources of short-term wholesale funding, and would then 
be divided by the GSIB's average total risk-weighted assets over the 
same calendar year. A GSIB would then apply a fixed conversion factor 
to the measure of short-term wholesale funding to normalize the value 
of short-term wholesale funding relative to the other systemic 
indicators. This amount would constitute the GSIB's short-term 
wholesale funding score. The methodology to calculate the short-term 
wholesale funding score, including its justification, is described in 
detail in section III.F of this preamble.
    Once a GSIB calculates its short-term wholesale funding score, the 
GSIB would add its short-term wholesale funding score to the systemic 
indicator scores for the size, interconnectedness, complexity, and 
cross-jurisdictional activity indicators and multiply this figure by 
two to arrive at its method 2 score. To determine its method 2 
surcharge, a GSIB would identify the method 2 surcharge that 
corresponds to its method 2 score, as identified in Table 3 below.

                       Table 3--Method 2 Surcharge
------------------------------------------------------------------------
      Method 2 score  (basis points)             Method 2 surcharge
------------------------------------------------------------------------
Less than 130.............................  0.0 percent (no surcharge).
130-229...................................  1.0 percent.
230-329...................................  1.5 percent.
330-429...................................  2.0 percent.
430-529...................................  2.5 percent.
530-629...................................  3.0 percent.
630-729...................................  3.5 percent.
730-829...................................  4.0 percent.
830-929...................................  4.5 percent.
930-1029..................................  5.0 percent.

[[Page 75480]]

 
1030-1129.................................  5.5 percent.
1130 or greater...........................  5.5 percent plus 0.5
                                             percentage point for every
                                             100 basis point increase in
                                             score.
------------------------------------------------------------------------

    For instance, if a GSIB's short-term wholesale funding score were 
200 and the sum of its systemic indicator scores for the size, 
interconnectedness, complexity, and cross-jurisdictional activity 
indicators were 530, the GSIB's method 2 score would equal 730, and its 
method 2 surcharge would be 4.0 percent.
    Like the bands of the method 1 surcharge, the method 2 surcharge 
would use band ranges of 100 basis points, with the lowest band ranging 
from 130 basis points to 229 basis points. The method 2 surcharge would 
increase in increments of 0.5 percentage points per band, including 
bands at and above 1130 basis points. The modified band structure is 
appropriate for the method 2 surcharge because the proposed method's 
doubling of a GSIB's method 2 score could otherwise impose a surcharge 
that is larger than necessary to appropriately address the risks posed 
by a GSIB's systemic nature. As with the method 1 surcharge, the method 
2 surcharge would include an indefinite number of bands in order to 
give the Board the ability to assess an appropriate surcharge should a 
GSIB become significantly more systemically important and would create 
disincentives for continued increases in systemic indicator and short-
term wholesale funding scores.
3. Calibration of GSIB Surcharge and Estimated Impact
    Under the proposal, a GSIB would be subject to the greater 
surcharge resulting from the two methods described above. Based upon 
the proposed formulation of method 2, in most instances, a GSIB would 
be subject to the surcharge resulting from method 2.
    The proposed calibration of the GSIB surcharges is based on the 
Board's analysis of the additional capital necessary to equalize the 
probable systemic impact from the failure of a GSIB as compared to the 
probable systemic impact from the failure of a large, but not 
systemically important, bank holding company. Increased capital at a 
GSIB increases the firm's resiliency to failure, thereby reducing the 
probability of it having a systemic effect. The proposed approach also 
builds on analysis of the return on risk-weighted assets that was 
developed to inform the calibration of the minimums and capital 
conservation buffers of the Board's regulatory capital rule.
    In addition, the Board considered the long-term economic impact of 
stronger capital and liquidity requirements at banking organizations. 
In 2010, the BCBS published a study (2010 BCBS study), which estimated, 
using historical data, that the economic benefits of more stringent 
capital and liquidity requirements, on net, outweighed the cost of such 
requirements and that benefits would continue to accrue at even higher 
levels of risk-based capital than are a part of the Board's regulatory 
capital rule.\30\ The Board also considered that other jurisdictions 
have established capital requirements for global systemically important 
banking organizations that exceed those required by the BCBS framework; 
for instance, by imposing a larger surcharge upon global systemically 
important banking organizations than would be imposed under the BCBS 
framework or by requiring implementation of a global systemically 
important banking organization surcharge on a more expedited timeline. 
For example, Switzerland, Sweden, and Norway each require global 
systemically important banking organizations to adhere to capital 
requirements larger than those of the BCBS framework.\31\
---------------------------------------------------------------------------

    \30\ See ``An assessment of the long-term economic impact of 
stronger capital and liquidity requirements,'' available at http://www.bis.org/publ/bcbs173.pdf (August 2010). This study specified 
that tangible common equity is net of goodwill and intangibles and 
is therefore analogous to common equity tier 1 capital under the 
regulatory capital rule.
    \31\ See the Swiss Financial Market Supervisory Authority 
FINMA's ``Pillar 2 Capital Adequacy Requirements for Banks Fact 
Sheet'' published June 17, 2013, available at: http://www.finma.ch/e/finma/publikationen/faktenblaetter/Documents/fb-eigenmittelanforderungen-banken-e.pdf, the Riksbank Financial 
Stability Report, Q2:2013, published November 2013, available at: 
http://www.riksbank.se/Documents/Rapporter/FSR/2013/FSR_2/rap_fsr2_131128_eng.pdf, and the Norwegian Ministry of Finance press 
release ``Regulation and decision on systemically important 
financial institutions,'' published May 12, 2014, available at 
http://www.regjeringen.no/en/dep/fin/press-center/press-releases/2014/Regulation-and-decision-on-systemically-important-financial-institutions.html?id=759115.
---------------------------------------------------------------------------

    Under the proposal, the method 1 surcharge would serve as a floor 
for the GSIB surcharge. Like the method 2 surcharge, the method 1 
surcharge is based on the expected impact approach, but differs in 
three important ways. First, based upon current data, method 1 
generally results in lower GSIB surcharges than method 2. Second, as 
compared to method 2, method 1 increases the GSIB surcharge at a higher 
rate to the extent a GSIB's systemic risk profile were to exceed the 
highest aggregate systemic indicator scores of the current GSIB 
population. As described above, the proposed method 1 surcharge would 
increase in 0.5 percentage point increments up to 2.5 percent, and then 
in 1.0 percentage point increments after a GSIB's systemic risk profile 
increases beyond the maximum current level (i.e., beyond 250 points). 
Accordingly, in the future, a GSIB that increases in systemic 
importance could be bound by proposed method 1, rather than method 2. 
Third, method 1 would use a measure of substitutability. While the use 
of short-term wholesale funding is likely a more effective indicator 
for evaluating a GSIB's susceptibility to failure, a GSIB with a high 
substitutability score but low systemic indicator scores in all other 
categories may be subject to a surcharge under method 1 but not under 
method 2. In this case, imposing the method 1 surcharge would be 
appropriate, in order to correct for competitive and systemic 
distortions created by the perception that the GSIB may be too big to 
fail. Notably, this approach would also facilitate comparability among 
jurisdictions implementing the BCBS framework.
    Using data as of year-end 2013, the Board estimates that the GSIB 
surcharges that would apply to the eight U.S. top-tier bank holding 
companies that would be identified as GSIBs would range from 1.0 to 4.5 
percent.\32\ Based upon these estimates, nearly all of the eight firms 
would already meet their GSIB surcharges on a fully phased-in basis, 
and all firms are on their way to meeting their surcharges over the 
proposed three-year phase-in period.
---------------------------------------------------------------------------

    \32\ These preliminary estimates were generated using BCBS 
aggregate global indicator amounts from year-end 2013, 2013 Y-15 
data, and aggregated 2013 short-term wholesale funding data from the 
FR 2052a.
---------------------------------------------------------------------------

    Question 6. The Board seeks comment on all aspects of the 
calibration of the GSIB surcharge. What are commenters' views regarding 
the proposed calibration? What are commenters' views regarding the 
benefits and challenges associated with the proposed two-method 
approach for determining the amount of the GSIB surcharge?
    Question 7. What are commenters' views on the appropriateness of 
replacing the substitutability indicator with the short-term wholesale 
funding score under method 2?
    Question 8. What are commenters' views on how the proposed GSIB

[[Page 75481]]

surcharge would impact the competitive position of GSIBs relative to 
foreign peer institutions?
    Question 9. What potential costs would be imposed on bank holding 
companies if the proposed GSIB surcharge were implemented? What are the 
potential impacts of the proposed framework on economic growth, credit 
availability, and credit costs in the United States, over the short-
term and long-term? How could potential costs, burdens, and other 
adverse effects be minimized while achieving the financial stability 
benefits of the proposed GSIB surcharge?
4. Alternative Method of Capturing Use of Short-Term Wholesale Funding
    Alternative methods could be used to reflect use of short-term 
wholesale funding within the GSIB surcharge. For example, the 
applicable surcharge might be calculated by using short-term wholesale 
funding as a scaling factor for the method 1 surcharge. For example, 
one approach might be:
[GRAPHIC] [TIFF OMITTED] TP18DE14.016

where

    GSIBMethod2 is the result of scaling the method 1 
surcharge, and where F = 1 + (STWF[sol]RWA) x n, where STWF is a 
GSIB's short-term wholesale funding amount and RWA is the total 
risk-weighted assets of a GSIB. The parameter n would be chosen to 
capture concerns about a GSIB's default probability and its 
interaction with the externalities identified in the 
GSIBMethod1 methodology.

    As noted above, the Board believes that in most instances, 
GSIBMethod2 will be greater than GSIBMethod1. 
Multiplying the method 1 surcharge by a scaling factor F could result 
in stronger incentives to reduce use of short-term wholesale funding, 
particularly among the most systemic firms. For example, using the 
existing measure of reliance (short-term wholesale funding/total 
average risk-weighted assets) and a scaling factor of 4 (n=4) produces 
a comparable set of surcharges relative to the method 2 surcharge 
described above. Similarly, choosing a smaller factor for n would 
result in a smaller increase in GSIB surcharges.
    Scaling the method 1 surcharge using a factor that incorporates 
short-term wholesale funding would reflect the view that the 
externalities associated with short-term wholesale funding depend 
largely on those firms identified as GSIBs under the proposed 
methodology. As a result, this alternative approach would maintain 
consistency with the BCBS framework's surcharge methodology. In 
addition, alternative scaling factors might be considered by altering 
the definition of short-term wholesale funding or using alternative 
dominators other than total average risk-weighted assets.
    Question 10. What are commenters' views regarding scaling the 
method 1 surcharge to capture use of short-term wholesale funding? How 
should the scaling factor be chosen?

D. Augmentation of the Capital Conservation Buffer

    Under the proposal, the GSIB surcharge would augment the regulatory 
capital rule's capital conversation buffer for purposes of determining 
the banking organization's maximum payout ratio.\33\
---------------------------------------------------------------------------

    \33\ 12 CFR 217.11(a).
---------------------------------------------------------------------------

    Under the regulatory capital rule, a banking organization must 
maintain capital sufficient to meet a minimum common equity tier 1 
capital requirement of 4.5 percent, a minimum tier 1 capital 
requirement of 6 percent, and a minimum total capital requirement of 
8.0 percent. In addition to those minimums, in order to avoid limits on 
capital distributions and certain discretionary bonus payments, a 
banking organization must hold sufficient capital to satisfy the 
minimum capital requirements, plus a capital conservation buffer 
composed of common equity tier 1 capital equal to more than 2.5 percent 
of risk-weighted assets. The capital conservation buffer is divided 
into quartiles, each associated with increasingly stringent limitations 
on capital distributions and certain discretionary bonus payments as 
the capital conservation buffer approaches zero.\34\
---------------------------------------------------------------------------

    \34\ See id.
---------------------------------------------------------------------------

    Under the proposal, the GSIB surcharge would expand each quartile 
of a GSIB's capital conservation buffer by the equivalent of one fourth 
of the GSIB surcharge.\35\ The minimum common equity tier 1 capital 
requirement for banking organizations is 4.5 percent, which, when added 
to the capital conservation buffer of 2.5 percent, results in a banking 
organization needing to maintain a common equity tier 1 capital ratio 
of more than 7 percent to avoid limitations on distributions and 
certain discretionary bonus payments. Under the proposal, this 7 
percent level would be further increased by the applicable GSIB 
surcharge.
---------------------------------------------------------------------------

    \35\ Separate from the possible expansion of the capital 
conservation buffer set forth in this proposal, the capital 
conservation buffer could also be expanded by any applicable 
countercyclical capital buffer amount. See 12 CFR 217.11(b).
---------------------------------------------------------------------------

    The mechanics of the capital conservation buffer calculations, 
after incorporating the GSIB surcharge, are illustrated in the 
following example.\36\ A bank holding company is identified as a GSIB 
under the proposed framework as a result of having an aggregate 
systemic indicator score of 350 basis points. Under method 1, the 
GSIB's score correlates to a 2.0 percent method 1 surcharge. Under 
method 2, the GSIB's method 2 score equals 625, so that the GSIB's 
score would correlate to a surcharge of 3.0 percent. As the method 2 
surcharge is larger than the method 1 surcharge, the GSIB would be 
subject to a GSIB surcharge of 3.0 percent. As a result, in order to 
have no payout ratio limitation under the proposal, the GSIB must 
maintain a common equity tier 1 capital ratio in excess of 10 percent 
(determined as the sum of the minimum common equity tier 1 capital 
ratio of 4.5 percent plus the capital conservation buffer of 2.5 
percent as expanded by the 3 percent GSIB surcharge). In determining 
the effect on capital distributions and bonus payments, each of the 
four quartiles of the GSIB's capital conservation buffer would be 
expanded by one fourth of its GSIB surcharge, or by 0.75 percent, as 
set forth below in Table 5.
---------------------------------------------------------------------------

    \36\ For the purposes of this example, all regulatory capital 
requirements are assumed to be fully phased in.

[[Page 75482]]



                    Table 5--Capital Conservation Buffer Assuming a 3 Percent GSIB Surcharge
----------------------------------------------------------------------------------------------------------------
                                                    Maximum payout ratio  (as a percentage of eligible retained
           Capital conservation buffer                                        income)
----------------------------------------------------------------------------------------------------------------
Greater than 5.5 percent.........................  No payout ratio limitation applies.
Between 5.5 percent and 4.125 percent............  60 percent.
Between 4.125 percent and 2.75 percent...........  40 percent.
Between 2.75 percent and 1.375 percent...........  20 percent.
Less than or equal to 1.375 percent..............  0 percent.
----------------------------------------------------------------------------------------------------------------

    The Board will be analyzing in the coming year whether the Board's 
capital plan and stress test rules should also include a form of GSIB 
surcharge.\37\ If the Board were to decide to propose a GSIB surcharge 
for the capital plan and stress test rules at a later date, the Board 
would do so through a separate notice of proposed rulemaking.
---------------------------------------------------------------------------

    \37\ See 12 CFR 225.8 and 12 CFR part 252.
---------------------------------------------------------------------------

E. Implementation and Timing

1. Ongoing applicability
    Subject to the initial applicability provisions described in 
section E.2 of this preamble, if a top-tier U.S. bank holding company 
has total consolidated assets of $50 billion or more for the first time 
as of June 30 of a given year (as reported on its FR Y-9C), under the 
proposal, that bank holding company must begin calculating its 
aggregate systemic indicator score by December 31 of that calendar 
year. If the bank holding company's aggregate systemic indicator score 
exceeds 130 basis points, the bank holding company would be identified 
as a GSIB, and would be required to calculate its GSIB surcharge (using 
both method 1 and method 2) by December 31 of that year. Under the 
proposal, the GSIB surcharge would become an extension of the GSIB's 
capital conservation buffer a full year later, on January 1 of the 
second calendar year, based on the surcharge calculated in the year the 
bank holding company was identified as a GSIB.
    The proposed schedule is aligned with the filing schedule for the 
FR Y-15 report, which must be filed by any top-tier U.S. bank holding 
company with total consolidated assets of $50 billion or more. 
Specifically, 65 calendar days after the December 31 as-of date of the 
FR Y-15, a bank holding company must file the FR Y-15 on which it 
reports the indicator values that comprise its aggregate systemic 
indicator score as of the end of the prior calendar year. Over the 
course of the year, the BCBS aggregates the indicator amounts from a 
specific sample of the largest global banking organizations (the 75 
largest global banking organizations by total exposures, along with any 
banking organization that was designated as a global systemically 
important banking organization by the FSB in the previous year), and 
publishes its calculation of those aggregate amounts that November. 
Following publication by the BCBS, the Board will publish the aggregate 
global indicator amount, which generally will be equal to the amount 
published by the BCBS and converted into dollars. As noted above, a 
bank holding company with total consolidated assets of $50 billion or 
more would be required to calculate its aggregate systemic indicator 
score by December 31, relying on the previous year-end data. If a bank 
holding company were identified as a GSIB, it would also be required to 
calculate its GSIB surcharge by the end of the year in which it 
qualified as a GSIB. To perform this calculation, the GSIB would be 
required to retain data necessary to calculate its short-term wholesale 
fund score during the previous year.
    For example, a bank holding company would file on March 1, 2020 a 
FR Y-15 report, on which it reported its systemic indicator values as 
of December 31, 2019. The BCBS would publish its estimates of the 
aggregate global indicator amounts as of December 31, 2019 in November 
2020, and the Board would publish the aggregate global indicator 
amounts shortly thereafter. The bank holding company would calculate 
its aggregate systemic indicator score by December 31, 2020. If the 
bank holding company were identified as a GSIB by December 31, 2020, 
that GSIB would be required to calculate its global systemic score 
using its systemic indicators and short-term wholesale funding data as 
of December 31, 2019. In that instance, the GSIB would be required to 
use its GSIB surcharge to calculate its maximum payout ratio under the 
capital conservation buffer framework beginning on January 1, 2022.
    After the initial GSIB surcharge is in effect, if a GSIB's systemic 
risk profile changes from one year to the next such that it becomes 
subject to a higher GSIB surcharge, the higher GSIB surcharge would not 
take effect for a full year (that is, two years from the systemic 
indicator measurement date). If a GSIB's systemic risk profile changes 
such that the GSIB would be subject to a lower GSIB surcharge, the GSIB 
would be subject to the lower surcharge beginning in the next quarter.
    Question 11. What are commenters' views with regard to the 
proposal's dates for the measurement of systemic indicator scores for 
purposes of the GSIB surcharge? In light of these dates, what 
challenges would bank holding companies encounter in retaining capital 
sufficient to adhere to the GSIB surcharge?
    Question 12. What challenges would a bank holding company encounter 
in retaining short-term wholesale funding data sufficient to calculate 
the GSIB surcharge?
2. Initial Applicability
    For the eight bank holding companies that would currently be 
identified as GSIBs under the proposed methodology, the GSIB surcharge 
would be phased in from January 1, 2016 to December 31, 2018. This 
phase-in period was chosen to align with the phase-in of the capital 
conservation buffer and countercyclical capital buffer, as well as the 
phase-in period of the BCBS framework. Table 6 shows the regulatory 
capital levels that a GSIB must satisfy to avoid limitations on capital 
distributions and discretionary bonus payments during the applicable 
transition period, from January 1, 2016 to January 1, 2019.

[[Page 75483]]



                                Table 6--Regulatory Capital Levels for GSIBs \38\
----------------------------------------------------------------------------------------------------------------
                                     Jan. 1, 2016        Jan. 1, 2017        Jan. 1, 2018        Jan. 1, 2019
----------------------------------------------------------------------------------------------------------------
Capital conservation buffer.....  0.625%............  1.25%.............  1.875%............  2.5%.
GSIB surcharge..................  25% of applicable   50% of applicable   75% of applicable   100% of applicable
                                   GSIB surcharge.     GSIB surcharge.     GSIB surcharge.     GSIB surcharge.
Minimum common equity tier 1      5.125% + 25% of     5.75% + 50% of      6.375% + 75% of     7.0% + 100% of
 capital ratio + capital           applicable GSIB     applicable GSIB     applicable GSIB     applicable GSIB
 conservation buffer +             surcharge.          surcharge.          surcharge.          surcharge.
 applicable GSIB surcharge.
Minimum tier 1 capital ratio +    6.625% + 25% of     7.25% + 50% of      7.875% + 75% of     8.5% + 100% of
 capital conservation buffer +     applicable GSIB     applicable GSIB     applicable GSIB     applicable GSIB
 applicable GSIB surcharge.        surcharge.          surcharge.          surcharge.          surcharge.
Minimum total capital ratio +     8.625% + 25% of     9.25% + 50% of      9.875% + 75% of     10.5% + 100% of
 capital conservation buffer +     applicable GSIB     applicable GSIB     applicable GSIB     applicable GSIB
 applicable GSIB surcharge.        surcharge.          surcharge.          surcharge.          surcharge.
----------------------------------------------------------------------------------------------------------------

    The GSIB surcharge in effect on January 1, 2016, would rely on the 
systemic indicator scores reported as of December 31, 2014. However, 
given that bank holding companies have not been required to calculate 
or retain data related to their short-term wholesale funding scores 
(which is generally based on average data over the preceding calendar 
year), the proposal would measure a GSIB's short-term wholesale funding 
amount for: (i) The GSIB surcharge calculated by December 31, 2015, 
based on data from the third quarter of 2015, and (ii) the GSIB 
surcharge calculated by December 31, 2016, based on data from the third 
and fourth quarters of 2015. For the GSIB surcharge calculated by 
December 31, 2017 (assuming a GSIB's surcharge does not otherwise 
increase), the surcharge would be based on yearly data from 2016. In 
order to comply with the proposal, a bank holding company that is 
currently identified as a GSIB would be required to retain information 
to calculate its short-term wholesale funding amount beginning on July 
1, 2015.
---------------------------------------------------------------------------

    \38\ Table 6 assumes that the countercyclical capital buffer is 
zero.
---------------------------------------------------------------------------

    While the proposal would generally rely on a full calendar year of 
short-term wholesale funding data to compute a GSIB's short-term 
wholesale funding amount for purposes of calculating the GSIB's method 
2 surcharge going forward, the proposed implementation schedule would 
rely on quarterly averages for the surcharges calculated by December 
31, 2015 and 2016, which should be sufficient to smooth the volatility 
for short-term wholesale funding while facilitating implementation of 
the method 2 surcharge on the same timeline as that used for the 
implementation of the method 1 surcharge.
    Table 7 sets forth the reporting and compliance dates for the 
proposed GSIB surcharge described above.

 Table 7--GSIB Surcharge Reporting and Compliance Dates During Phase-In
                                 Period
------------------------------------------------------------------------
               Date                              Occurrence
------------------------------------------------------------------------
March 2015........................  FR Y-15 filing deadline reflecting
                                     bank holding company systemic
                                     indicator values as of December 31,
                                     2014.
July 1, 2015......................  GSIBs begin collecting short-term
                                     wholesale funding data.
November 2015.....................  BCBS publishes aggregate global
                                     indicator amounts using 2014 data,
                                     and the Board publishes the
                                     aggregate global indicator amount
                                     for use by U.S. bank holding
                                     companies shortly thereafter.
January 1, 2016...................  Bank holding companies identified as
                                     GSIBs are subject to GSIB surcharge
                                     (as phased in) calculated using
                                     year-end 2014 systemic indicator
                                     scores and Q3 2015 short-term
                                     wholesale funding data.
March 2016........................  FR Y-15 filing deadline reflecting
                                     bank holding company (1) systemic
                                     indicator values and scores as of
                                     December 31, 2015 and (2) short-
                                     term wholesale funding score using
                                     Q3 and Q4 2015 data (to be
                                     separately proposed).
November 2016.....................  BCBS publishes aggregate systemic
                                     indicator amounts using 2015 data,
                                     and the Board publishes the
                                     aggregate global indicator amount
                                     for use by U.S. bank holding
                                     companies shortly thereafter.
December 31, 2016.................  Bank holding companies identified as
                                     GSIBs must calculate their GSIB
                                     surcharge using year-end 2015
                                     systemic indicator scores and short-
                                     term wholesale funding score using
                                     Q3 and Q4 2015 short-term wholesale
                                     funding data.
January 1, 2017...................  If the GSIB surcharge calculated by
                                     December 31, 2016, stays the same
                                     or decreases, the GSIB is subject
                                     to that GSIB surcharge (if the GSIB
                                     surcharge increases, increased GSIB
                                     surcharge comes into effect
                                     beginning on January 1, 2018).
March 2017........................  FR Y-15 filing deadline reflecting
                                     bank holding company (1) systemic
                                     indicator values and scores as of
                                     December 31, 2016; and (2) short-
                                     term wholesale funding score as of
                                     December 31, 2016 using 2016 short-
                                     term wholesale funding data (to be
                                     separately proposed).
November 2017.....................  BCBS publishes aggregate systemic
                                     indicator amounts using 2016 data,
                                     and the Board publishes the
                                     aggregate global indicator amount
                                     for use by U.S. bank holding
                                     companies shortly thereafter.
December 31, 2017.................  Bank holding companies identified as
                                     GSIBs must calculate their GSIB
                                     surcharge using year-end 2016
                                     systemic indicator scores and 2016
                                     short-term wholesale funding score.

[[Page 75484]]

 
January 1, 2017...................  If the GSIB surcharge calculated by
                                     December 31, 2017, stays the same
                                     or decreases, the GSIB is subject
                                     to that GSIB surcharge (if the GSIB
                                     surcharge increases, increased GSIB
                                     surcharge comes into effect
                                     beginning on January 1, 2019).
------------------------------------------------------------------------

    Question 13. What are commenters' views regarding the timing of the 
implementation of the GSIB surcharge? What are the benefits and 
drawbacks of aligning the effective dates of the method 1 and method 2 
surcharges? Should the Board consider staggering the effectiveness of 
the method 1 and method 2 surcharges such that GSIBs would be able to 
use a year's worth of short-term wholesale funding data to compute 
their short-term wholesale funding scores? Why or why not?
    Question 14. What are commenters' views with regard to the 
proposal's dates for the measurement of systemic indicator scores for 
purposes of the GSIB surcharge that is effective January 1, 2016? Would 
using data as of year-end 2014 present any difficulties in terms of 
capital retention for bank holding companies that are currently 
identified as GSIBs?

F. Periodic Review and Refinement of the Proposal

    The Board recognizes that the proposal, if adopted, may require 
further refinement over time. The Board would monitor the proposed GSIB 
surcharge methodology and consider whether any revisions are necessary 
to improve the effectiveness of the GSIB surcharge in advancing the 
Board's goals. This could include consideration of any revisions made 
by the BCBS to the BCBS framework, as well as revisions to the minimum 
threshold to qualify as a GSIB and revisions to the method 1 and method 
2 surcharge calculations that may be necessary over time.\39\ To the 
extent that revisions are deemed necessary, any proposed changes would 
be subject to notice and comment.
---------------------------------------------------------------------------

    \39\ The BCBS expects to review and refine the BCBS framework, 
including the initial threshold and the size of the surcharge 
buckets, every three years in order to capture developments in the 
banking sector and assess new approaches to measuring systemic risk. 
See paragraph 39 of the BCBS Revised Document.
---------------------------------------------------------------------------

    Question 15. How well would the proposal's GSIB surcharge 
incentivize bank holding companies to minimize their systemic risk 
profiles? How could the framework be changed to strengthen these 
incentives?
    Question 16. How well does the proposal mitigate any implicit 
subsidies that GSIBs enjoy due to market perceptions that they are too 
big to fail? How well does the proposed framework force GSIBs to 
internalize the externalities that their failure or material financial 
distress would pose to the broader financial system?
    Question 17. How well do the proposed indicators of global systemic 
importance and other aspects of the scoring methodology capture the 
relevant dimensions of global systemic importance and the negative 
externalities that global systemic importance can generate? What 
modifications or simplifications, if any, would be appropriate to 
assess global systemic importance?
    Question 18. To what extent could bank holding companies and market 
participants easily determine a firm's GSIB surcharge? How could the 
Board make the proposal more transparent in this respect?
    Question 19. What are the advantages and disadvantages of a 
framework where a firm is identified as a GSIB not by firm-specific 
measures (e.g., a firm's size, interconnectedness, and other 
characteristics), but rather by how a firm's specific measures compare 
to the aggregate measures of a set of global large banking 
organizations? What are the implications for bank holding companies of 
using internationally compiled data to determine their systemic scores?
    Question 20. What are the implications of periodically 
recalibrating the threshold scores and the size of the bands under 
methods 1 and 2? What are the implications of revising the framework 
over time? What factors should the Board consider in making such 
modifications and recalibrations?
    Question 21. How well does the proposal reflect the changing 
elements of the global economy, such as growth in global domestic 
product, advances in financial intermediation, and inflation, and how 
might the proposal be adjusted to better reflect such elements?

III. Indicators of Global Systemic Risk

    As described above, the Board is proposing to determine the 
systemic scores and GSIB surcharges of bank holding companies using six 
components under two formulations. These components, which are 
described in detail below, were chosen on the basis of the Board's 
belief that they are indicative of the global systemic importance of 
bank holding companies. Five of the components--size, 
interconnectedness, substitutability, complexity, and cross-
jurisdictional activity--have been previously identified as indicative 
of global systemic importance by the BCBS, FSB, and G-20, and are 
defined in detail in the instructions for the FR Y-15.\40\ The Board 
also intends to propose amendments to the FR Y-15 to collect 
information regarding the sixth component, a firm's short-term 
wholesale funding amount, in the near term.
---------------------------------------------------------------------------

    \40\ The systemic indicators described in the proposal are those 
previously identified as indicative of global systemic importance by 
the BCBS, FSB, and G-20. Many of the items reported on the FR Y-15 
are also reported on the Consolidated Financial Statements for 
Holding Companies (FR Y-9C).
---------------------------------------------------------------------------

A. Size

    A banking organization's size is a key measure of its systemic 
importance. A banking organization's distress or failure is more likely 
to negatively impact the financial markets and the economy more broadly 
if the banking organization's activities comprise a relatively large 
share of total financial activities. Moreover, the size of exposures 
and volume of transactions and assets managed by a banking organization 
are indicative of the extent to which clients, counterparties, and the 
broader financial system could suffer disruption if the firm were to 
fail or become distressed. In addition, the larger a banking 
organization is, the more difficult it generally is for other firms to 
replace its services and, therefore, the greater the chance that the 
banking organization's distress or failure would cause disruption.
    Under the proposal, a bank holding company's size would be 
equivalent to total exposures, which would mean the bank holding 
company's measure of total leverage exposure calculated pursuant to the 
regulatory capital rule.\41\ The Board separately intends to propose 
changes to the FR Y-15 to align its definition of ``total exposure'' 
with the

[[Page 75485]]

definition in the regulatory capital rule, and expects that these 
changes will be in effect before the March 2015 due date of the FR Y-
15.
---------------------------------------------------------------------------

    \41\ See 12 CFR 217.10(c)(4).
---------------------------------------------------------------------------

    Question 22. What modifications, if any, are necessary to ensure 
that total exposure is a size indicator that appropriately measures the 
extent to which a bank holding company may cause damage or disruption 
to the broader financial system?

B. Interconnectedness

    Financial institutions may be interconnected in many ways, as 
banking organizations commonly engage in transactions with other 
financial institutions that give rise to a wide range of contractual 
obligations. The proposal reflects the belief that financial distress 
at a GSIB may materially raise the likelihood of distress at other 
firms given the network of contractual obligations throughout the 
financial system. A banking organization's systemic impact is, 
therefore, likely to be directly related to its interconnectedness vis-
[agrave]-vis other financial institutions and the financial sector as a 
whole.
    Under the proposal, interconnectedness would be measured by intra-
financial system assets, intra-financial system liabilities, and 
securities outstanding as of December 31 of a given year. These 
indicators represent the major components (lending, borrowing, and 
capital markets activity) of intra-financial system transactions and 
contractual relationships, and are broadly defined to capture the 
relevant dimensions of these activities by a bank holding company. For 
the purpose of the intra-financial system assets and intra-financial 
system liabilities indicators, financial institutions are defined by 
the FR Y-15 instructions as depository institutions (as defined in the 
FR Y-9C Instructions, Schedule HC-C, line item 2), bank holding 
companies, securities dealers, insurance companies, mutual funds, hedge 
funds, pension funds, investment banks, and central counterparties (as 
defined in the FR Y-15 Instructions, Schedule D, line item 1).\42\ 
Central banks and multilateral development banks are excluded, but 
state-owned commercial banks are included.
---------------------------------------------------------------------------

    \42\ See FR Y-15 Instructions, Schedule B, line item 1.
    ``Central counterparties'' for the purposes of the proposal has 
the same meaning used in the FR Y-15 Instructions, Schedule D, line 
item 1. That is, central counterparties are entities (e.g., a 
clearing house) that facilitate trades between counterparties in one 
or more financial markets by either guaranteeing trades or novating 
contracts.
---------------------------------------------------------------------------

    It should be noted that the Board has developed different concepts 
and methodologies for identifying financial sector entities, including 
in the Board's regulatory capital rule, the FR Y-15, and the recently 
adopted LCR rule. The Board is proposing to continue using the 
definition that is reported on the Y-15 reporting form. The Board may 
consider converging these concepts and methodologies at some point in 
the future.
    Question 23. What aspects, if any, of the measures of intra-
financial system assets and intra-financial system liabilities should 
be adjusted to better capture interconnectedness between bank holding 
companies? What modifications to these indicators or additional 
indicators would more appropriately measure the interconnectedness 
associated with securities financing transactions and OTC derivative 
exposures? How, if at all, should collateral and netting agreements be 
reflected in these measures? What are the advantages and disadvantages 
of including in these measures exposures over which firms do not have 
control, such as the amount of their securities owned by other 
financial firms?

C. Substitutability

    The potential adverse systemic impact of a banking organization 
will depend in part on the degree to which other banking organizations 
are able to serve as substitutes for its role in the financial system 
in the event that the banking organization is unable to perform its 
role during times of financial stress. Under the proposal, three 
indicators would be used to measure substitutability: Assets under 
custody as of December 31 of a given year, the total value of payments 
activity sent over the calendar year, and the total value of 
transactions in debt and equity markets underwritten during the 
calendar year. Relative to the other categories in the method 1 
surcharge, the substitutability category has a greater-than-intended 
impact on the assessment of systemic importance for certain banking 
organizations that are dominant in the provision of asset custody, 
payment systems, and underwriting services. The Board is therefore 
proposing to cap the maximum score for the substitutability category at 
500 basis points (or 100 basis points, after the 20 percent weighting 
factor is applied) so that the substitutability category does not have 
a greater than intended impact on a bank holding company's global 
systemic score.\43\ This proposed cap is also consistent with the 
approach taken in the BCBS framework. The following discusses how each 
of the three substitutability indicators would be measured and reported 
on the FR Y-15.
---------------------------------------------------------------------------

    \43\ See paragraph 19 of the BCBS Revised Document.
---------------------------------------------------------------------------

    1. Assets under custody. The collapse of a GSIB that holds assets 
on behalf of customers, particularly other financial firms, could 
severely disrupt financial markets and have serious consequences for 
the domestic and global economies. The proposal would measure assets 
under custody as the aggregate value of assets that a bank holding 
company holds as a custodian. For purposes of the proposal, a custodian 
would be defined as a banking organization that manages or administers 
the custody or safekeeping of stocks, debt securities, or other assets 
for institutional and private investors.
    2. Payments activity. The collapse of a GSIB that processes a large 
volume of payments is likely to affect a large number of customers, 
including financial, non-financial, and retail customers. In the event 
of collapse, these customers may be unable to process payments and 
could experience liquidity issues as a result. Additionally, if failure 
(meaning the inability to operate properly in the payment system) 
occurred while the banking organization was in a net positive liquidity 
position, those funds could become inaccessible to the recipients.
    The proposal would use a bank holding company's share of payments 
made through large-value payment systems and through agent banks as an 
indicator of the company's degree of systemic importance within the 
context of substitutability. Specifically, payments activity would be 
the value of all cash payments sent via large-value payment systems, 
along with the value of all cash payments sent through an agent (e.g., 
using a correspondent or nostro account), over the calendar year in the 
currencies specified on the FR Y-15.
    3. Underwritten transactions in debt and equity markets. The 
failure of a GSIB with a large share of the global market's debt and 
equity underwriting could impede new securities issuances and 
potentially increase the cost of debt and capital. In order to assess a 
bank holding company's significance in underwriting as compared to its 
peers, the proposal would measure underwriting activity as the 
aggregate value of equity and debt underwriting transactions of a 
banking organization,

[[Page 75486]]

conducted over the calendar year, as specified on the FR Y-15.

D. Complexity

    The global systemic impact of a banking organization's failure or 
distress is positively correlated to that organization's business, 
operational, and structural complexity. Generally, the more complex a 
banking organization is, the greater the expense and time necessary to 
resolve it. Costly resolutions can have negative cascading effects in 
the markets, including disorderly unwinding of positions, fire-sales of 
assets, disruption of services to customers, and increased uncertainty 
in the markets.
    As reflected in the FR Y-15, the proposal would include three 
indicators of complexity: Notional amount of OTC derivatives, Level 3 
assets, and trading and AFS securities as of December 31 of a given 
year. The indictors would be measured as follows:
    1. Notional amount of OTC derivatives. A bank holding company's OTC 
derivatives activity would be the aggregate notional amount of the bank 
holding company's OTC derivative transactions that are cleared through 
a central counterparty or settled bilaterally.
    2. Level 3 assets. Level 3 assets would be equal to the value of 
the assets that the bank holding company measures at fair value for 
purposes of its FR Y-9C quarterly report (Schedule HC-Q, column E). 
These are generally illiquid assets with fair values that cannot be 
determined by observable data, such as market price signals or models. 
Instead, the value of the level 3 assets is calculated based on 
internal estimates or risk-adjusted value ranges by the banking 
organization. Firms with high levels of level 3 assets would be 
difficult to value in times of stress, thereby negatively affecting 
market confidence in such firms and creating the potential for a 
disorderly resolution process.
    3. Trading and AFS securities. A banking organization's trading and 
AFS securities can cause a market disturbance through mark-to-market 
losses and fire sales of assets in times of distress. Specifically, a 
banking organization's write-down or sales of securities could drive 
down the prices of these securities, which could cause a spill-over 
effect that forces other holders of the same securities to experience 
mark-to-market losses. Accordingly, the proposal would consider a bank 
holding company's trading and AFS securities as an indicator of 
complexity.
    Question 24. Do the three indicators (notional amount of OTC 
derivatives transactions, Level 3 assets, and trading and AFS 
securities) appropriately reflect a bank holding company's complexity? 
What alternative or additional indicators might better reflect 
complexity and global systemic importance?
    Question 25. What, if any, other financial instruments should be 
measured by the trading and AFS securities systemic indicator and why?

E. Cross-Jurisdictional Activity

    Banking organizations with a large global presence are more 
difficult and costly to resolve than purely domestic institutions. 
Specifically, the greater the number of jurisdictions in which a firm 
operates, the more difficult it would be to coordinate its resolution 
and the more widespread the spillover effects were it to fail. Under 
the proposal, the two indicators included in this category--cross-
jurisdictional claims and cross-jurisdictional liabilities--would 
measure a bank holding company's global reach by considering its 
activity outside its home jurisdiction as compared to the cross-
jurisdictional activity of its peers. In particular, claims would 
include deposits and balances placed with other banking organizations, 
loans and advances to banking organizations and non-banks, and holdings 
of securities. Liabilities would include the liabilities of all offices 
of the same banking organization (headquarters as well as branches and 
subsidiaries in different jurisdictions) to entities outside of its 
home market.
    Question 26. Are there any other specific metrics that should be 
used to ensure that a bank holding company's cross-jurisdictional reach 
is adequately measured? Should there be any modifications to the cross-
jurisdictional indicators that have been proposed?

F. Use of Short-Term Wholesale Funding

    As described in section II.C.2 of this preamble, the proposal 
incorporates a measure of short-term wholesale funding use in order to 
address the risks presented by those funding sources.
    To determine its method 2 surcharge under the proposal, a GSIB 
would be required to compute its short-term wholesale funding score. As 
a first step in doing so, a GSIB would determine, on a consolidated 
basis, the amount of its short-term wholesale funding sources with a 
remaining maturity of less than one year for each business day of the 
preceding calendar year. Under the proposal, components of a GSIB's 
short-term wholesale funding amount would generally be defined using 
terminology from the LCR rule and aligned with items that are reported 
on the Board's Complex Institution Liquidity Monitoring Report on Form 
FR 2052a. In identifying items for inclusion in short-term wholesale 
funding, the proposal focuses on those sources that give rise to the 
greatest risk of creditor runs and associated systemic externalities. 
Specifically, a GSIB's short-term wholesale funding amount would 
include the following:
     All funds that the GSIB must pay under each secured 
funding transaction, other than an operational deposit, with a 
remaining maturity of one year or less;
     All funds that the GSIB must pay under each unsecured 
wholesale funding transaction, other than an operational deposit, with 
a remaining maturity of one year or less;
     The fair market value of all assets that the GSIB must 
return in connection with transactions where it has provided a non-cash 
asset of a given liquidity category to a counterparty in exchange for 
non-cash assets of a higher liquidity category, and the GSIB and the 
counterparty agreed to return the assets to each other at a future date 
(covered asset exchange);
     The fair market value of all assets that the GSIB must 
return under transactions where it has borrowed or otherwise obtained a 
security which it has sold (short positions); and
     All brokered deposits and all brokered sweep deposits held 
at the GSIB provided by a retail customer or counterparty.
    The proposal would align the definition of a ``secured funding 
transaction'' with the definition of that term in the LCR rule. As 
such, it would include repurchase transactions, securities lending 
transactions, secured funding from a Federal Reserve Bank or other 
foreign central bank, Federal Home Loan Bank advances, secured 
deposits, loans of collateral to effect customer short positions, and 
other secured wholesale funding arrangements. These funding sources are 
treated as short-term wholesale funding, provided that they have a 
remaining maturity of less than one year, as such funding generally 
gives rise to cash outflows during periods of stress because 
counterparties are more likely to abruptly remove or cease to roll-over 
secured funding transactions as compared to longer-term funding.
    The proposal would also align the definition of ``unsecured 
wholesale funding'' with the definition of that term in the LCR rule. 
Such funding typically includes: wholesale deposits; federal funds 
purchased; unsecured advances from a public sector entity, sovereign 
entity, or U.S. government sponsored enterprise; unsecured notes;

[[Page 75487]]

bonds, or other unsecured debt securities issued by a GSIB (unless sold 
exclusively to retail customers or counterparties), brokered deposits 
from non-retail customers; and any other transaction where an on-
balance sheet unsecured credit obligation has been contracted. As 
evidenced in the financial crisis, funding from wholesale 
counterparties presents greater run risk to banking organizations 
during periods of stress as compared to the same type of funding 
provided by retail counterparties. Unsecured wholesale funding has 
exhibited a potential to be withdrawn in large amounts by wholesale 
counterparties seeking to meet their financial obligations when facing 
financial distress. The proposal would include in short-term wholesale 
funding unsecured wholesale funding that is partially or fully covered 
by deposit insurance, as such funding poses run risks even when deposit 
insurance is present. The proposal would not reflect offsetting amounts 
from the release of assets held in segregated accounts in connection 
with wholesale deposits included in a GSIB's short-term wholesale 
funding amount.
    The proposed definition of short-term wholesale funding also would 
include the fair market value of all assets that a GSIB must return in 
connection with transactions where it has provided a non-cash asset of 
a given liquidity category to a counterparty in exchange for non-cash 
assets of a higher liquidity category, and the GSIB and the 
counterparty agreed to return the assets to each other at a future 
date. The unwinding of such transactions could negatively impact a 
GSIB's funding profile in times of stress to the extent that the 
unwinding requires the GSIB to obtain funding for a less liquid asset 
or security or because the counterparty is unwilling to roll over the 
transaction. The proposed definition also includes the fair market 
value of all assets a GSIB must return under transactions where it has 
borrowed or otherwise obtained a security which it has sold. If the 
transaction in which the GSIB borrows or obtains the security closes 
out, then the GSIB would be required to fund a repurchase or otherwise 
obtain the security, which may impact the GSIB's funding profile.
    The proposal would characterize retail brokered deposits and 
brokered sweep deposits as short-term wholesale funding because these 
forms of funding have demonstrated significant volatility in times of 
stress, notwithstanding the presence of deposit insurance. These types 
of deposits can be easily moved from one institution to another during 
times of stress, as customers and counterparties seek higher interest 
rates or seek to use those funds for other purposes and on account of 
the incentives that third-party brokers have to provide the highest 
possible returns for their clients. However, the proposed definition of 
short-term funding would exclude deposits from retail customers and 
counterparties that are not brokered deposits or brokered sweep 
deposits, as these deposits are less likely to pose liquidity risks in 
times of stress.
    The proposed definition of short-term wholesale funding would 
exclude operational deposits from secured funding transactions and 
unsecured wholesale funding. Operational deposits would be defined 
consistent with the LCR rule as deposits required for the provision of 
operational services by a banking organization to its customers, which 
can include services related to clearing, custody, and cash management. 
Because these deposits are tied to the provision of specific services 
to customers, these funding sources present less short-term liquidity 
risk during times of stress. Under the LCR rule, such deposits are 
required to be tied to operational services agreements that have a 
minimum 30-day termination period or are the subject of significant 
termination or switching costs.
    As an alternative proposal, the Board is proposing to treat 
operational deposits as short-term wholesale funding for the purposes 
of the method 2 surcharge and to weight these deposits at 25 percent 
(which, as described below, is the same weighting applied to secured 
funding transactions secured by a level 1 liquid asset). To the extent 
that a firm suffers operational deposit outflows, the firm will 
generally need to liquidate assets to meet the large deposit outflows. 
These assets may include securities or short-term loans to other 
financial institutions, and the rapid liquidation of such assets may 
have an adverse impact on financial stability.
    Question 27. How should the measure of short-term wholesale funding 
amount reflect operational deposits? If these are included in the 
measure of short-term wholesale funding amount, how should operational 
deposits be weighted?
    In addition, the GSIB's short-term wholesale funding amount would 
not reflect liquidity risks from derivatives transactions. In 
particular, a GSIB's short-term wholesale funding amount would not 
reflect the potential need for a firm to post incremental cash or 
securities as margin for derivatives transactions that move in a 
counterparty's favor, nor would the short-term wholesale funding amount 
recognize the possibility that a GSIB may lose the ability to 
rehypothecate collateral it has received in connection with its 
derivatives transactions. While each of these scenarios could present 
liquidity risk to the firm, it is arguable that such liquidity risks 
are more appropriately considered under the liquidity regulatory 
framework.
    However, as an alternative proposal, the Board is proposing that 
the definition of short term wholesale funding include exposures 
attributable to derivatives transactions, in particular, in cases where 
the firm has the ability to rehypothecate collateral received in 
connection with derivative transactions. Under this alternative 
proposal, the weighting of these exposures could be determined based on 
the counterparty or type of derivative transaction.
    Question 28. How should the measure of short-term wholesale funding 
amount reflect exposures for derivatives transactions, in particular, 
in cases where the firm has the ability to rehypothecate collateral 
received in connection with derivative transactions? If derivatives 
exposures are included in the measure of short-term wholesale funding 
amount, how should they be weighted?
    The GSIB's short-term wholesale funding amount would not reflect 
any exposures that arise from sponsoring a structured transaction where 
the issuing entity is not consolidated on the GSIB's balance sheet 
under GAAP. Such treatment, however, may be at odds with the support 
that some companies provided during the financial crisis to the funds 
they advised and sponsored. For example, many money market mutual fund 
sponsors, including banking organizations, supported their money market 
mutual funds during the crisis in order to enable those funds to meet 
investor redemption requests without having to sell assets into then-
fragile and illiquid markets. For these reasons, as an alternative 
proposal, the Board is proposing to adjust the definition of short-term 
wholesale funding to include exposures arising from sponsoring a 
structured transaction. Under this alternative proposal, the weighting 
of these exposures would be determined based on the liquidity 
characteristics of the assets of the issuing entity.
    Question 29. How should the measure of short-term wholesale funding 
amount reflect exposures for structured transactions? If these 
exposures are included in the measure of short-term wholesale funding 
amount, how should they be weighted?
    After a GSIB has identified the short-term wholesale funding 
sources specified above, the GSIB would apply

[[Page 75488]]

a weighting system that is designed to take account of the varying 
levels of systemic risk associated with the different funding sources 
comprising its short-term wholesale funding amount. The weighting 
system generally would focus on the remaining maturity of a short-term 
wholesale funding source and the asset class of any collateral backing 
the source, each of which is captured on the FR 2052a. A GSIB would be 
required to categorize the sources that comprise its short-term 
wholesale funding amount into one of four remaining maturity buckets 
(under 30 days (which would include short-term wholesale funding 
sources with no maturity date), 31 to 90 days, 91 to 180 days, and 181 
to 365 days), and to distinguish between certain of those sources based 
on whether they are backed by level 1 liquid assets, level 2A liquid 
assets, or level 2B liquid assets, each as defined in the Board's LCR 
rule. To determine the remaining maturity of a short-term wholesale 
funding source, a GSIB would be required to assume that a short-term 
wholesale funding source matures in accordance with the LCR rule's 
provisions for determining maturity, including the provisions for 
determining the maturity of transactions with no maturity date. In 
general, the proposed weights would progressively decrease as the 
remaining maturity of a funding transaction increases, and would 
progressively increase as the quality of the collateral securing a 
funding transaction decreases.
    Table 8 below sets forth the proposed weights for each component of 
short-term wholesale funding.

                                 Table 8--Short-Term Wholesale Funding Weighting
----------------------------------------------------------------------------------------------------------------
                                                     Remaining       Remaining       Remaining       Remaining
                                                  maturity of 30  maturity of 31  maturity of 91    maturity of
    Component of short-term wholesale funding      days or less     to 90 days      to 180 days     181 to 365
                                                     (percent)       (percent)       (percent)    days (percent)
----------------------------------------------------------------------------------------------------------------
Secured funding transaction secured by a level 1              25              10               0               0
 liquid asset...................................
(1) Secured funding transaction secured by a                  50              25              10               0
 level 2A liquid asset;.........................
(2) Unsecured wholesale funding where the
 customer or counterparty is not a financial
 sector entity or a consolidated subsidiary of a
 financial sector entity; and
(3) Brokered deposits and brokered sweep
 deposits provided by a retail customer or
 counterparty; and
(4) Covered asset exchanges involving the future
 exchange of a level 1 liquid asset for a level
 2A liquid asset; and
 
(5) Short positions where the borrowed security
 is either a level 1 or level 2A liquid asset
(1) Secured funding transaction secured by a                  75              50              25              10
 level 2B liquid asset; and.....................
(2) Covered asset exchanges and short positions
 (other than those described above)
(1) Unsecured wholesale funding where the                    100              75              50              25
 customer or counterparty is a financial sector
 entity or a consolidated subsidiary thereof;
 and............................................
(2) Any other component of short-term wholesale
 funding
----------------------------------------------------------------------------------------------------------------

    As noted above, a GSIB's short-term wholesale funding amount would 
be determined by calculating its short-term wholesale funding amount 
for each business day over the prior calendar year, applying the 
appropriate weighting as set forth in Table 8 by short-term wholesale 
funding source and remaining maturity, and averaging this amount over 
the prior calendar year. Consideration of a GSIB's weighted short-term 
wholesale funding amount as a yearly average is intended to reduce the 
extent to which daily or monthly volatility in a firm's use of short-
term wholesale funding could affect the firm's method 2 surcharge 
level. Using a yearly average of a firm's daily short-term wholesale 
funding use to determine the weighted short-term wholesale funding 
amount is intended to strike an appropriate balance between generating 
an accurate depiction of a GSIB's short-term wholesale funding use and 
operational complexity.
    Question 30. What, if any, additional or alternative items should 
be considered in determining a GSIB's short-term wholesale funding 
amount? Should wholesale deposits included in a GSIB's unsecured 
wholesale funding reflect any offsetting amounts from the release of 
assets held in segregated accounts? Should brokered deposits and 
brokered sweep deposits provided by a retail customer or counterparty 
be excluded from a GSIB's short-term wholesale funding amount?
    Question 31. What are commenters' views on the proposed method of 
weighting a GSIB's short-term wholesale funding amount?
    After calculating its weighted short-term wholesale funding amount, 
the GSIB would divide its weighted short-term wholesale funding amount 
by its average risk-weighted assets, measured as the four-quarter 
average of the firm's total risk-weighted assets (e.g., standardized or 
advanced approaches) associated with the lower of its risk-based 
capital ratios as reported on its FR Y-9C for each quarter of the 
previous year. Consideration of a GSIB's short-term wholesale funding 
amount as a percentage of its average risk-weighted assets is an 
appropriate means of scaling in a firm-specific manner a firm's use of 
short-term wholesale funding. This reflects the view that the systemic 
risks associated with a firm's use of short-term wholesale funding are 
comparable regardless of the business model of the firm. More 
specifically, the use of short-term wholesale funding poses similar 
systemic risks regardless of whether short-term wholesale funding is 
used by a firm that is predominantly engaged in trading operations as 
opposed to a firm that combines large trading operational with large 
commercial banking activities, and regardless of whether a firm uses 
short-term wholesale funding to fund securities inventory as opposed to 
securities financing transaction matched book activity. Dividing short-
term wholesale funding by average risk-weighted assets helps ensure 
that two firms that use the same amount of short-term wholesale funding 
would be required to hold the same dollar amount of additional capital 
regardless of such differences.
    To illustrate the rationale for dividing a GSIB's short-term 
wholesale funding by its average risk-weighted assets, assume that two 
GSIBs use the same

[[Page 75489]]

amount of short-term wholesale funding, but the first GSIB has average 
risk-weighted assets of $50, and the second GSIB has average risk-
weighted assets of $100. If method 2's short-term wholesale funding 
score were based on a GSIB's short-term wholesale funding amount 
instead of the ratio of short-term wholesale funding to average risk-
weighted assets, the two GSIBs would have equal short-term wholesale 
funding scores, but the second GSIB would effectively be required to 
hold more capital than the first GSIB (given its higher risk-weighted 
assets) to avoid being subject to restrictions on capital distributions 
and certain discretionary bonus payments as a result of its use of 
short-term wholesale funding. By contrast, if the surcharge formula 
were based on the ratio of the short-term wholesale funding amount to 
average risk-weighted assets, the first GSIB would have a higher short-
term wholesale funding score, but the two GSIBs would be required to 
hold similar amounts of capital as a result of short-term wholesale 
funding. While the latter approach better reflects the risk that the 
use of short-term wholesale funding poses to the GSIB, the Board is 
also proposing to measure a GSIB's short-term wholesale funding amount 
as a dollar amount, rather than as a percentage of its average risk-
weighted assets.
    To arrive at its short-term wholesale funding score, a GSIB would 
multiply the ratio of its weighted short-term wholesale funding amount 
over its average risk-weighted assets by a fixed conversion factor 
(175). The conversion factor accounts for the fact that, in contrast to 
the other systemic indicators that comprise a GSIB's method 2 score, 
the short-term wholesale funding score does not have an associated 
aggregate global indicator; and is intended to weight the short-term 
wholesale funding amount such that the short-term wholesale funding 
score accounts for approximately 20 percent of the method 2 score, 
thereby weighting short-term wholesale funding approximately the same 
as the other systemic indicators within method 2, based upon estimates 
of current levels of short-term wholesale funding at the eight bank 
holding companies currently identified as GSIBs.
    This fixed conversion factor was developed using 2013 and 2014 data 
on short-term wholesale funding sources from the FR 2052a for the eight 
firms currently identified as GSIBs under the proposed methodology, 
average risk-weighted assets as of 2013, and the year-end 2013 
aggregate global indicator amounts for the size, interconnectedness, 
complexity, and cross-jurisdictional activity systemic indicators. 
Using this data, the total weighted basis points for the size, 
interconnectedness, complexity, and cross-jurisdictional activity 
systemic indicator scores for the firms currently identified as GSIBs 
were calculated. Given that this figure is intended to comprise 80 
percent of the method 2 score, the weighted basis points accounting for 
the remaining 20 percent of the method 2 score were determined. The 
aggregate estimated short-term wholesale funding amount over average 
risk-weighted assets for the firms currently identified as GSIBs and 
the total weighted basis points that would equate to 20 percent of a 
firm's method 2 score were used to determine the fixed conversion 
factor.
    A fixed conversion factor is intended to facilitate one of the 
goals of the incorporation of short-term wholesale funding into the 
GSIB surcharge framework, which is to provide incentives for GSIBs to 
decrease their use of this less stable form of funding. To the extent 
that a GSIB reduces its use of short-term wholesale funding, its short-
term wholesale funding score will decline, even if GSIBs in the 
aggregate reduce their use of short-term wholesale funding. As noted in 
section II.G above, to the extent that GSIBs' use of short-term 
wholesale funding and the aggregate global indicator amounts change 
over time, the Board will continue to evaluate whether the proposed 
method achieves the goals of the proposal.
    Given that the short-term wholesale funding score does not have an 
associated aggregate global indicator amount, the Board proposes that 
the ratio of a GSIB's weighted short-term wholesale funding amount to 
its average risk-weighted assets serve as an alternative means of 
scaling its short-term wholesale funding amount.
    Question 32. What are commenters' views on the proposed method of 
determining a GSIB's short-term wholesale funding score? What other 
specific approaches should be used to ensure that a GSIB's reliance on 
short-term wholesale funding is adequately measured? Should a GSIB 
calculate its short-term wholesale funding score with or without 
reference to average risk-weighted assets? For example, should the 
Board consider an approach similar to the BCBS global framework whereby 
a GSIB's short-term wholesale funding amount would be considered as 
against the aggregate short-term wholesale funding amount for all 
GSIBs? What approach would be most consistent with the Board's view 
that the financial stability risks associated with short-term wholesale 
funding are generally comparable regardless of a firm's average risk-
weighted assets?
    Question 33. What are commenters' views regarding the use of a 
fixed conversion factor to determine a GSIB's short-term wholesale 
funding score? Should the Board consider using a conversion factor that 
would, like the aggregate global systemic indicators, change on an 
annual basis?

IV. Amendments to the FR Y-15

    In the near future, the Board intends to propose modifications to 
the FR Y-15 to include disclosure of bank holding companies' systemic 
indicator scores and information pertaining to GSIBs' short-term 
wholesale funding scores, as calculated under the proposal. Until those 
reporting form changes are proposed and finalized, the Board 
anticipates that bank holding companies would collect and retain data 
necessary to determine their short-term wholesale funding scores.

V. Modifications to Related Rules

    The Board, along with the FDIC and the OCC, recently issued a final 
rule imposing enhanced supplementary leverage ratio standards on 
certain bank holding companies and their subsidiary insured depository 
institutions.\44\ The enhanced supplementary leverage ratio standards 
applied to top-tier U.S. bank holding companies with more than $700 
billion in total consolidated assets or more than $10 trillion in 
assets under custody (covered BHCs), as well as insured depository 
institution subsidiaries of the covered BHCs. The enhanced standards 
imposed a 2 percent leverage ratio buffer similar to the capital 
conservation buffer above the minimum supplementary leverage ratio 
requirement of 3 percent on the covered BHCs, and also required insured 
depository institution subsidiaries of covered BHCs to maintain a 
supplementary leverage ratio of at least 6 percent to be well 
capitalized under the prompt corrective action framework.
---------------------------------------------------------------------------

    \44\ 78 FR 24528 (May 1, 2014).
---------------------------------------------------------------------------

    In connection with this proposal, the Board is proposing to revise 
the terminology used to identify the firms subject to the enhanced 
supplementary leverage ratio standards to reflect the proposed GSIB 
surcharge framework. Specifically, the Board is proposing to replace 
the use of ``covered BHC'' with firms identified as GSIBs using the 
methodology of this proposal within the prompt corrective action 
provisions of Regulation H (12 CFR part 208), as well as within the 
Board's regulatory capital

[[Page 75490]]

rule. The eight U.S. top-tier bank holding companies that are ``covered 
BHCs'' under the enhanced supplementary leverage ratio rule's 
definition are the same eight U.S. top-tier bank holding companies that 
would be identified as GSIBs under this proposal. These changes would 
simplify the Board's regulations by removing overlapping definitions, 
and would not result in a material change in the provisions applicable 
to these bank holding companies.

VI. Regulatory Analysis

A. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR part 1320, Appendix A.1), the Board reviewed the proposed 
rule under the authority delegated to the Board by the Office of 
Management and Budget. For purposes of calculating burden under the 
Paperwork Reduction Act, a ``collection of information'' involves 10 or 
more respondents. Any collection of information addressed to all or a 
substantial majority of an industry is presumed to involve 10 or more 
respondents (5 CFR 1320.3(c), 1320.3(c)(4)(ii)). The Board estimates 
there are fewer than 10 respondents, and these respondents do not 
represent all or a substantial majority of U.S. top-tier bank holding 
companies. Therefore, no collections of information pursuant to the 
Paperwork Reduction Act are contained in the proposed rule.

B. Regulatory Flexibility Act

    The Board is providing an initial regulatory flexibility analysis 
with respect to this proposed rule. As discussed above, this proposed 
rule is designed to identify U.S. bank holding companies that are GSIBs 
and to apply capital surcharges to the GSIBs that are calibrated to 
their systemic risk profiles. The Regulatory Flexibility Act, 5 U.S.C. 
601 et seq. (RFA), generally requires that an agency prepare and make 
available an initial regulatory flexibility analysis in connection with 
a notice of proposed rulemaking. Under regulations issued by the Small 
Business Administration, a small entity includes a bank holding company 
with assets of $550 million or less (small bank holding company).\45\ 
As of June 30, 2014, there were approximately 3,718 small bank holding 
companies.
---------------------------------------------------------------------------

    \45\ See 13 CFR 121.201. Effective July 14, 2014, the Small 
Business Administration revised the size standards for banking 
organizations to $550 million in assets from $500 million in assets. 
79 FR 33647 (June 12, 2014).
---------------------------------------------------------------------------

    The proposed rule would only apply to atop-tier bank holding 
company domiciled in the United States with $50 billion or more in 
total consolidated assets that is not a subsidiary of a non-U.S. 
banking organization. Bank holding companies that are subject to the 
proposed rule therefore substantially exceed the $550 million asset 
threshold at which a banking entity would qualify as a small bank 
holding company.
    Because the proposed rule would not apply to a bank holding company 
with assets of $550 million or less, if adopted in final form, it would 
not apply to any small bank holding company for purposes of the RFA. 
Therefore, there are no significant alternatives to the proposed rule 
that would have less economic impact on small bank holding companies. 
As discussed above, the projected reporting, recordkeeping, and other 
compliance requirements of the proposed rule are expected to be small. 
The Board does not believe that the proposed rule duplicates, overlaps, 
or conflicts with any other Federal rules. In light of the foregoing, 
the Board does not believe that the proposed rule, if adopted in final 
form, would have a significant economic impact on a substantial number 
of small entities. Nonetheless, the Board seeks comment on whether the 
proposed rule would impose undue burdens on, or have unintended 
consequences for, small organizations, and whether there are ways such 
potential burdens or consequences could be minimized in a manner 
consistent with the purpose of the proposed rule. A final regulatory 
flexibility analysis will be conducted after consideration of comments 
received during the public comment period.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Board to use 
plain language in all proposed and final rules published after January 
1, 2000. The Board has sought to present the proposed rule in a simple 
straightforward manner, and invite comment on the use of plain 
language. For example:
     Have the agencies organized the material to suit your 
needs? If not, how could they 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 the section format adequate? If not, which of the 
sections should be changed and how?
     What other changes can the Board incorporate to make the 
regulation easier to understand?

List of Subjects in 12 CFR Part 208

    Accounting, Agriculture, Banks, banking, Confidential business 
information, Consumer protection, Crime, Currency, Global systemically 
important bank, Insurance, Investments, Mortgages Reporting and 
recordkeeping requirements, Securities.

Board of Governors or the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, chapter II of title 12 
of the Code of Federal Regulations is proposed to be amended as 
follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
1. The authority citation for part 208 continues to read as follows:

    Authority:  12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1823(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 
15 U.S.C. 78b, 78l(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 
4104a, 4104b, 4106 and 4128.

0
2. In Sec.  208.41 remove the definition of ``covered BHC'' as added on 
May 1, 2014 (79 FR 24540), effective January 1, 2018, and adding in its 
place the definition of ``global systemically important BHC,'' to read 
as follows:


Sec.  208.41  Definitions for purposes of this subpart.

* * * * *
    Global systemically important BHC has the same meaning as in Sec.  
217.2 of Regulation Q (12 CFR 217.2).
* * * * *
0
3. In Sec.  208.43 revise paragraphs (a)(2)(iv)(C) and (c)(1)(iv), as 
added on May 1, 2014 (79 FR 24540) effective January 1, 2018, by 
removing the words ``covered BHC'' and adding in their place the words 
``global systemically important BHC.''

[[Page 75491]]

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
4. The authority citation for part 217 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371.

0
5. In Sec.  217.1 revise paragraph (f)(3) to read as follows:

Subpart A--General Provisions


Sec.  217.1  Purpose, applicability, reservations of authority, and 
timing.

* * * * *
    (f) Timing.
* * * * *
    (3) Beginning on January 1, 2016, and subject to the transition 
provisions in subpart G of this part, a Board-regulated institution is 
subject to limitations on distributions and discretionary bonus 
payments with respect to its capital conservation buffer, any 
applicable countercyclical capital buffer amount, and any applicable 
GSIB surcharge, in accordance with subpart B of this part.
* * * * *
0
6. In Sec.  217.1 revise paragraph (f)(4), as added on May 1, 2014 (79 
FR 24540) effective January 1, 2018, by removing the words ``covered 
BHC'' and adding in its place the words ``global systemically important 
BHC.''


Sec.  217.2  [Amended]

0
7. In Sec.  217.2, remove the definition of ``covered BHC'' as added on 
May 1, 2014 (79 FR 24540), effective January 1, 2018, add in its place 
the definitions of ``GSIB surcharge'' and ``Global systemically 
important BHC'' as follows:
    Global systemically important BHC means a bank holding company that 
is identified as a global systemically important BHC pursuant to Sec.  
217.402.
    GSIB surcharge means the capital surcharge applicable to a global 
systemically important BHC calculated pursuant to Sec.  217.403.
* * * * *


Sec.  217.11  [Amended]

0
8. In Sec.  217.11 amend paragraphs (a)(2)(v) and (a)(2)(vi) and (c) by 
removing the words ``covered BHC'' added on May 1, 2014 (79 FR 24540) 
effective January 1, 2018, and adding in its place the words ``global 
systemically important BHC.''
0
9. In Sec.  217.11 revise the section heading, paragraphs (a)(4) and 
(a)(4)(ii) to read as follows:


Sec.  217.11  Capital conservation buffer and countercyclical capital 
buffer amount, and GSIB surcharge.

    (a) * * *
    (4) Limits on distributions and discretionary bonus payments.
* * * * *
    (ii) A Board-regulated institution with a capital conservation 
buffer that is greater than 2.5 percent plus (A) 100 percent of its 
applicable countercyclical capital buffer in accordance with paragraph 
(b) of this section, and (B) 100 percent of its applicable GSIB 
surcharge, in accordance with paragraph (c) of this section, is not 
subject to a maximum payout amount under this section.
* * * * *
0
10. Amend by revising Table 1 to Sec.  217.11 to read as follows:

                         Table 1 to Sec.   217.11--Calculation of Maximum Payout Amount
----------------------------------------------------------------------------------------------------------------
                                                    Maximum payout ratio  (as a percentage of eligible retained
           Capital conservation buffer                                        income)
----------------------------------------------------------------------------------------------------------------
Greater than 2.5 percent plus (A) 100 percent of   No payout ratio limitation applies.
 the Board-regulated institution's applicable
 countercyclical capital buffer amount and (B)
 100 percent of the Board-regulated institution's
 applicable GSIB surcharge.
Less than or equal to 2.5 percent plus (A) 100     60 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer amount
 and (B) 100 percent of the Board-regulated
 institution's applicable GSIB surcharge, and
 greater than 1.875 percent plus (A) 75 percent
 of the Board-regulated institution's applicable
 countercyclical capital buffer amount and (B) 75
 percent of the Board-regulated institution's
 applicable GSIB surcharge.
Less than or equal to 1.875 percent plus (A) 75    40 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer amount
 and (B) 75 percent of the Board-regulated
 institution's applicable GSIB surcharge, and
 greater than 1.25 percent plus (A) 50 percent of
 the Board-regulated institution's applicable
 countercyclical capital buffer amount and (B) 50
 percent of the Board-regulated institution's
 applicable GSIB surcharge.
Less than or equal to 1.25 percent plus (A) 50     20 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer amount
 and (B) 50 percent of the Board-regulated
 institution's applicable GSIB surcharge, and
 greater than 0.625 percent plus (A) 25 percent
 of the Board-regulated institution's applicable
 countercyclical capital buffer amount and (B) 25
 percent of the Board-regulated institution's
 applicable GSIB surcharge.
Less than or equal to 0.625 percent plus (A) 25    0 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer amount
 and (B) 25 percent of the Board-regulated
 institution's applicable GSIB surcharge.
----------------------------------------------------------------------------------------------------------------

Sec.  217.11  [Amended]

0
11. In Sec.  217.11 redesignate paragraph (c) added on May 1, 2014 (79 
FR 24540) effective January 1, 2018, as paragraph (d) and add new 
paragraph (c) to read as follows:
    (c) GSIB surcharge. A global systemically important BHC must use 
its GSIB surcharge calculated in accordance with subpart H of this part 
for purposes of determining its maximum payout ratio under Table 1 to 
Sec.  217.11.
0
12. Revise Sec.  217.300 to read as follows:


Sec.  217.300  Transitions.

    (a) Capital conservation and countercyclical capital buffer and 
GSIB surcharge.
    (1) From January 1, 2014 through December 31, 2015, a Board-
regulated institution is not subject to limits on distributions and 
discretionary bonus payments under Sec.  217.11 of subpart B of this 
part notwithstanding the amount of its capital conservation buffer or 
any applicable countercyclical capital buffer amount or GSIB surcharge.
    (2) Notwithstanding Sec.  217.11, beginning January 1, 2016 through 
December 31, 2018 a Board-regulated institution's maximum payout ratio

[[Page 75492]]

shall be determined as set forth in Table 1 to Sec.  217.300.

                        Table 1 to Sec.   217.300
------------------------------------------------------------------------
                                                         Maximum payout
                                                          ratio  (as a
       Transition period         Capital conservation     percentage of
                                        buffer              eligible
                                                        retained income)
------------------------------------------------------------------------
Calendar year 2016............  Greater than 0.625      No payout ratio
                                 percent (plus (A) 25    limitation
                                 percent of any          applies under
                                 applicable              this section.
                                 countercyclical
                                 capital buffer amount
                                 and (B) 25 percent of
                                 any applicable GSIB
                                 surcharge).
                                Less than or equal to   60 percent.
                                 0.625 percent (plus
                                 (A) 25 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 25 percent of
                                 any applicable GSIB
                                 surcharge), and
                                 greater than 0.469
                                 percent (plus (A)
                                 17.25 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 17.25 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   40 percent.
                                 0.469 percent (plus
                                 (A) 17.25 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 17.25 percent
                                 of any applicable
                                 GSIB surcharge), and
                                 greater than 0.313
                                 percent (plus (A)
                                 12.5 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 12.5 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   20 percent.
                                 0.313 percent (plus
                                 (A) 12.5 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 12.5 percent
                                 of any applicable
                                 GSIB surcharge), and
                                 greater than 0.156
                                 percent (plus (A)
                                 6.25 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 6.25 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   0 percent.
                                 0.156 percent (plus
                                 (A) 6.25 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 6.25 percent
                                 of any applicable
                                 GSIB surcharge).
Calendar year 2017............  Greater than 1.25       No payout ratio
                                 percent (plus (A) 50    limitation
                                 percent of any          applies under
                                 applicable              this section.
                                 countercyclical
                                 capital buffer amount
                                 and (B) 50 percent of
                                 any applicable GSIB
                                 surcharge).
                                Less than or equal to   60 percent.
                                 1.25 percent (plus
                                 (A) 50 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 50 percent of
                                 any applicable GSIB
                                 surcharge), and
                                 greater than 0.938
                                 percent (plus (A)
                                 37.5 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 37.5 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   40 percent.
                                 0.938 percent (plus
                                 (A) 37.5 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 37.5 percent
                                 of any applicable
                                 GSIB surcharge), and
                                 greater than 0.625
                                 percent (plus (A) 25
                                 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 25 percent of
                                 any applicable GSIB
                                 surcharge).
                                Less than or equal to   20 percent.
                                 0.625 percent (plus
                                 (A) 25 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 25 percent of
                                 any applicable GSIB
                                 surcharge), and
                                 greater than 0.313
                                 percent (plus (A)
                                 12.5 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 12.5 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   0 percent.
                                 0.313 percent (plus
                                 (A) 12.5 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 12.5 percent
                                 of any applicable
                                 GSIB surcharge).
Calendar year 2018............  Greater than 1.875      No payout ratio
                                 percent (plus (A) 75    limitation
                                 percent of any          applies under
                                 applicable              this section.
                                 countercyclical
                                 capital buffer amount
                                 and (B) 75 percent of
                                 any applicable GSIB
                                 surcharge).
                                Less than or equal to   60 percent.
                                 1.875 percent (plus
                                 (A) 75 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 75 percent of
                                 any applicable GSIB
                                 surcharge), and
                                 greater than 1.406
                                 percent (plus (A)
                                 56.25 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 56.25 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   40 percent.
                                 1.406 percent (plus
                                 (A) 56.25 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 56.25 percent
                                 of any applicable
                                 GSIB surcharge), and
                                 greater than 0.938
                                 percent (plus (A)
                                 37.5 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 37.5 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   20 percent.
                                 0.938 percent (plus
                                 (A) 37.5 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 37.5 percent
                                 of any applicable
                                 GSIB surcharge), and
                                 greater than 0.469
                                 percent (plus (A)
                                 18.75 percent of any
                                 applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 18.75 percent
                                 of any applicable
                                 GSIB surcharge).
                                Less than or equal to   0 percent.
                                 0.469 percent (plus
                                 (A) 18.75 percent of
                                 any applicable
                                 countercyclical
                                 capital buffer amount
                                 and (B) 18.75 percent
                                 of any applicable
                                 GSIB surcharge).
------------------------------------------------------------------------


[[Page 75493]]

0
13. Add subpart H to part 217 to read as follows:

Subpart H--Risk-Based Capital Surcharge for Global Systemically 
Important Bank Holding Companies

General Provisions

Secs.
217.400 Purpose and applicability.
217.401 Definitions.
217.402 Identification as a global systemically important BHC.
217.403 GSIB surcharge.

    Authority:  12 U.S.C. 5365.

General Provisions


Sec.  217.400  Purpose and applicability.

    (a) Purpose. This subpart implements certain provisions of section 
165 of the Dodd-Frank Act (12 U.S.C. 5365), by establishing a risk-
based capital surcharge for certain bank holding companies that are not 
consolidated subsidiaries of a bank holding company or subsidiaries of 
a non-U.S. banking organization.
    (b) Applicability.
    (1) Application of the calculation requirements. Subject to the 
initial applicability provisions of paragraph (b)(3) of this section:
    (i) A bank holding company must calculate its systemic indicator 
score pursuant to Sec.  217.402 by December 31 of the year in which its 
total consolidated assets first equal or exceed $50 billion if it:
    (A) Has total consolidated assets of $50 billion or more as of June 
30 of that year, as reported on its FR Y-9C; and
    (B) Is not a consolidated subsidiary of a bank holding company or a 
subsidiary of a non-U.S. banking organization; and
    (ii) A bank holding company described in paragraph (b)(1)(i) of 
this section that is identified as a global systemically important BHC 
pursuant to Sec.  217.402(a) must calculate its GSIB surcharge by 
December 31 of the year in which the bank holding company is identified 
as a global systemically important BHC.
    (2) Applicability of the GSIB surcharge and any adjustments 
thereto. (i) First GSIB surcharge. Subject to the transition provisions 
of Sec.  217.300(a) and the initial applicability provisions of 
paragraph (b)(3) of this section, a global systemically important BHC 
must use its GSIB surcharge (as calculated in the first year that the 
bank holding company was identified as a global systemically important 
BHC) for purposes of determining its maximum payout ratio under Table 1 
to Sec.  217.11 beginning on the January 1 of the year that is one full 
calendar year after it is identified as a global systemically important 
BHC.
    (ii) Increase in GSIB surcharge. To the extent that a global 
systemically important BHC's GSIB surcharge increases relative to its 
GSIB surcharge in effect for the current year, the global systemically 
important BHC must determine the maximum payout ratio under Table 1 to 
Sec.  217.11:
    (A) Using the current year's GSIB surcharge through December 31 of 
the following the calendar year; and
    (B) Using the increased GSIB surcharge beginning on January 1 of 
the year that is one full calendar year after the increased GSIB 
surcharge was calculated.
    (iii) Decrease in GSIB surcharge. To the extent that a global 
systemically important BHC's GSIB surcharge decreases relative to the 
surcharge in effect for the current year, the global systemically 
important BHC must determine the maximum payout ratio required under 
Table 1 to Sec.  217.11 using the decreased surcharge beginning on 
January 1 of the immediately following calendar year.
    (3) Initial applicability of the calculation and surcharge 
requirements.
    (i) A bank holding company must calculate its systemic indicator 
score pursuant to Sec.  217.402 by December 31, 2015 if it:
    (A) Had total consolidated assets of $50 billion or more as of June 
30, 2014 as reported on the FR Y-9C, and
    (B) Is not a consolidated subsidiary of a bank holding company or a 
subsidiary of a non-U.S. banking organization.
    (ii) A bank holding company described in (b)(3)(i) of this section 
that is identified as a global systemically important BHC pursuant to 
Sec.  217.402(a) by December 31, 2015, must calculate its GSIB 
surcharge by December 31, 2015, provided that:
    (A) For the GSIB surcharge calculated by December 31, 2015, a bank 
holding company must calculate its weighted short-term wholesale 
funding amount (defined in Sec.  217.403(c)) based on the average of 
its short-term wholesale funding amount calculated for each business 
day of the third quarter of 2015, divided by the bank holding company's 
average risk-weighted assets calculated for each business day of the 
third quarter of 2015; and multiplied by 175;
    (B) For the GSIB surcharge calculated by December 31, 2016, the 
bank holding company must calculate its weighted short-term wholesale 
funding amount (defined in Sec.  217.403(c)) based on the average of 
its short-term wholesale funding amount calculated for each business 
day of the third and fourth quarters of 2015, divided by the bank 
holding company's average risk-weighted assets for each business day of 
the third and fourth quarters of 2015; and multiplied by 175; and
    (C) For the GSIB surcharge calculated by December 31, 2017, and 
thereafter, the bank holding company must calculate its weighted short-
term wholesale funding amount (defined in Sec.  217.403(c)) based on 
the average of its short-term wholesale funding amount calculated for 
each business day of the previous calendar year.
    (iii) Subject to the transition provisions of Sec.  217.300(a):
    (A) A bank holding company that is identified as a global 
systemically important BHC pursuant to Sec.  217.402(a) by December 31, 
2015, must use its GSIB surcharge for purposes of determining its 
maximum payout ratio under Table 1 to Sec.  217.11 beginning on January 
1, 2016;
    (B) The GSIB surcharge that the bank holding company initially uses 
to determine its maximum payout ratio under Table 1 to Sec.  217.11 is 
the surcharge that the bank holding company calculated by December 31, 
2015; and
    (C) The surcharge that the bank holding company uses to determine 
its maximum payout ratio under Table 1 to Sec.  217.11 for each year 
following is determined in accordance with paragraph (b)(2) of this 
section.
    (c) Reservation of authority. (1) The Board may apply this subpart 
to any Board-regulated institution, in whole or in part, by order of 
the Board based on the institution's size, level of complexity, risk 
profile, scope of operations, or financial condition.
    (2) The Board may adjust the amount of the GSIB surcharge 
applicable to a global systemically important BHC, or extend or 
accelerate any compliance date of this subpart, if the Board determines 
that the adjustment, extension, or acceleration is appropriate in light 
of the capital structure, size, complexity, risk profile, and scope of 
operations of the global systemically important BHC. In increasing the 
size of the GSIB surcharge for a global systemically important BHC, the 
Board will apply notice and response procedures in 12 CFR 263.202.


Sec.  217.401  Definitions.

    As used in this subpart:
    (a) Aggregate global indicator amount means, for each systemic 
indicator, the annual dollar figure published by the Board that 
represents the sum of the systemic indicator scores of:
    (i) The 75 largest global banking organizations, as measured by the 
Basel Committee on Banking Supervision, and (ii) any other banking 
organization that

[[Page 75494]]

the Basel Committee on Banking Supervision includes in its sample total 
for that year.
    (b) Assets under custody means assets held as a custodian on behalf 
of customers, as reported by a bank holding company on the FR Y-15.
    (c) Average risk-weighted assets means the four-quarter average of 
the measure of total risk-weighted assets associated with the lower of 
the bank holding company's common equity tier 1 risk-based capital 
ratios, as reported on the bank holding company's FR Y-9C for each 
quarter of the previous calendar year, as available.
    (d) Cross-jurisdictional claims means foreign claims on an ultimate 
risk basis, as reported by a bank holding company on the FR Y-15.
    (e) Cross-jurisdictional liabilities means total cross-
jurisdictional liabilities, as reported by a bank holding company on 
the FR Y-15.
    (f) Intra-financial system assets means total intra-financial 
system assets, as reported by a bank holding company on the FR Y-15.
    (g) Intra-financial system liabilities means total intra-financial 
system liabilities, as reported by a bank holding company on the FR Y-
15.
    (h) Level 3 assets means assets valued using Level 3 measurement 
inputs, as reported by a bank holding company on the FR Y-15.
    (i) Notional amount of over-the-counter (OTC) derivatives means the 
total notional amount of OTC derivatives as reported by a bank holding 
company on the FR Y-15.
    (j) Payments activity means payments activity as reported by a bank 
holding company on the FR Y-15.
    (k) Securities outstanding means total securities outstanding as 
reported by a bank holding company on the FR Y-15.
    (l) Systemic indicator means any of the following indicators 
included on the FR Y-15:
    (1) Total exposures;
    (2) Intra-financial system assets;
    (3) Intra-financial system liabilities;
    (4) Securities outstanding;
    (5) Payments activity;
    (6) Assets under custody;
    (7) Underwritten transactions in debt and equity markets;
    (8) Notional amount of over-the-counter (OTC) derivatives;
    (9) Trading and available-for-sale (AFS) securities;
    (10) Level 3 assets;
    (11) Cross-jurisdictional claims; or
    (12) Cross-jurisdictional liabilities.
    (m) Total exposures means total exposures as reported by a bank 
holding company on the FR Y-15 (as revised to be consistent with the 
measure used to calculate the supplementary leverage ratio).
    (n) Trading and AFS securities means total adjusted trading and 
available-for-sale securities as reported by a bank holding company on 
the FR Y-15.
    (o) Underwritten transactions in debt and equity markets means 
total underwriting activity as reported by a bank holding company on 
the FR Y-15.


Sec.  217.402  Identification as a global systemically important BHC.

    (a) General. A bank holding company subject to this subpart is a 
global systemically important BHC if the sum of its systemic indicator 
scores for the twelve systemic indicators set forth in Table 1 of this 
section, as determined under paragraph (b) of this section, equals or 
exceeds 130 basis points. A bank holding company must calculate the sum 
of its systemic indicator scores on an annual basis by December 31 of 
each year.
    (b) Systemic indicator score. (1) Except as provided in paragraph 
(b)(2) of this section, the systemic indicator score in basis points 
for a given systemic indicator is equal to:
    (i) The ratio of:
    (A) The amount of the systemic indicator, as reported on the bank 
holding company's most recent FR Y-15; to
    (B) The aggregate global indicator amount for that systemic 
indicator published by the Board in the fourth quarter of that year;
    (ii) Multiplied by 10,000; and
    (iii) Multiplied by the indicator weight corresponding to the 
systemic indicator as set forth in Table 1 of this section.
    (2) Maximum substitutability score. The sum of the systemic 
indicator scores for the indicators in the substitutability category 
(assets under custody, payments systems activity, and underwriting 
activity) is capped at 100 basis points.

                                 Table 1
------------------------------------------------------------------------
                                                             Indicator
             Category                Systemic indicator       weight
                                                             (percent)
------------------------------------------------------------------------
Size..............................  Total exposures.....           20
Interconnectedness................  Intra-financial                 6.67
                                     system assets.
                                    Intra-financial                 6.67
                                     system liabilities.
                                    Securities                      6.67
                                     outstanding.
Substitutability..................  Payments activity...            6.67
                                    Assets under custody            6.67
                                    Underwritten                    6.67
                                     transactions in
                                     debt and equity
                                     markets.
Complexity........................  Notional amount of              6.67
                                     over-the-counter
                                     (OTC) derivatives.
                                    Trading and                     6.67
                                     available-for-sale
                                     (AFS) securities.
                                    Level 3 assets......            6.67
Cross-jurisdictional activity.....  Cross-jurisdictional           10
                                     claims.
                                    Cross-jurisdictional           10
                                     liabilities.
------------------------------------------------------------------------

Sec.  217.403  GSIB surcharge.

    (a) General. A company identified as a global systemically 
important BHC pursuant to Sec.  217.402(a) must calculate its GSIB 
surcharge on an annual basis by December 31 of each year. The GSIB 
surcharge is equal to the greater of:
    (1) The method 1 surcharge calculated in accordance with paragraph 
(b) of this section; and
    (2) The method 2 surcharge calculated in accordance with paragraph 
(c) of this section.
    (b) Method 1 surcharge--(1) General. A bank holding company's 
method 1 surcharge is the amount set forth in Table 2 that corresponds 
to the sum of the bank holding company's systemic indicator scores for 
the twelve systemic indicators included in Table 1 of Sec.  217.402, 
calculated pursuant to Sec.  217.402.

[[Page 75495]]



                       Table 2--Method 1 Surcharge
------------------------------------------------------------------------
                                                               Method 1
                       Method 1 score                          surcharge
                                                               (percent)
------------------------------------------------------------------------
Below 130...................................................         0.0
130-229.....................................................         1.0
230-329.....................................................         1.5
330-429.....................................................         2.0
430-529.....................................................         2.5
530-629.....................................................         3.5
------------------------------------------------------------------------

    (2) Higher method 1 surcharges. To the extent that the score of a 
global systemically important BHC equals or exceeds 630 basis points, 
the method 1 surcharge equals the sum of:
    (i) 4.5 percent; and
    (ii) An additional 1.0 percent for each 100 basis points that the 
BHC's score exceeds 630 basis points.
    (c) Method 2 surcharge--(1) General. A bank holding company's 
method 2 surcharge is the percentage amount set forth in Table 3 that 
corresponds to the bank holding company's method 2 score.

                       Table 3--Method 2 Surcharge
------------------------------------------------------------------------
                                                               Method 2
                       Method 2 score                          surcharge
                                                               (percent)
------------------------------------------------------------------------
Below 130...................................................         0.0
130-229.....................................................         1.0
230-329.....................................................         1.5
330-429.....................................................         2.0
430-529.....................................................         2.5
530-629.....................................................         3.0
630-729.....................................................         3.5
730-829.....................................................         4.0
830-929.....................................................         4.5
930-1029....................................................         5.0
1030-1129...................................................         5.5
------------------------------------------------------------------------

    (2) Higher method 2 surcharges. To the extent that the score of a 
global systemically important BHC equals or exceeds 1130 basis points, 
the method 2 surcharge equals the sum of:
    (i) 5.5 percent; and
    (ii) An additional 0.5 percent for each 100 basis points that the 
BHC's score exceeds 630 basis points.
    (3) Method 2 score. A bank holding company's method 2 score is 
equal to:
    (i) The sum of:
    (A) The bank holding company's systemic indicator scores for the 
nine systemic indicators included in table 4 of paragraph (c)(4) of 
this section, each weighted as described therein; and
    (B) The bank holding company's short-term wholesale funding score, 
calculated pursuant to paragraph (c)(5) of this section;
    (ii) Multiplied by 2.
    (4) Systemic indicator score. A bank holding company's score for a 
systemic indicator is equal to:
    (i) The ratio of:
    (A) The amount of the systemic indicator, as reported on the bank 
holding company's most recent FR Y-15; to
    (B) The aggregate global indicator amount for that systemic 
indicator published by the Board in the fourth quarter of that year;
    (iii) Multiplied by 10,000; and
    (iv) Multiplied by the indicator weight corresponding to the 
systemic indicator as set forth in Table 4 of this section.

                                 Table 4
------------------------------------------------------------------------
                                                             Indicator
             Category                Systemic indicator       weight
                                                             (percent)
------------------------------------------------------------------------
Size..............................  Total exposures.....              20
Interconnectedness................  Intra-financial                 6.67
                                     system assets.
                                    Intra-financial                 6.67
                                     system liabilities.
                                    Securities                      6.67
                                     outstanding.
Complexity........................  Notional amount of              6.67
                                     over-the-counter
                                     (OTC) derivatives.
                                    Trading and                     6.67
                                     available-for-sale
                                     (AFS) securities.
                                    Level 3 assets......            6.67
Cross-jurisdictional activity.....  Cross-jurisdictional              10
                                     claims.
                                    Cross-jurisdictional              10
                                     liabilities.
------------------------------------------------------------------------

    (5) Short-term wholesale funding score--(i) General. Except as 
provided in Sec.  217.400(b)(3)(ii), a bank holding company's short-
term wholesale funding score is equal to:
    (A) The average of the bank holding company's weighted short-term 
wholesale funding amount (defined in paragraph (c)(5)(ii) of this 
section), calculated for each business day of the previous calendar 
year;
    (B) Divided by the bank holding company's average risk-weighted 
assets; and
    (C) Multiplied by a fixed factor of 175.
    (ii) Weighted short-term wholesale funding amount. (A) To calculate 
its weighted short-term wholesale funding amount, a bank holding 
company must calculate the amount of its short-term wholesale funding 
on a consolidated basis for each business day and weigh the components 
of short-term wholesale funding in accordance with Table 5 of this 
section.
    (B) Short-term wholesale funding includes the following items, each 
as defined in paragraph (c)(5)(iii) of this section:
    (1) All funds that the bank holding company must pay under each 
secured funding transaction, other than an operational deposit, with a 
remaining maturity of 1 year or less;
    (2) All funds that the bank holding company must pay under all 
unsecured wholesale funding, other than an operational deposit, with a 
remaining maturity of 1 year or less;
    (3) The fair value of an asset as determined under GAAP that a bank 
holding company must return under a covered asset exchange with a 
remaining maturity of 1 year or less;
    (4) The fair value of an asset as determined under GAAP that the 
bank holding company must return under a short position; and
    (5) All brokered deposits and all brokered sweep deposits held at 
the bank holding company provided by a retail customer or counterparty.
    (C) For purposes of calculating the short-term wholesale funding 
amount and the components thereof, a bank holding company must assume 
that each asset or transaction described in paragraph (c)(5)(ii)(B) of 
this section matures in accordance with the criteria set forth in 12 
CFR 249.31.

[[Page 75496]]



                                                     Table 5
----------------------------------------------------------------------------------------------------------------
                                                     Remaining                                       Remaining
                                                  maturity of 30     Remaining       Remaining      maturity of
    Component of short-term wholesale funding      days of less   maturity of 31  maturity of 91    181 to 365
                                                  or no maturity    to 90 days      to 180 days        days
                                                     (percent)       (percent)       (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
Secured funding transaction secured by a level 1              25              10               0               0
 liquid asset...................................
(1) Secured funding transaction secured by a                  50              25              10               0
 level 2A liquid asset; (2) Unsecured wholesale
 funding where the customer or counterparty is
 not a financial sector entity or a consolidated
 subsidiary thereof; (3) Brokered deposits and
 brokered sweep deposits provided by a retail
 customer or counterparty; (4) Covered asset
 exchanges involving the future exchange of a
 Level 1 asset for a Level 2A asset; and (5)
 Short positions where the borrowed security is
 either a Level 1 or Level 2A asset.............
(1) Secured funding transaction secured by a                  75              50              25              10
 level 2B liquid asset (2) Covered asset
 exchanges and short positions (other than those
 described in the category above)...............
(1) Unsecured wholesale funding where the                    100              75              50              25
 customer or counterparty is a financial sector
 entity or a consolidated subsidiary thereof;
 and (2) Any other component of short-term
 wholesale funding..............................
----------------------------------------------------------------------------------------------------------------

    (iii) Short-term wholesale funding definitions. The following 
definitions apply for purposes of paragraph (c)(5)(ii)(B) of this 
section.
    (A) Brokered deposit means any deposit held at a bank holding 
company that is obtained, directly or indirectly, from or through the 
mediation or assistance of a deposit broker as that term is defined in 
section 29 of the Federal Deposit Insurance Act (12 U.S.C. 1831f(g)), 
and includes a reciprocal brokered deposit and a brokered sweep 
deposit.
    (B) Brokered sweep deposit means a deposit held at a bank holding 
company by a customer or counterparty through a contractual feature 
that automatically transfers to the bank holding company from another 
regulated financial company at the close of each business day amounts 
identified under the agreement governing the account from which the 
amount is being transferred.
    (C) Covered asset exchange means a transaction in which a bank 
holding company has provided assets of a given liquidity category to a 
counterparty in exchange for assets of a higher liquidity category, and 
the bank holding company and the counterparty agreed to return such 
assets to each other at a future date. Categories of assets, in 
descending order of liquidity, are level 1 liquid assets, level 2A 
liquid assets, level 2B liquid assets, and assets that are not HQLA. 
Covered asset exchanges do not include secured funding transactions.
    (D) Consolidated subsidiary means a company that is consolidated on 
the balance sheet of a bank holding company or other company under 
GAAP.
    (E) Deposit insurance means deposit insurance provided by the 
Federal Deposit Insurance Corporation under the Federal Deposit 
Insurance Act (12 U.S.C. 1811 et seq.).
    (F) Financial sector entity has the meaning set forth in 12 CFR 
249.3.
    (G) GAAP means generally accepted accounting principles as used in 
the United States.
    (H) High-quality liquid asset (HQLA) has the meaning set forth in 
12 CFR 249.3.
    (I) Level 1 liquid asset is an asset that qualifies as a level 1 
liquid asset pursuant to 12 CFR 249.20(a).
    (J) Level 2A liquid asset is an asset that qualifies as a level 2A 
liquid asset pursuant to 12 CFR 249.20(b).
    (K) Level 2B liquid asset is an asset that qualifies as a level 2B 
liquid asset pursuant to 12 CFR 249.20(c).
    (L) Operational deposit has the meaning set forth in 12 CFR 249.3.
    (M) Retail customer or counterparty has the meaning set forth in 12 
CFR 249.3.
    (N) Secured funding transaction means any funding transaction that 
is subject to a legally binding agreement and gives rise to a cash 
obligation of the bank holding company to a counterparty that is 
secured under applicable law by a lien on assets owned by the bank 
holding company, which gives the counterparty, as holder of the lien, 
priority over the assets in the event the bank holding company enters 
into receivership, bankruptcy, insolvency, liquidation, resolution, or 
similar proceeding. Secured funding transactions include repurchase 
transactions, loans of collateral to the bank holding company's 
customers to effect short positions, other secured loans, and 
borrowings from a Federal Reserve Bank.
    (O) Short position means a transaction in which a bank holding 
company has borrowed or otherwise obtained a security from a 
counterparty and sold that security to sell to another counterparty, 
and the bank holding company must return the security to the initial 
counterparty in the future.
    (P) Unsecured wholesale funding means a liability or general 
obligation, including a wholesale deposit, of the bank holding company 
to a wholesale customer or counterparty that is not secured under 
applicable law by a lien on assets owned by the bank holding company.
    (Q) Wholesale customer or counterparty means a customer or 
counterparty that is not a retail customer or counterparty.

    By order of the Board of Governors of the Federal Reserve 
System, December 10, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-29330 Filed 12-17-14; 8:45 am]
BILLING CODE 6210-01-P