[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
[[Page 75477]]
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 (%)
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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.
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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.
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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