[Federal Register Volume 81, Number 239 (Tuesday, December 13, 2016)]
[Notices]
[Pages 89941-89943]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29891]


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FEDERAL RESERVE SYSTEM

[Docket No. OP-1555]


Application of the RFI/C(D) Rating System to Savings and Loan 
Holding Companies

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Notice and request for comment.

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SUMMARY: The Board proposes to fully apply the same supervisory rating 
system to savings and loan holding companies as currently applies to 
bank holding companies. This proposal furthers the Board's goal of 
ensuring that holding companies that control depository institutions 
are subject to consistent standards and supervisory programs. The 
proposal would not apply to savings and loan holding companies engaged 
in significant insurance or commercial activities. These firms would 
instead continue to receive indicative supervisory ratings.

DATES: Comments must be received no later than February 13, 2017.

ADDRESSES: You may submit comments, identified by Docket No. OP-1555, 
by any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
     Federal eRulemaking Portal: http://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: Robert deV. 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 http://www.federalreserve.gov/apps/foia/proposedregs.aspx 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 
3515, 1801 K Street NW. (between 18th and 19th Streets NW.), 
Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays. For 
security reasons, the Board requires that visitors make an appointment 
to inspect comments. You may do so by calling (202) 452-3684. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and to submit to security screening in order to 
inspect and photocopy comments.

FOR FURTHER INFORMATION CONTACT: T. Kirk Odegard, Assistant Director 
and Chief of Staff, Policy Implementation and Effectiveness, (202) 530-
6225, or Karen Caplan, Manager, (202) 452-2710, Division of Banking 
Supervision and Regulation; Tate Wilson, Counsel, (202) 452-3696, Legal 
Division, Board of Governors of the Federal Reserve System, 20th and C 
Streets NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. The Proposal
III. Regulatory Analysis

I. Background

    In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (``Dodd-Frank Act'') transferred

[[Page 89942]]

responsibility for the supervision of savings and loan holding 
companies (SLHCs) from the Office of Thrift Supervision to the Federal 
Reserve.\1\ Since 2011, the Board has applied its existing rating 
system for bank holding companies (BHCs)--the RFI/C(D) rating system 
(commonly referred to as the ``RFI rating system'') \2\--to SLHCs on an 
indicative basis as a way of providing feedback to SLHCs regarding 
supervisory expectations while the Federal Reserve and SLHCs each 
became familiar with the newly established statutory framework for 
supervision. Federal Reserve supervisory staff have assigned to each 
savings and loan holding company an ``indicative rating,'' which 
describes how the savings and loan holding company would be rated under 
the RFI rating system if applied to the company without the rating 
itself triggering supervisory consequences.\3\
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    \1\ 12 U.S.C. 5412(b)(1).
    \2\ Under the RFI rating system, BHCs generally are assigned 
individual component ratings for risk management (R), financial 
condition (F), and impact (I) of nondepository entities on 
subsidiary depository institutions. The risk management component is 
supported by individual subcomponent ratings for board and senior 
management oversight; policies, procedures, and limits; risk 
monitoring and management and information systems; and internal 
controls. The financial condition rating is supported by individual 
subcomponent ratings for capital adequacy, asset quality, earnings, 
and liquidity. An additional component rating is assigned to 
generally reflect the condition of any depository institution 
subsidiaries (D), as determined by the primary supervisor(s) of 
those subsidiaries. An overall composite rating (C) is assigned 
based on an overall evaluation of a BHC's managerial and financial 
condition and an assessment of potential future risk to its 
subsidiary depository institution(s). A simplified version of the 
RFI rating system that includes only the risk management component 
and a composite rating is applied to noncomplex BHCs with assets of 
$1 billion or less.
    \3\ All SLHCs that have been inspected have received at least 
one indicative rating.
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    Prior to the transfer of supervisory responsibility for SLHCs, the 
OTS assigned supervisory ratings for SLHCs under the CORE rating 
system.\4\ The CORE rating system and the RFI rating system 
substantially overlapped. The two rating systems generally included 
assessments of the same set of financial and non-financial factors and 
provide a summary evaluation of each holding company's condition.\5\ 
Under both systems, assigned ratings formed a basis for supervisory 
responses and actions, including discussions between supervisors and 
firm management of a holding company's condition.
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    \4\ See 72 FR 72442 (December 20, 2007). Under the CORE rating 
system, SLHCs generally were assigned individual component ratings 
for capital (C), organizational structure (O), risk management (R), 
and earnings (E), as well as a composite rating that reflected an 
overall assessment of the holding company as reflected by 
consolidated risk management and financial strength.
    \5\ The primary difference between the two rating systems 
concerned asset quality and liquidity. Under the CORE rating system, 
a review of asset quality was subsumed into other rating elements 
such as capital and earnings, it was not specifically accounted for 
or assessed. Similarly, liquidity was not rated separately under the 
CORE rating system; it was taken into account in the organizational 
structure and earnings assessments. The RFI rating system assigns a 
separate subcomponent rating for asset quality and liquidity that 
support the overall financial condition rating.
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    The Board did not adopt the CORE rating system upon taking over 
supervision of SLHCs. Instead, because SLHCs and BHCs face the same 
risks and engage largely in the same activities, the Board sought to 
ensure that holding companies of depository institutions were subject 
to consistent standards and supervisory programs by applying the same 
RFI rating system to SLHCs as the Board applies to BHCs. To allow a 
period of adjustment for both the Federal Reserve and SLHCs, the 
Federal Reserve assigned RFI ratings on an indicative basis only.

II. The Proposal

Applying the RFI Rating System to SLHCs

    After completing a number of supervisory cycles in which the RFI 
rating system has been applied to SLHCs on an indicative basis and 
having evaluated the information gained from that process, the Board 
now proposes to apply the RFI rating system to certain SLHCs on a fully 
implemented basis.\6\ Applying the RFI rating system to both BHCs and 
SLHCs ensures that holding companies of depository institutions are 
subject to consistent standards and supervisory programs.\7\ Experience 
with this process over the past five years indicates that the RFI 
rating system is an effective approach to communicating supervisory 
expectations to SLHCs. In proposing this application of the RFI rating 
system to certain SLHCs, the Board has taken into account the diverse 
population of SLHCs and the experience gained in assigning indicative 
RFI ratings to these firms.
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    \6\ See 12 U.S.C. 1467a(b) (providing for the supervision and 
examination of SLHCs by the Board) and 1467a(g) (authorizing the 
Board to issue regulations and orders it deems necessary to or 
appropriate to enable it to administer and carry out the purposes of 
section 10 of HOLA).
    \7\ The Board is not proposing any changes to the application of 
the RFI rating system to bank holding companies at this time.
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    The Board proposes to apply the RFI rating system to all SLHCs 
except those that are excluded from the definition of ``covered savings 
and loan holding company'' in section 217.2 of the Board's Regulation 
Q.\8\ Specifically, the Board would not fully apply the RFI rating 
system to SLHCs that derive 50 percent or more of their total 
consolidated assets or total revenues to activities that are not 
financial in nature under section 4(k) of the Bank Holding Company Act 
of 1956, as amended (12 U.S.C. 1843(k)). This proposal also would not 
apply to savings and loan holding companies that are insurance 
companies or savings and loan holding companies that hold 25 percent or 
more of their total consolidated assets in subsidiaries that are 
insurance companies. Instead, the Board would continue to assign an 
indicative rating under the RFI system to these SLHCs as it reviews 
whether a modified version of the RFI rating system or some other 
supervisory rating system is appropriate for these firms on a permanent 
basis.
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    \8\ 12 CFR 217.2.
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    Under this proposal, all components of the RFI rating system (i.e., 
risk management, financial condition, and potential impact of the 
parent company and nondepository subsidiaries on subsidiary depository 
institution(s)) would apply to SLHCs.\9\ Likewise, the depository 
institution rating, which generally mirrors the primary regulator's 
assessment of the subsidiary depository institution(s), would apply to 
certain SLHCs under the proposal. A numeric rating of 1 indicates the 
highest rating, strongest performance and practices, and least degree 
of supervisory concern; a numeric rating of 5 indicates the lowest 
rating, weakest performance, and the highest degree of supervisory 
concern.
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    \9\ Consistent with the approach for BHCs, when assigning a 
rating to an SLHC supervisory staff will take into account a 
company's size, complexity, and financial condition. For example, a 
noncomplex SLHC with total assets less than $1 billion will not be 
assigned all subcomponent ratings; rather, only a risk management 
component rating and composite rating generally will be assigned. 
These would equate, respectively, to the management component and 
composite rating under the CAMELS rating system for depository 
institutions, as assigned to the SLHC's subsidiary savings 
association by its primary regulator.
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    The financial condition component of the RFI rating includes a 
subcomponent that represents an assessment of capital adequacy. 
Compliance with minimum regulatory capital requirements is part of a 
broader qualitative and quantitative assessment of an SLHC's capital 
adequacy. As of January 1, 2015, certain SLHCs became subject to 
minimum capital requirements and overall capital adequacy 
standards.\10\ For SLHCs subject to minimum regulatory capital 
requirements, assessment of the SLHC's

[[Page 89943]]

compliance with those requirements will be one element of a broader 
qualitative and quantitative assessment of capital adequacy.\11\
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    \10\ See 78 FR 62018, 62028 (October 11, 2013) (outlining the 
timeframe for implementation of Regulation Q for SLHCs and others).
    \11\ See Sections 4060 and 4061 of the Bank Holding Company 
Supervision Manual; Supervision and Regulation Letter 15-19 
(December 18, 2015), available at https://www.federalreserve.gov/bankinforeg/srletters/sr1519.htm; Supervision and Regulation Letter 
15-6 (April 6, 2015), available at https://www.federalreserve.gov/bankinforeg/srletters/sr1506.htm; Supervision and Regulation Letter 
09-04 (February 24, 2009, revised December 21, 2015), available at 
http://www.federalreserve.gov/boarddocs/srletters/2009/sr0904.htm.
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    Noncomplex SLHCs under $1 billion will be assigned an abbreviated 
version of the RFI rating system consistent with the Board's practice 
for BHCs outlined in SR 13-21.\12\ An offsite review of the SLHC will 
be conducted upon receipt of the lead depository institution's report 
of examination. The supervisory cycle will be determined by the 
examination frequency of the lead depository institution and the SLHC 
will be assigned only a risk management rating and a composite rating.
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    \12\ Supervision and Regulation Letter 13-21 (December 17, 
2013), available at https://www.federalreserve.gov/bankinforeg/srletters/sr1321.htm.
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    Finally, elements of the RFI rating system that are codified in the 
Board's Bank Holding Company Supervision Manual \13\ and a policy 
letter issued by the staff of the Board's Division of Banking 
Supervision and Regulation will be revised if the proposal to fully 
apply the RFI system to certain SLHCs is finalized.\14\
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    \13\ Available at http://www.federalreserve.gov/boarddocs/supmanual/supervision_bhc.htm.
    \14\ See Supervision and Regulation Letter 04-18 (December 6, 
2014), available at http://www.federalreserve.gov/boarddocs/srletters/2004/sr0418.htm.
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Assessment of Capital Adequacy for SLHCs That Receive Indicative 
Ratings

    For SLHCs that would continue to receive an indicative rating under 
the RFI rating system, the Board proposes that examiners, in the 
evaluation of capital adequacy of an SLHC, consider the risks inherent 
in the SLHC's activities and the ability of capital to absorb 
unanticipated losses, provide a base for growth, and support the level 
and composition of the parent company and subsidiaries' debt.

Supervisory Guidance for SLHCs With Less Than $10 Billion in Assets

    In 2013, Board staff published several supervisory letters 
extending the use of the RFI rating system for and assignment of 
indicative ratings to SLHCs and extending the scope and frequency 
requirements for supervised holding companies with total consolidated 
assets of $10 billion or less to SLHCs. Until such time as the Board 
adopts a final rule on the application of the RFI rating system to 
SLHCs, SLHCs may refer to these letters for staff-level guidance on the 
use of indicative ratings.
    The Board invites comment on all aspects of this proposal.

III. Regulatory Analysis

Paperwork Reduction Act

    There is no collection of information required by this proposal 
that would be subject to the Paperwork Reduction Act of 1995, 44 U.S.C. 
3501 et seq.

Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) requires an agency to publish 
an initial regulatory flexibility analysis with a proposed rule or 
certify that the proposed rule will not have a significant economic 
impact on a substantial number of small entities. Based on its 
analysis, and for the reasons stated below, the rule would not have a 
significant economic impact on a substantial number of small entities. 
Nevertheless, the Board is publishing an initial regulatory flexibility 
analysis and requests public comment on all aspects of its analysis. 
The Board will, if necessary, conduct a final regulatory flexibility 
analysis after considering the comments received during the public 
comment period.
    1. Statement of the need for, and objectives of, the proposed rule. 
The proposed rule would apply the same supervisory rating system to 
SLHCs as currently applies to bank holding companies. The RFI rating 
system is an effective approach to communicating supervisory 
expectations to SLHCs. This proposal furthers the Board's goal of 
ensuring that holding companies that control depository institutions 
are subject to consistent standards and supervisory programs.
    2. Small entities affected by the proposed rule. Under regulations 
issued by the Small Business Administration, a small entity includes an 
SLHC with total assets of $550 million or less. As of October 31, 2016, 
there were approximately 157 small SLHCs. The proposed rule will not 
have a significant economic impact on the entities that it affects 
because the proposal does not impose any recordkeeping, reporting, or 
compliance requirements. The Board invites comment on the effect of the 
proposed rule on small entities.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed rule would not impose any recordkeeping, reporting, or 
compliance requirements.
    4. Other Federal rules. The Board has not identified any likely 
duplication, overlap and/or potential conflict between the proposed 
rule and any Federal rule.
    5. Significant alternatives to the proposed revisions. The Board 
believes that this proposal will not have a significant economic impact 
on small banking organizations supervised by the Board and therefore 
believes that there are no significant alternatives to this proposal 
that would reduce the economic impact on small banking organizations 
supervised by the Board.
    The Board solicits comment on any significant alternatives that 
would reduce the regulatory burden associated on small entities with 
this proposed rule.

Solicitation of Comments on Use of 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 invites comment on how to make this proposed rule 
easier to understand. For example:
     Has the Board organized the material to suit your needs? 
If not, how could the proposal be more clearly stated?
     Are the requirements in the proposal clearly stated? If 
not, how could the proposal be more clearly stated?
     Does the proposal contain technical language or jargon 
that is not clear? If so, what language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the proposal easier to understand? 
If so, what changes would make the proposal easier to understand?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What else could the Board do to make the proposal easier 
to understand?

    By order of the Board of Governors of the Federal Reserve 
System, December 8, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-29891 Filed 12-12-16; 8:45 am]
 BILLING CODE 6210-01-PA13DE3.