[Federal Register Volume 81, Number 242 (Friday, December 16, 2016)]
[Rules and Regulations]
[Pages 90952-90955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29966]
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FEDERAL RESERVE SYSTEM
12 CFR Part 217 Regulation Q
[Docket No. R-1535; RIN 7100 AE-49]
Regulatory Capital Rules: Implementation of Capital Requirements
for Global Systemically Important Bank Holding Companies
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
is adopting a final rule to make several revisions to its rule
regarding risk-based capital surcharges for U.S.-based global
systemically important bank holding companies (GSIB surcharge rule).
The final rule modifies the GSIB surcharge rule to provide that a bank
holding company subject to the rule should continue to calculate its
method 1 score and method 2 score under the rule annually using data
reported on the firm's Banking Organization Systemic Risk Report (FR Y-
15) as of December 31 of the previous calendar year. In addition, the
final rule clarifies that a bank holding company subject to the GSIB
surcharge rule must calculate its method 2 score using systemic
indicator amounts expressed in billions of dollars.
DATES: The final rule is effective January 17, 2017.
FOR FURTHER INFORMATION CONTACT: Anna Lee Hewko, Associate Director,
(202) 530-6260, Constance M. Horsley, Assistant Director, (202) 452-
5239, Elizabeth MacDonald, Manager, (202) 475-6316, or Sean Healey,
Supervisory Financial Analyst, (202) 912-4611, Division of Banking
Supervision and Regulation; or Benjamin McDonough, Special Counsel,
(202) 452-2036, Mark Buresh, Senior Attorney, (202) 452-5270, or Mary
Watkins, Attorney, (202) 452-3722, 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
II. Background
III. Description of the Final Rule
A. Revisions Related to FR Y-15 Reporting Frequency
B. Revision To Clarify the Method 2 Score Calculation
C. Comment Received on the Proposed Rule
V. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Analysis
C. Riegle Community Development and Regulatory Improvement Act
of 1994
D. Plain Language
I. Introduction
Section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) authorizes the Board of Governors of
the Federal Reserve System (Board) to establish enhanced prudential
standards for bank holding companies with $50 billion or more in total
consolidated assets and for nonbank financial companies that the
Financial Stability Oversight Council has designated for supervision by
the Board.\1\ These standards must include risk-based capital
requirements as well as other enumerated standards. Pursuant to section
165 of the Dodd-Frank Act, the Board adopted a rule regarding risk-
based capital surcharges for U.S.-based global systemically important
bank holding companies (GSIB surcharge rule) in July 2015 to impose a
risk-based-capital surcharge on bank holding companies identified under
the rule as global systemically important bank holding companies
(GSIBs).\2\ In April 2016, the Board invited public comment on a notice
of proposed rulemaking (proposal or proposed rule) to make clarifying
revisions to the Board's GSIB surcharge rule.\3\ The Board now is
issuing a final rule implementing the proposal without change (final
rule).
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\1\ See, 12 U.S.C. 5365.
\2\ 80 FR 49082 (August 14, 2015).
\3\ 81 FR 20579 (April 8, 2016).
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II. Background
The GSIB surcharge rule works to mitigate the potential risk that
the material financial distress or failure of a GSIB could pose to U.S.
financial stability by increasing the stringency of capital standards
for GSIBs, thereby increasing the resiliency of these firms. The GSIB
surcharge rule establishes a methodology to identify whether a U.S.
top-tier bank holding company is a GSIB and imposes a risk-based
capital surcharge on such an institution. The GSIB surcharge rule takes
into consideration the nature, scope, size, scale, concentration,
interconnectedness, and mix of activities of each company subject to
the rule in its methodology for determining whether the company is a
GSIB and the size of the surcharge. These factors are captured in the
GSIB surcharge rule's method 1 and method 2 scores, which use
quantitative metrics reported on the FR Y-15 reporting form to measure
a firm's systemic footprint.
Specifically, the GSIB surcharge rule requires each U.S. bank
holding company that qualifies as an advanced approaches institution
under the Board's capital rules to calculate an aggregate systemic
indicator score based on five indicators of systemic importance (method
1 score).\4\ A bank holding company whose method 1 score exceeds a
defined threshold is identified as a GSIB. Advanced approaches
institutions must calculate their method 1 scores on an annual basis
using data
[[Page 90953]]
reported on the FR Y-15 reporting form as of December 31 of the prior
year.\5\
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\4\ See, 12 CFR 217.100(b)(1); 12 CFR part 217, subpart H.
\5\ The GSIB surcharge rule includes transition provisions for
the first years that it is effective. See 12 CFR 217.400(b)(2).
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A bank holding company identified as a GSIB must also calculate a
score under method 2. Such a firm must calculate a method 2 score each
year using data reported on the firm's FR Y-15 as of December 31 of the
prior year. GSIB surcharges are established using the method 1 and
method 2 scores, and GSIBs with higher scores are subject to higher
GSIB surcharges.
Method 1 uses five equally-weighted categories that are correlated
with systemic importance--size, interconnectedness, cross-
jurisdictional activity, substitutability, and complexity--as measured
by twelve systemic indicators.\6\ For each systemic indicator, a firm
divides its own measure of the systemic indicator by an aggregate
global indicator amount. Each resulting value is then weighted and put
onto a standard scale. The firm's method 1 score is the sum of its
weighted systemic indicator scores. Method 2 uses similar inputs to
those used in method 1, but replaces the substitutability category with
a measure of short-term wholesale funding.\7\ The GSIB surcharge for
the firm is the higher of the two surcharges determined under method 1
and method 2.\8\ Method 2 is calibrated differently from method 1 and
generally results in a higher GSIB surcharge.
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\6\ 12 CFR 217.404.
\7\ 12 CFR 217.405.
\8\ 12 CFR 217.403.
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The FR Y-15 reporting form collects systemic risk data from U.S.
bank holding companies and covered savings and loan holding companies
\9\ with total consolidated assets of $50 billion or more. The
information reported on the FR Y-15 is used in part in the calculation
of a bank holding company's method 1 and method 2 scores under the GSIB
surcharge rule.\10\
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\9\ Covered savings and loan holding companies are those which
are not substantially engaged in insurance or commercial activities.
For more information, see the definition of ``covered savings and
loan holding company'' provided in 12 CFR 217.2.
\10\ The FR Y-15 requires reporting of the components used in
calculating the method 1 and method 2 scores on the FR Y-15, but
does not require reporting of the scores themselves. As of January
1, 2016, a bank holding company that is subject to a GSIB surcharge
is required to report its applicable GSIB surcharge on line 67 of
the Federal Financial Institutions Examination Council 101 report,
Regulatory Capital Reporting for Institutions Subject to the
Advanced Capital Adequacy Framework.
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In April 2016, the Board invited comment on a proposed rule to
clarify certain aspects of the GSIB surcharge rule.\11\ Because the FR
Y-15 had become a quarterly, rather than an annual report, the proposed
rule would have clarified that a bank holding company subject to the
rule should continue to use the systemic indicator amount from the FR
Y-15 regulatory report as of December 31 of the prior calendar year to
calculate its method 1 and method 2 scores. The proposal also would
have clarified the units used for purposes of the method 2 score
calculation under the capital surcharge rule. In connection with these
proposed changes, the preamble to the proposal provided clarifying
information on how a firm identified as a GSIB should calculate its
short-term wholesale funding score for purposes of calculating its
method 2 score.
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\11\ 81 FR 20579 (April 8, 2016).
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III. Description of the Final Rule
A. Revisions Related to FR Y-15 Reporting Frequency
The FR Y-15, as implemented on December 31, 2012, was an annual
report.\12\ The Board recently revised the FR Y-15 to require that the
FR Y-15 to be filed on a quarterly basis, beginning with the report as
of June 30, 2016.\13\ Under the GSIB surcharge rule, bank holding
companies calculate their method 1 and method 2 scores using data from
their most recent FR Y-15.\14\ These calculations were intended to be
conducted annually using data as of December 31 of the prior calendar
year, consistent with the frequency of the FR Y-15 at the time.
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\12\ 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).
\13\ 80 FR 77344 (December 14, 2015).
\14\ 80 FR 49082 (August 14, 2015).
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The proposed rule sought comment on revising the GSIB surcharge
rule to require continued use of a December 31 as-of date for purposes
of a bank holding company's calculation of its method 1 and method 2
scores. The proposed revisions to sections 217.404 and 217.405 of the
GSIB surcharge rule would provide that the systemic indicator amount
used in the calculations would be drawn from a firm's FR Y-15 as of
December 31 of the previous calendar year even after the FR Y-15
becomes a quarterly report.
The Board received no comments on this aspect of the proposal and
is finalizing this portion of the rule as proposed.
B. Revision To Clarify the Method 2 Score Calculation
The proposed rule also sought to revise section 217.405 of the
Board's Regulation Q to clarify that, for purposes of calculating its
method 2 score, a GSIB should convert its systemic indicator amounts as
reported on the FR Y-15 to billions of dollars. The FR Y-15 requires
these data to be reported in thousands of dollars, while the fixed
coefficients used in the calculation of a firm's method 2 score are
determined using aggregate data expressed in billions of dollars.\15\
Therefore, to properly use the fixed coefficients in the method 2 score
methodology, a firm should reflect its systemic indicator amounts used
in the method 2 score calculation in billions of dollars.
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\15\ See, 80 FR 49082, 49088.
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The Board received no comments on this aspect of the proposal and
is finalizing this portion of the rule as proposed.
C. Comment Received on the Proposed Rule
The Board received one public comment on the proposed rule. The
commenter generally expressed support for the proposed rule, but
expressed concerns regarding the interaction of the timing of the FR Y-
15 and the Federal Reserve's complex institution liquidity monitoring
report, the FR 2052a. The FR Y-15, as noted above, collects data
regarding a firm's systemic risk, while the FR 2052a collects data on
an institution's overall liquidity profile.\16\ The commenter expressed
concern that if the initial effective date of Schedule G of the FR Y-15
preceded the initial effective date of the FR 2052a this difference
would reduce the time that certain firms have to fully implement the FR
2052a. Specifically, the commenter observed that, because data from the
FR 2052a will be used to complete Schedule G of the FR Y-15, it was
inconsistent to require firms with total assets of $50 billion or more
to file Schedule G of the FR Y-15 as of December 31, 2016, but provide
firms with total assets equal to or greater than $50 billion, but less
than $250 billion until July 31, 2017 to file the FR 2052a. The
commenter therefore argued that firms should be given additional time
to complete Schedule G of the FR Y-15 in order to allow them to make
use of the
[[Page 90954]]
full implementation period for the FR 2052a.
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\16\ 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). See 80 FR 71795 (November, 17, 2015).
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In response to the comment, the Board is issuing an interim final
rule concurrently with this final rule to provide additional time for
certain smaller firms to complete Schedule G of the FR Y-15 for the
first time.
V. Regulatory Analysis
A. Paperwork Reduction Act (PRA)
There is no new collection of information pursuant to the PRA (44
U.S.C. 3501 et seq.) contained in this final rule.
B. Regulatory Flexibility Act Analysis
The Board is providing a final regulatory flexibility analysis with
respect to this final rule. The Regulatory Flexibility Act, 5 U.S.C.
601 et seq. (RFA), generally requires that an agency provide a
regulatory flexibility analysis in connection with a final rulemaking.
This final rule amends the Board's GSIB surcharge rule, which only
applies to bank holding companies that are advanced approaches Board-
regulated institutions for purposes of the Board's Regulation Q
(advanced approaches bank holding companies). Generally, advanced
approaches bank holding companies are those that: Have total
consolidated assets of $250 billion or more; have total consolidated
on-balance sheet foreign exposures of $10 billion or more; have
subsidiary depository institutions that are advanced approaches
institutions; or elect to use the advanced approaches framework.\17\
Under regulations issued by the Small Business Administration, a small
entity includes a depository institution, bank holding company, or
savings and loan holding company with assets of $550 million or less
(small banking organizations).\18\ As of June 30, 2016, there were
approximately 3,203 top-tier small bank holding companies. Bank holding
companies that are subject to the final rule therefore are expected to
substantially exceed the $550 million asset threshold at which a
banking entity would qualify as a small bank holding company. As a
result, the final rule is not expected to apply to any small bank
holding company for purposes of the RFA.
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\17\ See 12 CFR 217.100.
\18\ 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 Small Business Administration's
June 12, 2014, interim final rule was adopted without change as a
final rule by the Small Business Administration on January 12, 2016.
81 FR 3949 (January 25, 2016).
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Therefore, there are no significant alternatives to the final rule
that would have less economic impact on small bank holding companies.
As discussed above, there are no projected reporting, recordkeeping,
and other compliance requirements of the final rule. The Board does not
believe that the final rule duplicates, overlaps, or conflicts with any
other Federal rules. In light of the foregoing, the Board does not
believe that the final rule would have a significant economic impact on
a substantial number of small entities.
The Board sought comment on whether the proposed rule would impose
undue burdens on, or have unintended consequences for, small
organizations, and received no comments on this aspect of the proposal.
In light of the foregoing, the Board does not believe that the final
rule will have a significant impact on small entities.
C. Riegle Community Development and Regulatory Improvement Act of 1994
In determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on state member banks, the Board is
required to consider, consistent with the principles of safety and
soundness and the public interest, any administrative burdens that such
regulations would place on depository institutions, and the benefits of
such regulations.\19\ In addition, new regulations that impose
additional reporting disclosures or other new requirements on insured
depository institutions generally must take effect on the first day of
a calendar quarter which begins on or after the date on which the
regulations are published in final form.\20\
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\19\ See Section 302 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (``RCDRIA''), 12 U.S.C. 4802.
\20\ 12 U.S.C. 4802(b).
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The final rule is only applicable to advanced approaches bank
holding companies. Therefore, the requirements of the Riegle Community
Development and Regulatory Improvement Act of 1994 are not applicable
to this final rule.
D. 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 final rule in a simple
straightforward manner. The Board did not receive any comment on its
use of plain language.
List of Subjects in 12 CFR Part 217
Administrative practice and procedure, Banks, banking, Holding
companies, Reporting and recordkeeping requirements, Securities.
Board of Governors of the Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board amends chapter
II of title 12 of the Code of Federal Regulations as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
1. 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-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
0
2. In Sec. 217.404, paragraph (b)(1) is revised to read as follows:
Sec. 217.404 Method 1 score.
* * * * *
(b) * * *
(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 that systemic indicator, as reported by the bank
holding company as of December 31 of the previous calendar year; 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.
* * * * *
0
3. In Sec. 217.405, paragraph (b)(1) is revised to read as follows:
Sec. 217.405 Method 2 score.
* * * * *
(b) * * *
(1) The amount of the systemic indicator, as reported by the bank
holding company as of December 31 of the previous calendar year,
expressed in billions of dollars;
* * * * *
[[Page 90955]]
By order of the Board of Governors of the Federal Reserve
System, December 9, 2016.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2016-29966 Filed 12-14-16; 11:15 am]
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