[Federal Register Volume 82, Number 22 (Friday, February 3, 2017)]
[Rules and Regulations]
[Pages 9308-9330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02257]
[[Page 9307]]
Vol. 82
Friday,
No. 22
February 3, 2017
Part III
Federal Reserve System
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12 CFR Parts 225 and 252
Amendments to the Capital Plan and Stress Test Rules; Regulations Y and
YY; Final Rule
Federal Register / Vol. 82 , No. 22 / Friday, February 3, 2017 /
Rules and Regulations
[[Page 9308]]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 252
[Docket No. R-1548]
RIN 7100-AE59
Amendments to the Capital Plan and Stress Test Rules; Regulations
Y and YY
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
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SUMMARY: The Board is adopting a final rule that revises the capital
plan and stress test rules for bank holding companies with $50 billion
or more in total consolidated assets and U.S. intermediate holding
companies (IHCs) of foreign banking organizations. Under the final
rule, large and noncomplex firms (those with total consolidated assets
of at least $50 billion but less than $250 billion, nonbank assets of
less than $75 billion, and that are not U.S. global-systemically
important banks) are no longer subject to the provisions of the Board's
capital plan rule whereby the Board may object to a capital plan on the
basis of qualitative deficiencies in the firm's capital planning
process. Accordingly, these firms will no longer be subject to the
qualitative component of the annual Comprehensive Capital Analysis and
Review (CCAR). The final rule also modifies certain regulatory reports
to collect additional information on nonbank assets and to reduce
reporting burdens for large and noncomplex firms. For all bank holding
companies subject to the capital plan rule, the final rule simplifies
the initial applicability provisions of both the capital plan and the
stress test rules, reduces the amount of additional capital
distributions that a bank holding company may make during a capital
plan cycle without seeking the Board's prior approval, and extends the
range of potential as-of dates the Board may use for the trading and
counterparty scenario component used in the stress test rules.
The final rule does not apply to bank holding companies with total
consolidated assets of less than $50 billion or to any state member
bank or savings and loan holding company.
DATES: Effective Date: March 6, 2017.
FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Associate Director, (202)
263-4833, Richard Naylor, Associate Director, (202) 728-5854, Molly
Mahar, Deputy Associate Director, (202) 973-7360, Constance Horsley,
Assistant Director, (202) 452-5239, Mona Touma Elliot, Manager, (202)
912-4688, Celeste Molleur, Manager (202) 452-2783, Elizabeth MacDonald,
Manager, (202) 475-6316, Christine Graham, Senior Supervisory Financial
Analyst, (202) 452-3005, Seth Ruhter, Senior Supervisory Financial
Analyst, (202) 452-3997, Joseph Cox, Supervisory Financial Analyst,
(202) 452-3216, Kevin Tran, Supervisory Financial Analyst, (202) 452-
2309, or Hillel Kipnis, Financial Analyst, (202) 452-2924, Division of
Banking Supervision and Regulation; Laurie Schaffer, Associate General
Counsel, (202) 452-2272, Benjamin McDonough, Assistant General Counsel,
(202) 452-2036, Julie Anthony, Counsel, (202) 475-6682, Brian Chernoff,
Senior Attorney, (202) 452-2952, or Amber Hay, Senior Attorney, (202)
973-6997, Legal Division, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue NW., Washington, DC 20551.
Users of Telecommunication Device for Deaf (TDD) only, call (202) 263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview of Proposed Changes to the Capital Plan and Stress Test
Rules and Comments Received
Capital planning and stress testing are two key components of the
Federal Reserve's supervisory framework for large financial
companies.\1\ Through these programs, the Federal Reserve annually
assesses whether bank holding companies with $50 billion or more in
total consolidated assets have effective capital planning processes and
sufficient capital to absorb losses during stressful conditions, while
meeting obligations to creditors and counterparties and continuing to
serve as credit intermediaries.
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\1\ In addition to bank holding companies with total
consolidated assets of $50 billion or more, the changes in this
final rule also apply to any nonbank financial company supervised by
the Board that becomes subject to the capital planning and stress
test requirements pursuant to a rule or order of the Board and to
U.S. intermediate holding companies of foreign banking organizations
in accordance with the transition provisions under the capital plan
rule and subpart O of the Board's Regulation YY (12 CFR part 252).
Currently, no nonbank financial companies supervised by the Board
are subject to the capital planning or stress test requirements. A
U.S. intermediate holding company that was required to be
established by July 1, 2016 and that was not previously subject to
the Board's capital plan rule is required to submit its first
capital plan in 2017 and will become subject to the Board's stress
test rules beginning in 2018. References to ``bank holding
companies'' or ``firms'' in this preamble should be read to include
all of these companies, unless otherwise specified.
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On September 26, 2016, the Board of Governors of the Federal
Reserve System (Board) invited comment on a proposal to reduce the
burden of capital planning and stress testing requirements for certain
firms with a lower risk profile, while continuing to hold the largest
and most complex firms to the highest standards.\2\ Under the proposal,
a large and noncomplex firm (a bank holding company with total
consolidated assets of at least $50 billion but less than $250 billion,
on-balance sheet foreign exposure of less than $10 billion, and nonbank
assets of less than $75 billion) would no longer have been subject to
the provisions of the Board's capital plan rule whereby the Board may
object to a firm's capital plan based on unresolved supervisory issues
or concerns with the assumptions, analysis, and methodologies in the
firm's capital plan.\3\ In connection with this change, large and
noncomplex firms would have remained subject to a quantitative, but not
a qualitative, assessment of their capital plans under the capital plan
rule. All other bank holding companies that would have been subject to
the capital plan rule (a LISCC firm, if the bank holding company is
subject to the Large Institution Supervision Coordinating Committee
(LISCC) supervisory framework,\4\ or large and complex firm, if the
bank holding company otherwise had total consolidated assets of $250
billion or more, on-balance sheet foreign exposure of $10 billion or
more, or nonbank assets of $75 billion or more) would have remained
subject to objection to their capital plan based on qualitative
deficiencies under the rule.
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\2\ 81 FR 67239 (September 30, 2016).
\3\ The proposal also proposed amending the Parent Company Only
Financial Statements for Large Holding Companies (FR Y-9LP) to
include a new line item for purposes of identifying large and
noncomplex firms.
\4\ Based on the current population of bank holding companies,
all LISCC firms have total consolidated assets of $250 billion or
more, on-balance sheet foreign exposure of $10 billion or more, or
nonbank assets of $75 billion or more.
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Additionally, the proposal would have reduced the de minimis
exception amount for capital distributions under the capital plan rule.
Generally, the capital plan rule provides that a bank holding company
must obtain the Federal Reserve's prior approval before making capital
distributions above the dollar amount described in its capital plan.\5\
However, a bank holding company that is well capitalized, as defined in
12 CFR 225.2(r), may make capital distributions above such dollar
amount without seeking the Board's prior approval if other requirements
are met. These include the requirement that the aggregate additional
total
[[Page 9309]]
distribution amount for the one-year period following the Federal
Reserve's action on the bank holding company's capital plan not exceed
1.00 percent of the bank holding company's tier 1 capital (the de
minimis exception).\6\
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\5\ See 12 CFR 225.8(g)(1).
\6\ See 12 CFR 225.8(g)(2).
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The proposal would have amended the de minimis exception in two
ways for all bank holding companies subject to the capital plan rule.
First, the proposal would have lowered the de minimis amount from 1.00
percent to 0.25 percent of a bank holding company's tier 1 capital,
beginning April 1, 2017. Second, the proposal would have established a
one-quarter ``blackout period'' while the Federal Reserve is conducting
CCAR (the second quarter of a calendar year), during which bank holding
companies would not be able to submit a notice to use the de minimis
exception or to request prior approval from the Federal Reserve to make
additional capital distributions.
The proposal also would have modified the range of starting dates
for the trading and counterparty component of the stress test. Under
the Board's stress test rules, the Board may require a bank holding
company with significant trading activity to include a trading and
counterparty component (global market shock) in its adverse and
severely adverse scenarios for its company-run stress tests.\7\
Currently, the Board must select a date between January 1 and March 1
of the calendar year of the current stress test cycle for the ``as-of''
date for the data used as part of the global market shock components of
the bank holding company's adverse and severely adverse scenarios.\8\
The proposal would have extended the range of dates from which the
Board may select the as-of date for the global market shock to October
1 of the calendar year preceding the year of the stress test cycle to
March 1 of the calendar year of the stress test cycle.
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\7\ See 12 CFR 252.14(b)(2).
\8\ Id.
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Finally, the proposal would have modified associated regulatory
reporting requirements for large and noncomplex firms to collect less
detailed information on stress test results and raise the materiality
threshold for reporting on specific portfolios. The proposal also would
have simplified the timing of the initial applicability of the capital
plan and stress test rules for all bank holding companies with $50
billion or more in total consolidated assets.
The Board received twelve comments in response to the proposal from
the public, banking organizations, and trade associations. Commenters
generally expressed support for the proposal, and provided alternative
views on certain aspects of the proposed rule, including the definition
of a large and noncomplex firm and the proposed reduction of the de
minimis exception amount for capital distributions not included in a
firm's capital plan.
B. Description of Capital Plan and Stress Test Requirements
Under Section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act), the Board is required to establish
enhanced prudential standards for bank holding companies with total
consolidated assets of $50 billion or more.\9\ As part of this
requirement, the Board must conduct annual supervisory stress tests
with respect to these bank holding companies and issue regulations
requiring these bank holding companies to conduct semi-annual company-
run stress tests.\10\ The Board adopted final rules to implement these
requirements on October 12, 2012.\11\
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\9\ 12 U.S.C. 5365.
\10\ 12 U.S.C. 5365(i).
\11\ 77 FR 62380 (October 12, 2012). See 12 CFR part 252,
subparts E and F. On October 12, 2012, as required by section 165(i)
of the Dodd-Frank Act, the Federal Reserve also adopted a final rule
to impose company-run stress testing requirements for state member
banks and savings and loan holding companies with assets of more
than $10 billion and bank holding companies with assets of more than
$10 billion but less than $50 billion, which is codified at subpart
B of 12 CFR part 252. The Board is not adjusting the requirements in
subpart B of 12 CFR part 252 at this time.
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The Dodd-Frank Act also requires the enhanced prudential standards
established by the Board to increase in stringency based on several
factors, including the size and risk characteristics of the bank
holding companies subject to the requirements.\12\ In prescribing more
stringent prudential standards, including stress test requirements, the
Board may differentiate among bank holding companies on an individual
basis or by category, taking into consideration their capital
structure, riskiness, complexity, financial activities (including the
financial activities of their subsidiaries), size, and any other risk-
related factors that the Board deems appropriate.\13\
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\12\ See 12 U.S.C. 5365(b).
\13\ 12 U.S.C. 5363(a)(2)(A).
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C. Implementation of Capital Plan and Stress Test Requirements
Consistent with the Dodd-Frank Act mandate, the Board conducts an
annual assessment of the capital planning and post-stress capital
adequacy of bank holding companies with total consolidated assets of
$50 billion or more.\14\ The Board's capital planning and stress
testing framework for these firms consists of two related programs:
CCAR, which is conducted pursuant to the Board's capital plan rule,\15\
and the Dodd-Frank Act stress tests, which are conducted pursuant to
the Board's stress test rules.\16\
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\14\ In addition, U.S. intermediate holding company (IHC)
subsidiaries of foreign banking organizations became subject to the
Board's capital plan rule beginning on January 1, 2017.
\15\ 12 CFR 225.8.
\16\ Subparts E and F of the Board's Regulation YY (12 CFR part
252, subparts E and F).
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In CCAR, the Board assesses the internal capital planning processes
of bank holding companies and these companies' ability to maintain
sufficient capital to continue their operations under expected and
stressful conditions. Pursuant to the capital plan rule, each bank
holding company must submit an annual capital plan to the Board that
describes its capital planning processes and capital adequacy
assessment. In the current CCAR process, the Federal Reserve conducts a
qualitative assessment of the strength of each bank holding company's
internal capital planning process and a quantitative assessment of each
bank holding company's capital adequacy. In the qualitative assessment,
the Federal Reserve evaluates the extent to which the analysis
underlying each bank holding company's capital plan comprehensively
captures and addresses potential risks stemming from company-wide
activities. In addition, the Federal Reserve evaluates the
reasonableness of a bank holding company's capital plan, the
assumptions and analysis underlying the plan, and the robustness of the
bank holding company's capital planning process. Under the capital plan
rule, the Board may object to a bank holding company's capital plan if
the Board determines that (1) the bank holding company has material
unresolved supervisory issues, including but not limited to issues
associated with its capital adequacy process; (2) the assumptions and
analysis underlying the bank holding company's capital plan, or the
bank holding company's methodologies for reviewing its capital adequacy
process, are not reasonable or appropriate; \17\ or (3) the bank
holding company's capital planning process or proposed capital
distributions otherwise
[[Page 9310]]
constitute an unsafe or unsound practice, or would violate any law,
regulation, Board order, directive, or condition imposed by, or written
agreement with, the Board or the appropriate Federal Reserve Bank
(together, qualitative objection criteria).\18\ The Board may also
object to a bank holding company's capital plan if the bank holding
company has not demonstrated an ability to maintain capital above each
minimum regulatory capital ratio on a pro forma basis under expected
and stressful conditions throughout the planning horizon (that is,
based on a quantitative assessment).\19\ In past CCAR exercises, the
Board has publicly announced its decision to object to a bank holding
company's capital plan, along with the basis for the decision.\20\
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\17\ As discussed in section II.H of this preamble below, the
proposal would revise this criterion to permit objection where the
Board determines that the assumptions and analysis underlying the
bank holding company's capital plan, or the bank holding company's
methodologies and practices that support its capital planning
process, are not reasonable or appropriate.
\18\ See 12 CFR 225.8(f)(2)(ii)(A), (B), and (D).
\19\ See 12 CFR 225.8(f)(2)(ii)(C).
\20\ See 12 CFR 225.8(f)(v).
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If the Federal Reserve objects to a bank holding company's capital
plan, the bank holding company may not make any capital distributions
unless the Federal Reserve indicates in writing that it does not object
to such distributions.\21\
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\21\ See 12 CFR 225.8(f)(2)(iv).
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Pursuant to the Board's stress test rules, the Board conducts
supervisory stress tests of bank holding companies with total
consolidated assets of $50 billion or more, and these bank holding
companies are required to conduct annual and mid-cycle company-run
stress tests.
II. Revisions to the Capital Plan and Stress Test Rules
A. Elimination of CCAR Qualitative Assessment and Objection for Large
and Noncomplex Firms
The Board has different expectations for sound capital planning and
capital adequacy depending on the size, scope of operations, activity,
and systemic risk profile of a firm.\22\ Consistent with those
different expectations, the proposal would have differentiated the
supervisory process for evaluating firms' capital planning practices.
Under the proposal, large and noncomplex firms would no longer have
been subject to the provisions of the Board's capital plan rule whereby
the Board may object to a capital plan on the basis of deficiencies in
the firm's capital planning process or unresolved supervisory issues;
that is, large and noncomplex firms would no longer have been subject
to the qualitative component of the annual CCAR assessment.
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\22\ See SR Letter 15-18, ``Federal Reserve Supervisory
Assessment of Capital Planning and Positions for LISCC Firms and
Large and Complex Firms.'' (April 4, 2011), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1518.htm.>See SR
Letter 15-19, ``Federal Reserve Supervisory Assessment of Capital
Planning and Positions for Large and Noncomplex Firms.'' (December
18, 2015), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1519.htm.
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Under the proposal, the Federal Reserve would have conducted its
supervisory assessment of a large and noncomplex firm's risk-management
and capital planning practices through the regular supervisory process
and targeted, horizontal assessments of particular aspects of capital
planning, rather than through the annual CCAR assessment. Further, the
preamble noted that the Board would not object to the capital plans of
large and noncomplex firms due to qualitative deficiencies in their
capital planning process, but rather would incorporate an assessment of
these practices into its regular, ongoing supervisory activities. As
compared to the annual CCAR assessment, the review process for large
and noncomplex firms would have been more limited in scope, include
targeted horizontal evaluations of specific areas of the capital
planning process, and focus on the standards set forth in the capital
plan rule and Supervision and Regulation (SR) Letter 15-19.
Under the proposal, the Board would have continued to perform an
annual quantitative assessment of capital plans of the large and
noncomplex firms and publicly announce a decision to object or not
object to a firm's capital plan on this basis. Consistent with the
current capital plan rule, nothing in the proposal would have limited
the authority of the Federal Reserve to issue a capital directive, such
as a directive to reduce capital distributions, or take any other
supervisory enforcement action, including an action to address unsafe
or unsound practices or conditions or violations of law, such as an
unsafe and unsound capital planning process.\23\
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\23\ See 12 CFR 225.8(b)(4).
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Commenters strongly supported removing large and noncomplex firms
from the qualitative component of the annual CCAR assessment and
eliminating the qualitative objection for these firms. Commenters
expressed the view that the qualitative component of the CCAR
assessment was unduly burdensome for large and noncomplex firms because
it required the development of large amounts of documentation and
sophisticated stress test models to the same degree as the largest
firms. The commenters agreed that further tailoring of regulatory
requirements for large and noncomplex firms would incentivize such
firms to invest in capital planning processes that are appropriate for
the risks of those firms.
1. Supervisory Review of Capital Plans
A commenter recommended that the Federal Reserve clarify how it
plans to implement the supervisory review of the capital plans for
large and noncomplex firms. Specifically, the commenter sought
clarification on whether the Federal Reserve intended to use the
``regular'' supervisory process and whether the targeted horizontal
review would be similar to current horizontal reviews undertaken by the
Federal Reserve (such as the shared national credit review). Commenters
sought additional information about whether the Federal Reserve would
provide advance notice of examination focus in a first day letter, use
standard procedures for communicating with management and communicating
matters requiring attention, and use standard time frames for
addressing any supervisory findings. Commenters also requested that the
Board clarify that supervisors will apply the expectations set forth in
SR Letter 15-19 for large and noncomplex firms in the capital plan
review.
The Federal Reserve intends to conduct the supervisory review of
capital plans of large and noncomplex firms in a manner similar to
existing supervisory programs, which typically include a distribution
of a first day letter in advance of the start of the review, standard
communication during the exam, lead time to meet requests for
additional information, and sufficient time frames for addressing the
findings. With respect to the capital plan review, the Federal Reserve
intends to provide large and noncomplex firms with several months'
advance notice of the areas of focus of the annual capital plan review.
For an individual firm, the review may also cover areas where the
firm's practices are changing and issues raised in previous firm-
specific supervisory communication.
In addition, as requested by commenters, the Board will ensure that
communication and standards are coordinated between any teams
conducting targeted horizontal reviews and the dedicated supervisory
teams, who will conduct a holistic review of the capital plan at their
respective supervised institutions each year. The Board confirms that
it will apply capital planning expectations based on the size and
complexity of a firm. As such, large and noncomplex firms will continue
to be subject to the standards in SR Letter 15-19.
[[Page 9311]]
The proposal indicated that the supervisory review of capital plans
would likely occur in the third quarter of each calendar year.
Commenters requested that the review take place during the second
quarter, concurrent with CCAR, to avoid coinciding with the DFAST mid-
cycle process, which occurs in the third quarter. While moving the
supervisory review to the second quarter may avoid the resource and
time constraints resulting from the DFAST mid-cycle process occurring
the same quarter as the supervisory capital plan review, it would also
limit the amount of time that a firm would have to prepare supporting
documentation. The Federal Reserve intends to provide the first day
letter to firms during the first quarter and firms will have additional
time to provide supporting documentation after they submit their
capital plans. In addition, the timing of the supervisory review of
large and noncomplex firms will be separate from the comprehensive CCAR
qualitative assessment in order to clarify the differences in the
review to the public. For these reasons, the supervisory review of the
capital plans of large and noncomplex firms will generally begin in the
third quarter of the year.
2. Required Elements of Capital Plan Submission
The proposal would have maintained the minimum elements of a
capital plan outlined in the capital plan rule, but would have reduced
the supporting documentation a large and noncomplex firm would have
been required to be submit with its capital plan. Specifically, the
proposal would have revised the instructions to Appendix A of the FR Y-
14A to remove the requirement that a large and noncomplex firm include
in its capital plan submission certain documentation regarding its
models, including any model inventory mapping document, methodology
documentation, model technical documents, and model validation
documentation. The preamble to the proposal noted that large and
noncomplex firms would still be required to produce these materials
upon request by the Federal Reserve based on the focus of the
supervisory review of a large and noncomplex firm's capital plan.
One commenter requested that the Board revise the minimum elements
of a capital plan to require firms to submit only the summary portion
of their capital plan and not submit the other components of the
capital plan (capital policies, planned capital actions, capital
planning process, etc.) In addition, commenters questioned whether the
proposed revisions to the supporting documentation requirements would
meaningfully reduce burden for large and noncomplex firms, as firms
would continue to have to update and be prepared to produce the
documentation upon request. Commenters recommended that the Board
specify the documents it expects firms to maintain, identify the
frequency with which documentation needs to be refreshed, and clarify
the timeframe within which firms would be required to produce model-
related documentation.
The final rule maintains the minimum elements of a capital plan, as
these elements, such as a firm's capital policy and description of the
firm's capital planning process, are important inputs into the
supervisory assessment of the firm's capital plan regardless of whether
the assessment occurs through CCAR or though the regular supervisory
process. Furthermore, these elements enable the firm's board of
directors to understand and approve of the firm's capital adequacy,
capital planning processes, and capital-related decisions. The Board is
also adopting the proposed revisions to the supporting documentation
requirements, and intends to implement these revisions in a manner that
will meaningfully reduce burdens for large and noncomplex firms. Large
and noncomplex firms will no longer be expected to include this
supporting documentation in the capital plans that are vetted by senior
management and approved by the board of directors of the firm. In
addition, the proposed process will inform firms of the proposed areas
of focus and provide them lead time to provide requested documents,
which will enable them to prioritize improvements in the Federal
Reserve's areas of focus and reduce resource requirements for the
firm's capital planning process.
3. Expectation for Model Risk Management for Large and Noncomplex Firms
Commenters requested that the Board clarify its expectations for
model documentation for large and noncomplex firms, and confirm that
the model risk management guidance in SR Letter 11-7 is appropriate for
large and noncomplex firms.\24\
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\24\ See SR Letter 11-7, ``Guidance on Model Risk Management.''
(April 4, 2011), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1107.htm.
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Large and noncomplex firms are expected to maintain documentation
regarding the loss, revenue, and expense estimation models used for
stress scenario analysis, and update that documentation to reflect
revisions to the models.\25\ As described in SR Letter 15-19, the
expectations for models are reduced for large and noncomplex firms as
compared to large and complex and LISCC firms, including with respect
to the granularity of projections, variable selection process, controls
around the use of vendor models, and measures for assessing model
performance.\26\ Commensurate with the reduced expectations for the use
of models, expectations for model documentation are also lower for
large and noncomplex firms, as compared to LISCC and large and complex
firms.
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\25\ See SR Letter 15-19.
\26\ See SR Letter 15-19.
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Regarding commenters' questions on the application of SR Letter 11-
7, the Board confirms that SR Letter 11-7 continues to apply to all
firms, including large and noncomplex firms. SR Letter 15-19 was
drafted to be consistent with the standards in SR Letter 11-7 and
describes a particular application of SR Letter 11-7 for capital
planning. As discussed in SR Letter 15-19, supervisory expectations for
various aspects of capital planning processes, including model risk
management, for large and noncomplex institutions differ from those for
LISCC and large and complex firms. For example, while a large and
noncomplex firm should independently validate or otherwise conduct
effective challenge of estimation methods used in internal capital
planning, it should prioritize those activities only for its material
models. Other specific expectations around validation and effective
challenge are also reduced relative to the expectations for LISCC and
large and complex firms.\27\ Further, the tailored evaluation of model
risk management at large and noncomplex firms means that the Federal
Reserve generally does not expect the same level of sophistication and
intensity of model risk management at large and noncomplex firms
compared to LISCC and large and complex firms.
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\27\ See SR Letter 15-19.
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4. Application of Market Shock and Large Counterparty Default Component
Commenters requested that the Board specify that large and
noncomplex firms would not be subject to the global market shock and
large counterparty default components of the supervisory stress test.
Currently, only firms with over $500 billion in total consolidated
assets who are subject to the market risk rule are subject to the
global market shock component, as such, no large and noncomplex firm
could qualify for
[[Page 9312]]
inclusion in the global market shock component of the supervisory
stress test.\28\ In addition, the Board did not propose to apply the
global market shock component or the large counterparty default
component to any large and noncomplex firm. Under the Board's stress
test rules, the Board provides notice and an opportunity for response
to firms that are subject to the large counterparty default component
of the stress test.
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\28\ Capital Assessments and Stress Testing information
collection (FR Y-14A/Q/M; OMB No. 7100-0341), FR Y-14Q General
Instructions. https://www.federalreserve.gov/reportforms/forms/FR_Y-14Q20161231_i.pdf.
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B. Identifying Large and Noncomplex Firms
Under the proposed rule, a bank holding company would have been
considered large and noncomplex if, as of December 31 of the calendar
year prior to the beginning of the capital plan cycle, the firm had
average total consolidated assets of at least $50 billion but less than
$250 billion,\29\ total on-balance sheet foreign exposure of less than
$10 billion, and average total nonbank assets of less than $75 billion.
These firms would no longer have been subject to the provisions of the
Board's capital plan rule whereby the Board may object to a capital
plan on the basis of qualitative deficiencies in the firm's capital
planning process.
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\29\ The proposed rule would not have amended the existing
methodology for determining average total consolidated assets under
the capital plan rule. Under the capital plan rule, average total
consolidated assets equals the amount of total assets reported on
the bank holding company's Consolidated Financial Statements for
Holding Companies (FR Y-9C), measured as an average over the
preceding four quarters. If a bank holding company has not filed the
FR Y-9C for each of the four most recent consecutive quarters, its
total consolidated assets are measured as the average of its total
consolidated assets, as reported on the FR Y-9C, for the most recent
quarter or consecutive quarters, as applicable. See 12 CFR
225.8(b)(2).
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Some commenters recommended that the Board replace the proposed
thresholds with measures the commenters viewed as being more
comprehensive and risk-sensitive, such as the systemic risk indicator
approach used to identify global systemically important bank holding
companies (GSIBs), and further recommended that the Board apply the
qualitative component of the CCAR assessment solely to firms identified
as GSIBs. One commenter also argued that only firms identified as GSIBs
should be considered large and complex. Another commenter recommended
that the Board use a more discretionary, risk-based assessment to
identify individual firms for a designation as large and complex.
Firms that are identified as large and complex by the dollar
thresholds, but are not GSIBs, still face risks or could present
systemic risks that warrant enhanced capital planning expectations and
greater supervisory oversight through the qualitative component of the
CCAR assessment. Though a firm that exceeds the thresholds in the final
rule but that is not a GSIB does not typically present the same level
of systemic risk as a GSIB, these firms still tend to be interconnected
with the financial system such that a material distress suffered by the
firm could create economic disruption or spread quickly to similarly
situated firms. Moreover, the qualitative component of the CCAR
assessment and more detailed reporting requirements support greater
supervisory oversight of these firms. In particular, CCAR and the
related reporting requirements help to ensure that these firms are
effectively identifying and managing risks that may arise in connection
with their greater size and complexity or nonbanking operations in
order to mitigate the possibility that these firms may experience
material distress.
The Board considered a range of factors, including size, complexity
of operations, and interconnectedness with other financial
institutions, when considering the applicability of the qualitative
component of the CCAR assessment to large banking organizations, which
allows the Board to assess the systemic risk and to promote the
resiliency of these firms. Banking organizations with total
consolidated assets in excess of $250 billion generally have more
substantial systemic risk profiles and larger market shares in many
sectors of the financial industry and in geographic regions. In
particular, the significant types and volume of client services
provided by such firms make it more likely that in the event that the
firm were to experience distress or failure other market participants
could have difficulty in absorbing and replacing all of those services,
which may lead to significant disruption. Banking organizations of this
size within the current population of firms also have the capacity and
often tend to engage in more complex transactions that expose them to a
broader range of risks, such as those resulting from transactions with
a wide variety of counterparties, exposure to complex products and
asset classes, and large trading portfolios.
Commenters also provided specific views on the $10 billion foreign
exposure threshold, which included a suggestion that the Board instead
use the criteria for identifying U.S. GSIBs to define which firms are
subject to the qualitative objection in the capital plan rule.
As a general matter, firms with substantial foreign exposure tend
to face risks that arise from maintaining numerous or significant and
complex cross-border relationships that require knowledge of and
cooperation with multiple jurisdictions. Large cross-border exposures
also create greater challenges in recovery and resolution, increasing
the need for firms with such a profile to maintain capital and capital
planning practices that limit their probability of default or do not
pose heightened risk to a firm. However, foreign exposures may also
arise from business activities that are not as complex. For example, a
firm may offer a simple, non-complex product such as consumer credit in
multiple jurisdictions or have foreign exposures as a natural extension
of its U.S.-based business that do not make the firm more complex or
risky. As a result, a metric aimed at accounting for complexity that is
based solely on the size of a firm's foreign exposures, in this
context, may be over-inclusive. Including the GSIB requirement
mitigates the potential that the proposed foreign exposure test may
include firms that are not complex, while ensuring that the qualitative
component of the CCAR assessment continues to apply to the most
systemically important U.S. banking organizations.
As explained above, the final rule retains the other two prongs of
the definition as proposed. Accordingly, this modification has the
effect of expanding the applicability of the proposed definition and
thereby increasing the number of firms removed from the qualitative
component of the CCAR Assessment. For the current population of bank
holding companies that would have been identified as large and
noncomplex under the proposal but for the size of their foreign
exposure, the supervisory capital plan review for large and noncomplex
firms should be sufficient. As noted, that process may include a firm-
specific review of particular capital planning practices, including
management of risks arising specifically from foreign exposure. Under
the final rule, the Board will retain the authority to take supervisory
actions related to capital planning against large and noncomplex firms,
including an action to address unsafe and unsound practices or
conditions or violations of law, such as an unsafe and unsound capital
planning process. In addition, the Board expects such firms to meet the
capital planning standards
[[Page 9313]]
set forth in the capital plan rule and SR Letter 15-19.
Several commenters questioned the proposed $75 billion nonbank
asset threshold for determining whether a firm is considered large and
noncomplex. One commenter argued that a higher nonbank asset threshold,
specifically, one set at $100 billion, would be more appropriate and
consistent with a provision in the Board's resolution plan rule
(Regulation QQ) that permits a firm to submit a tailored resolution
plan.\30\ Another commenter asserted that empirical data did not
support the inclusion of a nonbank asset threshold as an appropriate
indicator of a firm's systemic risk and that the total consolidated
asset and foreign exposure thresholds adequately reflect a bank holding
company's size, complexity, and riskiness to the financial system.
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\30\ See 12 CFR 243.4(a)(3).
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Commenters' suggestion that the Board use a $100 billion nonbank
asset threshold in order to align with the threshold under Regulation
QQ that permits a firm to submit a tailored resolution plan misstates
the requirement and would result in a more stringent measure than the
$75 billion nonbank asset threshold set forth in the proposal.
Regulation QQ uses a two-part threshold based on nonbank assets to
determine whether a firm is permitted to submit a tailored resolution
plan. Specifically, this threshold permits a firm to submit a tailored
resolution plan if the firm has less than $100 billion in nonbank
assets and insured depository institution assets constitute at least 85
percent of the firm's assets.\31\ Since a firm would also need to have
less than $250 billion in total assets to be considered large and
noncomplex under the final rule based on the total assets threshold,
using the Regulation QQ measure would in effect result in a nonbank
assets threshold of no greater than $37.5 billion. Accordingly,
adoption of the same nonbank assets threshold used in Regulation QQ
would represent a more stringent measure than the $75 billion nonbank
asset threshold set forth in the proposal.
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\31\ See 12 CFR 243.4(a)(3).
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Commenters asserted that a threshold based on nonbank assets would
not be an appropriate measure for determining whether a firm should be
subject to heightened requirements under the capital plan rule, or that
such a threshold should be set at a level higher than $75 billion. The
Board, in developing the nonbank asset threshold, reviewed the risk
profile of the current population of bank holding companies and the
effects on U.S. financial stability associated with the distress or
failure of large financial firms. A nonbank asset threshold of $75
billion would separate out bank holding companies that are
significantly engaged in activities outside the business of banking.
Such activities may involve a broader range of risks and result in more
interconnections with other financial institutions than those
associated with purely banking activities, requiring sophisticated risk
management and heightened capital planning standards. For example, bank
holding companies with significant nonbank assets are generally engaged
in financial intermediation of a different nature and magnitude (such
as complex derivatives and capital markets activities like
underwriting) than those typically conducted through an insured
depository institution. Further, nonbank entities tend to be more
vulnerable to funding runs, given that they generally rely to a greater
degree on less stable forms of funding than insured depository
institutions. In addition, the Board notes that, historically, the
distress or failure of firms with significant nonbank assets has
coincided with or increased the effects of significant disruptions to
the stability of the U.S. financial system.\32\ The correlation between
the distress of financial firms with significant nonbank assets and the
disruption of the U.S. financial system, coupled with the additional
complexities found in bank holding companies with large nonbank
activities, supports the use of a nonbank asset threshold. A threshold
of $75 billion represents a conservative level relative to historical
experience and would help to ensure that heightened standards are
applied to firms that engage in complex activities and have significant
potential for disrupting the financial system. In addition, a threshold
higher than $75 billion would exclude some firms with risk profiles
that are significantly concentrated in riskier activities, particularly
IHCs that engage in significant capital market activities. In
particular, a higher threshold would exclude companies that engage in
equities trading, prime brokerage, and investment banking activities,
and therefore have risk profiles that are more similar to those of the
most complex U.S. financial firms than to the risk profiles of the
smaller, less complex BHCs.
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\32\ Examples include the near-failures of Wachovia (a bank
holding company with $162 billion in nonbank assets as of September
30, 2008) and of Long Term Capital Management (a hedge fund with
$125 billion in assets as of August 31, 1998).
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One commenter requested that the Board clarify whether a firm
considered to be part of the LISCC portfolio that reduces its size or
complexity to meet the criteria for a large and noncomplex firm would
be subject to the qualitative component of the CCAR assessment. The
commenter also asked the Board to clarify whether a firm that qualified
as a large and complex firm due to the nonbank asset threshold would be
subject to the supervisory expectations set forth in SR Letter 15-18 or
SR Letter 15-19.\33\
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\33\ See SR Letter 15-19.
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Under the final rule, a LISCC firm that is a large and noncomplex
firm would no longer be subject to the qualitative component of the
CCAR assessment or the provisions of the capital plan rule whereby the
Board may object to the firm's capital plan; however, the firm would
remain subject both to the Board's highest expectations for capital
planning as set forth in SR Letter 15-18 and to ongoing supervisory
scrutiny of its capital planning practices.\34\ The Board would,
however, evaluate whether the firm's activities and risk profile
continued to warrant the LISCC designation.\35\ Non-LISCC firms that
qualify as large and complex as a result of the nonbank asset threshold
would be subject to the supervisory expectations in SR Letter 15-
18.\36\
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\34\ See SR Letter 15-18.
\35\ For a foreign banking organization, such an evaluation
would include consideration of the banking organization's branch and
agency network.
\36\ ``The public nature of the CCAR process and disclosure of
the results of the Federal Reserve's qualitative assessment helps to
ensure that LISCC firms and large and complex firms maintain focus
on ensuring that their practices are consistent with the Federal
Reserve's capital planning expectations articulated in SR Letter 15-
18.'' 81 FR 67239 (30 September 2016) Further, the Board is amending
the applicability thresholds in SR Letters 15-18 and 15-19 to
reflect the definition of a large and noncomplex firm set forth in
the final rule.
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The Board is accordingly adopting the proposed total consolidated
asset and nonbank asset thresholds to define a large and noncomplex
firm without modification. However, because the thresholds are based on
static measures of size and nonbank assets, the Board will periodically
re-assess the appropriateness of the thresholds for purposes of the
requirements of the capital plan and stress test rules to ensure they
remain suitable indicators for measuring complexity and risk.
[[Page 9314]]
C. Measurement and Reporting of Average Total Nonbank Assets
1. General Approach to Measuring Nonbank Assets
The proposed rule set forth a methodology for calculating nonbank
assets for purposes of the $75 billion nonbank asset threshold. The
measure of nonbank assets would have included the assets of all nonbank
subsidiaries, any direct equity investments in unconsolidated nonbank
entities held by the parent, and any nonbanking Edge Act subsidiaries.
Beginning on March 31, 2017, bank holding companies with $50 billion or
more in total consolidated assets would be required to report their
nonbank assets on the FR Y-9LP on new line item 17 of PC-B Memoranda,
in accordance with the proposed instructions to that form. \37\ For
purposes of the capital plan cycle beginning January 1, 2017, firms
would use the FR Y-9LP to determine their average total nonbank assets
for purposes of the final rule,\38\ according to the calculation
methodology described in the proposal.\39\
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\37\ Specifically, nonbank assets are defined to include assets
of consolidated nonbank subsidiaries, whether held directly or
indirectly or held through lower-tier holding companies, and a bank
holding company's direct investments in unconsolidated nonbank
subsidiaries, associated nonbank companies, and those nonbank
corporate joint ventures over which the bank holding company
exercises significant influence (collectively, ``nonbank
companies''). Nonbank companies would exclude (i) all national
banks, state member banks, state nonmember insured banks (including
insured industrial banks), federal savings associations, federal
savings banks, and thrift institutions (collectively, ``depository
institutions'') and (ii) except for an Edge or Agreement Corporation
designated as ``Nonbanking'' in the box on the front page of the
Consolidated Report of Condition and Income for Edge and Agreement
Corporations (FR 2886b), any subsidiary of a depository institution
(``depository institution subsidiary''). All intercompany assets
among the nonbank companies should be eliminated from the measure of
nonbank assets, but all assets with the reporting bank holding
company; any depository institution; and any depository institution
subsidiary should be included.
\38\ The $75 billion average total nonbank asset threshold is
the average of the total nonbank assets of a holding company,
calculated in accordance with the instructions to the FR Y-9LP, for
the four most recent consecutive quarters or, if the bank holding
company has not filed the FR Y-9LP for each of the four most recent
consecutive quarters, for the most recent quarter or consecutive
quarters, as applicable.
\39\ As described in the proposal and adopted as final, for
purposes of the capital plan cycle beginning January 1, 2017,
average total nonbank assets under the proposal would have equaled
(i) total combined nonbank assets of nonbank subsidiaries, as
reported on line 15a of Schedule PC-B of the Parent Company Only
Financial Statements for Large Holding Companies (FR Y-9LP) as of
December 31, 2016; plus (ii) the total amount of equity investments
in nonbank subsidiaries and associated companies as reported on line
2a of Schedule PC-A of the FR Y-9LP as of December 31, 2016, (except
that any investments reflected in (i) may be eliminated); plus (iii)
assets of each Edge and Agreement Corporation, as reported on the
Consolidated Report of Condition and Income for Edge and Agreement
Corporations (FR 2886b) as of December 31, 2016, to the extent such
corporation is designated as ``Nonbanking'' in the box on the front
page of the FR 2886b; minus (v) assets of each federal savings
association, federal savings bank, or thrift subsidiary, as reported
on the Call Report as of December 31, 2016.
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Commenters suggested certain changes to the nonbank asset measure.
For instance, commenters suggested that the Board exclude bank-
permissible assets or cash and high-quality liquid assets held in
nonbank entities. Commenters also suggested removing from the
calculation intangible assets that are deducted from regulatory capital
pursuant to the Board's regulatory capital rules.
The proposal defined nonbank assets to include all assets held by
nonbank entities, regardless of the type of asset, in order to quantify
the scale of a firm's nonbanking activities. This measure of nonbank
activities would have included all assets in nonbank entities because
those entities are permitted to conduct a wide range of complex
activities, and assets held by those entities, including those that
present low inherent risk, may be used in connection with complex
activities, including prime brokerage or other trading activities. The
proposal focused on the overall amount of nonbank activities because of
the need for supervisory scrutiny of those activities when performed
outside a banking entity. In addition, as noted above, asset measures
are relatively simple and transparent measures of a firm's nonbank
activities, and exclusion of specific assets based on risk could
undermine the transparency of the measure. Accordingly, the final rule
defines nonbank assets to include all assets of a nonbank subsidiary,
regardless of type.
The Board requested comment on whether the rule should permit firms
to net intercompany exposures among nonbank subsidiaries for purposes
of the measurement of nonbank assets for the 2017 capital plan cycle.
Commenters expressed support for permitting firms to net intercompany
assets between nonbank subsidiaries, and also requested that the Board
permit a firm to exclude a broader set of intercompany assets from the
nonbank measure, including exposures between a nonbank subsidiary and a
foreign parent holding company, if any, and non-U.S. affiliates. The
final rule would permit a firm to net intercompany exposures among
nonbank subsidiaries for purposes of measuring nonbank assets for the
2017 cycle, in order to avoid double counting those assets. However,
the final rule would not permit a firm to net intercompany assets
between a nonbank company and an affiliate whose assets are not
included in the nonbank asset measure, as the concern of double
counting is not present in this case.
Commenters also requested technical clarifications on the nonbank
assets measure for purposes of the capital plan cycle beginning January
1, 2017. For instance, commenters requested that the Board clarify that
the ``Investments in nonbank subsidiaries'' in line item 2.a reflects
the underlying assets of those nonbank subsidiaries. Commenters also
requested that the Board clarify whether the elimination of investments
in line item 15a from line item 2a is intended to avoid double counting
nonbank assets, because line item 15a of Schedule PCB reflects the
underlying assets of a firm's nonbank subsidiaries. As described in the
instructions to the FR Y-9LP, investments in nonbank subsidiaries
should reflect the total amount of equity investments in nonbank
subsidiaries and associated companies under the equity method of
accounting, as prescribed by U.S. generally accepted accounting
principles. The Board is hereby clarifying that for purposes of the
capital plan cycle that began on January 1, 2017, the elimination of
investments in nonbank subsidiaries that are reflected in line 2a of
Schedule PC-A was intended to eliminate double counting in the measure.
Commenters also provided views on the frequency of the calculation
of the proposed nonbank asset measure on FR Y-9LP. The proposal
requested views on whether the proposed nonbank asset measure should be
calculated on a daily, weekly, or monthly basis. Commenters requested
that the Board finalize the calculation on a monthly basis, and
indicated that monthly calculation would provide the necessary
information without further burdening firms. Consistent with the
comments, the final revision to the FR Y-9LP will require firms to
perform the calculation on a monthly basis. The new line item will be
reported quarterly on the FR Y-9LP and reflect the average nonbank
assets measure for that quarter. The initial filing of the line item
should be the actual amount as of December 2016, not a four-quarter
average.
D. Lowering the de Minimis Exception Amount for All Bank Holding
Companies
The de minimis exception in the capital plan rule allows a well-
capitalized bank holding company to
[[Page 9315]]
distribute small, additional amounts of capital above those approved in
its capital plan, without the need for a complete re-assessment of the
bank holding company's capital plan. The proposal would have reduced
the de minimis exception from 1.00 percent to 0.25 percent of a bank
holding company's tier 1 capital in order to ensure that the de minimis
exception serves its intended purpose, which is to provide flexibility
for well-capitalized bank holding companies to respond to unanticipated
events that improved a bank holding company's capital levels.
Commenters argued that the Federal Reserve should maintain the
current de minimis amount of 1.00 percent in order to permit firms to
address unforeseen events, such as changes in economic conditions,
market disruptions, or mergers and acquisitions. Commenters noted that
the Board already has the capacity to require changes or object to a de
minimis capital distribution request within a 15-day period. Commenters
also asserted that it is not clear that firms that have relied on the
de minimis exception under the current rule have fallen below prudent
capital levels or otherwise become more vulnerable to financial
distress.
As described in the proposal, the Board has observed a pattern of
certain bank holding companies using the de minimis exception to
increase their common stock repurchases by the maximum amount allowed
under the exception, even in the absence of unforeseen circumstances.
For example, since July 1, 2016, the start of the first quarter
subsequent to the publication of the results of CCAR 2016, the Federal
Reserve has received de minimis requests from 13 of the 25 U.S. bank
holding companies that participated in CCAR 2016. Ten of these firms
provided requests in excess of 0.75 percent of the firm's tier 1
capital. Some firms have increased their common stock repurchases by
approximately 30 percent above the amount that had been approved in
their capital plans six months prior. The Federal Reserve reviewed the
circumstances associated with these additional capital distributions,
and this review indicated that certain firms may be treating the de
minimis exception as an add-on to approved common stock distributions
under the bank holding company's capital plan, rather than to address
unanticipated events. While these distributions have not resulted in
any given firm's capital levels falling below prudent capital levels to
date, they call into question the strength of a firm's capital planning
practices, as requesting additional distributions that do not directly
respond to unanticipated events suggests some firms may not have a
rigorous capital planning process.
Commenters also requested that the Board consider allowing a firm
to continue to make de minimis distributions equal to or less than 1.00
percent of tier 1 capital if the firm demonstrates capital ratios above
those submitted in its baseline scenario projections, therefore
allowing the firm to maintain its target capital ratios. Firms submit
baseline projections of their capital ratios to the Federal Reserve as
part of the capital plan submission: These are referred to as the BHC
baseline scenario projections. The Board's current standards for
reviewing a de minimis distribution request already account for a
firm's performance relative to expected conditions, but do not include
a requirement for the distribution to respond to an unanticipated event
that improves a firm's capital levels.
One commenter requested that the Board provide an exemption from
the lower de minimis exception amount for IHCs, as IHCs are closely
held and thus less likely than public companies to face external
pressure to engage in additional capital distributions to meet the
demand of shareholders. Further, the commenter asserted that these
firms are more likely to keep capital distributed from an IHC within
the larger banking organization. As described above, the intended
purpose of the de minimis exception is to provide flexibility for well-
capitalized bank holding companies to distribute small, additional
amounts of capital without the need for a complete re-assessment of the
firm's capital plan, a consideration that applies equally to IHCs as
well as to publicly traded companies, and is not dependent on whether
distributions are made to parent companies or third-party shareholders.
Like U.S.-domiciled bank holding companies, IHCs would maintain the
ability under the capital plan rule to submit requests for Board
approval of additional capital distributions.\40\
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\40\ See 12 CFR 225.8(g)(4).
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In addition, commenters requested that the Board delay finalization
of the proposed change to the de minimis exception until after the
Board completes its broad retrospective review of the capital planning
and stress-testing frameworks. As noted, the Federal Reserve has
observed that many firms are using the de minimis exception in a manner
that may undermine the credibility of a firm's capital plan.
Accordingly, it is important to implement this proposed change for this
capital planning cycle to strengthen firms' capital planning processes.
The Board will consider any necessary harmonization in developing
proposed revisions to the capital plan and stress test rules, which
would be issued through the notice and comment process.
For all these reasons, the Board is adopting the proposed change to
the de minimis amount, from 1.00 percent to 0.25 percent of tier 1
capital, without modification. Firms will still be able to execute
capital distributions consistent with meeting their targeted capital
ratios as part of the next capital planning cycle. For example, firms
can address small fluctuations in capital levels by providing prior
notice that the firms intend to use the de minimis exception to
distribute additional capital.\41\ In addition, the final rules retains
the ability for firms to submit requests for larger amounts of capital
distributions beyond those included in the firm's capital plan with the
Board's prior approval.\42\
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\41\ The Board reminds firms that it generally expects a firm to
obtain approval from its board of directors before it provides
notice of a proposed de minimis transaction.
\42\ See 12 CFR 225.8(g)(4).
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As noted in the proposal, one important factor in the Board's
decision on a capital distribution request is the size and complexity
of the bank holding company making the request. All else equal, a
capital distribution request from a LISCC or large and complex firm
would likely require stronger justification than a request from a large
and noncomplex firm. For instance, a request from a LISCC or large and
complex firm directly related to an unforeseeable event at the time of
the last capital plan submission that has a positive expected impact on
current or future capital ratios would likely require more supporting
evidence (for instance, updated stress test results) than a similar
request from a large and noncomplex firm. This difference reflects the
Federal Reserve's elevated expectations for capital planning at LISCC
and large and complex firms, where any revision to a firm's capital
plan to increase capital distributions following the qualitative
component of the CCAR assessment requires strong evidence and support.
E. Blackout Period for the de Minimis Exception and Requests for
Approval To Make Additional Distributions Not Included in a Bank
Holding Company's Capital Plan
The proposal would have established a one-quarter ``blackout
period'' during the second quarter of a calendar year,
[[Page 9316]]
when each firm submits its updated capital plan and while the Board is
conducting CCAR to review that capital plan. During this blackout
period a bank holding company would not have been able to submit a
notice regarding its intention to use the de minimis exception or
submit a request for prior approval for additional capital
distributions. Under the proposal, a bank holding company seeking to
make capital distributions in the second quarter of a calendar year in
excess of the amount described in the capital plan for which a non-
objection was issued would have been required to submit a notice to use
the de minimis exception by March 15 or submit a request for prior
approval for incremental capital distributions that do not qualify for
the de minimis exception by March 1 and reflect the additional
distributions in its capital plan. The proposed blackout periods were
expected to be effective for CCAR 2017.
Commenters questioned the need for the proposed blackout period for
incremental distribution requests during the second quarter. For
instance, commenters noted that the Board can already stop or impose
restrictions on inappropriate distributions requested either under the
de minimis exception or the additional distributions not included in a
firm's approved capital plan. Commenters also requested the removal of
the blackout period for IHCs to allow these firms to freely distribute
capital or liquidity to their FBO parent as may be necessary to support
the safety and soundness of the entire organization.
The proposed blackout period was intended to ensure that the
Board's analysis in CCAR would represent a comprehensive and current
evaluation of the bank holding company's capital adequacy. To the
extent an unanticipated event arises, the Board generally expects that
a firm could provide notice or seek approval in the third quarter,
following the CCAR assessment. Were an exigent circumstance to arise
(for example, one similar to the circumstance contemplated by
commenters regarding distributions by an IHC to support the safety and
soundness of the broader foreign banking organization), the firm could
determine that there had been or will be a material change in the
firm's risk profile, financial condition, or corporate structure since
the bank holding company last submitted the capital plan, and resubmit
its capital plan.\43\
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\43\ 12 CFR 225.8(e)(4).
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Commenters also requested that the Board allow firms to request
additional capital distributions for business activities, such as
mergers and acquisitions or acquiring troubled assets in times of
market disruptions, during the second quarter. With respect to mergers
and acquisitions and similar predictable actions, firms should be
planning in advance for business changes and ensure that the change is
reflected in the firm's capital plan. In addition, if a firm is
changing its business activities, the capital impact of the business
change should be examined as part of the evaluation of a firm's capital
plan to ensure the new entity is adequately capitalized.
The blackout period facilitates the sound assessment of firms'
capital plans because it allows the assessment to be based on
information that is as accurate and complete as possible. Accordingly,
a firm should include all distributions it intends to make during the
projection horizon to allow for a comprehensive analysis of
distributions in CCAR. In the absence of this modification, the Federal
Reserve's analysis in CCAR may not in all cases represent a
comprehensive evaluation of the bank holding company's capital adequacy
and the appropriateness of the bank holding company's planned capital
actions in CCAR, potentially limiting the effectiveness of the
evaluation. Moreover, firms should be able to plan the capital
distributions for the quarter that CCAR is being conducted and include
those planned distributions in their CCAR exercise. As noted above, a
firm that experiences unanticipated events that materially change its
risk profile, financial condition, or corporate structure during the
second quarter must resubmit its capital plan for review, and based on
the circumstances of the transaction and prevailing market conditions,
the Board may expedite its review of the resubmitted capital plan. The
Board is finalizing this aspect of the proposal without change.
F. Implementation of Modified Reporting Requirements
The proposal would have modified the series of reports used to
support supervisory stress testing to reduce burdens for large and
noncomplex firms. The series of reports, the Capital Assessments and
Stress Testing Report (FR Y-14 series of reports; OMB No. 7100-0341),
consists of three reports: the semi-annual FR Y-14A, the quarterly FR
Y-14Q, and monthly FR Y-14M. Commenters were generally supportive of
the proposed revisions to the reporting forms, while providing views on
specific revisions, as discussed below.
1. Increased Materiality Thresholds
First, the proposal would have increased the materiality thresholds
for filing schedules on the FR Y-14Q report and the FR Y-14M report for
large and noncomplex firms. The FR Y-14 instructions currently define
material portfolios as those with asset balances greater than $5
billion or asset balances greater than five percent of tier 1 capital,
each measured as an average for the four quarters preceding the
reporting quarter.\44\ The proposal would have revised the FR Y-14's
definition of a ``material portfolio'' for large and noncomplex firms
to mean a portfolio with asset balances greater than either (1) $5
billion or (2) 10 percent of tier 1 capital, each measured as an
average for the four quarters preceding the reporting quarter.\45\ The
preamble to the proposal noted that, in modeling losses on these
portfolios for large and noncomplex firms, the Federal Reserve intended
to apply the median, rather than 75th percentile, loss rate from
supervisory projections based on the firms that reported data, so as
not to discourage firms from using the increased threshold for
materiality.
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\44\ Respondents have the option to complete the data schedules
for immaterial portfolios.
\45\ The four-quarter average percent of tier 1 capital is
calculated as the sum of the firm's preceding four quarters of
balances subject to the particular materiality threshold divided by
the sum of the firm's preceding four quarters of tier 1 capital.
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While commenters were supportive of the proposal's goal of
increasing materiality thresholds, they argued that the 10 percent
materiality threshold was too low to substantially reduce reporting
burdens. However, increasing the materiality threshold to 10 percent of
tier 1 capital would relieve burden on a number of firms. For example,
the Board found that the number of firms required to submit a
particular Y-14M sub-schedule fell from 20 to 12 under the new
threshold.\46\ A higher threshold would not be appropriate as losses on
a portfolio that represents more than 10 percent of the firm's tier 1
capital could have a material effect on a firm's capital position.
Accordingly, the final rule provides that the definition of a
``material portfolio'' for large and noncomplex firms is a portfolio
with asset balances greater than either (1) $5 billion or (2) 10
percent of tier 1 capital, each measured as an average for the four
quarters preceding the reporting quarter. This revised definition will
be effective
[[Page 9317]]
beginning with the first ``as-of'' date after the final rule has become
effective.
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\46\ Analysis was performed as of March 31, 2016 reporting.
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Some commenters requested that the Board also apply the median loss
rate to immaterial portfolios held at large and complex firms, instead
of a loss rate equal to the 75th percentile among firms that report
data to the Federal Reserve. In order to avoid discouraging firms from
reporting a portfolio as immaterial, the final rule applies the median
loss rate on immaterial portfolios held at all firms subject to the
supervisory stress test.
In addition, a commenter requested that the Board exempt a firm
from reporting historical data on a portfolio if the portfolio
currently meets the materiality threshold but did not meet the
materiality threshold in the past. Historical data is required for
stress testing modeling purposes, and, for schedules that require
submission of historical data, firms must continue to submit complete
historical data for material portfolios even if the portfolios did not
meet the materiality threshold during the entire historical period.
2. Revisions to the FR Y-14A
Under the proposal, large and noncomplex firms would no longer have
been required to complete several elements of the FR Y-14A Schedule A
(Summary).\47\ Under the proposal, a large and noncomplex firm could
have adopted these changes for the FR Y-14A report as of December 31,
2016, or as of June 30, 2017. Commenters were generally supportive of
the proposal to modify the reporting requirements for large and
noncomplex firms, observing that removing the requirements would reduce
the resources needed to prepare the capital plan and alleviate concerns
of an adverse supervisory finding that a capital plan is incomplete
based on a failure to provide documentation. Commenters suggested that
the Board also consider removing additional requirements to report
certain schedules or sub-schedules of the Y-14A for all or specific
groups of firms subject to the capital plan rule. In particular,
commenters requested that the Board remove schedules that collect
detailed information on a firm's retail repurchase exposure and
projections of retail repurchase exposure, estimates of expected and
stressed retail loan balances and loss projections, granular detail on
a firm's revenue streams, and projections of the firm's expected
regulatory capital over a five year horizon.\48\ However, all of these
schedules will continue to be used to produce either the Dodd-Frank Act
stress test estimates or as part of the qualitative capital plan
assessment (either through the qualitative component of the CCAR
assessment for LISCC and large and complex firms or through the annual
supervisory review for large and noncomplex firms). The Federal Reserve
reviews the items required to be reported in the FR Y-14 series of
reports on an ongoing basis, and may propose additional changes in the
future to further reduce burdens associated with these reporting
requirements or in connection with updates to stress-test projections.
The Board also continues to engage with the OCC and FDIC to promote
consistency among amendments to reporting forms.
---------------------------------------------------------------------------
\47\ These would have included the Securities OTTI methodology
sub-schedule, Securities Market Value source sub-schedule,
Securities OTTI by security sub-schedule, the Retail repurchase sub-
schedule, the Trading sub-schedule, Counterparty sub-schedule, and
Advanced RWA sub-schedule. A large and noncomplex firm would be
required to report line item 138 of the income statement, as that
line item is currently derived from the retail repurchase sub-
schedule. The revised instructions for the FR Y-14A Summary schedule
reporting form are available on the Board's public Web site.
\48\ Specifically, commenters requested that the Board remove
the requirements to report Schedule G Retail Repurchase Exposure,
Schedule A.2.a Retail Balance and Loss Projections and Schedule
A.7.c PPNR Metrics, Schedule D, Regulatory Capital Transitions, and
Summary--Retail repurchase sub-schedule (A.2.b).
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The Board did not propose any changes to the Y-14A reporting
requirements related to the adverse scenario, but commenters also
suggested that the Federal Reserve reduce the reporting requirements
for the adverse scenario, and some commenters requested that the
Federal Reserve remove the requirement to perform a stress test in the
adverse scenario. Pursuant to the Dodd-Frank Act, firms are required to
perform the stress test under three scenarios: baseline, adverse, and
severely adverse.\49\ In addition, the Board is not changing the
requirement that firms report the results of the adverse scenario
because these results inform the qualitative capital plan review, as
well as the Board's macroeconomic assessments of the ability of firms
to withstand a variety of economic conditions.
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\49\ See 12 U.S.C. 5365(i).
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3. Other Comments Received Regarding Regulatory Reporting
Commenters also requested that the Federal Reserve require the
firms to report the FR Y-14M on a quarterly, rather than monthly,
basis. Moving to quarterly reporting of the FR Y-14M would
substantially affect the quality and usability of the data for loss
projections. As such, the final rule does not modify the reporting
period for the FR Y-14M.
A commenter also requested that the Board increase the edit check
thresholds for the FR Y-14 and increase the ``permanent closure
option'' for edit checks. The current edit check thresholds and
permanent closure of edit checks are varied and have been determined on
a case-by-case basis depending on the data item to which the edit check
pertains. Given the disparate nature of the data items being collected,
it would be inappropriate to create uniform minimum thresholds across
all schedules. The Board will continue to work with the firms and the
modeling teams to review the appropriateness of edit checks and will
consider feedback regarding specific edits on a case-by-case basis with
the objective of improving the edit checks or reducing the burden of
the edit check process.
Commenters requested that the Federal Reserve undertake a periodic,
full-scale review of the data required in the FR Y-14 submissions. The
Federal Reserve regularly reviews the required elements of the FR Y-14
submissions, as demonstrated by this rule, and will continue to review
the requirements to ensure they are appropriate.
For the reasons described above, the Board is finalizing the
revision to the FR Y-14 as proposed, and will continue to review the FR
Y-14 reporting requirements to identify areas for further burden
reduction.
G. Alignment of Initial Application of Capital Plan and Stress Test
Rules and Extension of Onboarding Period for Regulatory Reporting
Requirements
The proposal would have aligned the provisions for the capital plan
and stress test rules that determine when a firm that crosses the
threshold of with $50 billion in total consolidated assets must
initially comply with the capital plan rule (subparts E and F of the
Board's Regulation YY, hereafter subparts E and F) and would have
provided additional time before the application of these requirements
for bank holding companies that cross the $50 billion asset threshold
close to the April 5 capital plan submission and stress test date. The
capital plan rule provides that a bank holding company that crosses the
$50 billion asset threshold on or before December 31 of a calendar year
must submit a capital plan by April 5 of the following year. Under the
proposal, the cutoff date for the capital plan rule would be moved to
September 30, such that a firm that crosses the $50 billion asset
threshold in the fourth quarter of a calendar year would not have been
required to submit a capital plan until
[[Page 9318]]
April 5 of the second year after it crosses the threshold.
The proposal also would have aligned the cutoff date for initial
application of the stress test rules in subparts E and F with the
proposed September 30 cutoff date for the initial application of the
capital plan rule. Under the stress test rules, a bank holding company
that crosses the $50 billion asset threshold before March 31 of a given
year becomes subject to the stress test rules under subparts E and F
beginning in the following year, and accordingly, may have only nine
months before its first stress test under these subparts. Under the
proposal, a bank holding company would have become subject to the
stress test rules in subparts E and F in the year following the first
year in which the bank holding company submitted a capital plan. As a
result, a firm would have had at least a year before it would have been
subject to its initial stress tests under subparts E and F.\50\
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\50\ Providing this extension would also have the effect of
allowing firms that cross the $50 billion in the fourth quarter of a
given year as much as a year and a half before they are required to
submit their first capital plan, and two and a half years before
they are subject to the stress tests under subparts E and F. This
extended period would allow for the significant investments firms
must make to meet these requirements and account for the fact that
these firms would continue to be subject to prudential supervision
during the transition period.
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The proposal would also have provided an extended onboarding period
for regulatory reporting requirements for a bank holding company after
it first crosses the $50 billion asset threshold. Currently, a bank
holding company that crosses the $50 billion asset threshold must
prepare FR Y-14M reports as of the end of the month in which it crosses
the threshold, and must submit its first FR Y-14M within 90 days after
the end of the month (at which time, data for the three intervening
months is due). For example, if a firm crosses the threshold as of
September 30, 2017 the firm is required to submit data for the months
of September, October, and November 2017 at the end of December 2017.
The proposal would have required a bank holding company to begin
preparing its initial FR Y-14M as of the end of the third month after
the bank holding company first meets the $50 billion asset threshold
(rather than as of the month in which the bank holding company crosses
the threshold) and to submit its first FR Y-14M within 90 days after
the end of that month (at which time, data for the three intervening
months would be due). For example, under the proposal, a bank holding
company that crosses the $50 billion asset threshold as of September
30, 2017, would have been required to prepare its initial FR Y-14M
report as of December 2017, and file its FR Y-14M reports for December
2017, January 2018, and February 2018 in March 2018. A bank holding
company would have continued to prepare its FR Y-14Q report as of the
end of the first quarter after it initially crosses the threshold.
Commenters were generally supportive of the modifications to the
initial applicability of the capital plan and stress test rules, as the
changes would simplify the application of the capital plan and stress
test rules and allow for a more orderly onboarding process for new FR
Y-14 filers. One commenter further requested that a newly formed IHC be
provided an additional year after becoming subject to the capital plan
rule prior to being subject to a qualitative objection to its capital
plan. As the Board has previously indicated, newly formed IHCs will be
evaluated under the same process used to evaluate all new entrants into
the stress testing program.\51\ This process includes a year of capital
plan review including a more limited quantitative assessment of the
IHC's capital plan based on the company's own stress scenario and any
scenarios provided by the Board and a qualitative assessment of the
firm's capital planning processes and supporting practices. The Board
recognizes the challenges that a company new to the CCAR process will
face, and expects that the company will continue to work to enhance its
capital planning systems and processes to meet supervisory expectations
subsequent to its first capital plan submission.\52\
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\51\ 79 FR 64026, 64037 (October 27, 2014).
\52\ See id.
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In addition, commenters requested that a large and noncomplex firm
that crosses the total consolidated asset or nonbank assets threshold
or is identified as a U.S. GSIB and becomes a large and complex firm
under the capital plan rule be provided a transition year before
becoming subject to the qualitative component of the CCAR assessment
and objection. As the thresholds for becoming a large and complex firm
are calculated either on a four-quarter average or as of year-end, a
firm should be able to anticipate whether it will become a large and
complex firm and prepare to meet the heightened expectations set forth
in SR Letter 15-18, as implemented by the CCAR qualitative review.
Accordingly, the Board is finalizing the modifications to the initial
applicability of the capital plan and stress test rules as proposed.
H. Continued Application of CCAR for LISCC Firms and Large and Complex
Firms
For LISCC firms and large and complex firms, the proposal would
have maintained the current comprehensive assessment of capital
planning processes, including the qualitative objection to a firm's
capital plan.\53\ The proposal included a modification to the capital
plan rule's qualitative objection criteria for LISCC firms and large
and complex firms to better align with the Federal Reserve's focus
during the CCAR supervisory assessment. Specifically, the proposal
provided that the Board may object to a the capital plan of a LISCC
firm or large and complex firm if, among other factors, the
methodologies and practices that support the bank holding company's
capital planning process are not reasonable or appropriate (emphasis
added). The current rule instead provided a basis for objection if the
bank holding company's methodologies for reviewing its capital adequacy
process are not reasonable or appropriate (emphasis added). This
modification was intended to clarify the current scope of the
qualitative component of the CCAR assessment and the areas of focus in
the review of the capital plan of a LISCC firm or a large and complex
firm. The Board did not receive comments on this aspect of the
proposal, and is finalizing as proposed.
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\53\ As noted above, a LISCC firm that qualifies as a large and
noncomplex firm no longer would be subject to the qualitative
component of the CCAR assessment or objection under the final rule.
No current LISCC firm qualifies as a large and noncomplex firm at
this time.
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III. Other Amendments to the Capital Plan and Stress Test Rules
A. Revisions to the Time Period From Which the Market Shock ``as-of''
Date May Be Selected
The proposal would have allowed the Board to select any date
between October 1 of the prior year and March 1 of the year of the
stress test cycle for the as-of date of the global market shock. Bank
holding companies subject to the trading and counterparty component
would be notified within two weeks of the selected as-of date for the
global market shock, to enable the bank holding company to preserve
trading and counterparty exposure data from the as-of date. Under the
proposal, this change would take effect for the 2018 stress test cycle.
Commenters generally agreed with this aspect of the proposal, and
the Board is finalizing it as proposed. However, some commenters
requested
[[Page 9319]]
further clarifications about the proposal. Commenters requested that
the Federal Reserve confirm that firms will continue to be permitted to
use data from weekly internal risk reporting data for the week of the
chosen as-of date. In addition, commenters requested that the Board
clarify whether the reporting deadlines for schedules that are related
to the market shock will remain the same. Finally, commenters requested
that the Federal Reserve provide the market shock scenario at the same
time or soon after selecting the market shock date.
In response, the Board is confirming that the final rule will not
change the Federal Reserve's practice of allowing firms to use the data
from weekly internal risk reporting and does not change the reporting
deadlines for the reporting schedules related to the market shock. The
Board will continue to provide the scenario to firms as soon as it is
finalized, although the Board must strike a balance between providing
the firms with enough time to compute their stress test results and
producing scenarios that are reflective of salient risks in the market.
B. Removal of Obsolete Provisions
In 2014, the Federal Reserve adjusted the capital planning and
stress test cycles from an October 1 as-of date to a January 1 as-of
date. The capital plan and stress test rules currently include several
provisions reflecting the previous October 1 as-of date, as well as
obsolete transition provisions for foreign banking organizations that
previously relied on SR Letter 01-01,\54\ and for the application of
the supplementary leverage ratio. The proposal would have removed these
provisions, as they are no longer operative. The Board received no
comments on these revisions and is finalizing them as proposed.
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\54\ SR Letter 01-01 (January 5, 2001), available at:
www.federalreserve.gov/boarddocs/srletters/2001/sr0101.htm.
---------------------------------------------------------------------------
IV. Other Comments Received on the Proposal
The Federal Reserve also received comments that were not directly
related to the proposal. A commenter requested that the Board consider
a change to potential changes to the capital conservation buffer
described in a speech by Governor Tarullo on September 26, 2016, that
have not yet been formally proposed.\55\ The Federal Reserve will
consider the comment when developing the upcoming proposal and will
invite comments on that proposal when it is published.
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\55\ Tarullo, Daniel K, ``Next Steps in the Evolution of Stress
Testing'' (September 26, 2016), available at:
www.federalreserve.gov/newsevents/speech/tarullo20160926a.htm.
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A commenter requested that the Board simplify guidance related to
the development of the BHC baseline scenario. Commenters requested that
the Board allow firms to use the supervisory baseline scenario as their
BHC baseline scenario if in the firm's assessment it is a reasonable
reflection of the current economic outlook. In addition, commenters
requested that the Board simplify the reporting for the BHC baseline
scenario to reduce reporting burden. Currently, the Board analyzes the
BHC baseline scenario as part of the quantitative and qualitative
assessment of the capital plan review. As such, the Board will continue
to expect a firm that uses the supervisory baseline scenario as its BHC
baseline scenario to produce an assessment as to why the supervisory
baseline scenario is an appropriate representation of the firm's view
of the most likely outlook for the risk factors salient to it.
A commenter requested that the Board not impose the capital plan
and stress test requirements on insurance savings and loan holding
companies and nonbank financial companies designated by the Financial
Stability Oversight Council for Supervision by the Board without a
separate notice and comment process and tailor capital planning and
stress test requirement for these firms. The Board has not applied the
capital plan and stress test requirements to such firms at this time,
and will continue to consider how best to apply capital planning and
stress testing to these firms. The Board intends to establish any such
requirements through a notice and comment process.
One commenter requested that the Board describe the potential
financial implications of the proposed rule changes. Another commenter
expressed concerns about the cumulative impacts of the implementation
of the Dodd-Frank and Basel III regulatory regimes for all commercial
real estate capital sources. The Federal Reserve performed impact
analysis regarding these amendments. Board staff concluded that the
rule will result in a cost reduction to the public of less than $100
million. The Federal Reserve did not identify any impact of the
regulation on commercial real estate capital sources.
V. Administrative Law Matters
A. Paperwork Reduction Act
In accordance with section 3512 of the Paperwork Reduction Act of
1995 (44 U.S.C. 3501-3521) (PRA), the Board may not conduct or sponsor,
and a respondent is not required to respond to, an information
collection unless it displays a currently valid Office of Management
and Budget (OMB) control number. The OMB control numbers are 7100-0128,
7100-0341, and 7100-0342 for this information collection. The Board
reviewed the final rule under the authority delegated to the Board by
OMB. No specific comments related to the PRA were received.
The final rule contains requirements subject to the PRA. The
reporting requirements are found in sections 12 CFR 225.8.
The Board has a continuing interest in the public's opinions of
this collection of information. At any time, commenters may submit
comments regarding the burden estimate, or any other aspect of this
collection of information, including suggestions for reducing burden
sent to: Nuha Elmaghrabi: Federal Reserve Clearance Officer, Office of
the Chief Data Officer, Mail Stop K1-148, Board of Governors of the
Federal Reserve System, Washington, DC 20551, with copies of such
comments sent to the Office of Management and Budget (OMB) desk officer
by mail to U.S. Office of Management and Budget, 725 17th Street NW.,
#10235, Washington, DC 20503 or by facsimile to 202-3955806, Attention,
Agency Desk Officer.
Proposed Revisions, With Extension for Three Years, of the
Following Information Collections:
(1) Title of Information Collection: Parent Company Only Financial
Statements for Large Holding Companies.
Agency Form Number: FR Y-9C; FR Y-9LP; FR Y-9SP; FR Y-9ES; FR Y-
9CS.
OMB Control Number: 7100-0128.
Frequency of Response: Quarterly, semi-annually, and annually.
Affected Public: Businesses or other for-profit.
Respondents: Bank holding companies (BHCs), savings and loan
holding companies (SLHCs), securities holding companies (SHCs), and
U.S. intermediate holding companies (IHCs), (collectively, ``holding
companies'').
Abstract: The FR Y-9LP serves as standardized financial statements
for large parent holding companies. The FR Y-9 family of reporting
forms continues to be the primary source of financial data on holding
companies that examiners rely on in the intervals between on-site
inspections. Financial data from these reporting forms are used to
detect emerging financial problems, to review performance and conduct
pre-inspection analysis, to monitor and evaluate capital adequacy, to
evaluate holding company mergers and
[[Page 9320]]
acquisitions, and to analyze a holding company's overall financial
condition to ensure the safety and soundness of its operations.
Current Actions: The final rule amends the FR Y-9LP to include new
line item 17 of PC-B Memoranda (Total nonbank assets of a holding
company subject to the Federal Reserve Board's capital plan rule) for
purposes of identifying large and noncomplex firms subject to the
capital plan rule. Under the final rule, a top-tier holding company
that is subject to the Board's capital plan rule is required to report
on the FR Y-9LP the average dollar amount for the calendar quarter (as
calculated on a monthly basis during the calendar quarter) of its total
nonbank assets of consolidated nonbank subsidiaries, whether held
directly or indirectly or held through lower-tier holding companies,
and its direct investments in unconsolidated nonbank subsidiaries,
associated nonbank companies, and those nonbank corporate joint
ventures over which the bank holding company exercises significant
influence (collectively, ``nonbank companies'').\56\ This amendment
will be effective as of March 31, 2017.
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\56\ For purposes of the FR Y-9LP, (i) a subsidiary is a company
in which the reporting bank holding company directly or indirectly
owns more than 50 percent of the outstanding voting stock; (ii) an
associated company is a corporation in which the reporting bank
holding company, directly or indirectly, owns 20 to 50 percent of
the outstanding voting stock and over which the reporting bank
holding company exercises significant influence; and (iii) a
corporate joint venture is a corporation owned and operated by a
group of companies, no one of which has a majority interest, as a
separate and specific business or project for the mutual benefit of
that group of companies.
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Nonbank companies, for purposes of this measure, exclude (i) all
national banks, state member banks, state nonmember insured banks
(including insured industrial banks), federal savings associations,
federal savings banks, thrift institutions (collectively for purposes
of this proposed item 17, ``depository institutions'') and (ii) except
for an Edge or Agreement Corporation designated as ``Nonbanking'' in
the box on the front page of the Consolidated Report of Condition and
Income for Edge and Agreement Corporations (FR 2886b), any subsidiary
of a depository institution (for purposes of this proposed item 17,
``depository institution subsidiary'').
All intercompany assets and operating revenue among the nonbank
companies should be eliminated, but assets and operating revenue with
the reporting holding company; any depository institution; any
depository institution subsidiary; and for a reporting holding company
that is a subsidiary of a foreign banking organization, any branch or
agency of the foreign banking organization or any non-U.S. subsidiary,
non-U.S. associated company, or non-U.S. corporate joint venture of the
foreign banking organization that is not held through the reporting
holding company, should be included. For example, eliminate the loans
made by one nonbank company to a second nonbank company, but do not
eliminate loans made by one nonbank company to the parent holding
company; depository institution; depository institution subsidiary; or
for a reporting holding company that is a subsidiary of a foreign
banking organization, any branch or agency of the foreign banking
organization or any non-U.S. subsidiary, non-U.S. associated company,
or non-U.S. corporate joint venture of the foreign banking organization
that is not held through the reporting holding company.
While the FR Y-9LP collects another measure of nonbank assets (line
item 15 of PC-B Memoranda (Total combined nonbank assets of nonbank
subsidiaries)), the new nonbank assets measure differs in several
important ways. Specifically, new line item 17 excludes assets of an
insured industrial bank, federal savings association, federal savings
bank, or thrift institution and includes assets of an Edge or Agreement
Corporation designated as ``Nonbanking'' in the box on the front page
of the Consolidated Report of Condition and Income for Edge and
Agreement Corporations (FR 2886b). It also includes the value of an
investment in an unconsolidated nonbank company that is held directly
by the holding company. While these elements may be sourced from other
reporting forms, the new line item is necessary to reflect the
elimination of intercompany transactions among these nonbank companies,
as described above.
Number of Respondents: The revision applies to top-tier holding
companies subject to the Board's capital plan rule (BHCs and IHCs with
total consolidated assets of $50 billion or more), for a total of 38 of
the existing 792 FR Y-9LP respondents. FR Y-9C (non-Advanced Approaches
holding companies or other respondents): 654; FR Y-9C (Advanced
Approaches holding companies or other respondents): 13; FR Y-9SP:
4,122; FR Y-9ES: 88; FR Y-9CS: 236.
Estimated Average Hours per Response: FR Y-9C (non-Advanced
Approaches holding companies or other respondents): 50.17 hours; FR Y-
9C (Advanced Approaches holding companies or other respondents): 51.42
hours; FR Y-9LP: 5.25 hours; FR Y-9SP: 5.4 hours; FR Y-9ES: 0.5 hours;
FR Y-9CS: 0.5 hours.
Current Estimated Annual Burden Hours: FR Y-9C (non-Advanced
Approaches holding companies or other respondents): 131,245 hours; FR
Y-9C (Advanced Approaches holding companies or other respondents):
2,674 hours; FR Y-9LP: 16,632 hours; FR Y-9SP: 44,518; FR Y-9ES: 44; FR
Y-9CS: 472.
Approved Revisions only change in Estimated Annual Burden Hours: FR
Y-9LP: 76 hours (0.5 hours per quarter for the 38 impacted FR Y-9LP
respondents).
Approved Total Estimated Annual Burden Hours: FR Y-9C (non-Advanced
Approaches holding companies or other respondents): 131,245 hours; FR
Y-9C (Advanced Approaches holding companies or other respondents):
2,674 hours; FR Y-9LP: 16,708 hours; FR Y-9SP: 44,518; FR Y-9ES: 44; FR
Y-9CS: 472.
(2) Title of Information Collection: Capital Assessments and Stress
Testing information collection.
Agency Form Number: FR Y-14A/Q/M.
OMB Control Number: 7100-0341.
Frequency of Response: Annually, semi-annually, quarterly, and
monthly.
Affected Public: Businesses or other for-profit.
Respondents: The respondent panel consists of any top-tier bank
holding company (BHC) or intermediate holding company (IHC) that has
$50 billion or more in total consolidated assets, as determined based
on: (i) The average of the firm's total consolidated assets in the four
most recent quarters as reported quarterly on the firm's Consolidated
Financial Statements for Bank Holding Companies (FR Y-9C) (OMB No.
7100-0128); or (ii) the average of the firm's total consolidated assets
in the most recent consecutive quarters as reported quarterly on the
firm's FR Y-9Cs, if the firm has not filed an FR Y-9C for each of the
most recent four quarters. Reporting is required as of the first day of
the quarter immediately following the quarter in which it meets this
asset threshold, unless otherwise directed by the Board.
Abstract: The data collected through the FR Y-14A/Q/M schedules
provide the Board with the additional information and perspective
needed to help ensure that large BHCs and IHCs have strong,
firm[hyphen]wide risk measurement and management processes supporting
their internal assessments of capital adequacy and that their capital
resources are sufficient given their business focus, activities,
[[Page 9321]]
and resulting risk exposures. The annual CCAR exercise is also
complemented by other Board supervisory efforts aimed at enhancing the
continued viability of large firms, including continuous monitoring of
firms' planning and management of liquidity and funding resources and
regular assessments of credit, market, and operational risks, and
associated risk management practices. Information gathered in this data
collection is also used in the supervision and regulation of these
financial institutions. In order to fully evaluate the data
submissions, the Board may conduct follow-up discussions with or
request responses to follow-up questions from respondents, as needed.
The Capital Assessments and Stress Testing information collection
consists of the FR Y-14A, Q, and M reports. The semi-annual FR Y-14A
collects quantitative projections of balance sheet, income, losses, and
capital across a range of macroeconomic scenarios and qualitative
information on methodologies used to develop internal projections of
capital across scenarios.\57\ The quarterly FR Y-14Q collects granular
data on various asset classes, including loans, securities, and trading
assets, and pre-provision net revenue (PPNR) for the reporting period.
The monthly FR Y-14M comprises three retail portfolio- and loan-level
collections, and one detailed address matching collection to supplement
two of the portfolio and loan-level collections.
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\57\ A BHC that must re-submit its capital plan generally also
must provide a revised FR Y-14A in connection with its resubmission.
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Current Actions: The Capital Assessments and Stress Testing Report
(FR Y-14 series of reports; OMB No. 7100-0341) collects data used to
support supervisory stress testing models and continuous monitoring
efforts for bank holding companies with total consolidated assets of
$50 billion or more. The FR Y-14 consists of three reports, the semi-
annual FR Y-14A, the quarterly FR Y-14Q, and monthly FR Y-14M. Each
report contains multiple schedules, several of which are reported only
by bank holding companies that meet specified materiality thresholds.
In discussions on CCAR, several large and noncomplex firms recommended
that the Board revise the FR Y-14 series of reports to reduce reporting
burdens for these firms. For instance, these large and noncomplex firms
suggested that the Board raise the materiality threshold for the FR Y-
14 reports and reduce the detail required in the supporting
documentation requirements. The final rule reduces burden associated
with reporting the FR Y-14 schedules for large and noncomplex firms by
raising the materiality threshold, reducing supporting documentation
requirements, removing several sub-schedules from the FR Y-14A Summary
Schedule, and using the median loss rate for immaterial portfolios.
The final rule increases the materiality thresholds for filing
schedules on the FR Y-14Q report and the FR Y-14M report for large and
noncomplex firms. The FR Y-14 instructions currently define material
portfolios as those with asset balances greater than $5 billion or
asset balances greater than five percent of tier 1 capital, each
measured as an average for the four quarters preceding the reporting
quarter.\58\ The final rule revises the FR Y-14's definition of a
``material portfolio'' for large and noncomplex firms to mean a
portfolio with asset balances greater than either (1) $5 billion or (2)
10 percent of tier 1 capital, each measure as an average for the four
quarters preceding the reporting quarter.\59\ As a result of this
change, respondents will be able to exclude certain portfolios from
reporting and in some cases may not be required to report certain
schedules at all.
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\58\ Respondents have the option to complete the data schedules
for immaterial portfolios.
\59\ The four quarter average percent of tier 1 capital is
calculated as the sum of the firm's preceding four quarters of
balances subject to the particular materiality threshold divided by
the sum of the firm's proceeding four quarters of tier 1 capital.
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In addition, the final rule reduces the supporting documentation a
large and noncomplex firm will be required to be submit with its
capital plan. Appendix A of the FR Y-14A report outlines qualitative
information that a bank holding company should submit in support of its
projections, including descriptions of the methodologies used to
develop the internal projections of capital across scenarios and other
analyses that support the bank holding company's comprehensive capital
plans. The final rule revises the instructions to Appendix A of the FR
Y-14A to remove the requirement that a large and noncomplex firm
include in its capital plan submission certain documentation regarding
its models, including any model inventory mapping document, methodology
documentation, model technical documents, and model validation
documentation. Large and noncomplex firms will still be required to be
able to produce these materials upon request by the Federal Reserve,
and all or a subset of these firms may be required to provide this
documentation depending on the focus of the supervisory review of large
and noncomplex firm capital plans. Removing the requirement that a
large and noncomplex firm submit this information in connection with
its capital plan should reduce the resources needed to prepare the plan
for submission and alleviate concerns of an adverse supervisory finding
that a capital plan is incomplete based on the failure to provide
documentation.
Under the final rule, large and noncomplex firms will no longer be
required to complete several elements of the FR Y-14A Schedule A
(Summary), including the Securities OTTI methodology sub-schedule,
Securities Market Value source sub-schedule, Securities OTTI by
security sub-schedule, the Retail repurchase sub-schedule, the Trading
sub-schedule, Counterparty sub-schedule, and Advanced RWA sub-
schedule.\60\ The revised instructions for the FR Y-14A Summary
schedule reporting form are available on the Board's public Web site.
Removing these elements should reduce burdens associated with
collecting and validating this data, responding to follow-up inquiries,
and implementing and maintaining technical systems. Under the final
rule, a large and noncomplex firm may adopt these changes for the FR Y-
14A report as of December 31, 2016, or as of June 30, 2017. The Federal
Reserve continues to review the details required to be reported in the
FR Y-14 series of reports, and may propose additional changes in the
future to further reduce burdens associated with these reporting
requirements.
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\60\ A large and noncomplex firm would be required to report
line item 138 of the income statement, as that line item is
currently derived from the retail repurchase sub-schedule.
---------------------------------------------------------------------------
These changes are expected to decrease burden for the information
collection by 56,454 hours. This includes a decrease in the average
hours per response for the FR Y-14A due to the elimination of the
requirement for large and noncomplex firms to file four Summary sub-
schedules and a reduction in the supporting documentation requirements,
resulting in a decrease of 6,346 hours. The modification to the
materiality threshold for the FR Y-14Q and FR Y-14M reports would be
anticipated to reduce the number of firms filing certain schedules on
the FR Y-14Q and FR Y-14M reports. Specifically, this would result in a
decrease of 1,088 hours on the FR Y-14Q report and 49,020 hours for the
FR Y-14M report.
Number of Respondents: 38.
[[Page 9322]]
Estimated Average Hours per Response: FR Y-14A: Summary, 993 hours;
Macro scenario, 31 hours; Operational Risk, 18 hours; Regulatory
capital transitions, 23 hours; Regulatory capital instruments, 21
hours; Retail repurchase, 20 hours; and Business plan changes, 10
hours; Adjusted Capital Submission, 100 hours. FR Y-14Q: Securities
risk, 14 hours; Retail risk, 16 hours; PPNR, 711 hours; Wholesale, 152
hours; Trading, 1,926 hours; Regulatory capital transitions, 23 hours;
Regulatory capital instruments, 52 hours; Operational risk, 50 hours;
MSR Valuation, 24 hours; Supplemental, 4 hours; Retail FVO/HFS, 16
hours; CCR, 508 hours; and Balances, 16 hours. FR Y-14M: 1st lien
mortgage, 515 hours; Home equity, 515 hours; and Credit card, 510
hours. FR Y-14 On-Going automation revisions, 480 hours; and
implementation, 7,200 hours. FR Y-14 Attestation: Implementation, 4,800
hours; and on-going, 2,560 hours.
Current Estimated Annual Burden Hours: FR Y-14A: Summary, 75,468
hours; Macro scenario, 2,356 hours; Operational Risk, 684 hours;
Regulatory capital transitions, 874 hours; Regulatory capital
instruments, 798 hours; Retail repurchase, 1520 hours; Business plan
changes, 380 hours; and Adjusted Capital Submission, 500 hours. FR Y-
14Q: Securities risk, 2,128 hours; Retail risk, 2,432 hours, Pre-
provision net revenue (PPNR), 108,072 hours; Wholesale, 23,104 hours;
Trading, 46,224 hours; Regulatory capital transitions, 3,496 hours;
Regulatory capital instruments, 7,904 hours; Operational risk, 7,600
hours; Mortgage Servicing Rights (MSR) Valuation, 1,632 hours;
Supplemental, 608 hours; and Retail Fair Value Option/Held for Sale
(Retail FVO/HFS), 1,728 hours; Counterparty, 12,192 hours; and
Balances, 2,432 hours. FR Y-14M: 1st lien mortgage, 222,480hours; Home
equity, 191,580 hours; and Credit card, 146,880 hours. FR Y-14 On-going
automation revisions, 18,240 hours; and implementation, 0 hours. FR Y-
14 Attestation: Implementation, 0 hours; and on-going, 33,280 hours.
Approved Revisions only change in Estimated Annual Burden Hours: FR
Y-14A: -6,346 Hours, FR Y-14Q: -1,088 FR Y-14M: -49,020 Hours.
Approved Total Estimated Annual Burden Hours: FR Y-14A: Summary,
69,236 hours; Macro scenario, 2,356 hours; Operational Risk, 684 hours;
Regulatory capital transitions, 760 hours; Regulatory capital
instruments, 798 hours; Retail repurchase, 1,520 hours; Business plan
changes, 380; and Adjusted Capital Submissions, 500 hours. FR Y-14Q:
Securities risk, 1,976 hours; Retail risk, 2,280 hours, Pre-provision
net revenue (PPNR), 108,072 hours; Wholesale, 22,952 hours; Trading,
46,224 hours; Regulatory capital transitions, 3,496 hours; Regulatory
capital instruments, 7,904 hours; Operational risk, 7,600 hours;
Mortgage Servicing Rights (MSR) Valuation, 1,288 hours; Supplemental,
608 hours; and Retail Fair Value Option/Held for Sale (Retail FVO/HFS),
1,440 hours; Counterparty, 12,192 hours; and Balances, 2,432 hours. FR
Y-14M: 1st lien mortgage, 222,480 hours; Home equity, 185,400 hours;
and Credit card, 104,040 hours. FR Y-14 On-going automation revisions,
18,240 hours; and implementation, 0 hours. FR Y-14 Attestation:
Implementation, 0 hours; and on-going, 33,280 hours.
(3) Title of Information Collection: Recordkeeping and Reporting
Requirements Associated with Regulation Y (Capital Plans).
Agency Form Number: Reg Y-13.
OMB Control Number: 7100-0342.
Frequency of Response: Annually.
Affected Public: Businesses or other for-profit.
Respondents: BHCs and IHCs.
Abstract: Regulation Y (12 CFR part 225) requires large bank
holding companies (BHCs) to submit capital plans to the Federal Reserve
on an annual basis and to require such BHCs to request prior approval
from the Federal Reserve under certain circumstances before making a
capital distribution.
Current Actions: The final rule contains requirements subject to
the PRA. The collection of information revised by this final rule is
found in section 225.8 of Regulation Y (12 CFR part 225). Under section
225.8(f)(2) of the final rule, large and noncomplex firms will no
longer be subject to the provisions of the Board's capital plan rule
whereby the Board can object to a capital plan on the basis of
qualitative deficiencies in the firm's capital planning process. In
feedback meetings that the Board held on CCAR, participants from large
and noncomplex firms expressed the view that the provision of the rule
permitting the Board to object to a capital plan on the basis of
qualitative deficiencies, in their view, required a large and
noncomplex firm to develop a large amount of documentation and stress
test models to the same degree as the largest firms in order to avoid
risk of a public objection to its capital plan. Accordingly, this
revision to section 225.8(f)(2) is expected to reduce the recordkeeping
requirements for large and noncomplex firms by approximately 25
percent, or 3,000 hours for large and noncomplex firms.
The final rule defines a large and noncomplex bank holding company
as a bank holding company with average total consolidated assets of $50
billion or more but less than $250 billion, average total nonbank
assets of less than $75 billion, and that is not a bank holding company
identified as a U.S. GSIB. While the total consolidated assets measure
is calculated for purposes of other regulatory requirements, the new
average total nonbank assets threshold is not otherwise calculated for
purposes of a regulatory requirement.
For the first calculation date (December 31, 2016), firms will be
required to calculate nonbank assets by aggregating items reported on
other reporting forms. Specifically, nonbank assets will be calculated
as (A) total combined nonbank assets of nonbank subsidiaries, as
reported on line 15a of Schedule PC-B of the Parent Company Only
Financial Statements for Large Holding Companies (FR Y-9LP) as of
December 31, 2016; plus (B) the total amount of equity investments in
nonbank subsidiaries and associated companies as reported on line 2a of
Schedule PC-A of the FR Y-9LP as of December 31, 2016; plus (C) assets
of each Edge and Agreement Corporation, as reported on the Consolidated
Report of Condition and Income for Edge and Agreement Corporations (FR
2886b) as of December 31, 2016, to the extent such corporation is
designated as ``Nonbanking'' in the box on the front page of the FR
2886b; minus (D) assets of a federal savings association, federal
savings bank, or thrift subsidiary, as reported on the Report of
Condition and Income (Call Report) as of December 31, 2016. Performing
this calculation is expected to require 1 hour per firm.
As noted above, for calculation dates following the initial
calculation date, the Federal Reserve is adding a new line item to the
FR Y-9LP (Parent Company Only Financial Statements for Large Holding
Companies) to collect average total nonbank assets; however, for the
December 31, 2016 calculation date, a firm will be required to
calculate the line item based on existing line items. The burden
associated with this line item will be reflected in that collection.
Number of Respondents: 38.
Estimated Average Hours per Response: Annual capital planning
recordkeeping (225.8(e)(1)(i)), 11,920 hours; annual capital planning
reporting (225.8(e)(1)(ii)), 80 hours; annual capital planning
recordkeeping (225.8(e)(1)(iii)), 100 hours; data collections reporting
((225.8(e)(3)(i)-
[[Page 9323]]
(vi)), 1,005 hours; data collections reporting (225.8(e)(4)), 100
hours; review of capital plans by the Federal Reserve reporting
(225.8(f)(3)(i)), 16 hours; prior approval request requirements
reporting (225.8(g)(1), (3), & (4)), 100 hours; prior approval request
requirements exceptions (225.8(g)(3)(iii)(A)), 16 hours; prior approval
request requirements reports (225.8(g)(6)), 16 hours.
Current Estimated Annual Burden Hours: Annual capital planning
recordkeeping (225.8(e)(1)(i)), 452,960 hours; annual capital planning
reporting (225.8(e)(1)(ii)), 2,240 hours; annual capital planning
recordkeeping (225.8(e)(1)(iii)), 2,800 hours; data collections
reporting ((225.8(e)(3)(i)-(vi)), 38,190 hours; data collections
reporting (225.8(e)(4)), 1,000 hours; review of capital plans by the
Federal Reserve reporting (225.8(f)(3)(i)), 32 hours; prior approval
request requirements reporting (225.8(g)(1), (3), & (4)), 2,600 hours;
prior approval request requirements exceptions (225.8(g)(3)(iii)(A)),
32 hours; prior approval request requirements reports (225.8(g)(6)), 32
hours.
Approved Revisions only change in Estimated Average Hours per
Response: For large and noncomplex firms: Annual capital planning
recordkeeping (225.8(e)(1)(i)), 8,920 hours.
Approved Revisions only change in Estimated Annual Burden Hours:
Annual capital planning reporting (225.8(e)(1)(ii)): -54,000 hours.
Approved Total Estimated Annual Burden Hours: Annual capital
planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and complex
firms), 238,400 hours; Annual capital planning recordkeeping
(225.8(e)(1)(i) (large and noncomplex firms), 160,560 hours; annual
capital planning reporting (225.8(e)(1)(ii)), 2,240 hours; annual
capital planning recordkeeping (225.8(e)(1)(iii)), 2,800 hours; data
collections reporting ((225.8(e)(3)(i)-(vi)), 38,190 hours; data
collections reporting (225.8(e)(4)), 1,000 hours; review of capital
plans by the Federal Reserve reporting (225.8(f)(3)(i)), 32 hours;
prior approval request requirements reporting (225.8(g)(1), (3), &
(4)), 2,600 hours; prior approval request requirements exceptions
(225.8(g)(3)(iii)(A)), 32 hours; prior approval request requirements
reports (225.8(g)(6)), 32 hours.
Regulatory Flexibility Act
The Board is providing an initial regulatory flexibility analysis
with respect to this rule. The Regulatory Flexibility Act, 5 U.S.C. 601
et seq., 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
(``SBA''), a small entity includes a depository institution, bank
holding company, or savings and loan holding company with total assets
of $550 million or less (a small banking organization).\61\ As of June
30, 2016, there were approximately 594 small state member banks, 3,203
small bank holding companies and 162 small savings and loan holding
companies. The proposed rule would apply only to bank holding companies
with total consolidated asset of $50 billion or more. Companies that
would be subject to the proposed rule therefore substantially exceed
the $550 million total asset threshold at which a company is considered
a small company under SBA regulations. Therefore, there are no
significant alternatives to the proposed rule that would have less
economic impact on small banking organizations. As discussed above, the
projected reporting, recordkeeping, and other compliance requirements
of the rule are expected to be small. The Board does not believe that
the 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.
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\61\ 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).
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The Board welcomes comment on all aspects of its analysis. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
Solicitation of Comments of Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board sought to present the proposed rule in a
simple and straightforward manner and solicited comment on how to make
the proposed rule easier to understand. No comments were received on
the use of plain language.
List of Subjects
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Capital
planning, Holding companies, Reporting and recordkeeping requirements
Securities, Stress testing.
12 CFR Part 252
Administrative practice and procedure, Banks, Banking, Capital
planning, Federal Reserve System, Holding companies, Reporting and
recordkeeping requirements, Securities, Stress testing.
Authority and Issuance
For the reasons stated in the Supplementary Information, the Board
of Governors of the Federal Reserve System amends 12 CFR chapter II as
follows:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
1. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
Subpart A--General Provisions
0
2. Section 225.8 is revised to read as follows:
Sec. 225.8 Capital planning.
(a) Purpose. This section establishes capital planning and prior
notice and approval requirements for capital distributions by certain
bank holding companies.
(b) Scope and reservation of authority--(1) Applicability. Except
as provided in paragraph (c) of this section, this section applies to:
(i) Any top-tier bank holding company domiciled in the United
States with average total consolidated assets of $50 billion or more
($50 billion asset threshold);
(ii) Any other bank holding company domiciled in the United States
that is made subject to this section, in whole or in part, by order of
the Board;
(iii) Any U.S. intermediate holding company subject to this section
pursuant to 12 CFR 252.153; and
(iv) Any nonbank financial company supervised by the Board that is
made subject to this section pursuant to a rule or order of the Board.
(2) Average total consolidated assets. For purposes of this
section, average total consolidated assets means the
[[Page 9324]]
average of the total consolidated assets as reported by a bank holding
company on its Consolidated Financial Statements for Bank Holding
Companies (FR Y-9C) for the four most recent consecutive quarters. If
the bank holding company has not filed the FR Y-9C for each of the four
most recent consecutive quarters, average total consolidated assets
means the average of the company's total consolidated assets, as
reported on the company's FR Y-9C, for the most recent quarter or
consecutive quarters, as applicable. Average total consolidated assets
are measured on the as-of date of the most recent FR Y-9C used in the
calculation of the average.
(3) Ongoing applicability. A bank holding company (including any
successor bank holding company) that is subject to any requirement in
this section shall remain subject to such requirements unless and until
its total consolidated assets fall below $50 billion for each of four
consecutive quarters, as reported on the FR Y-9C and effective on the
as-of date of the fourth consecutive FR Y-9C.
(4) Reservation of authority. Nothing in this section shall limit
the authority of the Federal Reserve to issue a capital directive or
take any other supervisory or enforcement action, including an action
to address unsafe or unsound practices or conditions or violations of
law.
(5) Rule of construction. Unless the context otherwise requires,
any reference to bank holding company in this section shall include a
U.S. intermediate holding company and shall include a nonbank financial
company supervised by the Board to the extent this section is made
applicable pursuant to a rule or order of the Board.
(c) Transitional arrangements--(1) Transition periods for certain
bank holding companies. (i) A bank holding company that meets the $50
billion asset threshold (as measured under paragraph (b) of this
section) on or before September 30 of a calendar year must comply with
the requirements of this section beginning on January 1 of the next
calendar year, unless that time is extended by the Board in writing.
(ii) A bank holding company that meets the $50 billion asset
threshold after September 30 of a calendar year must comply with the
requirements of this section beginning on January 1 of the second
calendar year after the bank holding company meets the $50 billion
asset threshold, unless that time is extended by the Board in writing.
(iii) The Board or the appropriate Reserve Bank with the
concurrence of the Board, may require a bank holding company described
in paragraph (c)(1)(i) or (ii) of this section to comply with any or
all of the requirements in paragraphs (e)(1), (e)(3), (f), or (g) of
this section if the Board or appropriate Reserve Bank with concurrence
of the Board, determines that the requirement is appropriate on a
different date based on the company's risk profile, scope of operation,
or financial condition and provides prior notice to the company of the
determination.
(2) Transition periods for subsidiaries of certain foreign banking
organizations--(i) U.S. intermediate holding companies. (A) A U.S.
intermediate holding company required to be established or designated
pursuant to 12 CFR 252.153 on or before September 30 of a calendar year
must comply with the requirements of this section beginning on January
1 of the next calendar year, unless that time is extended by the Board
in writing.
(B) A U.S. intermediate holding company required to be established
or designated pursuant to 12 CFR 252.153 after September 30 of a
calendar year must comply with the requirements of this section
beginning on January 1 of the second calendar year after the U.S.
intermediate holding company is required to be established, unless that
time is extended by the Board in writing.
(C) The Board or the appropriate Reserve Bank with the concurrence
of the Board, may require a U.S. intermediate holding company described
in paragraph (c)(2)(i)(A) or (B) of this section to comply with any or
all of the requirements in paragraphs (e)(1), (e)(3), (f), or (g) of
this section if the Board or appropriate Reserve Bank with concurrence
of the Board, determines that the requirement is appropriate on a
different date based on the company's risk profile, scope of operation,
or financial condition and provides prior notice to the company of the
determination.
(ii) Bank holding company subsidiaries of U.S. intermediate holding
companies required to be established by July 1, 2016. (A)
Notwithstanding any other requirement in this section, a bank holding
company that is a subsidiary of a U.S. intermediate holding company
(or, with the mutual consent of the company and Board, another bank
holding company domiciled in the United States) shall remain subject to
paragraph (e) of this section until December 31, 2017, and shall remain
subject to the requirements of paragraphs (f) and (g) of this section
until the Board issues an objection or non-objection to the capital
plan of the relevant U.S. intermediate holding company.
(B) After the time periods set forth in paragraph (c)(2)(ii)(A) of
this section, this section will cease to apply to a bank holding
company that is a subsidiary of a U.S. intermediate holding company,
unless otherwise determined by the Board in writing.
(d) Definitions. For purposes of this section, the following
definitions apply:
(1) Advanced approaches means the risk-weighted assets calculation
methodologies at 12 CFR part 217, subpart E, as applicable, and any
successor regulation.
(2) Average total nonbank assets means:
(i) For purposes of the capital plan cycle beginning January 1,
2017:
(A) Total combined nonbank assets of nonbank subsidiaries, as
reported on line 15a of Schedule PC-B of the Parent Company Only
Financial Statements for Large Holding Companies (FR Y-9LP) as of
December 31, 2016; plus
(B) The total amount of equity investments in nonbank subsidiaries
and associated companies as reported on line 2a of Schedule PC-A of the
FR Y-9LP as of December 31, 2016 (except that any investments reflected
in paragraph (d)(2)(i)(A) of this section may be eliminated); plus
(C) Assets of each Edge and Agreement Corporation, as reported on
the Consolidated Report of Condition and Income for Edge and Agreement
Corporations (FR 2886b) as of December 31, 2016, to the extent such
corporation is designated as ``Nonbanking'' in the box on the front
page of the FR 2886b; minus
(D) Assets of each federal savings association, federal savings
bank, or thrift subsidiary, as reported on the Report of Condition and
Income (Call Report) as of December 31, 2016.
(ii) For purposes of any capital plan cycles beginning on or after
January 1, 2018, the average of the total nonbank assets of a holding
company subject to the Federal Reserve Board's capital plan rule,
calculated in accordance with the instructions to the FR Y-9LP, for the
four most recent consecutive quarters or, if the bank holding company
has not filed the FR Y-9LP for each of the four most recent consecutive
quarters, for the most recent quarter or consecutive quarters, as
applicable.
(3) BHC stress scenario means a scenario designed by a bank holding
company that stresses the specific vulnerabilities of the bank holding
company's risk profile and operations, including those related to the
company's capital adequacy and financial condition.
[[Page 9325]]
(4) Capital action means any issuance or redemption of a debt or
equity capital instrument, any capital distribution, and any similar
action that the Federal Reserve determines could impact a bank holding
company's consolidated capital.
(5) Capital distribution means a redemption or repurchase of any
debt or equity capital instrument, a payment of common or preferred
stock dividends, a payment that may be temporarily or permanently
suspended by the issuer on any instrument that is eligible for
inclusion in the numerator of any minimum regulatory capital ratio, and
any similar transaction that the Federal Reserve determines to be in
substance a distribution of capital.
(6) Capital plan means a written presentation of a bank holding
company's capital planning strategies and capital adequacy process that
includes the mandatory elements set forth in paragraph (e)(2) of this
section.
(7) Capital plan cycle means the period beginning on January 1 of a
calendar year and ending on December 31 of that year.
(8) Capital policy means a bank holding company's written
assessment of the principles and guidelines used for capital planning,
capital issuance, capital usage and distributions, including internal
capital goals; the quantitative or qualitative guidelines for capital
distributions; the strategies for addressing potential capital
shortfalls; and the internal governance procedures around capital
policy principles and guidelines.
(9) Large and noncomplex bank holding company means any bank
holding company subject to this section that, as of December 31 of the
calendar year prior to the capital plan cycle:
(i) Has average total consolidated assets of less than $250
billion;
(ii) Has average total nonbank assets of less than $75 billion; and
(iii) Is not a bank holding company that is identified as a global
systemically important BHC pursuant to Sec. 217.402.
(10) Minimum regulatory capital ratio means any minimum regulatory
capital ratio that the Federal Reserve may require of a bank holding
company, by regulation or order, including the bank holding company's
tier 1 and supplementary leverage ratios as calculated under 12 CFR
part 217, including the deductions required under 12 CFR 248.12, as
applicable, and the bank holding company's common equity tier 1, tier
1, and total risk-based capital ratios as calculated under 12 CFR part
217, including the deductions required under 12 CFR 248.12 and the
transition provisions at 12 CFR 217.1(f)(4) and 217.300; except that
the bank holding company shall not use the advanced approaches to
calculate its regulatory capital ratios.
(11) Nonbank financial company supervised by the Board means a
company that the Financial Stability Oversight Council has determined
under section 113 of the Dodd-Frank Act (12 U.S.C. 5323) shall be
supervised by the Board and for which such determination is still in
effect.
(12) Planning horizon means the period of at least nine consecutive
quarters, beginning with the quarter preceding the quarter in which the
bank holding company submits its capital plan, over which the relevant
projections extend.
(13) Tier 1 capital has the same meaning as under 12 CFR part 217.
(14) U.S. intermediate holding company means the top-tier U.S.
company that is required to be established pursuant to 12 CFR 252.153.
(e) General requirements--(1) Annual capital planning. (i) A bank
holding company must develop and maintain a capital plan.
(ii) A bank holding company must submit its complete capital plan
to the Board and the appropriate Reserve Bank by April 5 of each
calendar year, or such later date as directed by the Board or by the
appropriate Reserve Bank with concurrence of the Board.
(iii) The bank holding company's board of directors or a designated
committee thereof must at least annually and prior to submission of the
capital plan under paragraph (e)(1)(ii) of this section:
(A) Review the robustness of the bank holding company's process for
assessing capital adequacy,
(B) Ensure that any deficiencies in the bank holding company's
process for assessing capital adequacy are appropriately remedied; and
(C) Approve the bank holding company's capital plan.
(2) Mandatory elements of capital plan. A capital plan must contain
at least the following elements:
(i) An assessment of the expected uses and sources of capital over
the planning horizon that reflects the bank holding company's size,
complexity, risk profile, and scope of operations, assuming both
expected and stressful conditions, including:
(A) Estimates of projected revenues, losses, reserves, and pro
forma capital levels, including any minimum regulatory capital ratios
(for example, leverage, tier 1 risk-based, and total risk-based capital
ratios) and any additional capital measures deemed relevant by the bank
holding company, over the planning horizon under expected conditions
and under a range of scenarios, including any scenarios provided by the
Federal Reserve and at least one BHC stress scenario;
(B) A discussion of the results of any stress test required by law
or regulation, and an explanation of how the capital plan takes these
results into account; and
(C) A description of all planned capital actions over the planning
horizon.
(ii) A detailed description of the bank holding company's process
for assessing capital adequacy, including:
(A) A discussion of how the bank holding company will, under
expected and stressful conditions, maintain capital commensurate with
its risks, maintain capital above the minimum regulatory capital
ratios, and serve as a source of strength to its subsidiary depository
institutions;
(B) A discussion of how the bank holding company will, under
expected and stressful conditions, maintain sufficient capital to
continue its operations by maintaining ready access to funding, meeting
its obligations to creditors and other counterparties, and continuing
to serve as a credit intermediary;
(iii) The bank holding company's capital policy; and
(iv) A discussion of any expected changes to the bank holding
company's business plan that are likely to have a material impact on
the bank holding company's capital adequacy or liquidity.
(3) Data collection. Upon the request of the Board or appropriate
Reserve Bank, the bank holding company shall provide the Federal
Reserve with information regarding:
(i) The bank holding company's financial condition, including its
capital;
(ii) The bank holding company's structure;
(iii) Amount and risk characteristics of the bank holding company's
on- and off-balance sheet exposures, including exposures within the
bank holding company's trading account, other trading-related exposures
(such as counterparty-credit risk exposures) or other items sensitive
to changes in market factors, including, as appropriate, information
about the sensitivity of positions to changes in market rates and
prices;
(iv) The bank holding company's relevant policies and procedures,
including risk management policies and procedures;
(v) The bank holding company's liquidity profile and management;
[[Page 9326]]
(vi) The loss, revenue, and expense estimation models used by the
bank holding company for stress scenario analysis, including supporting
documentation regarding each model's development and validation; and
(vii) Any other relevant qualitative or quantitative information
requested by the Board or by the appropriate Reserve Bank to facilitate
review of the bank holding company's capital plan under this section.
(4) Re-submission of a capital plan. (i) A bank holding company
must update and re-submit its capital plan to the appropriate Reserve
Bank within 30 calendar days of the occurrence of one of the following
events:
(A) The bank holding company determines there has been or will be a
material change in the bank holding company's risk profile, financial
condition, or corporate structure since the bank holding company last
submitted the capital plan to the Board and the appropriate Reserve
Bank under this section; or
(B) The Board or the appropriate Reserve Bank with concurrence of
the Board, directs the bank holding company in writing to revise and
resubmit its capital plan for any of the following reasons:
(1) The capital plan is incomplete or the capital plan, or the bank
holding company's internal capital adequacy process, contains material
weaknesses;
(2) There has been, or will likely be, a material change in the
bank holding company's risk profile (including a material change in its
business strategy or any risk exposure), financial condition, or
corporate structure;
(3) The BHC stress scenario(s) are not appropriate for the bank
holding company's business model and portfolios, or changes in
financial markets or the macro-economic outlook that could have a
material impact on a bank holding company's risk profile and financial
condition require the use of updated scenarios; or
(4) The capital plan or the condition of the bank holding company
raise any of the issues described in paragraph (f)(2)(ii) of this
section.
(ii) A bank holding company may resubmit its capital plan to the
Federal Reserve if the Board or the appropriate Reserve Bank objects to
the capital plan.
(iii) The Board or the appropriate Reserve Bank with concurrence of
the Board, may extend the 30-day period in paragraph (e)(4)(i) of this
section for up to an additional 60 calendar days, or such longer period
as the Board or the appropriate Reserve Bank, with concurrence of the
Board, determines, in its discretion, appropriate.
(iv) Any updated capital plan must satisfy all the requirements of
this section; however, a bank holding company may continue to rely on
information submitted as part of a previously submitted capital plan to
the extent that the information remains accurate and appropriate.
(5) Confidential treatment of information submitted. The
confidentiality of information submitted to the Board under this
section and related materials shall be determined in accordance with
applicable exemptions under the Freedom of Information Act (5 U.S.C.
552(b)) and the Board's Rules Regarding Availability of Information (12
CFR part 261).
(f) Review of capital plans by the Federal Reserve; publication of
summary results--(1) Considerations and inputs. (i) The Board or the
appropriate Reserve Bank with concurrence of the Board, will consider
the following factors in reviewing a bank holding company's capital
plan:
(A) The comprehensiveness of the capital plan, including the extent
to which the analysis underlying the capital plan captures and
addresses potential risks stemming from activities across the firm and
the company's capital policy;
(B) The reasonableness of the bank holding company's capital plan,
the assumptions and analysis underlying the capital plan, and the
robustness of its capital adequacy process; and
(C) The bank holding company's ability to maintain capital above
each minimum regulatory capital ratio on a pro forma basis under
expected and stressful conditions throughout the planning horizon,
including but not limited to any scenarios required under paragraphs
(e)(2)(i)(A) and (e)(2)(ii) of this section.
(ii) The Board or the appropriate Reserve Bank with concurrence of
the Board, will also consider the following information in reviewing a
bank holding company's capital plan:
(A) Relevant supervisory information about the bank holding company
and its subsidiaries;
(B) The bank holding company's regulatory and financial reports, as
well as supporting data that would allow for an analysis of the bank
holding company's loss, revenue, and reserve projections;
(C) As applicable, the Federal Reserve's own pro forma estimates of
the firm's potential losses, revenues, reserves, and resulting capital
adequacy under expected and stressful conditions, including but not
limited to any scenarios required under paragraphs (e)(2)(i)(A) and
(e)(2)(ii) of this section, as well as the results of any stress tests
conducted by the bank holding company or the Federal Reserve; and
(D) Other information requested or required by the Board or the
appropriate Reserve Bank, as well as any other information relevant, or
related, to the bank holding company's capital adequacy.
(2) Federal Reserve action on a capital plan--(i) Timing of action.
The Board or the appropriate Reserve Bank with concurrence of the
Board, will object, in whole or in part, to the capital plan or provide
the bank holding company with a notice of non-objection to the capital
plan:
(A) By June 30 of the calendar year in which a capital plan was
submitted pursuant to paragraph (e)(1)(ii) of this section; and
(B) For a capital plan resubmitted pursuant to paragraph (e)(4) of
this section, within 75 calendar days after the date on which a capital
plan is resubmitted, unless the Board provides notice to the company
that it is extending the time period.
(ii) Objection. (A) Large and noncomplex bank holding companies.
The Board, or the appropriate Reserve Bank with concurrence of the
Board, may object to a capital plan submitted by a large and noncomplex
bank holding company if it determines that the bank holding company has
not demonstrated an ability to maintain capital above each minimum
regulatory capital ratio on a pro forma basis under expected and
stressful conditions throughout the planning horizon.
(B) Bank holding companies that are not large and noncomplex bank
holding companies. The Board or the appropriate Reserve Bank with
concurrence of the Board, may object to a capital plan submitted by a
bank holding company that is not a large and noncomplex bank holding
company if it determines that:
(1) The bank holding company has not demonstrated an ability to
maintain capital above each minimum regulatory capital ratio on a pro
forma basis under expected and stressful conditions throughout the
planning horizon;
(2) The bank holding company has material unresolved supervisory
issues, including but not limited to issues associated with its capital
adequacy process;
(3) The assumptions and analysis underlying the bank holding
company's capital plan, or the bank holding company's methodologies and
practices that support its capital planning process, are not reasonable
or appropriate; or
[[Page 9327]]
(4) The bank holding company's capital planning process or proposed
capital distributions otherwise constitute an unsafe or unsound
practice, or would violate any law, regulation, Board order, directive,
or condition imposed by, or written agreement with, the Board or the
appropriate Reserve Bank. In determining whether a capital plan or any
proposed capital distribution would constitute an unsafe or unsound
practice, the Board or the appropriate Reserve Bank would consider
whether the bank holding company is and would remain in sound financial
condition after giving effect to the capital plan and all proposed
capital distributions.
(iii) Notification of decision. The Board or the appropriate
Reserve Bank will notify the bank holding company in writing of the
reasons for a decision to object to a capital plan.
(iv) General distribution limitation. If the Board or the
appropriate Reserve Bank objects to a capital plan and until such time
as the Board or the appropriate Reserve Bank with concurrence of the
Board, issues a non-objection to the bank holding company's capital
plan, the bank holding company may not make any capital distribution,
other than capital distributions arising from the issuance of a
regulatory capital instrument eligible for inclusion in the numerator
of a minimum regulatory capital ratio or capital distributions with
respect to which the Board or the appropriate Reserve Bank has
indicated in writing its non-objection.
(v) Publication of summary results. The Board may disclose publicly
its decision to object or not object to a bank holding company's
capital plan under this section, along with a summary of the Board's
analyses of that company. Any disclosure under this paragraph will
occur by June 30 of the calendar year in which a capital plan was
submitted pursuant to paragraph (e)(1)(ii) of this section, unless the
Board determines that a later disclosure date is appropriate.
(3) Request for reconsideration or hearing--(i) General. Within 15
calendar days of receipt of a notice of objection to a capital plan by
the Board or the appropriate Reserve Bank:
(A) A bank holding company may submit a written request to the
Board requesting reconsideration of the objection, including an
explanation of why reconsideration should be granted. Within 15
calendar days of receipt of the bank holding company's request, the
Board will notify the company of its decision to affirm or withdraw the
objection to the bank holding company's capital plan or a specific
capital distribution; or
(B) As an alternative to paragraph (f)(3)(i)(A) of this section, a
bank holding company may request an informal hearing on the objection.
(ii) Request for an informal hearing. (A) A request for an informal
hearing shall be in writing and shall be submitted within 15 calendar
days of a notice of an objection. The Board may, in its sole
discretion, order an informal hearing if the Board finds that a hearing
is appropriate or necessary to resolve disputes regarding material
issues of fact.
(B) An informal hearing shall be held within 30 calendar days of a
request, if granted, provided that the Board may extend this period
upon notice to the requesting party.
(C) Written notice of the final decision of the Board shall be
given to the bank holding company within 60 calendar days of the
conclusion of any informal hearing ordered by the Board, provided that
the Board may extend this period upon notice to the requesting party.
(D) While the Board's final decision is pending and until such time
as the Board or the appropriate Reserve Bank with concurrence of the
Board issues a non-objection to the bank holding company's capital
plan, the bank holding company may not make any capital distribution,
other than those capital distributions with respect to which the Board
or the appropriate Reserve Bank has indicated in writing its non-
objection.
(4) Application of this section to other bank holding companies.
The Board may apply this section, in whole or in part, to any other
bank holding company by order based on the institution's size, level of
complexity, risk profile, scope of operations, or financial condition.
(g) Approval requirements for certain capital actions--(1)
Circumstances requiring approval. Notwithstanding a notice of non-
objection under paragraph (f)(2)(i) of this section, a bank holding
company may not make a capital distribution (excluding any capital
distribution arising from the issuance of a regulatory capital
instrument eligible for inclusion in the numerator of a minimum
regulatory capital ratio) under the following circumstances, unless it
receives prior approval from the Board or appropriate Reserve Bank
pursuant to paragraph (g)(5) of this section:
(i) After giving effect to the capital distribution, the bank
holding company would not meet a minimum regulatory capital ratio;
(ii) The Board or the appropriate Reserve Bank with concurrence of
the Board, notifies the company in writing that the Federal Reserve has
determined that the capital distribution would result in a material
adverse change to the organization's capital or liquidity structure or
that the company's earnings were materially underperforming
projections;
(iii) Except as provided in paragraph (g)(2) of this section, the
dollar amount of the capital distribution will exceed the amount
described in the capital plan for which a non-objection was issued
under this section, as measured on an aggregate basis beginning in the
third quarter of the planning horizon through the quarter at issue; or
(iv) The capital distribution would occur after the occurrence of
an event requiring resubmission under paragraphs (e)(4)(i)(A) or (B) of
this section and before the Federal Reserve has acted on the
resubmitted capital plan.
(2) Exception for well capitalized bank holding companies. (i) A
bank holding company may make a capital distribution for which the
dollar amount exceeds the amount described in the capital plan for
which a non-objection was issued under paragraph (f)(2)(i) of this
section if the following conditions are satisfied:
(A) The bank holding company is, and after the capital distribution
would remain, well capitalized as defined in Sec. 225.2(r);
(B) The bank holding company's performance and capital levels are,
and after the capital distribution would remain, consistent with its
projections under expected conditions as set forth in its capital plan
under paragraph (f)(2)(i) of this section;
(C) Until March 31, 2017, the annual aggregate dollar amount of all
capital distributions in the period beginning on July 1 of a calendar
year and ending on June 30 of the following calendar year would not
exceed the total amounts described in the company's capital plan for
which the bank holding company received a notice of non-objection by
more than 1.00 percent multiplied by the bank holding company's tier 1
capital, as reported to the Federal Reserve on the bank holding
company's most recent first-quarter FR Y-9C;
(D) Beginning April 1, 2017, the annual aggregate dollar amount of
all capital distributions in the period beginning on July 1 of a
calendar year and ending on June 30 of the following calendar year
would not exceed the total amounts described in the company's capital
plan for which the bank holding company received a notice of non-
objection by more than 0.25 percent multiplied by the bank holding
[[Page 9328]]
company's tier 1 capital, as reported to the Federal Reserve on the
bank holding company's most recent first-quarter FR Y-9C;
(E) Between July 1 of a calendar year and March 15 of the following
calendar year, the bank holding company provides the appropriate
Reserve Bank with notice 15 calendar days prior to a capital
distribution that includes the elements described in paragraph (g)(4)
of this section; and
(F) The Board or the appropriate Reserve Bank with concurrence of
the Board, does not object to the transaction proposed in the notice.
In determining whether to object to the proposed transaction, the Board
or the appropriate Reserve Bank shall apply the criteria described in
paragraph (g)(5)(ii) of this section.
(ii) The exception in this paragraph (g)(2) shall not apply if the
Board or the appropriate Reserve Bank notifies the bank holding company
in writing that it is ineligible for this exception.
(3) Net distribution limitation--(i) General. Notwithstanding a
notice of non-objection under paragraph (f)(2)(i) of this section, a
bank holding company must reduce its capital distributions in
accordance with paragraph (g)(3)(ii) of this section if the bank
holding company raises a smaller dollar amount of capital of a given
category of regulatory capital instruments than it had included in its
capital plan, as measured on an aggregate basis beginning in the third
quarter of the planning horizon through the end of the current quarter.
(ii) Reduction of distributions--(A) Common equity tier 1 capital.
If the bank holding company raises a smaller dollar amount of common
equity tier 1 capital (as defined in 12 CFR 217.2), the bank holding
company must reduce its capital distributions relating to common equity
tier 1 capital such that the dollar amount of the bank holding
company's capital distributions, net of the dollar amount of its
capital raises, (``net distributions'') relating to common equity tier
1 capital is no greater than the dollar amount of net distributions
relating to common equity tier 1 capital included in its capital plan,
as measured on an aggregate basis beginning in the third quarter of the
planning horizon through the end of the current quarter.
(B) Additional tier 1 capital. If the bank holding company raises a
smaller dollar amount of additional tier 1 capital (as defined in 12
CFR 217.2), the bank holding company must reduce its capital
distributions relating to additional tier 1 capital (other than
scheduled payments on additional tier 1 capital instruments) such that
the dollar amount of the bank holding company's net distributions
relating to additional tier 1 capital is no greater than the dollar
amount of net distributions relating to additional tier 1 capital
included in its capital plan, as measured on an aggregate basis
beginning in the third quarter of the planning horizon through the end
of the current quarter.
(C) Tier 2 capital. If the bank holding company raises a smaller
dollar amount of tier 2 capital (as defined in 12 CFR 217.2), the bank
holding company must reduce its capital distributions relating to tier
2 capital (other than scheduled payments on tier 2 capital instruments)
such that the dollar amount of the bank holding company's net
distributions relating to tier 2 capital is no greater than the dollar
amount of net distributions relating to tier 2 capital included in its
capital plan, as measured on an aggregate basis beginning in the third
quarter of the planning horizon through the end of the current quarter.
(iii) Exceptions. Paragraphs (g)(3)(i) and (ii) of this section
shall not apply:
(A) To the extent that the Board or appropriate Reserve Bank
indicates in writing its non-objection pursuant to paragraph (g)(5) of
this section, following a request for non-objection from the bank
holding company that includes all of the information required to be
submitted under paragraph (g)(4) of this section;
(B) To capital distributions arising from the issuance of a
regulatory capital instrument eligible for inclusion in the numerator
of a minimum regulatory capital ratio that the bank holding company had
not included in its capital plan;
(C) To the extent that the bank holding company raised a smaller
dollar amount of capital in the category of regulatory capital
instruments described in paragraph (g)(3)(i) of this section due to
employee-directed capital issuances related to an employee stock
ownership plan;
(D) To the extent that the bank holding company raised a smaller
dollar amount of capital in the category of regulatory capital
instruments described in paragraph (g)(3)(i) of this section due to a
planned merger or acquisition that is no longer expected to be
consummated or for which the consideration paid is lower than the
projected price in the capital plan;
(E) Until March 31, 2017, to the extent that the dollar amount by
which the bank holding company's net distributions exceed the dollar
amount of net distributions included in its capital plan in the
category of regulatory capital instruments described in paragraph
(g)(3)(i) of this section, as measured on an aggregate basis beginning
in the third quarter of the planning horizon through the end of the
current quarter, is less than 1.00 percent of the bank holding
company's tier 1 capital, as reported to the Federal Reserve on the
bank holding company's most recent first-quarter FR Y-9C; between July
1 of a calendar year and March 15 of the following calendar year, the
bank holding company provides the appropriate Reserve Bank with notice
15 calendar days prior to any capital distribution in that category of
regulatory capital instruments that includes the elements described in
paragraph (g)(4) of this section; and the Board or the appropriate
Reserve Bank with concurrence of the Board, does not object to the
transaction proposed in the notice. In determining whether to object to
the proposed transaction, the Board or the appropriate Reserve Bank
shall apply the criteria described in paragraph (g)(5)(ii) of this
section; or
(F) Beginning April 1, 2017, to the extent that the dollar amount
by which the bank holding company's net distributions exceed the dollar
amount of net distributions included in its capital plan in the
category of regulatory capital instruments described in paragraph
(g)(3)(i) of this section, as measured on an aggregate basis beginning
in the third quarter of the planning horizon through the end of the
current quarter, is less than 0.25 percent of the bank holding
company's tier 1 capital, as reported to the Federal Reserve on the
bank holding company's most recent first-quarter FR Y-9C; between July
1 of a calendar year and March 15 of the following calendar year, the
bank holding company provides the appropriate Reserve Bank with notice
15 calendar days prior to any capital distribution in that category of
regulatory capital instruments that includes the elements described in
paragraph (g)(4) of this section; and the Board or the appropriate
Reserve Bank with concurrence of the Board, does not object to the
transaction proposed in the notice. In determining whether to object to
the proposed transaction, the Board or the appropriate Reserve Bank
shall apply the criteria described in paragraph (g)(5)(ii) of this
section.
(iv) The exceptions in paragraph (g)(3)(iii) of this section shall
not apply if the Board or the appropriate Reserve Bank notifies the
bank holding company in writing that it is ineligible for this
exception.
(4) Contents of request. (i) A request for a capital distribution
under this section shall be filed between July 1 of a calendar year and
March 1 of the following calendar year with the
[[Page 9329]]
appropriate Reserve Bank and the Board and shall contain the following
information:
(A) The bank holding company's current capital plan or an
attestation that there have been no changes to the capital plan since
it was last submitted to the Federal Reserve;
(B) The purpose of the transaction;
(C) A description of the capital distribution, including for
redemptions or repurchases of securities, the gross consideration to be
paid and the terms and sources of funding for the transaction, and for
dividends, the amount of the dividend(s); and
(D) Any additional information requested by the Board or the
appropriate Reserve Bank (which may include, among other things, an
assessment of the bank holding company's capital adequacy under a
revised stress scenario provided by the Federal Reserve, a revised
capital plan, and supporting data).
(ii) Any request submitted with respect to a capital distribution
described in paragraph (g)(1)(i) of this section shall also include a
plan for restoring the bank holding company's capital to an amount
above a minimum level within 30 calendar days and a rationale for why
the capital distribution would be appropriate.
(5) Approval of certain capital distributions. (i) The Board or the
appropriate Reserve Bank with concurrence of the Board, will act on a
request under this paragraph (g)(5) within 30 calendar days after the
receipt of all the information required under paragraph (g)(4) of this
section.
(ii) In acting on a request under this paragraph, the Board or
appropriate Reserve Bank will apply the considerations and principles
in paragraph (f) of this section. In addition, the Board or the
appropriate Reserve Bank may disapprove the transaction if the bank
holding company does not provide all of the information required to be
submitted under paragraph (g)(4) of this section.
(6) Disapproval and hearing. (i) The Board or the appropriate
Reserve Bank will notify the bank holding company in writing of the
reasons for a decision to disapprove any proposed capital distribution.
Within 15 calendar days after receipt of a disapproval by the Board,
the bank holding company may submit a written request for a hearing.
(A) The Board may, in its sole discretion, order an informal
hearing if the Board finds that a hearing is appropriate or necessary
to resolve disputes regarding material issues of fact.
(B) An informal hearing shall be held within 30 calendar days of a
request, if granted, provided that the Board may extend this period
upon notice to the requesting party.
(C) Written notice of the final decision of the Board shall be
given to the bank holding company within 60 calendar days of the
conclusion of any informal hearing ordered by the Board, provided that
the Board may extend this period upon notice to the requesting party.
(D) While the Board's final decision is pending and until such time
as the Board or the appropriate Reserve Bank with concurrence of the
Board, approves the capital distribution at issue, the bank holding
company may not make such capital distribution.
PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)
0
3. The authority citation for part 252 continues to read as follows:
Authority: 12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828,
1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101 et seq.,
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367,
5368, 5371.
0
4. Section 252.42 is amended by revising paragraph (p) to read as
follows:
Sec. 252.42 Definitions.
* * * * *
(p) Stress test cycle means the period beginning on January 1 of a
calendar year and ending on December 31 of that year.
* * * * *
0
5. Section 252.43 is amended by
0
a. Revising paragraph (b); and
0
b. Removing paragraph (c).
The revision reads as follows:
Sec. 252.43 Applicability.
* * * * *
(b) Transitional arrangements. (1) A bank holding company that
becomes a covered company on or before September 30 of a calendar year
must comply with the requirements of this subpart beginning on January
1 of the second calendar year after the bank holding company becomes a
covered company, unless that time is extended by the Board in writing.
(2) A bank holding company that becomes a covered company after
September 30 of a calendar year must comply with the requirements of
this subpart beginning on January 1 of the third calendar year after
the bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
0
6. Section 252.44 is amended by revising paragraph (b) to read as
follows:
Sec. 252.44 Annual analysis conducted by the Board.
* * * * *
(b) Economic and financial scenarios related to the Board's
analysis. The Board will conduct its analysis under this section using
a minimum of three different scenarios, including a baseline scenario,
adverse scenario, and severely adverse scenario. The Board will notify
covered companies of the scenarios that the Board will apply to conduct
the analysis for each stress test cycle by no later than February 15 of
each year, except with respect to trading or any other components of
the scenarios and any additional scenarios that the Board will apply to
conduct the analysis, which will be communicated by no later than March
1 of that year.
0
7. Section 252.46 is amended by revising paragraph (b)(1) to read as
follows:
Sec. 252.46 Review of the Board's analysis; publication of summary
results.
* * * * *
(b) Publication of results by the Board. (1) The Board will
publicly disclose a summary of the results of the Board's analyses of a
covered company by June 30 of the calendar year in which the stress
test was conducted pursuant to Sec. 252.44.
* * * * *
0
8. Section 252.52 is amended by revising paragraphs (k) and (r) to read
as follows:
Sec. 252.52 Definitions.
* * * * *
(k) Planning horizon means the period of at least nine consecutive
quarters, beginning on the first day of a stress test cycle over which
the relevant projections extend.
* * * * *
(r) Stress test cycle means the period beginning on January 1 of a
calendar year and ending on December 31 of that year.
* * * * *
0
9. Section 252.53 is amended by revising paragraph (b) to read as
follows:
Sec. 252.53 Applicability.
* * * * *
(b) Transitional arrangements. (1) A bank holding company that
becomes a covered company on or before September 30 of a calendar year
must comply with the requirements of this subpart beginning on January
1 of the second calendar year after the bank holding company becomes a
covered company, unless that time is extended by the Board in writing.
(2) A bank holding company that becomes a covered company after
[[Page 9330]]
September 30 of a calendar year must comply with the requirements of
this subpart beginning on January 1 of the third calendar year after
the bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
0
10. Section 252.54 is amended by revising paragraphs (a), (b)(1),
(b)(2)(i), (b)(4)(i), and (b)(4)(iii) to read as follows:
Sec. 252.54 Annual stress test.
(a) In general. A covered company must conduct an annual stress
test. The stress test must be conducted by April 5 of each calendar
year based on data as of December 31 of the preceding calendar year,
unless the time or the as-of date is extended by the Board in writing.
(b) Scenarios provided by the Board--(1) In general. In conducting
a stress test under this section, a covered company must, at a minimum,
use the scenarios provided by the Board. Except as provided in
paragraphs (b)(2) and (3) of this section, the Board will provide a
description of the scenarios to each covered company no later than
February 15 of the calendar year in which the stress test is performed
pursuant to this section.
(2) Additional components. (i) The Board may require a covered
company with significant trading activity, as determined by the Board
and specified in the Capital Assessments and Stress Testing report (FR
Y-14), to include a trading and counterparty component in its adverse
and severely adverse scenarios in the stress test required by this
section:
(A) For the stress test cycle beginning on January 1, 2017, the
data used in this component must be as of a date selected by the Board
between January 1, 2017 and March 1, 2017, and the Board will
communicate the as-of date and a description of the component to the
company no later than March 1, 2017; and
(B) For the stress test cycle beginning on January 1, 2018, and for
each stress test cycle beginning thereafter, the data used in this
component must be as of a date selected by the Board between October 1
of the previous calendar year and March 1 of the calendar year in which
the stress test is performed pursuant to this section, and the Board
will communicate the as-of date and a description of the component to
the company no later than March 1 of the calendar year in which the
stress test is performed pursuant to this section.
* * * * *
(4) Notice and response--(i) Notification of additional component.
If the Board requires a covered company to include one or more
additional components in its adverse and severely adverse scenarios
under paragraph (b)(2) of this section or to use one or more additional
scenarios under paragraph (b)(3) of this section, the Board will notify
the company in writing. The Board will provide such notification no
later than December 31 of the preceding calendar year. The notification
will include a general description of the additional component(s) or
additional scenario(s) and the basis for requiring the company to
include the additional component(s) or additional scenario(s).
* * * * *
(iii) Description of component. The Board will respond in writing
within 14 calendar days of receipt of the company's request. The Board
will provide the covered company with a description of any additional
component(s) or additional scenario(s) by March 1 of the calendar year
in which the stress test is performed pursuant to this section.
0
11. Section 252.55 is amended by revising paragraphs (a), (b)(4)(i),
and (b)(4)(iii) to read as follows:
Sec. 252.55 Mid-cycle stress test.
(a) Mid-cycle stress test requirement. In addition to the stress
test required under Sec. 252.54, a covered company must conduct a mid-
cycle stress test. The stress test must be conducted by September 30 of
each calendar year based on data as of June 30 of that calendar year,
unless the time or the as-of date is extended by the Board in writing.
(b) * * *
(4) Notice and response--(i) Notification of additional component.
If the Board requires a covered company to include one or more
additional components in its adverse and severely adverse scenarios
under paragraph (b)(2) of this section or one or more additional
scenarios under paragraph (b)(3) of this section, the Board will notify
the company in writing. The Board will provide such notification no
later than June 30. The notification will include a general description
of the additional component(s) or additional scenario(s) and the basis
for requiring the company to include the additional component(s) or
additional scenario(s).
* * * * *
(iii) Description of component. The Board will provide the covered
company with a description of any additional component(s) or additional
scenario(s) by September 1 of the calendar year prior to the year in
which the stress test is performed pursuant to this section.
0
12. Section 252.57 is amended by revising paragraph (a) to read as
follows:
Sec. 252.57 Reports of stress test results.
(a) Reports to the Board of stress test results. (1) A covered
company must report the results of the stress test required under Sec.
252.54 to the Board in the manner and form prescribed by the Board.
Such results must be submitted by April 5 of the calendar year in which
the stress test is performed pursuant to Sec. 252.54, unless that time
is extended by the Board in writing.
(2) A covered company must report the results of the stress test
required under Sec. 252.55 to the Board in the manner and form
prescribed by the Board. Such results must be submitted by October 5 of
the calendar year in which the stress test is performed pursuant to
Sec. 252.55, unless that time is extended by the Board in writing.
* * * * *
0
13. Section 252.58 is amended by revising paragraph (a)(1)(ii) to read
as follows:
Sec. 252.58 Disclosure of stress test results.
(a) * * *
(1) * * *
(ii) A covered company must publicly disclose a summary of the
results of the stress test required under Sec. 252.55. This disclosure
must occur in the period beginning on October 5 and ending on November
4 of the calendar year in which the stress test is performed pursuant
to Sec. 252.55, unless that time is extended by the Board in writing.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, January 30, 2017.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2017-02257 Filed 2-2-17; 8:45 am]
BILLING CODE 6210-01-P