[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9958-9960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02583]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities: Information Collection 
Renewal; Comment Request; Capital Adequacy Standards

AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.

ACTION: Notice and request for comment.

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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork 
and respondent burden, invites the general public and other Federal 
agencies to take this opportunity to comment on a continuing 
information collection as required by the Paperwork Reduction Act of 
1995 (PRA).
    In accordance with the requirements of the PRA, the OCC may not 
conduct or sponsor, and the 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 OCC is soliciting comment concerning renewal of its information 
collection titled ``Capital Adequacy Standards.''

DATES: Comments must be submitted on or before April 10, 2017.

ADDRESSES: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
email, if possible. Comments may be sent to: Legislative and Regulatory 
Activities Division, Office of the Comptroller of the Currency, 
Attention: 1557-0318, 400 7th Street SW., Suite 3E-218, mail stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to 
(571) 465-4326 or by electronic mail to [email protected]. You may 
personally inspect and photocopy comments at the OCC, 400 7th Street 
SW., Washington, DC 20219. For security reasons, the OCC requires that 
visitors make an appointment to inspect comments. You may do so by 
calling (202) 649-6700 or, for persons who are deaf or hard of hearing, 
TTY, (202) 649-5597. Upon arrival, visitors will be required to present 
valid government-issued photo identification and submit to security 
screening in order to inspect and photocopy comments.
    All comments received, including attachments and other supporting 
materials, are part of the public record and subject to public 
disclosure. Do not include any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure.

FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, OCC Clearance 
Officer, (202) 649-5490 or, for persons who are deaf or hard of 
hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities 
Division, Office of the Comptroller of the Currency, 400 7th Street 
SW., Washington, DC 20219.

SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal 
agencies must obtain approval from OMB for each collection of 
information that they conduct or sponsor. ``Collection of information'' 
is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency 
requests or requirements that members of the public submit reports, 
keep records, or provide information to a third party. Section 
3506(c)(2)(A) of title 44 requires Federal agencies to provide a 60-day 
notice in the Federal Register concerning each proposed collection of 
information, including each proposed extension of an existing 
collection of information, before submitting the collection to OMB for 
approval. To comply with this requirement, the OCC is publishing notice 
of the renewal of the collection of information set forth in this 
document.
    Title: Capital Adequacy Standards.
    OMB Control No.: 1557-0318.
    Frequency of Response: On occasion.
    Affected Public: Business or other for-profit.

Section-by-Section-Analysis

    Twelve CFR part 3 sets forth the OCC's minimum capital requirements 
and overall capital adequacy standards for national banks and Federal 
savings associations (institutions).
    Section 3.3(c) allows for the recognition of netting across 
multiple types of transactions or agreements if an institution obtains 
a written legal opinion verifying the validity and enforceability of 
the agreement under certain circumstances and maintains sufficient 
written documentation of this legal review.
    Section 3.22(h)(2)(iii)(A) permits the use of a conservative 
estimate of the amount of an institution's investment in its own 
capital or the capital of unconsolidated financial institutions held 
through the index security with prior approval by the OCC.
    Section 3.35(b)(3)(i)(A) requires, for a cleared transaction with a 
qualified central counterparty (QCCP), that a client bank apply a risk 
weight of two percent, provided that the collateral posted by the bank 
to the QCCP is subject to certain arrangements and the client bank has 
conducted a sufficient legal review (and maintains sufficient written 
documentation of the legal review) to conclude with a well-founded 
basis that the arrangements, in the event of a legal challenge, would 
be found to be legal, valid, binding, and enforceable under the law of 
the relevant jurisdictions.
    Section 3.37(c)(4)(i)(E), regarding collateralized transactions, 
requires that an institution have policies and procedures in place 
describing how it determines the period of significant financial stress 
used to calculate its own internal estimates for haircuts and be able 
to provide empirical support for the period used.
    Section 3.41(b)(3) which sets forth operational requirements for 
securitization exposures, allows an institution to recognize for risk-
based capital purposes, in the case of synthetic securitizations, a 
credit risk mitigant to hedge underlying exposures if certain 
conditions are met, including a requirement that the institution obtain 
a well-reasoned opinion from legal counsel that confirms the 
enforceability of the credit risk mitigant in all relevant 
jurisdictions.
    Section 3.41(c)(2)(i) requires that an institution demonstrate its 
comprehensive understanding of a

[[Page 9959]]

securitization exposure by conducting and documenting an analysis of 
the risk characteristics of each securitization exposure prior to its 
acquisition, taking into account a number of specified considerations.
    If an institution provides non-contractual support to a 
securitization, Sec.  3.42(e)(2) requires the institution to publicly 
disclose that it has provided implicit support to a securitization and 
the risk-based capital impact to the bank of providing such implicit 
support.
    Section 3.62 sets forth disclosure requirements related to the 
capital requirements of an institution. These requirements apply to an 
institution with total consolidated assets of $50 billion or more that 
is not a consolidated subsidiary of an entity that is itself subject to 
Basel III disclosures. Section 3.62(a) requires quarterly disclosure of 
information in the applicable tables in section 3.63 and, if a 
significant change occurs, such that the most recent reported amounts 
are no longer reflective of the institution's capital adequacy and risk 
profile, Sec.  3.62(a) requires the institution to disclose as soon as 
practicable thereafter, a brief discussion of the change and its likely 
impact. Section 3.62(a) permits annual disclosure of qualitative 
information that typically does not change each quarter, provided that 
any significant changes are disclosed in the interim. Section 3.62(b) 
requires that an institution have a formal disclosure policy approved 
by the board of directors that addresses its approach for determining 
the disclosures it makes. The policy must address the associated 
internal controls and disclosure controls and procedures. Section 
3.62(c) permits an institution to disclose more general information 
about certain subjects if the institution concludes that the specific 
commercial or financial information required to be disclosed under 
Sec.  3.62 is exempt from disclosure under the Freedom of Information 
Act (5 U.S.C. 552), and the institution provides the reason the 
specific items of information have not been disclosed.
    Section 3.63 sets forth the specific disclosure requirements for a 
non-advanced approaches institution with total consolidated assets of 
$50 billion or more that is not a consolidated subsidiary of an entity 
that is itself subject to Basel III disclosure requirements. Section 
3.63(a) requires those institutions to make the disclosures in Tables 1 
through 10 to Sec.  3.63 and in Sec.  3.63(b) for each of the last 
three years beginning on the effective date of the rule. Section 
3.63(b) requires quarterly disclosure of an institution's common equity 
tier 1 capital, additional tier 1 capital, tier 2 capital, tier 1 and 
total capital ratios, including the regulatory capital elements and all 
the regulatory adjustments and deductions needed to calculate the 
numerator of such ratios; total risk-weighted assets, including the 
different regulatory adjustments and deductions needed to calculate 
total risk-weighted assets; regulatory capital ratios during any 
transition periods, including a description of all the regulatory 
capital elements and all regulatory adjustments and deductions needed 
to calculate the numerator and denominator of each capital ratio during 
any transition period; and a reconciliation of regulatory capital 
elements as they relate to its balance sheet in any audited 
consolidated financial statements. Tables 1 through 10 to Sec.  3.63 
set forth qualitative and/or quantitative requirements for scope of 
application, capital structure, capital adequacy, capital conservation 
buffer, credit risk, counterparty credit risk-related exposures, credit 
risk mitigation, securitizations, equities not subject to Subpart F 
(Market Risk requirements) of the rule, and interest rate risk for non-
trading activities.
    Section 3.121 requires an institution subject to the advanced 
approaches risk-based capital requirements to adopt a written 
implementation plan to address how it will comply with the advanced 
capital adequacy framework's qualification requirements and also 
develop and maintain a comprehensive and sound planning and governance 
process to oversee the implementation efforts described in the plan. 
Section 3.122 further requires these institutions to: Develop processes 
for assessing capital adequacy in relation to an organization's risk 
profile; establish and maintain internal risk rating and segmentation 
systems for wholesale and retail risk exposures, including 
comprehensive risk parameter quantification processes and processes for 
annual reviews and analyses of reference data to determine their 
relevance; document their processes for identifying, measuring, 
monitoring, controlling, and internally reporting operational risk; 
verify the accurate and timely reporting of risk-based capital 
requirements; and monitor, validate, and refine their advanced systems.
    Section 3.123 sets forth ongoing qualification requirements that 
require an institution to notify the OCC of any material change to an 
advance system and to establish and submit to the OCC a plan for 
returning to compliance with the qualification requirements.
    Section 3.124 requires an institution to submit to the OCC, within 
90 days of consummating a merger or acquisition, an implementation plan 
for using its advanced systems for the merged or acquired company.
    Section 3.132(b)(2)(iii)(A) addresses counterparty credit risk of 
repo-style transactions, eligible margin loans, and over-the-counter 
(OTC) derivative contracts, and internal estimates for haircuts. With 
the prior written approval of the OCC, an institution may calculate 
haircuts using its own internal estimates of the volatilities of market 
prices and foreign exchange rates. The section requires institutions to 
satisfy certain minimum quantitative standards in order to receive OCC 
approval to use its own internal estimates.
    Section 3.132(b)(3) covers counterparty credit risk of repo-style 
transactions, eligible margin loans, and OTC derivative contracts, and 
simple Value-at-Risk (VaR) methodology. With the prior written approval 
of the OCC, an institution may estimate exposure at default (EAD) for a 
netting set using a VaR model that meets certain requirements.
    Section 3.132(d)(1) permits the use of the internal models 
methodology (IMM) to determine EAD for counterparty credit risk for 
derivative contracts with prior written approval from the OCC. Section 
3.132(d)(1)(iii) permits the use of the internal models methodology for 
derivative contracts, eligible margin loans, and repo-style 
transactions subject to a qualifying cross-product netting agreement 
with prior written approval from the OCC.
    Section 3.132(d)(2)(iv) addresses counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative 
contracts, and risk-weighted assets using IMM. Under the IMM, an 
institution uses an internal model to estimate the expected exposure 
(EE) for a netting set and then calculates EAD based on that EE. An 
institution must calculate two EEs and two EADs (one stressed and one 
unstressed) for each netting as outlined in this section. An 
institution may use a conservative measure of EAD subject to prior 
written approval of the OCC.
    Section 3.132(d)(3)(vi) addresses counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative 
contracts. To obtain OCC approval to calculate the distributions of 
exposures upon which the EAD calculation is based, an institution must 
demonstrate to the satisfaction of the OCC that it has been using for 
at least one year an internal model that broadly meets the minimum 
standards, with which the institution

[[Page 9960]]

must maintain compliance. The institution must have procedures to 
identify, monitor, and control wrong-way risk throughout the life of an 
exposure and they must include stress testing and scenario analysis.
    Section 3.132(d)(3)(viii) addresses counterparty credit risk of 
repo-style transactions, eligible margin loans, and OTC derivative 
contracts. When estimating model parameters based on a stress period, 
an institution must use at least three years of historical data that 
include a period of stress to the credit default spreads of the 
institution's counterparties. The institution must review the data set 
and update the data as necessary, particularly for any material changes 
in its counterparties. The institution must demonstrate at least 
quarterly that the stress period coincides with increased credit 
default swap (CDS) or other credit spreads of the institution's 
counterparties. The institution must have procedures to evaluate the 
effectiveness of its stress calibration that include a process for 
using benchmark portfolios that are vulnerable to the same risk factors 
as the institution's portfolio. The OCC may require the institution to 
modify its stress calibration to better reflect actual historic losses 
of the portfolio.
    Section 3.132(d)(3)(ix), regarding counterparty credit risk of 
repo-style transactions, eligible margin loans, and OTC derivative 
contracts, requires that an institution must subject its internal model 
to an initial validation and annual model review process that includes 
consideration of whether the inputs and risk factors, as well as the 
model outputs, are appropriate. This section requires institutions to 
have a backtesting program for its model that includes a process by 
which unacceptable model performance will be determined and remedied.
    Section 3.132(d)(3)(x), regarding counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative 
contracts, provides that an institution must have policies for the 
measurement, management, and control of collateral and margin amounts.
    Section 3.132(d)(3)(xi), concerning counterparty credit risk of 
repo-style transactions, eligible margin loans, and OTC derivative 
contracts, states that an institution must have a comprehensive stress 
testing program that captures all credit exposures to counterparties, 
and incorporates stress testing of principal market risk factors and 
creditworthiness of counterparties.
    Section 3.141 relates to operational criteria for recognizing the 
transfer of risk in connection with a securitization. Section 
3.141(b)(3) requires an institution to obtain a well-reasoned legal 
opinion confirming the enforceability of the credit risk mitigant in 
all relevant jurisdictions in order to recognize the transference of 
risk in connection with a synthetic securitization. An institution must 
demonstrate its comprehensive understanding of a securitization 
exposure under Sec.  3.141(c)(2) for each securitization exposure by 
conducting an analysis of the risk characteristics of a securitization 
exposure prior to acquiring the exposure and document such analysis 
within three business days after acquiring the exposure. Sections 
3.141(c)(2)(i) and (ii) require that institutions, on an on-going basis 
(at least quarterly), evaluate, review, and update as appropriate the 
analysis required under this section for each securitization exposure.
    Section 3.142(h)(2), regarding the capital treatment for 
securitization exposures, requires an institution to disclose publicly 
if it has provided implicit support to a securitization and the 
regulatory capital impact to the institution of providing such implicit 
support.
    Section 3.153(b), outlining the Internal Models Approach (IMA) for 
calculating risk-weighted assets for equity exposures, specifies that 
an institution must receive prior written approval from the OCC before 
it can use IMA.
    Section 3.172 specifies that each advanced approaches institution 
that has completed the parallel run process must publicly disclose its 
total and tier 1 risk-based capital ratios and their components.
    Section 3.173 addresses disclosures by an advanced approaches 
institution that is not a consolidated subsidiary of an equity that is 
subject to the Basel III disclosure requirements. An advanced 
approaches institution that is subject to the disclosure requirements 
must make the disclosures described in Tables 1 through 12. The 
institution must make these disclosures publicly available for each of 
the last three years (that is, twelve quarters) or such shorter period 
beginning on the effective date of this subpart E.
    The tables to Sec.  3.173 require qualitative and quantitative 
public disclosures for capital structure, capital adequacy, capital 
conservation and countercyclical buffers, credit risk, securitization, 
operational risk, equities not subject to the market risk capital 
requirements, and interest rate risk for non-trading activities.
    Burden Estimates:
    Estimated Number of Respondents: 1,365.
    Estimated Total Annual Burden Hours: 240,711.
    Comments submitted in response to this notice will be summarized 
and included in the request for OMB approval. All comments will become 
a matter of public record. Comments are invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the OCC's functions, including whether the 
information has practical utility;
    (b) The accuracy of the OCC's estimates of the burden of the 
information collections, including the validity of the methodology and 
assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected; and
    (d) Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.

    Dated: February 1, 2017.
Karen Solomon,
Deputy Chief Counsel, Office of the Comptroller of the Currency.
[FR Doc. 2017-02583 Filed 2-7-17; 8:45 am]
 BILLING CODE 4810-33-P