[Federal Register Volume 82, Number 106 (Monday, June 5, 2017)]
[Notices]
[Pages 25913-25916]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11548]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency


Agency Information Collection Activities: Information Collection 
Renewal; Submission for OMB Review; 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 the renewal of its 
information collection titled ``Capital Adequacy Standards.'' The OCC 
also is giving notice that it has submitted the collection to OMB for 
review.

DATES: Comments must be submitted on or before July 5, 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, 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.
    Additionally, please send a copy of your comments by mail to: OCC 
Desk Officer, 1557-0318, U.S. Office of Management and Budget, 725 17th 
Street NW., #10235, Washington, DC 20503 or by email to oira 
[email protected].

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. The OCC is 
asking that OMB extend its approval of the following collection:
    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), 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. Section 3.41(b)(3) includes 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 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.
    In the case where 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.

[[Page 25914]]

Section 3.62(a) requires quarterly disclosure of information in the 
applicable tables in Sec.  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) 
also 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 in 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 in 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, 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 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

[[Page 25915]]

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 by demonstrating to the OCC that the national bank or 
federal savings association meets certain criteria.
    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 entity 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 in 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: On February 8, 2017, the OCC issued a 60-day notice 
soliciting comment on the information collection, 82 FR 9958. One 
comment was received from an individual.
    The commenter stated that a capital rule must be simple, easily 
understood, and not easily gamed by management in order to be useful. 
The commenter believed that 12 CFR part 3 does not meet these criteria 
and is too complex to be understood, verified and enforced, especially 
with respect to large banking organizations. The commenter stated that 
there were fewer bank failures in certain time periods before minimum 
capital regulations were adopted. The commenter also stated that 
revisiting 12 CFR part 3 would be in line with the Executive Order on 
Core Principles for Regulating the United States Financial System, 
which states that regulation should be efficient, effective, and 
appropriately tailored. Revising 12 CFR part 3 would require a 
rulemaking and cannot be done through this PRA process.
    It should be noted that in developing the capital rules in 12 CFR 
part 3, the OCC addressed specific concerns related to cost, 
complexity, and burden of the rules. During the recent financial 
crisis, the lack of confidence in the banking sector increased banking 
organizations' cost of funding, impaired banking organizations' access 
to short-term funding, depressed values of banking organizations' 
equities, and required many banking organizations to seek government 
assistance. Concerns about banking organizations arose not only because 
market participants expected steep losses on banking organizations' 
assets, but also because of substantial uncertainty surrounding 
estimated loss rates, and thus future earnings. It is important that 
capital rules are sufficiently granular and risk-sensitive to capture 
the risks posed by particular exposures. In large part, the complexity 
of the capital rules is driven by the complexity of the business 
activities that banking organizations engage in. As banking 
organizations have engaged in new, more complicated financial 
transactions (for example, dealing in derivatives), the capital rules 
have become more sophisticated to capture the risks posed by these 
transactions.
    The OCC, pursuant to section 2222 of the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996 (EGRPRA),\1\ published 
several notices to identify outdated or otherwise unnecessary 
regulatory requirements imposed on insured depository institutions, 
three of which included 12 CFR part 3.\2\ Over 30 commenters addressed 
the OCC's regulatory capital requirements, focusing primarily on the 
revised capital rules.\3\ The comments received and the OCC's response 
were included in the Federal Financial Institutions Examination 
Council's Report to Congress on EGRPRA in March 2017.\4\ The agencies 
understand community banks' concerns that the regulatory capital rules 
are too complex given community banks' size, risk

[[Page 25916]]

profile, condition, and complexity and are developing a proposal to 
simplify the regulatory capital rules in a manner that maintains safety 
and soundness and the quality and quantity of regulatory capital in the 
banking system. Such amendments may include (1) replacing the 
framework's complex treatment of high volatility commercial real estate 
exposures with a more straightforward treatment for most acquisition, 
development, or construction loans; (2) simplifying the current 
regulatory capital treatment for mortgage servicing assets, timing 
difference deferred tax assets, and holdings of regulatory capital 
instruments issued by financial institutions; and (3) simplifying the 
current limitations on minority interests in regulatory capital. The 
agencies would seek industry comment on these amendments through the 
normal notice and comment process.
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    \1\ Public Law 104-208 (1996), codified at 12 U.S.C. 3311(b).
    \2\ 79 FR 32172 at 32183 (June 4, 2014); 80 FR 32046 at 32052-
32053 (June 5, 2015); and 80 FR 79724 at 79733-79734 (December 23, 
2015).
    \3\ 78 FR 62017 (October 11, 2013).
    \4\ https://www.occ.gov/news-issuances/news-releases/2017/nr-ia-2017-33a.pdf, pages 18-23.
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    The OCC regularly monitors and analyzes developments in the banking 
industry to ensure that the revised capital rules appropriately reflect 
risks faced by banking organizations and considers many issues before 
determining whether a change to the revised capital rules is 
appropriate. The safety and soundness of community banks depends, in 
part, on having and maintaining sufficient regulatory capital. More 
than 500 banking organizations, mostly community banks, failed in the 
aftermath of the financial crisis largely because they did not have 
sufficient capital relative to their risk.
    To assist community banks, the agencies published a community bank 
guide to help community banks understand the sections of the revised 
2013 capital rules most relevant to their operations.\5\ The OCC has 
also published a number of guidance documents to assist banks in their 
capital planning efforts \6\ and intends to publish revisions to its 
capital handbook to make guidance publications and regulatory revisions 
available in one place.
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    \5\ ``New Capital Rule; Community Bank Guide,'' www.occ.gov/news-issuances/news-releases/2013/2013-110b.pdf.
    \6\ For example, OCC bulletin 2012-16, (June 7, 2012) ``Capital 
Planning: Guidance for Evaluating Capital Planning and Adequacy,'' 
https://www.occ.gov/news-issuances/bulletins/2012/bulletin-2012-16.html.
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    Comments continue to be 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: May 30, 2017.
Karen Solomon,
Deputy Chief Counsel, Office of the Comptroller of the Currency.
[FR Doc. 2017-11548 Filed 6-2-17; 8:45 am]
BILLING CODE 4810-33-P