[Federal Register Volume 82, Number 223 (Tuesday, November 21, 2017)]
[Rules and Regulations]
[Pages 55309-55318]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25172]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2017-0012]
RIN 1557-AE 23
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q; Docket No. R-1571]
RIN 7100-AE 83
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AE 63
Regulatory Capital Rules: Retention of Certain Existing
Transition Provisions for Banking Organizations That Are Not Subject to
the Advanced Approaches Capital Rules
AGENCIES: Office of the Comptroller of the Currency, Treasury; the
Board of Governors of the Federal Reserve System; and the Federal
Deposit Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, and the Federal Deposit
Insurance Corporation (collectively, the agencies) are adopting a final
rule to extend the regulatory capital treatment applicable during 2017
under the regulatory capital rules (capital rules) for certain items.
These items include regulatory capital deductions, risk weights, and
certain minority interest limitations. The relief provided under the
final rule applies to banking organizations that are not subject to the
capital rules' advanced approaches (non-advanced approaches banking
organizations). Specifically, for these banking organizations, the
final rule extends the current regulatory capital treatment of mortgage
servicing assets, deferred tax assets arising from temporary
differences that could not be realized through net operating loss
carrybacks, significant investments in the capital of unconsolidated
financial institutions in the form of common stock, non-significant
investments in the capital of unconsolidated financial institutions,
significant investments in the capital of unconsolidated financial
institutions that are not in the form of common stock, and common
equity tier 1 minority interest, tier 1 minority interest, and total
capital minority interest exceeding the capital rules' minority
interest limitations. Under the final rule, advanced approaches banking
organizations continue to be subject to the transition provisions
established by the capital rules for the above capital items.
Therefore, for advanced approaches banking organizations, their
transition schedule is unchanged, and advanced approaches banking
organizations are required to apply the capital rules' fully phased-in
treatment for these capital items beginning January 1, 2018.
DATES: This rule is effective January 1, 2018.
FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Senior Risk Expert (202) 649-6983; or Benjamin
Pegg, Risk Expert (202) 649-7146, Capital and Regulatory Policy; or
Carl Kaminski, Special Counsel, or Rima Kundnani, Attorney, Legislative
and Regulatory Activities Division, (202) 649-5490, for persons who are
deaf or hearing impaired, TTY, (202) 649-5597, Office of the
Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.
Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Juan Climent, Manager, (202) 872-7526; Elizabeth MacDonald,
Manager, (202) 475-6316; Andrew Willis, Supervisory Financial Analyst,
(202) 912-4323; Sean Healey, Supervisory Financial Analyst, (202) 912-
4611 or Matthew McQueeney, Senior Financial Analyst, (202) 452-2942,
Division of Supervision and Regulation; or Benjamin W. McDonough,
Assistant General Counsel, (202) 452-2036; David W. Alexander, Counsel
(202) 452-2877, or Mark Buresh, Senior Attorney (202) 452-5270, Legal
Division, Board of Governors of the Federal Reserve System, 20th and C
Streets NW., Washington, DC 20551. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section,
[email protected]; Michael Maloney, Capital Markets Senior Policy
Analyst, [email protected], Capital Markets Branch, Division of Risk
Management Supervision, (202) 898-6888, [email protected]; or
Michael Phillips, Counsel, [email protected]; Catherine Wood, Counsel,
[email protected]; Rachel Ackermann, Counsel, [email protected];
Supervision Branch, Legal Division, Federal Deposit Insurance
Corporation, 550 17th Street NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
In 2013, the Office of the Comptroller of the Currency (OCC), the
Board of Governors of the Federal Reserve System (Board), and the
Federal Deposit Insurance Corporation (FDIC) (collectively, the
agencies) adopted rules that strengthened the capital requirements
applicable to banking organizations supervised by the agencies (capital
rules).\1\ The capital rules limit the amount of capital that is
eligible for inclusion in regulatory capital in cases where the capital
is issued by a consolidated subsidiary of a banking organization and
not owned by the parent banking organization (minority interest).\2\
The capital rules also require amounts of mortgage servicing assets
(MSAs), deferred tax assets arising from temporary differences that
could not be realized through net operating loss carrybacks (temporary
difference DTAs), and certain investments in the capital of
unconsolidated financial institutions above certain thresholds to be
deducted from a banking organization's regulatory capital.\3\
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\1\ Banking organizations subject to the agencies' capital rules
include national banks, state member banks, state nonmember banks,
savings associations, and top-tier bank holding companies and
savings and loan holding companies domiciled in the United States
that are not subject to the Board's Small Bank Holding Company
Policy Statement (12 CFR part 225, appendix C), but excluding
certain savings and loan holding companies that are substantially
engaged in insurance underwriting or commercial activities or that
are estate trusts, or bank holding companies and savings and loan
holding companies that are employee stock ownership plans. The Board
and the OCC issued a joint final rule on October 11, 2013 (78 FR
62018), and the FDIC issued a substantially identical interim final
rule on September 10, 2013 (78 FR 55340). In April 2014, the FDIC
adopted the interim final rule as a final rule with no substantive
changes. 79 FR 20754 (April 14, 2014).
\2\ 12 CFR 217.21 (Board); 12 CFR 3.21 (OCC); 12 CFR 324.21
(FDIC).
\3\ See 12 CFR 217.22(c)(4), (c)(5), and (d)(1) (Board); 12 CFR
3.22(c)(4), (c)(5), and (d)(1) (OCC); 12 CFR 324.22(c)(4), (c)(5),
and (d)(1) (FDIC). Banking organizations are permitted to net
associated deferred tax liabilities against assets subject to
deduction.
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The capital rules contain transition provisions that phase in
certain requirements over several years in order to give banking
organizations time to
[[Page 55310]]
adjust and adapt to the new requirements.\4\ The transition provisions
in the capital rules provide for full effectiveness of the minority
interest limitations and for fully phased-in deductions of investments
in the capital of unconsolidated financial institutions, MSAs, and
temporary difference DTAs beginning on January 1, 2018.\5\ The
transition provisions in the capital rules also provide that the risk
weight for MSAs, temporary difference DTAs, and significant investments
in the capital of unconsolidated financial institutions in the form of
common stock that are not deducted from regulatory capital increase
from 100 percent to 250 percent beginning on January 1, 2018.
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\4\ 12 CFR 217.300 (Board); 12 CFR 3.300 (OCC); 12 CFR 324.300
(FDIC).
\5\ 12 CFR 217.300(b)(4) and (d) (Board); 12 CFR 3.300(b)(4) and
(d) (OCC); 12 CFR 324.300(b)(4) and (d) (FDIC).
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In anticipation of issuing a separate notice of proposed rulemaking
that would include changes to the regulatory capital treatment of MSAs,
temporary difference DTAs, investments in the capital of unconsolidated
financial institutions, and minority interest, in August 2017, the
agencies issued a notice of proposed rulemaking (transitions NPR) that
would extend the current transition provisions for these items (i.e.,
non-advanced approaches banking organizations would continue to apply
the transition provisions applicable for calendar year 2017 for these
items).\6\
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\6\ 82 FR 40495 (August 25, 2017).
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II. Summary of the Transitions NPR
Since the issuance of the capital rules in 2013, banking
organizations and other members of the public have raised concerns
regarding the regulatory burden, complexity, and costs associated with
certain provisions in the capital rules, particularly for community
banking organizations. As explained in the Federal Financial
Institutions Examination Council's March 2017 Joint Report to Congress:
Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA report),
the agencies planned to develop a proposal to simplify certain aspects
of the capital rules with the goal of meaningfully reducing regulatory
burden on community banking organizations while at the same time
maintaining safety and soundness and the quality and quantity of
regulatory capital in the banking system.\7\ Consistent with the
agencies' statements in the EGRPRA report, in September 2017, the
agencies approved a proposed rule to simplify certain aspects of the
capital rules with the goal of meaningfully reducing regulatory burden
on community banking organizations while at the same time maintaining
safety and soundness and the quality and quantity of regulatory capital
in the banking system (simplifications NPR).\8\
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\7\ The EGRPRA report stated that such amendments likely would
include simplifying the current regulatory capital treatment for
MSAs, temporary difference DTAs, holdings of regulatory capital
instruments issued by financial institutions; and minority interest.
See 82 FR 15900 (March 30, 2017).
\8\ 82 FR 49984 (October 27, 2017).
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In preparation for the issuance of the simplifications NPR, the
agencies issued the transitions NPR in August 2017 to extend certain
transition provisions in the capital rules for non-advanced approaches
banking organizations. Specifically, the transitions NPR would extend
the current treatment under the capital rules for MSAs, temporary
difference DTAs, significant investments in the capital of
unconsolidated financial institutions in the form of common stock, non-
significant investments in the capital of unconsolidated financial
institutions, significant investments in the capital of unconsolidated
financial institutions that are not in the form of common stock, and
minority interest. The transitions NPR would extend this treatment only
for non-advanced approaches banking organizations. As noted, the
agencies proposed additional modifications to the treatment of these
items in the simplifications NPR.
Under the transitions NPR, non-advanced approaches banking
organizations would continue to:
Deduct from regulatory capital 80 percent of the amount of
MSAs, temporary difference DTAs, significant investments in the capital
of unconsolidated financial institutions in the form of common stock,
non-significant investments in the capital of unconsolidated financial
institutions, and significant investments in the capital of
unconsolidated financial institutions that are not in the form of
common stock that are not includable in regulatory capital;
Apply a 100 percent risk weight to any amounts of MSAs,
temporary difference DTAs, and significant investments in the capital
of unconsolidated financial institutions in the form of common stock
that are not deducted from capital; and
Include 20 percent of any common equity tier 1 minority
interest, tier 1 minority interest, and total capital minority interest
exceeding the capital rules' minority interest limitations (surplus
minority interest) in regulatory capital.
For example, the transitions NPR would require a non-advanced
approaches banking organization with an amount of MSAs above the 10
percent common equity tier 1 capital deduction threshold in the capital
rules to deduct from common equity tier 1 capital 80 percent of the
amount of MSAs above this threshold, and to apply a 100 percent risk
weight to the MSAs that are not deducted from common equity tier 1
capital, including the MSAs that otherwise would be deducted but for
the transition provisions.
The transitions NPR did not propose to modify the transition
provisions applicable to advanced approaches banking organizations.
Accordingly, under the proposal, beginning on January 1, 2018, advanced
approaches banking organizations would be required to apply the fully
phased-in regulatory capital treatment for MSAs, temporary difference
DTAs, significant investments in the capital of unconsolidated
financial institutions in the form of common stock, non-significant
investments in the capital of unconsolidated financial institutions,
significant investments in the capital of unconsolidated financial
institutions that are not in the form of common stock, and minority
interest.\9\ The transitions NPR stated that the current regulatory
capital treatment for items covered by the proposal strikes an
appropriate balance between complexity and risk sensitivity for the
largest and most complex banking organizations.\10\
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\9\ The amendatory text of the respective agencies in this final
rule includes the relevant transition provisions for advanced
approaches banking organizations for convenient reference only. This
final rule does not reflect any change to the transition schedule
for advanced approaches banking organizations.
\10\ 82 FR 40497 (August 25, 2017). This final rule would
require any banking organization meeting the capital rules'
definition of an advanced approaches banking organization to fully
phase in the capital treatment for these items. Banking
organizations that meet the definition of an advanced approaches
banking organization and that have not exited parallel run, or that
do not calculate risk-weighted assets using the advanced approaches
rule (such as intermediate holding companies of foreign banking
organizations or certain subsidiaries of advanced approaches banking
organizations), are nonetheless advanced approaches banking
organizations.
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III. Summary of Comments on the Transitions NPR
The agencies received 36 unique comment letters from banking
organizations, trade associations, public interest groups, and private
individuals, and nearly 200 uniform letters signed by different banking
organizations and
[[Page 55311]]
bank employees. Numerous commenters supported the proposal to extend
the 2017 transition provisions in order to reduce operational burden,
complexity, and cost of the capital rules, particularly for community
banking organizations. Some of these commenters stated that the
proposed rule would promote lending and increase shareholder equity.
Other commenters criticized the proposal on the grounds that the
transitions NPR and simplification NPR do not go far enough. Some
commenters argued that the agencies should have proposed freezing
additional transition provisions. Also, some commenters recommended
that the agencies propose more fundamental changes to the capital rules
beyond the revisions proposed by the transitions NPR.
Several commenters criticized the limited scope of application of
the transitions NPR, and recommended that the agencies apply the
proposed changes to all banking organizations. A few commenters
expressed concern about limiting the transitions NPR's scope of
application to non-advanced approaches banking organizations; these
commenters stated that the proposal would result in calculations of
capital arbitrarily based on a banking organization's size. Some
commenters criticized the use of the advanced approaches size
thresholds more generally, and recommended that the agencies apply
other criteria, such as the systemic indicator score for global
systemically important bank holding companies (GSIBs), when tailoring
the scope of the transitions NPR and, more generally, the regulatory
capital rules.\11\ These same commenters urged the agencies to revisit
the size thresholds for the advanced approaches more generally. Some of
these commenters suggested that certain advanced approaches banking
organizations are predominantly engaged in traditional banking
activities and therefore should not be deemed riskier than smaller non-
advanced approaches banking organizations.
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\11\ See 12 CFR part 217, subpart H.
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The agencies continue to believe that it is appropriate to tailor
regulatory capital requirements to different banking organizations
based, in certain cases, on the organization's size and level of
complexity. In this regard, it is appropriate to impose more stringent
capital requirements on more complex banking organizations, even where
those banking organizations are not considered GSIBs.\12\ The agencies
further note that there are several examples where the capital rules
differentiate the treatment of exposures across different types of
banking organizations. Such differentiation has generally reflected the
variation in the size, complexity, and risk profile of banking
organizations as well as considerations around implementation costs and
operational burden. For example, banking organizations that engage in
substantial trading activities are subject to the agencies' market risk
capital rule,\13\ which requires banks to calculate market risk capital
requirements based on bank models for estimating risk. Banking
organizations not subject to the market risk capital rule are not
required to develop these models or make adjustments based on market
risk. This differentiation was intended to reduce the operational
burden for banking organizations that do not have significant trading
activities.
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\12\ The systemic indicator approach set forth in the Board's
rule for GSIBs (12 CFR part 217, subpart H) is designed for a
different context and purpose than the advanced approaches
thresholds.
\13\ 12 CFR part 217, subpart F (Board); 12 CFR part 3, subpart
F (OCC); 12 CFR part 324, subpart F (FDIC).
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The agencies also note that the capital rules differentiated the
transition provisions across different types of banking organizations
in 2014 when advanced approaches banking organizations were required to
begin the transition period for the revised minimum regulatory capital
ratios, definitions of regulatory capital, and regulatory capital
adjustments and deductions established under the agencies' capital
rules, whereas non-advanced approaches banking organizations began
their transition period in 2015. As indicated in the preamble to the
2013 final rulemaking to revise the capital rules, the agencies believe
that advanced approaches banking organizations have the sophistication
and infrastructure to implement and apply the fully phased-in treatment
of the capital rules.\14\ Further, as indicated in the transitions NPR
preamble, the fully phased-in treatment of the items discussed in that
proposal remains appropriate for advanced approaches banking
organizations given the business models and risk profiles of such
banking organizations.
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\14\ 78 FR 62028.
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A related concern raised by some commenters was that the proposal
would cause risk weights to vary for the same exposure category
depending on the nature of the banking organization holding the asset.
For the reasons discussed above, the agencies believe that it is
appropriate to vary the treatment of different exposures by the type of
firm in the context of the final rule and note that the capital rules
currently provide other circumstances where a banking organization may,
or must, apply a different treatment to an exposure depending on the
characteristics of the banking organization. As discussed, the agencies
believe that the more stringent treatment that would apply to advanced
approaches banking organizations under the transitions NPR is
appropriate and are finalizing the proposal without change.
One commenter argued that the proposal appears to be inconsistent
with section 171 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Collins Amendment),\15\ which, in the view of the
commenter, suggests that the agencies must establish generally
applicable risk-based and leverage capital requirements that treat all
exposures consistently across all banking organizations regardless of a
banking organization's size or total foreign exposure.
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\15\ Codified at 12 U.S.C. 5371.
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The Collins Amendment requires each of the agencies to establish
minimum capital requirements for certain supervised banking
organizations and authorizes the agencies to establish more stringent
capital requirements.\16\ Under the proposal, all banking organizations
would be subject to minimum capital requirements, as required by the
Collins Amendment. Advanced approaches banking organizations would be
implicitly required to meet the same capital floor set by the generally
applicable capital requirements, but also would be subject to more
stringent requirements relative to non-advanced approaches banking
organizations, which is permitted by the Collins Amendment.
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\16\ 12 U.S.C. 5371(b).
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The capital rules already contain additional capital requirements
based on the size or activities of a banking organization. These
additional capital requirements (e.g., the countercyclical capital
buffer and supplementary leverage ratio) are greater than the minimum
risk-based and leverage capital requirements established by the
agencies. As noted, additional capital requirements are permitted under
the Collins Amendment.
Some commenters argued that the transitions NPR was insufficient
and failed to adequately reduce burden. Some argued that the proposal
should have included other revisions to more generally address the
complexity in the
[[Page 55312]]
capital rules, namely for community banking organizations, while others
asserted that the proposal should have allowed banking organizations to
revert to earlier phase-in stages for MSAs or that it should have
extended other transition provisions, such as those pertaining to the
capital conservation buffer.
The agencies note that the transitions NPR was intended solely to
stay the phase-in of certain elements of the capital rules in light of
goals stated in the EGRPRA report and in contemplation of the
simplifications NPR. In line with this intention, the agencies sought
public comment ``more narrowly on the changes proposed'' in the
transitions NPR, including comments on the administrative and
operational challenges associated with the proposed changes and the
scope of application of the transitions NPR.\17\ The agencies believe
that the transition provisions in the capital rules provide an adequate
amount of time for banking organizations to implement the requirements
of the capital rules and are making limited changes to the transition
provisions with this final rule solely in anticipation of the possible
changes to the capital rules they recommended in the EGRPRA report and
proposed in the simplifications NPR. The agencies will consider
comments applicable to the proposed changes in the simplifications NPR
as part of that rulemaking process.
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\17\ 82 FR 40497 (August 25, 2017).
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Several commenters made other suggestions for amendments to the
capital rules more generally. For example, commenters argued that the
capital rules are generally inappropriate for banking organizations
with $50 billion or less in total consolidated assets, should be
restricted in scope to GSIBs, or should measure capital levels using
tangible equity or based on the organization's activities. They also
argued that the capital rules require banking organizations to
calculate too many capital ratios.
The various capital requirements under the agencies' rules were
designed to ensure that the banking system would be better able to
absorb losses and continue lending during periods of economic stress by
ensuring that the banking system was safer and more resilient. The
capital rules achieved this goal by improving the quality and
increasing the quantity of capital across the banking system.\18\ The
agencies note that various elements of the capital rules are tailored
to the size and complexity of covered banking organizations. In
addition, the agencies believe that certain aspects of the capital
rules could be revised to reduce regulatory burden while at the same
time ensuring an appropriate regulatory capital treatment to address
safety and soundness concerns, and have outlined proposed changes to
that effect in the simplifications NPR. Furthermore, as noted
previously in this preamble, the transitions NPR was intended solely to
stay the phase-in of certain elements of the capital rules in light of
goals stated in the EGRPRA report and in contemplation of the
simplifications NPR. The agencies will consider comments applicable to
the proposed changes in the simplifications NPR as part of that
rulemaking process.
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\18\ 78 FR 62062.
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Several commenters also suggested other specific changes to the
capital rules. For example, some commenters suggested changes to the
treatment of MSAs more generally, including raising the deduction
thresholds and reducing the applicable risk weight. Many commenters
suggested that the agencies should amend the treatment of investments
in the capital of financial institutions, specifically investments in
trust preferred securities, while one commenter criticized the current
treatment of high volatility commercial real estate exposures as
difficult to apply and requiring too much capital to be held against
these exposures. A commenter suggested that the agencies allow advanced
approaches banking organizations to neutralize accumulated other
comprehensive income in regulatory capital. A commenter criticized the
capital rules' treatment of Subchapter S corporations with respect to
the capital conservation buffer. Another commenter criticized the
netting treatment for securities financing transactions (SFTs), and
urged the agencies to revise the methodology for calculating risk
weights for SFTs in the capital rules. Another commenter asserted that
the current 100 percent risk weight for exposures to broker-dealers and
securities firms is too high. Another commenter argued that agencies
should amend the risk weight for certain cleared transactions in the
standardized approach to align with the treatment in the advanced
approaches. A commenter asserted that the capital rules imposed an
inappropriate data collection, technology, and reporting burden on
community banking organizations.
As noted previously in this preamble, the transitions NPR was
intended solely to stay the phase-in of certain elements of the capital
rules in light of goals stated in the EGRPRA report and in
contemplation of the simplifications NPR. The agencies will consider
comments applicable to the proposed changes in the simplifications NPR
as part of that rulemaking process.
Further, a commenter raised concerns about the implementation of
the current expected credit loss (CECL) accounting standard and its
impact on capital requirements in the context of the transitions NPR so
that banking organizations can evaluate the cumulative effect of all
final changes to the capital rules and CECL at one time. The agencies
recognize that CECL will affect accounting provisions and,
consequently, retained earnings and regulatory capital, and that the
amount of the effect will differ among banking organizations. However,
in order to provide meaningful burden relief, the transitions NPR will
need to be finalized and become effective on or before January 1, 2018,
when the regulatory capital treatment for items covered by the
transitions NPR would otherwise be fully phased in. That said, the
agencies are considering separately whether or not it will be
appropriate to make adjustments to the capital rules in response to
CECL and its potential impact on regulatory capital.
After consideration of comments received on the transitions NPR, to
reduce regulatory burden on non-advanced approaches banking
organizations and for the other reasons stated above, and in light of
the pendency of the simplifications NPR, the agencies are adopting the
proposal as a final rule effective January 1, 2018.
IV. Amendments to Reporting Forms
The agencies will clarify the reporting instructions for the
Consolidated Reports of Condition and Income (Call Report) (FFIEC 031,
FFIEC 041, and FFIEC 051; OMB Control Nos. 1557-0081, 7100-0036, 3604-
0052), the OCC will clarify the instructions for OCC DFAST 14A (OMB
Control No. 1557-0319), the FDIC will clarify the instructions for FDIC
DFAST 14A (OMB Control No. 3064-0189), and the Board will clarify the
instructions for the FR Y-9C (OMB Control No. 7100-0128), and the FR Y-
14A and FR Y-14Q (OMB Control No. 7100-0341) to reflect the changes to
the capital rules resulting from this final rule.
V. Regulatory Analyses
A. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3521) (PRA), the agencies may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless it displays a currently valid
[[Page 55313]]
Office of Management and Budget (OMB) control number. The agencies
reviewed the final rule and determined that it does not create any new
or revise any existing collection of information under section 3504(h)
of title 44. Accordingly, no information collection request has been
submitted to the OMB for review. The agencies did not receive any
comments on the PRA. However, the agencies will clarify the reporting
instructions for the Call Report. The revised draft Call Report
instructions to reflect the transitions NPR are publicly available at
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_FFIEC041_20170824_i_draft.pdf. The OCC and FDIC will clarify
the instructions for DFAST 14A, and the Board will clarify the
instructions for the FR Y-9C, the FR Y-14A, and the FR Y-14Q to reflect
the changes to the capital rules that would be required under this
final rule. The updated Call Report instructions will be available at
https://www.ffiec.gov/ffiec_report_forms.htm, the updated OCC DFAST 14A
instructions will be available at https://www.occ.gov/tools-forms/forms/bank-operations/stress-test-reporting.html, the updated FDIC
DFAST 14A instructions will be available at https://www.fdic.gov/regulations/reform/dfast/, and the updated FR Y-9C, FR Y-14A, and FR Y-
14Q instructions will available at https://www.federalreserve.gov/apps/reportforms/review.aspx.
B. Regulatory Flexibility Act Analysis
OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the Small Business Administration (SBA) for
purposes of the RFA to include banking entities with total assets of
$550 million or less) or to certify that the rule will not have a
significant economic impact on a substantial number of small entities.
As of March 31, 2017, the OCC supervised 972 small entities.\19\
The rule applies to all OCC-supervised entities that are not subject to
the advanced approaches risk-based capital rules, and thus potentially
affects a substantial number of small entities. The OCC has determined
that 139 OCC-supervised small entities will be directly impacted by the
final rule provisions pertaining to the transitions for the threshold
deduction items, two OCC-supervised small entities will be directly
impacted by the final rule provisions pertaining to the transitions for
the surplus minority interest, and 596 OCC-supervised small entities
will be directly impacted by the final rule provisions that retain the
100 percent risk weight (instead of a 250 percent risk weight) for non-
deducted MSAs, temporary difference DTAs, and significant investments
in the capital of unconsolidated financial institutions. However, the
final rule would provide a small economic benefit to those entities,
and value of the change in capital levels will be significant only for
three such entities. Thus, the OCC has determined that rule would not
have a significant impact on a substantial number of OCC-supervised
small entities.
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\19\ The OCC calculated the number of small entities using the
SBA's size thresholds for commercial banks and savings institutions,
and trust companies, which are $550 million and $38.5 million,
respectively. Consistent with the General Principles of Affiliation,
13 CFR 121.103(a), the OCC counted the assets of affiliated
financial institutions when determining whether to classify a
national bank or Federal savings association as a small entity.
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Therefore, the OCC certifies that the final rule will not have a
significant economic impact on a substantial number of OCC-supervised
small entities.
Board: The Board is providing a regulatory flexibility analysis
with respect to this final rule. RFA generally requires that an agency
prepare and make available a final regulatory flexibility analysis in
connection with a final rulemaking. As discussed in the Supplemental
Information, the final rule revises the transition provisions in the
regulatory capital rules to extend the treatment effective for calendar
year 2017 for several regulatory capital adjustments and deductions
that are subject to multi-year phase-in schedules. Through the
simplifications NPR, the agencies have sought public comment on a
proposal to simplify certain items of the regulatory capital rules and,
thus, the agencies believe it is appropriate to extend the transition
provisions currently in effect for these items while the
simplifications NPR is pending.
Under regulations issued by the SBA, a small entity includes a
bank, bank holding company, or savings and loan holding company with
assets of $550 million or less (small banking organization).\20\ As of
June 30, 2017, there were approximately 3,451 small bank holding
companies, 224 small savings and loan holding companies, and 566 small
state member banks. The final rule applies to all state member banks,
as well as all bank holding companies and savings and loan holding
companies that are subject to the Board's regulatory capital rules, but
excluding state member banks, bank holding companies, and savings and
loan holding companies that are subject to the advanced approaches in
the capital rules. In general, the Board's capital rules only apply to
bank holding companies and savings and loan holding companies that are
not subject to the Board's Small Bank Holding Company Policy Statement,
which applies to bank holding companies and savings and loan holding
companies with less than $1 billion in total assets that also meet
certain additional criteria.\21\ Thus, most bank holding companies and
savings and loan holding companies affected by the final rule exceed
the $550 million asset threshold at which a banking organization would
qualify as a small banking organization.
---------------------------------------------------------------------------
\20\ See 13 CFR 121.201. Effective July 14, 2014, the SBA
revised the size standards for banking organizations to $550 million
in assets from $500 million in assets. 79 FR 33647 (June 12, 2014).
\21\ See 12 CFR 217.1(c)(1)(ii) and (iii); 12 CFR part 225,
appendix C; 12 CFR 238.9.
---------------------------------------------------------------------------
The agencies received no comments on the initial regulatory
flexibility analysis from the public or from the Chief Counsel for
Advocacy of the SBA. As discussed in the Supplemental Information,
various commenters suggested additional ways for the agencies to more
broadly reduce the overall burden of the capital rules.
The final rule does not impact the recordkeeping and reporting
requirements for affected small banking organizations. The final rule
instead retains the transition provisions in effect for calendar year
2017 for the items that would be affected by the simplifications NPR
until the simplifications NPR is finalized or the agencies determine
otherwise. The final permits affected small banking organizations,
beginning in 2018 and thereafter, to deduct less investments in the
capital of unconsolidated financial institutions, MSAs, and temporary
difference DTAs from common equity tier 1 capital than would otherwise
be required under the current transition provisions. The final rule
also allows small banking organizations to continue using a 100 percent
risk weight for non-deducted MSAs, temporary difference DTAs and
significant investments in the capital of unconsolidated financial
institutions rather than the 250 percent risk weight for these items
which is scheduled to take effect beginning January 1, 2018. Thus, for
small banking organizations that have significant amounts of MSAs or
temporary difference DTAs, the final rule could have a temporary
positive impact in their capital ratios during 2018 and thereafter.
[[Page 55314]]
As discussed in the initial regulatory flexibility analysis, the
final rule is expected to provide a reduction in capital requirements
for small bank holding companies, savings and loan holding companies,
and state member banks. Specifically, the impact from increasing the
deduction of investments in the capital of unconsolidated financial
institutions, MSAs, and temporary difference DTAs from 80 percent of
the amounts to be deducted under the capital rules in 2017 to 100
percent in 2018 is estimated to decrease common equity tier 1 capital
by 0.02 percent on average across all covered small bank holding
companies, savings and loan holding companies, and state member banks.
Similarly, the impact from increasing from 80 percent in 2017 to 100
percent in 2018 the exclusion of surplus minority interest is estimated
to decrease total regulatory capital by 0.11 percent across the same
set of institutions. Based on March 31, 2017 data for the same set of
institutions, increasing the risk weight for non-deducted MSAs and
temporary difference DTAs to 250 percent from 100 percent would result
in an increase in risk-weighted assets of 0.45 percent. Therefore, the
final rule's retention of the transition provisions for the regulatory
capital treatment of MSAs, temporary difference DTAs, investments in
the capital of unconsolidated financial institutions, and minority
interest, would have a marginally positive impact on the regulatory
capital ratios of small banking organizations.
As discussed, the economic impact of the final rule on small
banking organizations is expected to be marginally positive. As a
result, the Board did not adopt any alternative to the proposal in the
final rule.
FDIC: The RFA generally requires that, in connection with a final
rule, an agency prepare a regulatory flexibility analysis describing
the impact of the final rule on small entities. A regulatory
flexibility analysis is not required, however, if the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities. The SBA has defined ``small
entities'' to include banking organizations with total assets less than
or equal to $550 million. As of June 30, 2017, the FDIC supervises
3,717 banking institutions, 2,990 of which qualify as small entities
according to the terms of the RFA.
The final rule will extend the current regulatory capital treatment
of: (i) MSAs; (ii) temporary difference DTAs; (iii) significant
investments in the capital of unconsolidated financial institutions in
the form of common stock; (iv) non-significant investments in the
capital of unconsolidated financial institutions; (v) significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock; and (vi) common equity tier 1
minority interest, tier 1 minority interest, and total capital minority
interest exceeding the capital rules' minority interest limitations.
The transitions NPR will likely pose small economic benefits for small
FDIC-supervised institutions by preventing any increase in risk-based
capital requirements due to the completion of the transition provisions
for the above items.
According to Call Report data (as of June 30, 2017), 424 FDIC-
supervised small banking entities reported holding some volume of the
above asset classes. Additionally, as of June 30, 2017, the risk-based
capital deduction related to these assets under the capital rules has
been incurred by only 52 FDIC-supervised small banking entities.
The impact from increasing the deduction of investments in the
capital of unconsolidated financial institutions, MSAs, and temporary
difference DTAs from 80 percent of the amounts to be deducted under the
capital rules (12 CFR 324.300) in 2017 to 100 percent in 2018 would
decrease common equity tier 1 capital by 0.02 percent on average across
all covered small FDIC-supervised banking institutions. Similarly, the
impact from increasing from 80 percent in 2017 to 100 percent under the
capital rules (12 CFR 324.300) in 2018 the exclusion of surplus
minority interest would decrease total regulatory capital by 0.01
percent across the same set of institutions. Based on June 30, 2017
data for the same set of institutions, increasing the risk weight for
non-deducted MSAs and temporary difference DTAs to 250 percent from 100
percent would result in an increase in risk-weighted assets of 0.37
percent. Therefore, retaining the transition provisions for the
regulatory capital treatment of MSAs, temporary difference DTAs,
investments in the capital of unconsolidated financial institutions,
and minority interest will have a marginally positive impact on the
regulatory capital ratios of nearly all small FDIC-supervised banking
institutions.
FDIC analysis has identified that absent the transitions NPR, 31
small FDIC-supervised banking institutions would have a decrease of 1
percent or more in common equity tier 1 capital, tier 1 capital and or
total capital. Furthermore, 31 small FDIC-supervised banking
institutions would have an increase in risk-weighted assets greater
than 3 percent absent the transitions NPR. Therefore, the FDIC
certifies that this final rule will not have a significant economic
impact on a substantial number of small entities that it supervises.
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies have sought to present
the final rule in a simple and straightforward manner and did not
receive any comments on the use of plain language.
D. OCC Unfunded Mandates Reform Act of 1995 Determination
The OCC analyzed the final rule under the factors set forth in the
Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the final rule includes a Federal
mandate that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted for inflation). The OCC has
determined that this final rule would not result in expenditures by
State, local, and Tribal governments, or the private sector, of $100
million or more in any one year.\22\ Accordingly, the OCC has not
prepared a written statement to accompany this NPR.
---------------------------------------------------------------------------
\22\ The OCC estimates that the final rule would lead to an
aggregate increase in reported regulatory capital in 2018 for
national banks and Federal savings associations compared to the
amount they would report if they were required to complete the 2018
phase-in provisions. The OCC estimates that this increase in
reported regulatory capital--which could allow banking organizations
to increase their leverage and thus increase their tax deductions
for interest paid on debt--would have a total aggregate value of
approximately $121 million per year across all directly impacted
OCC-supervised entities (that is, national banks and Federal savings
associations not subject to the advanced approaches risk-based
capital rules).
---------------------------------------------------------------------------
E. Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA)
For purposes of SBREFA, the OMB makes a determination as to whether
a final rule constitutes a ``major'' rule. If a rule is deemed a
``major rule'' by the OMB, SBREFA generally provides that the rule may
not take effect until at least 60 days following its publication.\23\
Notwithstanding any potential delay related to the OMB's pending
determination, banking organizations subject to this final rule will be
[[Page 55315]]
permitted to elect to comply with it as of January 1, 2018.
---------------------------------------------------------------------------
\23\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------
SBREFA defines a ``major rule'' as any rule that the Administrator
of the Office of Information and Regulatory Affairs of the OMB finds
has resulted in or is likely to result in--(A) an annual effect on the
economy of $100,000,000 or more; (B) a major increase in costs or
prices for consumers, individual industries, Federal, State, or local
government agencies or geographic regions, or (C) significant adverse
effects on competition, employment, investment, productivity,
innovation, or on the ability of United States-based enterprises to
compete with foreign-based enterprises in domestic and export
markets.\24\
---------------------------------------------------------------------------
\24\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------
F. Administrative Procedure Act
The Administrative Procedure Act (``APA'') requires that a final
rule be published in the Federal Register no less than 30 days before
its effective date unless, among other exceptions, the final rule
relieves a restriction.\25\ The final rule extends certain transition
provisions that were set to expire on December 31, 2017, and thus
relieves non-advanced approaches banking organizations from compliance
with certain stricter capital requirements that would otherwise have
taken effect on January 1, 2018.
---------------------------------------------------------------------------
\25\ 5 U.S.C. 553(d)(1).
---------------------------------------------------------------------------
G. Riegle Community Development and Regulatory Improvement Act of 1994
The Riegle Community Development and Regulatory Improvement Act of
1994 requires that each Federal banking agency, in determining the
effective date and administrative compliance requirements for new
regulations that impose additional reporting, disclosure, or other
requirements on insured depository institutions, consider, consistent
with principles of safety and soundness and the public interest, any
administrative burdens that such regulations would place on depository
institutions, including small depository institutions, and customers of
depository institutions, as well as the benefits of such regulations.
In addition, new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on insured
depository institutions generally must take effect on the first day of
a calendar quarter that begins on or after the date on which the
regulations are published in final form.\26\ The final rule includes no
new reporting, disclosure, or other new requirements on insured
depository institutions as it only delays the implementation of certain
requirements in the capital rule for non-advanced approaches
organizations.
---------------------------------------------------------------------------
\26\ 12 U.S.C. 4802.
---------------------------------------------------------------------------
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Capital, National banks,
Risk.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies.
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital
adequacy, Savings associations, State non-member banks.
Office of the Comptroller of the Currency
For the reasons set out in the joint preamble, the OCC amends 12
CFR part 3 as follows.
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
0
2. Section 3.300 is amended by revising paragraph (b)(4), adding
paragraph (b)(5), and revising paragraph (d)(1) and table 10 to Sec.
3.300 to read as follows:
Sec. 3.300 Transitions.
* * * * *
(b) * * *
(4) Additional transition deductions from regulatory capital.
Except as provided in paragraph (b)(5) of this section:
(i) Beginning January 1, 2014 for an advanced approaches national
bank or Federal savings association, and beginning January 1, 2015 for
a national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association, and in each
case through December 31, 2017, a national bank or Federal savings
association, must use Table 7 to Sec. 3.300 to determine the amount of
investments in capital instruments and the items subject to the 10 and
15 percent common equity tier 1 capital deduction thresholds (Sec.
3.22(d)) (that is, MSAs, DTAs arising from temporary differences that
the national bank or Federal savings association could not realize
through net operating loss carrybacks, and significant investments in
the capital of unconsolidated financial institutions in the form of
common stock) that must be deducted from common equity tier 1 capital.
(ii) Beginning January 1, 2014 for an advanced approaches national
bank or Federal savings association, and beginning January 1, 2015 for
a national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association, and in each
case through December 31, 2017, a national bank or Federal savings
association must apply a 100 percent risk weight to the aggregate
amount of the items subject to the 10 and 15 percent common equity tier
1 capital deduction thresholds that are not deducted under this
section. As set forth in Sec. 3.22(d)(2), beginning January 1, 2018, a
national bank or Federal savings association must apply a 250 percent
risk weight to the aggregate amount of the items subject to the 10 and
15 percent common equity tier 1 capital deduction thresholds that are
not deducted from common equity tier 1 capital.
Table 7 to Sec. 3.300
------------------------------------------------------------------------
Transitions for
deductions under
Sec. 3.22(c)
and (d)--
Transition period percentage of
additional
deductions from
regulatory
------------------------------------------------------------capital-----
Calendar year 2014................................... 20
Calendar year 2015................................... 40
Calendar year 2016................................... 60
Calendar year 2017................................... 80
Calendar year 2018 and thereafter.................... 100
------------------------------------------------------------------------
(iii) For purposes of calculating the transition deductions in this
paragraph (b)(4) beginning January 1, 2014 for an advanced approaches
national bank or Federal savings association, and beginning January 1,
2015 for a national bank or Federal savings association that is not an
advanced approaches national bank or Federal savings association, and
in each case through December 31, 2017, a national bank's or Federal
savings association's 15 percent common equity tier 1 capital deduction
threshold for MSAs, DTAs arising from temporary differences that the
national bank or Federal savings association could not realize through
net operating loss carrybacks, and significant investments in the
capital of unconsolidated financial institutions in the form of common
stock is equal to 15 percent of the sum of the national bank's or
Federal savings association's
[[Page 55316]]
common equity tier 1 elements, after regulatory adjustments and
deductions required under Sec. 3.22(a) through (c) (transition 15
percent common equity tier 1 capital deduction threshold).
(iv) Beginning January 1, 2018, a national bank or Federal savings
association must calculate the 15 percent common equity tier 1 capital
deduction threshold in accordance with Sec. 3.22(d).
(5) Special transition provisions for non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock, MSAs, DTAs arising from
temporary differences that the national bank or Federal savings
association could not realize through net operating loss carrybacks,
and significant investments in the capital of unconsolidated financial
institutions in the form of common stock. Beginning January 1, 2018, a
national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association must continue
to apply the transition provisions described in paragraphs (b)(4)(i),
(ii), and (iii) of this section applicable to calendar year 2017 to
items that are subject to deduction under Sec. 3.22(c)(4), (c)(5), and
(d), respectively.
* * * * *
(d) Minority interest--(1) Surplus minority interest--(i) Advanced
approaches national bank or Federal savings association surplus
minority interest. Beginning January 1, 2014 through December 31, 2017,
an advanced approaches national bank or Federal savings association may
include in common equity tier 1 capital, tier 1 capital, or total
capital the percentage of the common equity tier 1 minority interest,
tier 1 minority interest, and total capital minority interest
outstanding as of January 1, 2014, that exceeds any common equity tier
1 minority interest, tier 1 minority interest, or total capital
minority interest includable under Sec. 3.21 (surplus minority
interest), respectively, as set forth in Table 10 to Sec. 3.300.
(ii) Non-advanced approaches national bank and Federal savings
association surplus minority interest. A national bank or Federal
savings association that is not an advanced approaches national bank or
Federal savings association may include in common equity tier 1
capital, tier 1 capital, or total capital 20 percent of the common
equity tier 1 minority interest, tier 1 minority interest and total
capital minority interest outstanding as of January 1, 2014, that
exceeds any common equity tier 1 minority interest, tier 1 minority
interest, or total capital minority interest includable under Sec.
3.21 (surplus minority interest), respectively.
* * * * *
Table 10 to Sec. 3.300
------------------------------------------------------------------------
Percentage of the
amount of surplus
or non-qualifying
minority interest
that can be
Transition period included in
regulatory
capital during
the transition
period
------------------------------------------------------------------------
Calendar year 2014................................... 80
Calendar year 2015................................... 60
Calendar year 2016................................... 40
Calendar year 2017................................... 20
Calendar year 2018 and thereafter.................... 0
------------------------------------------------------------------------
* * * * *
12 CFR Part 217
Board of Governors of the Federal Reserve System
For the reasons set out in the joint preamble, part 217 of chapter
II of title 12 of the Code of Federal Regulations is amended as
follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
3. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
0
4. Section 217.300 is amended by revising paragraph (b)(4), adding
paragraph (b)(5), and revising paragraph (d)(1) and table 10 to Sec.
217.300 to read as follows:
Sec. 217.300 Transitions.
* * * * *
(b) * * *
(4) Additional transition deductions from regulatory capital.
Except as provided in paragraph (b)(5) of this section:
(i) Beginning January 1, 2014 for an advanced approaches Board-
regulated institution, and beginning January 1, 2015 for a Board-
regulated institution that is not an advanced approaches institution,
and in each case through December 31, 2017, an institution, must use
Table 7 to Sec. 217.300 to determine the amount of investments in
capital instruments and the items subject to the 10 and 15 percent
common equity tier 1 capital deduction thresholds (Sec. 217.22(d))
(that is, MSAs, DTAs arising from temporary differences that the
institution could not realize through net operating loss carrybacks,
and significant investments in the capital of unconsolidated financial
institutions in the form of common stock) that must be deducted from
common equity tier 1 capital.
(ii) Beginning January 1, 2014 for an advanced approaches
institution, and beginning January 1, 2015 for an institution that is
not an advanced approaches institution, and in each case through
December 31, 2017, an institution must apply a 100 percent risk weight
to the aggregate amount of the items subject to the 10 and 15 percent
common equity tier 1 capital deduction thresholds that are not deducted
under this section. As set forth in Sec. 217.22(d)(2), beginning
January 1, 2018, a Board-regulated institution must apply a 250 percent
risk weight to the aggregate amount of the items subject to the 10 and
15 percent common equity tier 1 capital deduction thresholds that are
not deducted from common equity tier 1 capital.
Table 7 to Sec. 217.300
------------------------------------------------------------------------
Transitions for
deductions under
Sec. 217.22(c)
and (d)--
Transition period percentage of
additional
deductions from
regulatory
capital
------------------------------------------------------------------------
Calendar year 2014................................... 20
Calendar year 2015................................... 40
Calendar year 2016................................... 60
Calendar year 2017................................... 80
Calendar year 2018 and thereafter.................... 100
------------------------------------------------------------------------
(iii) For purposes of calculating the transition deductions in this
paragraph (b)(4) beginning January 1, 2014 for an advanced approaches
Board-regulated institution, and beginning January 1, 2015 for Board-
regulated institution that is not an advanced approaches Board-
regulated institution, and in each case through December 31, 2017, an
institution's 15 percent common equity tier 1 capital deduction
threshold for MSAs, DTAs arising from temporary differences that the
institution could not realize through net operating loss carrybacks,
and significant investments in the capital of unconsolidated financial
institutions in the form of common stock is equal to 15 percent of the
sum of the institution's common equity tier 1 elements, after
regulatory
[[Page 55317]]
adjustments and deductions required under Sec. 217.22(a) through (c)
(transition 15 percent common equity tier 1 capital deduction
threshold).
(iv) Beginning January 1, 2018 a Board-regulated institution must
calculate the 15 percent common equity tier 1 capital deduction
threshold in accordance with Sec. 217.22(d).
(5) Special transition provisions for non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock, MSAs, DTAs arising from
temporary differences that the Board-regulated institution could not
realize through net operating loss carrybacks, and significant
investments in the capital of unconsolidated financial institutions in
the form of common stock. Beginning January 1, 2018, a Board-regulated
institution that is not an advanced approaches Board-regulated
institution must continue to apply the transition provisions described
in paragraphs (b)(4)(i), (ii), and (iii) of this section applicable to
calendar year 2017 to items that are subject to deduction under Sec.
217.22(c)(4), (c)(5), and (d), respectively.
* * * * *
(d) Minority interest--(1) Surplus minority interest--(i) Advanced
approaches institution surplus minority interest. Beginning January 1,
2014 through December 31, 2017, an advanced approaches Board-regulated
institution may include in common equity tier 1 capital, tier 1
capital, or total capital the percentage of the common equity tier 1
minority interest, tier 1 minority interest and total capital minority
interest outstanding as of January 1, 2014 that exceeds any common
equity tier 1 minority interest, tier 1 minority interest or total
capital minority interest includable under Sec. 217.21 (surplus
minority interest), respectively, as set forth in Table 10 to Sec.
217.300.
(ii) Non-advanced approaches institution surplus minority interest.
A Board-regulated institution that is not an advanced approaches Board-
regulated institution may include in common equity tier 1 capital, tier
1 capital, or total capital 20 percent of the common equity tier 1
minority interest, tier 1 minority interest and total capital minority
interest outstanding as of January 1, 2014, that exceeds any common
equity tier 1 minority interest, tier 1 minority interest or total
capital minority interest includable under Sec. 217.21 (surplus
minority interest), respectively.
* * * * *
Table 10 to Sec. 217.300
------------------------------------------------------------------------
Percentage of the
amount of surplus
or non-qualifying
minority interest
that can be
Transition period included in
regulatory
capital during
the transition
period
------------------------------------------------------------------------
Calendar year 2014................................... 80
Calendar year 2015................................... 60
Calendar year 2016................................... 40
Calendar year 2017................................... 20
Calendar year 2018 and thereafter.................... 0
------------------------------------------------------------------------
* * * * *
12 CFR Part 324
Federal Deposit Insurance Corporation
For the reasons set out in the joint preamble, the FDIC amends 12
CFR part 324 as follows.
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
5. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
0
6. Section 324.300 is amended by revising paragraph (b)(4), adding
paragraph (b)(5), and revising paragraph (d)(1) and table 9 to Sec.
324.300 to read as follows:
Sec. 324.300 Transitions.
* * * * *
(b) * * *
(4) Additional transition deductions from regulatory capital.
Except as provided in paragraph (b)(5) of this section:
(i) Beginning January 1, 2014, for an advanced approaches FDIC-
supervised institution, and beginning January 1, 2015, for an FDIC-
supervised institution that is not an advanced approaches FDIC-
supervised institution, and in each case through December 31, 2017, an
FDIC-supervised institution, must use Table 7 to Sec. 324.300 to
determine the amount of investments in capital instruments and the
items subject to the 10 and 15 percent common equity tier 1 capital
deduction thresholds (Sec. 324.22(d)) (that is, MSAs, DTAs arising
from temporary differences that the FDIC-supervised institution could
not realize through net operating loss carrybacks, and significant
investments in the capital of unconsolidated financial institutions in
the form of common stock) that must be deducted from common equity tier
1 capital.
(ii) Beginning January 1, 2014, for an FDIC-supervised advanced
approaches institution, and beginning January 1, 2015, for an FDIC-
supervised institution that is not an advanced approaches FDIC-
supervised institution, and in each case through December 31, 2017, an
FDIC-supervised institution must apply a 100 percent risk weight to the
aggregate amount of the items subject to the 10 and 15 percent common
equity tier 1 capital deduction thresholds that are not deducted under
this section. As set forth in Sec. 324.22(d)(2), beginning January 1,
2018, an FDIC-supervised institution must apply a 250 percent risk
weight to the aggregate amount of the items subject to the 10 and 15
percent common equity tier 1 capital deduction thresholds that are not
deducted from common equity tier 1 capital.
Table 7 to Sec. 324.300
------------------------------------------------------------------------
Transitions for
deductions under
Sec. 324.22(c)
and (d)--
Transition period percentage of
additional
deductions from
regulatory
capital
------------------------------------------------------------------------
Calendar year 2014................................... 20
Calendar year 2015................................... 40
Calendar year 2016................................... 60
Calendar year 2017................................... 80
Calendar year 2018 and thereafter.................... 100
------------------------------------------------------------------------
(iii) For purposes of calculating the transition deductions in this
paragraph (b)(4) beginning January 1, 2014, for an advanced approaches
FDIC-supervised institution, and beginning January 1, 2015, for an
FDIC-supervised institution that is not an advanced approaches FDIC-
supervised institution, and in each case through December 31, 2017, an
FDIC-supervised institution's 15 percent common equity tier 1 capital
deduction threshold for MSAs, DTAs arising from temporary differences
that the FDIC-supervised institution could not realize through net
operating loss carrybacks, and significant investments in the capital
of unconsolidated financial institutions in the form of common stock is
equal to 15 percent of the sum
[[Page 55318]]
of the FDIC-supervised institution's common equity tier 1 elements,
after regulatory adjustments and deductions required under Sec.
324.22(a) through (c) (transition 15 percent common equity tier 1
capital deduction threshold).
(iv) Beginning January 1, 2018, an FDIC-supervised institution must
calculate the 15 percent common equity tier 1 capital deduction
threshold in accordance with Sec. 324.22(d).
(5) Special transition provisions for non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock, MSAs, DTAs arising from
temporary differences that the FDIC-supervised institution could not
realize through net operating loss carrybacks, and significant
investments in the capital of unconsolidated financial institutions in
the form of common stock. Beginning January 1, 2018, an FDIC-supervised
institution that is not an advanced approaches FDIC-supervised
institution must continue to apply the transition provisions described
in paragraphs (b)(4)(i), (ii), and (iii) of this section applicable to
calendar year 2017 to items that are subject to deduction under Sec.
324.22(c)(4), (c)(5), and (d), respectively.
* * * * *
(d) Minority interest--(1) Surplus minority interest--(i) Advanced
approaches FDIC-supervised institution surplus minority interest.
Beginning January 1, 2014, through December 31, 2017, an advanced
approaches FDIC-supervised institution may include in common equity
tier 1 capital, tier 1 capital, or total capital the percentage of the
common equity tier 1 minority interest, tier 1 minority interest and
total capital minority interest outstanding as of January 1, 2014 that
exceeds any common equity tier 1 minority interest, tier 1 minority
interest or total capital minority interest includable under Sec.
324.21 (surplus minority interest), respectively, as set forth in Table
9 to Sec. 324.300.
(ii) Non-advanced approaches FDIC-supervised institution surplus
minority interest. An FDIC-supervised institution that is not an
advanced approaches FDIC-supervised institution may include in common
equity tier 1 capital, tier 1 capital, or total capital 20 percent of
the common equity tier 1 minority interest, tier 1 minority interest
and total capital minority interest outstanding as of January 1, 2014
that exceeds any common equity tier 1 minority interest, tier 1
minority interest or total capital minority interest includable under
Sec. 324.21 (surplus minority interest), respectively.
* * * * *
Table 9 to Sec. 324.300
------------------------------------------------------------------------
Percentage of the
amount of surplus
or non-qualifying
minority interest
that can be
Transition period included in
regulatory
capital during
the transition
period
------------------------------------------------------------------------
Calendar year 2014................................... 80
Calendar year 2015................................... 60
Calendar year 2016................................... 40
Calendar year 2017................................... 20
Calendar year 2018 and thereafter.................... 0
------------------------------------------------------------------------
* * * * *
Dated: November 13, 2017.
Keith A. Noreika,
Acting Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, November 15, 2017.
Ann E. Misback,
Secretary of the Board.
Dated at Washington, DC this 14th of November, 2017.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2017-25172 Filed 11-20-17; 8:45 am]
BILLING CODE P