[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]


=======================================================================
-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \6\ 82 FR 40495 (August 25, 2017).
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \11\ See 12 CFR part 217, subpart H.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \14\ 78 FR 62028.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \15\ Codified at 12 U.S.C. 5371.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \16\ 12 U.S.C. 5371(b).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \17\ 82 FR 40497 (August 25, 2017).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \18\ 78 FR 62062.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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