[Federal Register Volume 83, Number 76 (Thursday, April 19, 2018)]
[Proposed Rules]
[Pages 17317-17327]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08066]


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 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 83, No. 76 / Thursday, April 19, 2018 / 
Proposed Rules  

[[Page 17317]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 6

[Docket ID OCC-2018-0002]
RIN 1557-AE35

FEDERAL RESERVE SYSTEM

12 CFR Parts 208, 217, and 252

[Docket No. R-1604]
RIN 7100 AF-03


Regulatory Capital Rules: Regulatory Capital, Enhanced 
Supplementary Leverage Ratio Standards for U.S. Global Systemically 
Important Bank Holding Companies and Certain of Their Subsidiary 
Insured Depository Institutions; Total Loss-Absorbing Capacity 
Requirements for U.S. Global Systemically Important Bank Holding 
Companies

AGENCY: Office of the Comptroller of the Currency, Treasury, and the 
Board of Governors of the Federal Reserve System.

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
and the Office of the Comptroller of the Currency (OCC) are seeking 
comment on a proposal that would modify the enhanced supplementary 
leverage ratio standards for U.S. top-tier bank holding companies 
identified as global systemically important bank holding companies, or 
GSIBs, and certain of their insured depository institution 
subsidiaries. Specifically, the proposal would modify the current 2 
percent leverage buffer, which applies to each GSIB, to equal 50 
percent of the firm's GSIB risk-based capital surcharge. The proposal 
also would require a Board- or OCC-regulated insured depository 
institution subsidiary of a GSIB to maintain a supplementary leverage 
ratio of at least 3 percent plus 50 percent of the GSIB risk-based 
surcharge applicable to its top-tier holding company in order to be 
deemed ``well capitalized'' under the Board's and the OCC's prompt 
corrective action rules. Consistent with this approach to establishing 
enhanced supplementary leverage ratio standards for insured depository 
institutions, the OCC is proposing to revise the methodology it uses to 
identify which national banks and Federal savings associations are 
subject to the enhanced supplementary leverage ratio standards to 
ensure that they apply only to those national banks and Federal savings 
associations that are subsidiaries of a Board-identified GSIB. The 
Board also is seeking comment on a proposal to make conforming 
modifications to the GSIB leverage buffer of the Board's total loss-
absorbing capacity and long-term debt requirements and other minor 
amendments to the buffer levels, covered intermediate holding company 
conformance period, methodology for calculating the covered 
intermediate holding company long-term debt amount, and external total 
loss-absorbing capacity risk-weighted buffer.

DATES: Comments must be received by May 21, 2018.

ADDRESSES: Comments should be directed to:
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments 
through the Federal eRulemaking Portal or email, if possible. Please 
use the title ``Regulatory Capital Rules: Regulatory Capital, Enhanced 
Supplementary Leverage Ratio Standards for U.S. Global Systemically 
Important Bank Holding Companies and their Subsidiary Insured 
Depository Institutions'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0002'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW, suite 3E-
218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, suite 3E-218, 
Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2018-0002'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov website without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not include any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0002'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen and then ``Comments.'' Comments can be filtered by 
clicking on ``View All'' and then using the filtering tools on the left 
side of the screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. Supporting materials may 
be viewed by clicking on ``Open Docket Folder'' and then clicking on 
``Supporting Documents.'' The docket may be viewed after the close of 
the comment period in the same manner as during the comment period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th Street SW, Washington, DC 
20219. For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 649-
6700 or, for persons who are deaf hearing impaired, TTY, (202) 649-
5597. Upon arrival, visitors will be

[[Page 17318]]

required to present valid government-issued photo identification and 
submit to security screening in order to inspect and photocopy 
comments.
    Board: You may submit comments, identified by Docket No. R-1604 and 
RIN 7100 AF-03, by any of the following methods:
     Agency website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
number and RIN in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. All public comments are available from the 
Board's website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or 
to remove sensitive PII at the commenter's request. Public comments may 
also be viewed electronically or in paper form in Room 3515, 1801 K 
Street NW (between 18th and 19th Streets NW), Washington, DC 20006 
between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Venus Fan, Risk Expert (202) 649-6514, Capital and Regulatory 
Policy; or Carl Kaminski, Special Counsel; Allison Hester-Haddad, 
Counsel, or Christopher Rafferty, Attorney, Legislative and Regulatory 
Activities Division, (202) 649-5490 or, 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; Elizabeth MacDonald, Manager, (202) 475-6316, Holly Kirkpatrick, 
Supervisory Financial Analyst, (202) 452-2796, or Noah Cuttler, Senior 
Financial Analyst (202) 912-4678, Capital and Regulatory Policy, 
Division of Banking Supervision and Regulation; or Benjamin W. 
McDonough, Assistant General Counsel, (202) 452-2036; David Alexander, 
Counsel, (202) 452-2877, Greg Frischmann, Counsel, (202) 452-2803, Mark 
Buresh, Senior Attorney, (202) 452-5270, or Mary Watkins, Attorney, 
(202) 452-3722, 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.

SUPPLEMENTARY INFORMATION:

I. Background

A. Post-Crisis Reforms

    In 2013, the Board of Governors of the Federal Reserve System 
(Board), the Office of the Comptroller of the Currency (OCC), and the 
Federal Deposit Insurance Corporation (FDIC) (together, the agencies) 
adopted a revised regulatory capital rule (capital rule) to address 
weaknesses that became apparent during the financial crisis of 2007-
08.\1\ The capital rule strengthened the capital requirements 
applicable to banking organizations \2\ supervised by the agencies by 
improving both the quality and quantity of regulatory capital and 
increasing the risk-sensitivity of the agencies' capital 
requirements.\3\ The capital rule requires banking organizations to 
maintain a minimum leverage ratio of 4 percent, measured as the ratio 
of a banking organization's tier 1 capital to its average total 
consolidated assets. For a banking organization that meets the capital 
rule's criteria for being considered an advanced approaches banking 
organization, the agencies also established a minimum supplementary 
leverage ratio of 3 percent, measured as the ratio of a firm's tier 1 
capital to its total leverage exposure.\4\ The supplementary leverage 
ratio strengthens the capital requirements for advanced approaches 
banking organizations by including in the definition of total leverage 
exposure many off-balance sheet exposures in addition to on-balance 
sheet assets.
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    \1\ 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\ Banking organizations subject to the agencies' capital rule 
include national banks, state member banks, insured state nonmember 
banks, savings associations, and top-tier bank holding companies and 
savings and loan holding companies domiciled in the United States, 
but exclude banking organizations subject to the Board's Small Bank 
Holding Company Policy Statement (12 CFR part 225, appendix C), and 
certain savings and loan holding companies that are substantially 
engaged in insurance underwriting or commercial activities or that 
are estate trusts, and bank holding companies and savings and loan 
holding companies that are employee stock ownership plans.
    \3\ 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR part 
324 (FDIC).
    \4\ A banking organization is an advanced approaches banking 
organization if it has consolidated assets of at least $250 billion 
or if it has consolidated on-balance sheet foreign exposures of at 
least $10 billion, or if it is a subsidiary of a depository 
institution, bank holding company, savings and loan holding company, 
or intermediate holding company that is an advanced approaches 
banking organization. See 78 FR 62018, 62204 (October 11, 2013), 78 
FR 55340, 55523 (September 10, 2013).
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    In 2014, the agencies adopted a final rule that established 
enhanced supplementary leverage ratio (eSLR) standards for the largest, 
most interconnected U.S. bank holding companies (eSLR rule) in order to 
strengthen the overall regulatory capital framework in the United 
States.\5\ The eSLR rule, as adopted in 2014, applied to U.S. top-tier 
bank holding companies with consolidated assets over $700 billion or 
more than $10 trillion in assets under custody, and insured depository 
institution (IDI) subsidiaries of holding companies that meet those 
thresholds.
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    \5\ See 79 FR 24528 (May 1, 2014).
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    The eSLR rule requires the largest, most interconnected U.S. top-
tier bank holding companies to maintain a supplementary leverage ratio 
greater than 3 percent plus a leverage buffer of 2 percent to avoid 
limitations on the firm's distributions and certain discretionary bonus 
payments.\6\ The eSLR rule also provides that any IDI subsidiary of 
those bank holding companies must maintain a 6 percent supplementary 
leverage ratio to be deemed ``well capitalized'' under the prompt 
corrective action (PCA) framework of each agency (collectively, the 
eSLR standards).\7\
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    \6\ The leverage buffer in the eSLR rule follows the same 
general mechanics and structure as the capital conservation buffer 
that applies to all banking organizations subject to the capital 
rule. Specifically, similar to the capital conservation buffer, a 
GSIB that maintains a leverage buffer of more than 2 percent of its 
total leverage exposure would not be subject to limitations on its 
distributions and certain discretionary bonus payments. If the GSIB 
maintains a leverage buffer of 2 percent or less, it would be 
subject to increasingly stricter limitations on such payouts. See 12 
CFR 217.11(a).
    \7\ See 12 CFR part 6 (national banks) and 12 CFR part 165 
(Federal savings associations) (OCC), and 12 CFR part 208, subpart D 
(Board).
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    Subsequently, in 2015, the Board adopted a final rule establishing 
a methodology for identifying a firm as a global systemically important 
bank holding company (GSIB) and applying a risk-based capital surcharge 
on such an institution (GSIB surcharge rule).\8\ Under the GSIB 
surcharge rule, a U.S. top-tier bank holding company that is not a 
subsidiary of a foreign banking organization and that is an advanced 
approaches banking organization must determine whether it is a GSIB by 
applying a multifactor methodology based on size, interconnectedness, 
substitutability, complexity, and cross-jurisdictional activity.\9\ As 
part of the

[[Page 17319]]

GSIB surcharge rule, the Board revised the application of the eSLR 
standards to apply to any bank holding company identified as a GSIB and 
to each Board-regulated IDI subsidiary of a GSIB.\10\
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    \8\ 12 CFR 217.402; 80 FR 49082 (August 14, 2015).
    \9\ 12 CFR part 217, subpart H. The methodology provides a tool 
for identifying as GSIBs those banking organizations that pose 
elevated risks.
    \10\ The eSLR rule does not apply to intermediate holding 
companies of foreign banking organizations as such firms are outside 
the scope of the GSIB surcharge rule and cannot be identified as 
U.S. GSIBs.
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    The OCC's current eSLR rule applies to national banks and Federal 
savings associations that are subsidiaries of U.S. top-tier bank 
holding companies with more than $700 billion in total consolidated 
assets or more than $10 trillion total in assets under custody.

B. Review of Reforms

    Post-crisis regulatory reforms, including the capital rule, the 
eSLR rule, and the Board's GSIB surcharge rule, were designed to 
improve the safety and soundness and reduce the probability of failure 
of banking organizations, as well as to reduce the consequences to the 
financial system if such a failure were to occur. For large banking 
organizations in particular, the Board's and the OCC's objective has 
been to establish capital and other prudential requirements at a level 
that not only promotes resilience at the banking organization and 
protects financial stability, but also maximizes long-term through-the-
cycle credit availability and economic growth. In reviewing the post-
crisis reforms both individually and collectively, the Board and the 
OCC have sought comment on ways to streamline and tailor the regulatory 
framework, while ensuring that such firms have adequate capital to 
continue to act as financial intermediaries during times of stress.\11\ 
Consistent with these efforts, the Board and the OCC are proposing 
modifications to the calibration of the eSLR standards to make the 
calibration more consistent with the risk-based capital measures now in 
effect for GSIBs. The proposed recalibration, described further below, 
assumes that the components of the supplementary leverage ratio use the 
capital rule's current definitions of tier 1 capital and total leverage 
exposure. Significant changes to either of these components would 
likely necessitate reconsideration of the proposed recalibration as the 
proposal is not intended to materially change the aggregate amount of 
capital in the banking system.
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    \11\ For example, in 2017, the agencies and the National Credit 
Union Administration (NCUA) submitted a report to Congress pursuant 
to the Economic Growth and Regulatory Paperwork Reduction Act in 
which the agencies and the NCUA committed to meaningfully reducing 
regulatory burden, especially 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. 
Consistent with that commitment, the agencies issued a notice of 
proposed rulemaking in 2017 that would simplify certain aspects of 
the capital rule. 82 FR 49984 (October 27, 2017).
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II. Revisions to the Enhanced Supplementary Leverage Ratio Standards

    The 2007-08 financial crisis demonstrated that robust regulatory 
capital standards are necessary for the safety and soundness of 
individual banking organizations, as well as for the financial system 
as a whole. Within the regulatory capital framework, leverage and risk-
based capital requirements play complementary roles, with each 
offsetting potential risks not addressed by the other. Research shows 
that risk-based and leverage capital measures contain complementary 
information about a bank's condition.\12\ Risk-based capital 
requirements encourage prudent behavior by requiring banking 
organizations to increase capital as risk-taking and the overall risk 
profile at the firm increases. Risk-based measures generally rely on 
either a standardized set of risk weights that are applied to exposure 
categories or on more granular risk weights based on firm-specific data 
and models. However, as observed during the crisis, risk-based measures 
alone may be insufficient in mitigating risks to financial stability 
posed by the largest, most interconnected banking organizations.
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    \12\ See, e.g., Arturo Estrella, Sangkyun Park, and Stavros 
Peristiani (2000): ``Capital Ratios as Predictors of Bank Failure,'' 
Federal Reserve Bank of New York Economic Policy Review.
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    In contrast, a leverage ratio does not differentiate the amount of 
capital required by exposure type. Rather, a leverage ratio puts a 
simple and transparent lower bound on banking organization leverage. A 
leverage ratio protects against underestimation of risk both by banking 
organizations and by risk-based capital requirements. It also 
counteracts the inherent tendency of banking organization leverage to 
increase in a boom and fall in a recession.\13\
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    \13\ See, e.g., Galo Nu[ntilde]o and Carlos Thomas (2017): 
``Bank Leverage Cycles,'' American Economic Journal: Macroeconomics.
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    Leverage capital requirements should generally act as a backstop to 
the risk-based requirements. If a leverage ratio is calibrated at a 
level that makes it generally a binding constraint through the economic 
and credit cycle, it can create incentives for firms to reduce 
participation in or increase costs for low-risk, low-return businesses. 
At the same time, a leverage ratio that is calibrated at too low of a 
level will not serve as an effective complement to a risk-based capital 
requirement.\14\
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    \14\ 78 FR 51101, 51105-6 (August 20, 2013); 78 FR 57725, 57727-
8 (September 26, 2014).
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    In 2014, consistent with these goals, the agencies adopted a final 
eSLR rule that increased leverage capital requirements. The standards 
in the final eSLR rule were designed and calibrated to strengthen the 
largest and most interconnected banking organizations' capital base and 
to preserve the complementary relationship between risk-based and 
leverage capital requirements in recognition that risk-based capital 
requirements had increased in stringency and amount. As the agencies 
observed in the preamble to the proposed eSLR rule, approximately half 
of the bank holding companies subject to the eSLR rule that were bank 
holding companies in 2006 would have met or exceeded a 3 percent 
supplementary leverage ratio, suggesting that the minimum leverage 
standard in the eSLR rule should be greater than 3 percent to constrain 
pre-crisis buildup of leverage at the largest banking 
organizations.\15\ Based on experience during the financial crisis of 
2007-08, the agencies determined that there could be benefits to 
financial stability and reduced costs to the Deposit Insurance Fund if 
the largest and most interconnected banking organizations were required 
to meet an eSLR standard in addition to the 3 percent minimum 
supplementary leverage ratio requirement. Accordingly, the eSLR rule 
required the largest banking organizations to maintain a leverage 
buffer of 2 percent to avoid limitations on distributions and certain 
discretionary bonus payments, and established a 6 percent ``well 
capitalized'' threshold for IDI subsidiaries of these banking 
organizations.
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    \15\ This analysis was based on fourth quarter 2006 data 
compiled from the FR Y-9C report (consolidated bank holding 
companies), the FFIEC 031 report (banks), the FDIC failed banks 
list, and attributes data for bank holding companies from the 
National Information Center.
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    Over the past few years, banking organizations have raised concerns 
that in certain cases, the standards in the eSLR rule have generally 
become a binding constraint rather than a backstop to the risk-based 
standards. Thus, the current calibration of the eSLR rule may create 
incentives for banking organizations bound by the eSLR standards to 
reduce participation in or increase costs for lower-risk, lower-return 
businesses, such as secured repo financing, central clearing services 
for market participants, and

[[Page 17320]]

taking custody deposits, notwithstanding client demand for those 
services. Accordingly, in light of the experience gained since the 
initial adoption of the eSLR standards, and to avoid potential negative 
outcomes, the Board and the OCC are proposing to recalibrate the 
standards in the eSLR rule.

A. GSIB Surcharge Rule and Firm-Specific Surcharges

    The GSIB surcharge rule is designed both to ensure that a GSIB 
holds capital commensurate with its systemic risk and to provide a GSIB 
with an incentive to adjust its systemic footprint.\16\ Under the GSIB 
surcharge rule, a firm's GSIB surcharge varies according to the firm's 
systemic importance as measured using the methodology outlined in the 
rule. Accordingly, the framework set forth in the GSIB surcharge rule, 
which had not yet been proposed at the time the agencies adopted the 
eSLR rule, would provide a mechanism for tailoring the eSLR standards 
based on measures of systemic risk.
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    \16\ As laid out in the white paper accompanying the GSIB 
surcharge rule, the risk-based GSIB surcharges were calibrated to 
equalize the expected impact on the stability of the financial 
system of the failure of a GSIB with the expected systemic impact of 
the failure of a large bank holding company that is not a GSIB 
(expected impact approach). 80 FR 49082 (August 14, 2015).
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B. Prompt Corrective Action Requirements

    The PCA framework establishes levels of capitalization at which an 
IDI will become subject to limits on activities or to closure.\17\ 
While the capital rule incorporated the 3 percent supplementary 
leverage ratio minimum requirement into the PCA framework as an 
``adequately capitalized'' threshold for any IDI subsidiary that is an 
advanced approaches banking organization, it did not specify a 
corresponding supplementary leverage ratio threshold at which such an 
IDI subsidiary would be considered ``well capitalized.'' The eSLR rule 
subsequently established a 6 percent supplementary leverage ratio 
threshold at which IDI subsidiaries of the largest and most complex 
banking organizations would be considered ``well capitalized.'' \18\ 
However, since adoption of the eSLR rule, banking organizations have 
raised concerns that the calibration of the eSLR standard at the IDI 
subsidiary level has created incentives, similar to those created at 
the GSIB holding company level, for IDI subsidiaries to reduce 
participation in or increase costs for low-risk, low-return businesses. 
Specifically, banking organizations have stated that the eSLR standard 
as applied at the IDI subsidiary level may create disincentives for 
firms bound by the eSLR standard to provide certain banking functions, 
such as secured repo financing, central clearing services for market 
participants, and taking custody deposits. In order to decrease 
incentives for firms to reduce participation in or increase costs for 
low-risk, low-return businesses, which may have an adverse effect on 
safety and soundness, and to help ensure that leverage requirements 
generally serve as a backstop to risk-based capital requirements, the 
Board and the OCC are proposing to modify the eSLR standards applicable 
to Board- and OCC-regulated IDI subsidiaries. In order to be consistent 
with the Board's regulations for identifying GSIBs and measuring the 
eSLR standards for holding companies and their IDI subsidiaries, the 
OCC also is proposing to revise its eSLR rule to ensure that it will 
apply to only those national banks and Federal savings associations 
that are subsidiaries of holding companies identified as GSIBs under 
the GSIB surcharge rule.
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    \17\ The levels are critically undercapitalized, significantly 
undercapitalized, undercapitalized, adequately capitalized, and well 
capitalized. See 12 CFR part 6 (national banks); 12 CFR part 165 
(Federal savings associations) (OCC); and 12 CFR part 208, subpart D 
(Board).
    \18\ The eSLR rule also applied these standards to covered state 
nonmember banks.
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III. Proposed Revisions to the eSLR Standards

    Under the current eSLR rule, all GSIBs are required to maintain a 
supplementary leverage ratio greater than 3 percent plus a leverage 
buffer of 2 percent to avoid limitations on distributions and certain 
discretionary bonus payments. The proposal would replace each GSIB's 2 
percent leverage buffer with a leverage buffer set equal to 50 percent 
of the firm's GSIB surcharge, as determined according to the Board's 
GSIB surcharge rule.\19\
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    \19\ On April 10, 2018, the Board requested comment on a 
proposal to integrate the Board's capital rule with the supervisory 
post-stress capital assessment conducted as part of the Board's 
annual Comprehensive Capital Analysis and Review. That proposal 
would amend the Board's capital plan rule, capital rule, and stress 
testing rules, and make further amendments to the stress testing 
policy statement that was proposed for public comment on December 
15, 2017. See 12 CFR 225.8; 12 CFR 252; 88 FR 59529 (December 15, 
2017). See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180410a.htm
    See 12 CFR 217.403. Under the GSIB surcharge rule, a firm 
identified as a GSIB must calculate its GSIB surcharge under two 
methods and be subject to the higher surcharge. The first method 
(method 1) is based on five categories that are correlated with 
systemic importance--size, interconnectedness, cross-jurisdictional 
activity, substitutability, and complexity. The second method 
(method 2) uses similar inputs, but replaces substitutability with 
the use of short-term wholesale funding and is calibrated in a 
manner that generally will result in surcharge levels for GSIBs that 
are higher than those calculated under method 1.
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    Under the current rule, IDI subsidiaries of the largest and most 
complex banking organizations are required to maintain a 6 percent 
supplementary leverage ratio to be considered ``well capitalized'' 
under the PCA framework. As discussed above, the Board and the OCC 
believe that the leverage requirements should be calibrated such that 
they are generally the backstop to risk-based capital requirements. 
Consistent with that view and with the treatment of GSIBs, the proposal 
would replace the 6 percent supplementary leverage ratio threshold for 
a Board- or OCC-regulated IDI subsidiary subject to the eSLR standards 
(covered IDI) to be considered ``well capitalized'' under the PCA 
framework with a supplementary leverage ratio threshold of 3 percent 
plus 50 percent of the GSIB surcharge applicable to the covered IDI's 
GSIB holding company. Thus, for a covered IDI, the ``well capitalized'' 
threshold would depend on the GSIB surcharge applicable at the holding 
company. These modifications to the PCA framework would help to 
maintain the complementarity of the risk-based and leverage standards 
at the covered IDI in a manner consistent with the proposed changes to 
the leverage buffer at the GSIB holding company.
    The ``well capitalized'' threshold is used to determine eligibility 
for a variety of regulatory purposes, such as streamlined application 
procedures, status as a financial holding company, the ability to 
control or hold a financial interest in a financial subsidiary, and in 
interstate applications.\20\ The Board and the OCC recognize that tying 
a banking organization's eSLR standards to its systemic footprint, as 
measured under the Board's GSIB surcharge rule,\21\ may mean that the 
``well capitalized'' threshold could change from year-to-year depending 
on the activities of the particular organization. Consistent with the 
requirements for GSIBs, a covered IDI would have one full calendar year 
after the year in which its eSLR threshold increased to meet the new 
threshold.\22\ Nonetheless, in order to facilitate long-term capital 
and business planning, some institutions may prefer for the Board and 
the OCC to maintain a static ``well capitalized'' threshold.

[[Page 17321]]

Additionally, treating the eSLR standard as a buffer, which an IDI 
subsidiary may use during times of economic stress, may have less pro-
cyclical effects.
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    \20\ See, e.g., 12 U.S.C. 24a(a)(2)(C); 12 U.S.C. 
1831u(b)(4)(B); 12 U.S.C. 1842(d); 12 CFR 5.33(j), 5.34(e)(5)(ii), 
5.35(f), 5.39(g); 12 CFR 225.8(f)(2); 225.82; 225.4(b), 225.14, 
225.23; 211.24(c)(3).
    \21\ See 12 CFR part 217, subpart H.
    \22\ 12 CFR 217.403(d)(1).
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    Therefore, as an alternative to revising the eSLR threshold for a 
covered IDI to be considered ``well capitalized,'' the Board and the 
OCC are considering applying the eSLR standard as a capital buffer 
requirement. Under this approach, the PCA framework would retain the 3 
percent supplementary leverage ratio requirement to be considered 
``adequately capitalized,'' but there would no longer be a 
supplementary leverage ratio threshold for a covered IDI to be 
considered ``well capitalized.'' Instead, the eSLR standard would be 
applied to a covered IDI alongside the existing capital conservation 
buffer \23\ in the same manner that the eSLR standard applies to GSIBs. 
Thus, under this alternative approach, GSIBs and covered IDIs would be 
required to maintain a leverage buffer set to 50 percent of the GSIB 
surcharge applicable to the GSIB or the GSIB holding company of the 
covered IDI, as applicable, over the 3 percent supplementary leverage 
ratio minimum to avoid limitations on distributions and certain 
discretionary bonus payments. The Board and the OCC are requesting 
comment on whether it would be more appropriate to apply the eSLR 
standard to a covered IDI as a capital buffer requirement, rather than 
as part of the PCA threshold for ``well capitalized.''
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    \23\ See 12 CFR 3.11 and 12 CFR 217.11.
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    The proposed recalibration of the eSLR standards for GSIBs and 
covered IDIs would continue to provide a meaningful constraint on 
leverage while ensuring a more appropriate complementary relationship 
between these firms' risk-based and leverage capital requirements. 
Specifically, the proposal would help ensure that the leverage capital 
requirements generally serve as a backstop to risk-based capital 
requirements. In addition, the proposed calibration would reinforce 
incentives created by the GSIB surcharge for GSIBs to reduce their 
systemic footprint by providing less systemic firms with a lower GSIB 
surcharge and a parallel lower ``well capitalized'' threshold in the 
PCA framework. Setting the leverage buffer in the eSLR rule to 50 
percent of the GSIB surcharge also would mirror the relationship 
between the minimum tier 1 risk-based capital ratio of 6 percent and 
the minimum supplementary leverage ratio of 3 percent.

IV. Impact Analysis

    Based on third quarter 2017 data, and assuming fully phased-in GSIB 
surcharges were in effect, one of the eight GSIBs would currently have 
its most binding capital requirement under the capital rule set by the 
proposed eSLR, compared with four of eight GSIBs that are bound by the 
eSLR under the current eSLR rule.\24\ Under the proposed eSLR 
standards, the amount of tier 1 capital required to avoid restrictions 
based on the capital buffers in the capital rule would decrease by 
approximately $9 billion across the eight GSIBs.\25\ Each of the GSIBs 
subject to the eSLR rule would have met the minimum supplementary 
leverage ratio of 3 percent plus a 2 percent leverage buffer had the 
eSLR rule been in effect third quarter 2017, and assuming fully phased-
in GSIB surcharges were applicable in that quarter, each of the eight 
GSIBs would have also met the minimum supplementary leverage ratio, 
plus a leverage buffer set to 50 percent of the GSIB surcharge, had the 
proposal been in effect. The GSIBs held in aggregate nearly $955 
billion in tier 1 capital as of third quarter 2017.
---------------------------------------------------------------------------

    \24\ Analysis reflects data from the Consolidated Financial 
Statements for Holding Companies (FR Y-9C), the Consolidated Reports 
of Condition and Income for a Bank with Domestic and Foreign Offices 
(FFIEC 031), and the Regulatory Capital Reporting for Institutions 
Subject to the Advanced Capital Adequacy Framework (FFIEC 101), as 
reported by the GSIBs and the covered IDIs as of third quarter 2017.
    \25\ The $9 billion figure is approximately 1 percent of the 
amount of tier 1 capital held by the GSIBs as of third quarter 2017. 
The $9 billion figure represents the aggregate decrease in the 
amount of tier 1 capital required across the GSIBs under the 
proposed eSLR standards relative to the amount of capital required 
for such firms to exceed a 5 percent supplementary leverage ratio, 
as well as the minimum tier 1 risk-based capital ratio plus 
applicable capital conservation buffer requirement, which includes 
each firm's applicable GSIB surcharge.
---------------------------------------------------------------------------

    The Board's capital plan rule also requires certain large bank 
holding companies, including the GSIBs, to hold capital in excess of 
the minimum capital ratios by requiring them to demonstrate the ability 
to satisfy the capital requirements under stressful conditions.\26\ 
Taking into account the capital buffer requirements in the capital rule 
together with estimates of the capital required under the capital plan 
rule, the proposal would reduce the amount of tier 1 capital required 
across the GSIBs by approximately $400 million.\27\
---------------------------------------------------------------------------

    \26\ 12 CFR 225.8(e)(2).
    \27\ The $400 million figure is approximately 0.04 percent of 
the amount of tier 1 capital held by the GSIBs as of third quarter 
2017. The $400 million figure represents the aggregate decrease in 
the amount of tier 1 capital required across the GSIBs under the 
proposed eSLR standards relative to the amount of capital required 
for such firms to exceed a 5 percent supplementary leverage ratio, 
as well as the minimum tier 1 risk-based capital ratio plus 
applicable capital conservation buffer requirement, which includes 
each firm's applicable GSIB surcharge, and post-stress minimum tier 
1-based capital requirements (i.e., tier 1 risk-based capital ratio, 
leverage ratio, and supplementary leverage ratio).
---------------------------------------------------------------------------

    Analysis therefore indicates that the proposed eSLR recalibration 
would reduce the capital required to be held by the GSIBs for purposes 
of meeting the eSLR standards, but the more firm-specific and risk-
sensitive approach to the eSLR buffer in the proposal would more 
appropriately align each GSIB's leverage buffer with its systemic 
footprint. Importantly, under the proposal, to the extent a firm's 
systemic footprint and GSIB surcharge increases, the amount of tier 1 
capital required to meet its applicable eSLR standard also would 
increase. Further, and notwithstanding the proposed recalibration, 
GSIBs remain subject to the most stringent regulatory standards, 
including in particular the risk-based GSIB surcharge and total loss-
absorbing capacity standards.
    For covered IDIs, the proposed rule would replace the current 6 
percent eSLR standard in the ``well capitalized'' threshold with a new 
standard equal to 3 percent plus 50 percent of the GSIB's surcharge. 
The current eSLR standard tends to be more binding than risk-based 
capital requirements at the IDI level than at the holding company level 
because the eSLR standard is calibrated higher and the agencies have 
not imposed a GSIB surcharge at the IDI level. Based on data as of 
third quarter 2017, the eSLR standard is the most binding tier 1 
capital requirement for all eight lead IDI subsidiaries of the GSIBs. 
Under the proposal, the eSLR standard would be the most binding tier 1 
capital requirement for three of these covered IDIs.\28\ The amount of 
tier 1 capital required under the proposed eSLR standard across the 
lead IDI subsidiaries would be approximately $121 billion less than 
what is required under the current eSLR standard to be considered well-
capitalized.\29\ The proposed eSLR

[[Page 17322]]

standards along with current risk-based capital standards and other 
constraints applicable at the holding company level would continue to 
limit the amount of capital that GSIBs could distribute to investors, 
thus supporting the safety and soundness of GSIBs and helping to 
maintain financial stability.
---------------------------------------------------------------------------

    \28\ The Board and the OCC estimate that the proposed eSLR 
standard would be the most binding tier 1 capital requirement for a 
total of eight covered IDIs that reported their total leverage 
exposure on the FFIEC 031 report, five of which are non-lead IDI 
subsidiaries. 12 U.S.C. 1841(o)(8); 12 CFR 225.2(h).
    \29\ The $121 billion figure represents the aggregate decrease 
in the amount of tier 1 capital required across the lead IDI 
subsidiaries of the GSIBs to meet the proposed eSLR well-capitalized 
standard relative to the amount of capital required for such firms 
to meet the current 6 percent well-capitalized standard, as well as 
the tier 1 risk-based capital ratio plus applicable capital 
conservation buffer requirement. The amount of tier 1 capital 
required across all covered IDIs that reported their total leverage 
exposure on the FFIEC 031 report would decrease by approximately 
$122 billion under the proposal.
---------------------------------------------------------------------------

    Question 1: To what extent would the proposed eSLR standards 
appropriately balance the need for regulatory standards that enhance 
systemic stability with the long-term goal of credit availability, 
efficiency, and business growth? What alternatives, if any, should the 
Board and the OCC consider that would more appropriately strike this 
balance?
    Question 2: How would the proposed calibration of the eSLR 
standards affect business decisions of GSIBs and covered IDIs? How, if 
at all, would the proposal change the incentives for GSIBs and covered 
IDIs to participate in or increase costs for low-risk, low-return 
businesses? Alternatively, how would a reduction in tier 1 capital 
across the GSIBs resulting from the proposed calibration impact the 
overall resilience of the financial system?
    Question 3: What, if any, beneficial or negative consequences for 
market participants, consumers, and financial stability are likely to 
result from the proposed calibration? Please provide examples and data 
where feasible.
    Question 4: What, if any, alternative methods would be more 
appropriate to determine the level of firm-specific eSLR standards? For 
example, what other approaches using publicly reported data, such as 
the systemic risk data collected on the FR Y-15, would be appropriate? 
Please provide examples and data where feasible.
    Question 5: Should the Board and the OCC consider alternative 
approaches to address the relative bindingness of leverage requirements 
to risk-based capital requirements for certain firms? Specifically, 
what are the benefits and drawbacks of excluding central bank reserves 
from the denominator of the supplementary leverage ratio as an 
alternative to the proposal? In comparison to the proposal, how would 
such an exclusion affect the business decisions of firms supervised by 
the Board and the OCC?
    Question 6: Would it be more appropriate to apply the eSLR standard 
to a covered IDI as capital buffer requirement, rather than as part of 
the PCA ``well capitalized'' threshold?
    Question 7: The Board has issued for comment a separate proposal 
that, among other changes, would use the results of its annual 
supervisory stress test to size buffer requirements applicable to U.S. 
bank holding companies that are subject to the Board's capital plan 
rule. How would that proposal affect the responses to the questions 
above or other aspects of the proposed modifications to the eSLR 
standards?

V. Amendments to Total Loss-Absorbing Capacity Standards

    The Board's final rule regarding total loss-absorbing capacity, 
long-term debt, and clean holding company requirements for GSIBs and 
intermediate holding companies of systemically important foreign 
banking organizations \30\ (TLAC rule) applies a 2 percent 
supplementary-leverage-ratio-based TLAC buffer in addition to the 7.5 
percent leverage component of a GSIB's external TLAC requirement. The 
adoption of this buffer was designed to parallel the leverage buffer 
applicable to these firms under the eSLR rule and applies on top of the 
minimum TLAC leverage requirement.\31\ Accordingly, the Board is 
proposing to amend the TLAC rule to replace each GSIB's 2 percent TLAC 
leverage buffer with a buffer set to 50 percent of the firm's GSIB 
surcharge. This change would conform the TLAC leverage buffer with the 
proposed revised eSLR standard for GSIBs.
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    \30\ 12 CFR 252.60-.65, .153, .160-.167; 82 FR 8266 (January 24, 
2017).
    \31\ Under the TLAC rule, a GSIB's external TLAC leverage buffer 
requirement is equal to 2 percent of total leverage exposure, which 
is the same buffer set under the eSLR rule.
---------------------------------------------------------------------------

    The Board's TLAC rule also establishes a minimum leverage-based 
external long-term debt (LTD) requirement for a GSIB equal to the 
GSIB's total leverage exposure multiplied by 4.5 percent. As described 
in the preamble to the final TLAC rule, this component of the LTD 
requirement was calibrated by subtracting a 0.5 percent balance sheet 
depletion allowance from the amount required to satisfy the combined 
supplementary leverage ratio requirement and eSLR (i.e., 5 
percent).\32\ Accordingly, the Board is proposing to amend the minimum 
LTD standard to reflect the proposed change to the eSLR. The proposed 
amended leverage-based external LTD standard would be total leverage 
exposure multiplied by 2.5 percent (i.e., 3 percent minus 0.5 percent 
to allow for balance sheet depletion) plus 50 percent of the GSIB's 
applicable GSIB surcharge.
---------------------------------------------------------------------------

    \32\ 82 FR 8266, 8275 (January 24, 2017).
---------------------------------------------------------------------------

    In addition, the Board is proposing to make certain minor 
amendments to the TLAC rule, including amendments to ensure that LTD is 
calculated the same way for all TLAC requirements. Specifically, the 
proposal provides that the external TLAC risk-weighted buffer level, 
TLAC leverage buffer level, and the TLAC buffer level for U.S. 
intermediate holding companies of foreign GSIBs (covered IHCs) would be 
amended to use the same haircuts applicable to LTD that are currently 
used to calculate outstanding minimum required TLAC amounts, which do 
not include a 50 percent haircut on LTD instruments with a remaining 
maturity of between one and two years. These minor amendments also 
include changes such that the term ``External TLAC risk-weighted 
buffer'' is used consistently in the TLAC rule, to provide that a new 
covered IHC will in all cases have three years to conform to most of 
the requirements of the TLAC rule, and to align the articulation of the 
methodology for calculating the covered IHC LTD amount with the same 
methodology used for GSIBs.
    Question 8: What, if any, concerns would the proposed modification 
of the external TLAC leverage buffer requirement (that is, replacing 
the fixed 2 percent external TLAC leverage buffer with an external TLAC 
leverage buffer set to 50 percent of a firm's GSIB surcharge) pose? 
What if any alternative approach should the Board consider and why?
    Question 9: The Board is considering, for purposes of any final 
rule, whether it also should modify the requirement at 12 CFR 
252.63(a)(2) that a GSIB maintain an external loss-absorbing capacity 
amount that is no less than 7.5 percent of the GSIB's total leverage 
exposure (7.5 percent requirement). What, if any, modifications to the 
7.5 percent requirement would be appropriate to address the changes 
proposed above, such as the proposed changes to the eSLR requirement 
and the related changes to the TLAC requirement, or to address other 
changes in circumstances since the TLAC rule was finalized, such as new 
foreign or international standards related to total loss absorbing 
capacity or capital? What, if any, modifications to the 7.5 percent 
requirement would be appropriate for other reasons, including 
modifications to match or better align with the TLAC rule's 
supplementary leverage ratio requirements for covered IHCs (i.e., a 
TLAC amount no less than 6 to 6.75 percent of the covered IHC's total

[[Page 17323]]

leverage exposure) \33\ or with similar foreign or international 
standards or expectations? Should any such modification revise the 7.5 
percent requirement to be dynamic, such as a requirement linked to a 
GSIB's risk-based capital surcharge and, if so, should that revised 
requirement be based on the same percentage as the proposed calibration 
of the eSLR standard and minimum LTD standard (i.e., 50 percent of the 
GSIB's risk-based capital surcharge) or a higher (e.g., 100 percent) or 
lower percentage (e.g., 25 percent)?
---------------------------------------------------------------------------

    \33\ 12 CFR 252.165(a)(2), (b)(2).
---------------------------------------------------------------------------

    In responding to this question, commenters are invited to describe 
the rationale for any suggested modifications to the 7.5 percent 
requirement and how such rationale relates to the Board's overall 
rationale for the proposal, the rationale for the capital refill 
framework described in the preamble to the final TLAC rule,\34\ or 
other rationales for establishing or calibrating TLAC requirements. For 
example, a response could explain what, if any, modifications to the 
requirement should be made based on the proposed modifications to the 
eSLR standard, the minimum LTD standard, and the capital refill 
framework (such as revising the 7.5 percent requirement to require TLAC 
in an amount no less than 5.5 percent, plus 50 percent of the firm's 
GSIB risk-based capital surcharge, of the GSIB's total leverage 
exposure).
---------------------------------------------------------------------------

    \34\ 82 FR 8266 (January 24, 2017).
---------------------------------------------------------------------------

V. Additional Requests for Comment

    The Board and the OCC seek comment on all aspects of the proposed 
modifications to the eSLR standards for GSIBs and covered IDIs, as well 
as on amendments made to the calculation of the external TLAC leverage 
buffer, and other minor changes to the TLAC rule. Comments are 
requested about the potential advantages of the proposal in ensuring 
the individual safety and soundness of these banking organizations as 
well as on the stability of the financial system. Comments are also 
requested about the calibration and capital impact of the proposal, 
including whether the proposal appropriately maintains a complementary 
relationship between the risk-based and leverage capital requirements, 
and the nature and extent of costs and benefits to the affected 
institutions or the broader economy.

VII. 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 Board and the OCC may not 
conduct or sponsor, and a respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number. The Board and the OCC 
reviewed the proposed rule and determined that it does not create any 
new or revise any existing collection of information under section 
3504(h) of title 44.

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 proposed rule, to prepare an 
Initial 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 commercial banks and savings 
institutions with total assets of $550 million or less and trust 
companies with total assets of $38.5 million of less) or to certify 
that the proposed rule would not have a significant economic impact on 
a substantial number of small entities.
    The OCC currently supervises 956 small entities.\35\
---------------------------------------------------------------------------

    \35\ 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.
---------------------------------------------------------------------------

    As described in the SUPPLEMENTARY INFORMATION section of the 
preamble, the proposed rule would revise the eSLR rule, which applies 
to GSIBs and their IDI subsidiaries. Because the proposed rule would 
apply only to GSIBs and their IDI subsidiaries, it would not impact any 
OCC-supervised small entities. Therefore, the OCC certifies that the 
proposed rule would not have a significant economic impact on a 
substantial number of OCC-supervised small entities
    Board: The RFA, 5 U.S.C. 601 et seq., requires an agency to 
consider whether the rules it proposes will have a significant economic 
impact on a substantial number of small entities.\36\ In connection 
with a proposed rule, the RFA requires an agency to prepare an Initial 
Regulatory Flexibility Analysis describing the impact of the rule on 
small entities or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
An Initial Regulatory Flexibility Analysis must contain (1) a 
description of the reasons why action by the agency is being 
considered; (2) a succinct statement of the objectives of, and legal 
basis for, the proposed rule; (3) a description of, and, where 
feasible, an estimate of the number of small entities to which the 
proposed rule will apply; (4) a description of the projected reporting, 
recordkeeping, and other compliance requirements of the proposed rule, 
including an estimate of the classes of small entities that will be 
subject to the requirement and the type of professional skills 
necessary for preparation of the report or record; and (5) an 
identification, to the extent practicable, of all relevant Federal 
rules which may duplicate, overlap with, or conflict with the proposed 
rule.
---------------------------------------------------------------------------

    \36\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $550 million or less and trust companies with total assets 
of $38.5 million or less. 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 Board has considered the potential impact of the proposed rule 
on small entities in accordance with the RFA. Based on its analysis and 
for the reasons stated below, the Board believes that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing and 
inviting comment on this initial regulatory flexibility analysis. A 
final regulatory flexibility analysis will be conducted after comments 
received during the public comment period have been considered.
    As discussed in detail above, the Board and the OCC are proposing 
to recalibrate the eSLR requirements to provide improved incentives and 
to better ensure that the eSLR serves as a backstop to risk-based 
capital requirements rather than the binding constraint. Consistent 
with these objectives, the proposal would make corresponding changes 
the Board's TLAC requirements, along with other technical and minor 
changes to the Board's TLAC rule.
    The Board has broad authority under the International Lending 
Supervision Act (ILSA) \37\ and the PCA provisions of the Federal 
Deposit Insurance Act \38\ to establish regulatory capital requirements 
for the institutions it regulates. For example, ILSA directs each 
Federal banking agency to cause banking institutions to achieve and 
maintain adequate capital by establishing minimum capital

[[Page 17324]]

requirements as well as by other means that the agency deems 
appropriate.\39\ The PCA provisions of the Federal Deposit Insurance 
Act direct each Federal banking agency to specify, for each relevant 
capital measure, the level at which an IDI subsidiary is well 
capitalized, adequately capitalized, undercapitalized, and 
significantly undercapitalized.\40\ In addition, the Board has broad 
authority to establish regulatory capital standards for bank holding 
companies under the Bank Holding Company Act and the Dodd-Frank Reform 
and Consumer Protection Act (Dodd-Frank Act).\41\ Section 165 of the 
Dodd-Frank Act provides the legal authority for the Board's proposed 
revisions to the TLAC rule.\42\
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    \37\ 12 U.S.C. 3901-3911.
    \38\ 12 U.S.C. 1831o.
    \39\ 12 U.S.C. 3907(a)(1).
    \40\ 12 U.S.C. 1831o(c)(2).
    \41\ See, e.g., sections 165 and 171 of the Dodd-Frank Act (12 
U.S.C. 5365 and 12 U.S.C. 5371). Public Law 111-203, 124 Stat. 1376 
(2010).
    \42\ 12 U.S.C. 5365.
---------------------------------------------------------------------------

    The proposed changes to the eSLR rule would apply only to entities 
that are GSIBs, as identified by the GSIB surcharge rule, and any IDI 
subsidiary of a GSIB that is regulated by the Board. Currently, no 
small top-tier bank holding company would meet the threshold criteria 
for application of the eSLR standards provided in this proposal. 
Accordingly, the proposed changes to the eSLR rule would not have a 
significant economic impact on a substantial number of small entities. 
However, one bank holding company covered under the proposal has a 
state member bank subsidiary with assets of $550 million or less. The 
Board does not expect, however, that this entity would bear any 
additional costs as it would rely on its parent banking organization 
for compliance.
    Under the proposal, the TLAC rule would continue to apply only to a 
top-tier bank holding company domiciled in the United States with $50 
billion or more in total consolidated assets and that has been 
identified as a GSIB, and to covered IHCs. Bank holding companies and 
covered IHCs that are subject to the proposed rule therefore 
substantially exceed the $550 million asset threshold at which a 
banking entity would qualify as a small banking organization. 
Accordingly, the proposed changes to the TLAC rule would not have a 
significant economic impact on a substantial number of small entities.
    The proposed changes to the eSLR rule and TLAC rule would not alter 
existing reporting, recordkeeping, and other compliance requirements. 
In addition, the Board is aware of no other Federal rules that 
duplicate, overlap, or conflict with the proposed changes to the eSLR 
rule and the TLAC rule. The Board believes that the proposed changes to 
the eSLR rule and TLAC rule will not have a significant economic impact 
on small banking organizations supervised by the Board and therefore 
believes that there are no significant alternatives to the proposed 
rule that would reduce the economic impact on small banking 
organizations supervised by the Board.
    The Board welcomes comment on all aspects of its analysis. In 
particular, the Board requests that commenters describe the nature of 
any impact on small entities and provide empirical data to illustrate 
and support the extent of the impact.

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 Board and the OCC have sought to 
present the proposed rule in a simple and straightforward manner, and 
invite comment on the use of plain language. For example:
     Have the Board and the OCC organized the material to suit 
your needs? If not, how could they present the rule more clearly?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would achieve that?
     Is this section format adequate? If not, which of the 
sections should be changed and how?
     What other changes can the Board and the OCC incorporate 
to make the regulation easier to understand?

D. Riegle Community Development and Regulatory Improvement Act of 1994

    The Riegle Community Development and Regulatory Improvement Act of 
1994 (RCDRIA) 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 IDIs, 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 IDIs 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.\43\
---------------------------------------------------------------------------

    \43\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    Because the proposal would not impose additional reporting, 
disclosure, or other requirements on IDIs, section 302 of the RCDRIA 
therefore does not apply. Nevertheless, the requirements of RCDRIA will 
be considered as part of the overall rulemaking process. In addition, 
the Board and the OCC also invite any other comments that further will 
inform the Board's and the OCC's consideration of RCDRIA.

E. OCC Unfunded Mandates Reform Act of 1995 Determination

    The OCC analyzed the proposed 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 proposal 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 proposed 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.\44\ Accordingly, the OCC has not 
prepared a written statement to accompany this proposal.
---------------------------------------------------------------------------

    \44\ The OCC estimates that under the proposed rule, the minimum 
amount of required Tier 1 capital would decrease by $109 billion for 
covered OCC-supervised institutions. The OCC estimates that this 
decrease in required capital--which could allow these 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 $1.7 billion per year across all directly 
impacted OCC-supervised entities. The OCC recognizes, however, that 
affected institutions have several options regarding how they might 
adjust to changes in minimum required Tier 1 capital levels, only 
one of which is to reduce their Tier 1 capital levels.
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 6

    Federal Reserve System, Federal savings associations, National 
banks.

12 CFR Part 208

    Accounting, Agriculture, Banks, banking, Confidential business 
information, Consumer protection, Crime, Currency, Global systemically

[[Page 17325]]

important bank, Insurance, Investments, Mortgages, Reporting and 
recordkeeping requirements, Securities.

12 CFR Part 217

    Administrative practice and procedure, Banks, banking. Holding 
companies, Reporting and recordkeeping requirements, Securities.

12 CFR Part 252

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

Office of the Comptroller of the Currency

    For the reasons set out in the joint preamble, the OCC proposes to 
amend 12 CFR part 6 as follows:

PART 6--PROMPT CORRECTIVE ACTION

0
1. The authority citation for part 6 continues to read as follows:

    Authority: 12 U.S.C. 93a, 1831o, 5412(b)(2)(B).

0
2. Section 6.4 is amended by revising paragraph (c)(1)(iv) to read as 
follows:


Sec.  6.4   Capital measures and capital category definitions.

* * * * *
    (c) * * *
    (1) * * *
    (iv) Leverage Measure:
    (A) The national bank or Federal savings association has a leverage 
ratio of 5.0 percent or greater; and
    (B) With respect to a national bank or Federal savings association 
that is controlled by a bank holding company designated as a global 
systemically important bank holding company pursuant to subpart H of 
Regulation Q (12 CFR part 217, subpart H), the national bank or Federal 
savings association has a supplementary leverage ratio greater than or 
equal to:
    (1) 3.0 percent; plus
    (2) 50 percent of the GSIB surcharge calculated in accordance with 
subpart H of Regulation Q (12 CFR part 217, subpart H) applicable to 
the global systemically important bank holding company that controls 
the national bank or Federal savings association; and
* * * * *

Board of Governors of the Federal Reserve System

12 CFR CHAPTER II

Authority and Issuance

    For the reasons set forth in the preamble, The Board of Governors 
of the Federal Reserve System proposes to amend chapter II of title 12 
of the Code of Federal Regulations as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
 3. The authority citation for part 208 continues to read as follows:

    Authority:  12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 
15 U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 
4104a, 4104b, 4106 and 4128.

0
4. Section 208.43, paragraph (b)(1)(iv) is revised to read as follows:


Sec.  208.43   Capital measures and capital category definitions.

* * * * *
    (b) * * *
    (1) * * *
    (iv) Leverage Measure:
    (A) The bank has a leverage ratio of 5.0 percent or greater; and
    (B) With respect to any bank that is a subsidiary of a global 
systemically important BHC under the definition of ``subsidiary'' in 
section 217.2 of Regulation Q (12 CFR 217.2), the bank has a 
supplementary leverage ratio greater than or equal to:
    (1) 3.0 percent; plus
    (2) 50 percent of the GSIB surcharge calculated in accordance with 
subpart H of Regulation Q (12 CFR part 217, subpart H) applicable to 
the global systemically important BHC that controls the bank; and
* * * * *

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
 5. 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
 6. Section 217.11, paragraphs (a)(4)(ii) and (a)(4)(iii)(B) and Table 
2 to Sec.  217.11 are revised to read as follows:


Sec.  217.11   Capital conservation buffer, countercyclical capital 
buffer amount, and GSIB surcharge.

* * * * *
    (a) * * *
    (4) * * *
    (ii) A Board-regulated institution with a capital conservation 
buffer that is greater than 2.5 percent plus 100 percent of its 
applicable countercyclical capital buffer in accordance with paragraph 
(b) of this section, and 100 percent of its applicable GSIB surcharge, 
in accordance with paragraph (c) of this section, and, if applicable, 
that has a leverage buffer that is greater than 50 percent of its 
applicable GSIB surcharge, is not subject to a maximum payout amount 
under this section.
    (iii) * * *
    (B) Capital conservation buffer was less than 2.5 percent, or, if 
applicable, leverage buffer was less than 50 percent of its applicable 
GSIB surcharge, as of the end of the previous calendar quarter.
* * * * *

                     Table 2 to Sec.   217.11: Calculation of Maximum Leverage Payout Amount
----------------------------------------------------------------------------------------------------------------
                                                                             Maximum leverage payout ratio (as a
                              Leverage buffer                                  percentage of eligible retained
                                                                                      income) (percent)
----------------------------------------------------------------------------------------------------------------
Greater than 50 percent of the Board-regulated institution's applicable      No payout ratio limitation applies.
 GSIB surcharge.
Less than or equal to 50 percent of the Board-regulated institution's        60.
 applicable GSIB surcharge, and greater than 37.5 percent of the Board-
 regulated institution's applicable GSIB surcharge.
Less than or equal to 37.5 percent of the Board-regulated institution's      40.
 applicable GSIB surcharge, and greater than 25 percent of the Board-
 regulated institution's applicable GSIB surcharge.
Less than or equal to 25 percent of the Board-regulated institution's        20.
 applicable GSIB surcharge, and greater than 12.5 percent of the Board-
 regulated institution's applicable GSIB surcharge.
Less than or equal to 12.5 percent of the Board-regulated institution's      0.
 applicable GSIB surcharge.
----------------------------------------------------------------------------------------------------------------


[[Page 17326]]

* * * * *

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

0
 7. The authority citation for part 252 continues to read as follows:

    Authority: 12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 
1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 
5368, 5371.

0
 8. In Sec.  252.61:
0
a. Remove the definition ``External TLAC buffer'';
0
b. Add the definition ``External TLAC risk-weighted buffer'' in 
alphabetical order to read as follows:


Sec.  252.61   Definitions.

* * * * *
    External TLAC risk-weighted buffer means, with respect to a global 
systemically important BHC, the sum of 2.5 percent, any applicable 
countercyclical capital buffer under 12 CFR 217.11(b) (expressed as a 
percentage), and the global systemically important BHC's method 1 
capital surcharge.
* * * * *
0
9. In Sec.  252.62, revise paragraph (a)(2) to read as follows:


Sec.  252.62   External long-term debt requirement.

    (a) * * *
    (2) The global systemically important BHC's total leverage exposure 
multiplied by the sum of 2.5 percent plus 50 percent of the global 
systemically important BHC's applicable GSIB surcharge (expressed as a 
percentage).
* * * * *
0
10. In Sec.  252.63, revise paragraphs (c)(3)(i)(C), (c)(4)(ii), 
(c)(4)(iii)(B), and (c)(5)(iii)(A)(2), and Table 2 to Sec.  252.63 to 
read as follows:


Sec.  252.63   External total loss-absorbing capacity requirement and 
buffer.

* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (C) The ratio (expressed as a percentage) of the global 
systemically important BHC's outstanding eligible external long-term 
debt amount plus 50 percent of the amount of unpaid principal of 
outstanding eligible debt securities issued by the global systemically 
important BHC due to be paid in, as calculated in Sec.  252.62(b)(2), 
greater than or equal to 365 days (one year) but less than 730 days 
(two years) to total risk-weighted assets.
* * * * *
    (4) * * *
    (i) * * *
    (ii) A global systemically important BHC with an external TLAC 
risk-weighted buffer level that is greater than the external TLAC risk-
weighted buffer and an external TLAC leverage buffer level that is 
greater than 50 percent of the global systemically important BHC's 
applicable GSIB surcharge, in accordance with paragraph (c)(5) of this 
section, is not subject to a maximum external TLAC risk-weighted payout 
amount or a maximum external TLAC leverage payout amount.
    (iii) * * *
    (B) External TLAC risk-weighted buffer level was less than the 
external TLAC risk-weighted buffer as of the end of the previous 
calendar quarter or external TLAC leverage buffer level was less than 
50 percent of the global systemically important BHC's applicable GSIB 
surcharge as of the end of the previous calendar quarter.
* * * * *
    (5) * * *
    (iii) * * *
    (A) * * *
    (2) The ratio (expressed as a percentage) of the global 
systemically important BHC's outstanding eligible external long-term 
debt amount plus 50 percent of the amount of unpaid principal of 
outstanding eligible debt securities issued by the global systemically 
important BHC due to be paid in in, as calculated in Sec.  
252.62(b)(2), greater than or equal to 365 days (one year) but less 
than 730 days (two years) to total leverage exposure.
* * * * *

              Table 2 to Sec.   252.63--Calculation of Maximum External TLAC Leverage Payout Amount
----------------------------------------------------------------------------------------------------------------
                                                                                Maximum external TLAC leverage
                    External TLAC leverage buffer level                        payout ratio (as a percentage of
                                                                             eligible retained income) (percent)
----------------------------------------------------------------------------------------------------------------
Greater than 50 percent of the global systemically important BHC's           No payout ratio limitation applies.
 applicable GSIB surcharge.
Less than or equal to 50 percent of the global systemically important BHC's  60.
 applicable GSIB surcharge, and greater than 37.5 percent of the global
 systemically important BHC's applicable GSIB surcharge.
Less than or equal to 37.5 percent of the global systemically important      40.
 BHC's applicable GSIB surcharge, and greater than 25 percent of the global
 systemically important BHC's applicable GSIB surcharge.
Less than or equal to 25 percent of the global systemically important BHC's  20.
 applicable GSIB surcharge, and greater than 12.5 percent of the global
 systemically important BHC's applicable GSIB surcharge.
Less than or equal to 12.5 percent of global systemically important BHC's    0.
 applicable GSIB surcharge.
----------------------------------------------------------------------------------------------------------------

0
11. In Sec.  252.160, revise paragraph (b)(2) to read as follows:


Sec.  252.160   Applicability.

* * * * *
    (b) * * *
    (2) 1095 days (three years) after the later of the date on which:
    (i) The U.S. non-branch assets of the global systemically important 
foreign banking organization that controls the Covered IHC equaled or 
exceeded $50 billion; and
    (ii) The foreign banking organization that controls the Covered IHC 
became a global systemically important foreign banking organization
* * * * *
0
12. In Sec.  252.162, revise paragraph (b)(1) to read as follows:


Sec.  252.162   Covered IHC long-term debt requirement.

* * * * *
    (b) * * *
    (1) A Covered IHC's outstanding eligible Covered IHC long-term debt 
amount is the sum of:
    (i) One hundred (100) percent of the amount due to be paid of 
unpaid principal of the outstanding eligible Covered IHC debt 
securities issued by the Covered IHC in greater than or equal to 730 
days (two years); and
    (ii) Fifty (50) percent of the amount due to be paid of unpaid 
principal of the outstanding eligible Covered IHC debt securities 
issued by the Covered IHC in greater than or equal to 365 days (one

[[Page 17327]]

year) and less than 730 days (two years); and
    (iii) Zero (0) percent of the amount due to be paid of unpaid 
principal of the outstanding eligible Covered IHC debt securities 
issued by the Covered IHC in less than 365 days (one year).
* * * * *
0
13. In Sec.  252.165, revise paragraph (d)(3)(i)(C) to read as follows:


Sec.  252.165   Covered IHC total loss-absorbing capacity requirement 
and buffer.

* * * * *
    (d) * * *
    (3) * * *
    (i) * * *
    (C) The ratio (expressed as a percentage) of the Covered IHC's 
outstanding eligible Covered IHC long-term debt amount plus 50 percent 
of the amount of unpaid principal of outstanding eligible Covered IHC 
debt securities issued by the Covered IHC due to be paid in, as 
calculated in Sec.  252.162(b)(2), greater than or equal to 365 days 
(one year) but less than 730 days (two years) to total risk-weighted 
assets.
* * * * *

    Dated: April 2, 2018.
Joseph M. Otting,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, April 11, 2018.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2018-08066 Filed 4-18-18; 8:45 am]
 BILLING CODE 6210-01-P 4810-33-P