[Federal Register Volume 83, Number 248 (Friday, December 28, 2018)]
[Proposed Rules]
[Pages 67149-67155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27824]


 ========================================================================
 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. 248 / Friday, December 28, 2018 / 
Proposed Rules  

[[Page 67149]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AE84


Company-Run Stress Testing Requirements for FDIC-Supervised State 
Nonmember Banks and State Savings Associations

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Notice of proposed rulemaking with request for public comment.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is requesting 
comment on a proposed rule (proposed rule or NPR) that would revise the 
FDIC's requirements for stress testing by FDIC-supervised institutions, 
consistent with changes made by Section 401 of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act (EGRRCPA). Specifically, 
the proposed rule would amend the FDIC's existing stress testing 
regulations to change the minimum threshold for applicability from $10 
billion to $250 billion, revise the frequency of required stress tests 
by FDIC-supervised institutions, and reduce the number of required 
stress testing scenarios from three to two. The NPR also proposes to 
make certain conforming and technical changes, including changes that 
were previously proposed in an April 2018 notice of proposed rulemaking 
that was superseded, in part, by the enactment of EGRRCPA.

DATES: Comments on the notice of proposed rulemaking must be received 
by February 19, 2019.

ADDRESSES: Interested parties are encouraged to submit written 
comments. Commenters are encouraged to use the title ``Company-Run 
Stress Testing Requirements for FDIC-supervised State Nonmember Banks 
and State Savings Associations'' to facilitate the organization and 
distribution of comments among the Agencies. You may submit comments, 
identified by RIN number, by any of the following methods:
     Agency website: https://www.FDIC.gov/regulations/laws/federal/. Follow instructions for submitting comments on the Agency 
website.
     Email: [email protected]. Include RIN 3064-AE84 on the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.
     Hand Delivered/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street Building (located 
on F Street) on business days between 7:00 a.m. and 5:00 p.m.
     Public Inspection: All comments received must include the 
agency name and RIN 3064-AE84 for this rulemaking. All comments 
received will be posted without change to https://www.fdic.gov/
regulations/laws/federal/, including any personal information provided. 
Paper copies of public comments may be ordered from the FDIC Public 
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, 
VA 22226 by telephone at 1 (877) 275-3342 or 1 (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Ryan Sheller, Section Chief, (202) 
412-4861, [email protected], Large Bank Supervision, Division of Risk 
Management Supervision; Annmarie Boyd, Counsel, (202) 898-3714, 
[email protected]; or Benjamin Klein, Counsel, (202) 898-7027, 
[email protected]; Legal Division, Federal Deposit Insurance Corporation, 
550 17th Street NW, Washington, DC, 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    Prior to the enactment of EGRRCPA, section 165(i)(2) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act \1\ (Dodd-Frank 
Act) required a financial company, including an insured depository 
institution, with total consolidated assets of more than $10 billion 
and regulated by a primary Federal regulatory agency to conduct annual 
stress tests and submit a report to the Board of Governors of the 
Federal Reserve System (Board) and to its primary federal regulatory 
agency. Section 165(i)(2)(C) required each primary Federal regulator to 
issue consistent and comparable regulations to: (1) Implement the 
stress testing requirements, including establishing methodologies for 
conducting stress tests that provided for at least three different sets 
of conditions, including baseline, adverse, and severely adverse; (2) 
establish the form and content of the required reports, and (3) require 
companies to publish a summary of the stress test results.
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    \1\ 12 U.S.C. 5365(i).
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    In October 2012, the FDIC published in the Federal Register its 
rule implementing the Dodd-Frank Act stress testing requirement.\2\ The 
FDIC regulation at 12 CFR part 325 implements the company-run stress 
test requirements of section 165(i)(2) of the Dodd-Frank Act with 
respect to state nonmember banks and state savings associations with 
more than $10 billion in assets (covered banks). Although 12 CFR part 
325 applies to all covered banks that exceed $10 billion in assets, the 
regulation differentiates between ``$10 billion to $50 billion covered 
banks'' and ``over $50 billion covered banks.''
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    \2\ 77 FR 62417 (October 15, 2012). The Board and the Office of 
the Comptroller of the Currency contemporaneously issued comparable 
regulations. See 77 FR 62380 (October 12, 2012) (Board); 77 FR 61238 
(October 9, 2012) (OCC).
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    EGRRCPA, enacted on May 24, 2018,\3\ amended certain aspects of the 
company-run stress-testing requirements in section 165(i)(2) of the 
Dodd-Frank Act. Specifically, section 401 of EGRRCPA raises the minimum 
asset threshold for the company-run stress testing requirement from $10 
billion to $250 billion; replaces the requirement for banks to conduct 
stress tests ``annually'' with the requirement to conduct stress tests 
``periodically;'' and no longer requires the ``adverse'' stress testing 
scenario, thus reducing the number of required stress testing scenarios 
from three to two. The EGRRCPA amendments to the section 165(i)(2) 
stress testing requirements are effective eighteen months after 
enactment.
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    \3\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
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    Prior to the enactment of EGRRCPA, on April 2, 2018, the FDIC 
issued a notice of proposed rulemaking that also proposed certain 
revisions to the FDIC

[[Page 67150]]

stress testing regulations (April NPR).\4\ Certain changes proposed in 
the April NPR, particularly those establishing a stress testing 
transition process for ``over $50 billion covered banks'' are no longer 
relevant as a result of EGRRCPA's increase in the stress testing asset 
threshold to $250 billion. However, other revisions originally proposed 
in the April NPR remain necessary to ensure the FDIC's stress testing 
regulations remain consistent with those of the Board and the Office of 
the Comptroller of the Currency (OCC).
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    \4\ 83 FR 13880 (April 2, 2018).
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II. Description of the Proposed Rule

A. Covered Banks

    As described above, section 401 of EGRRCPA amended section 165 of 
the Dodd-Frank Act by raising the minimum asset threshold for banks 
required to conduct stress tests from $10 billion to $250 billion. The 
proposed rule would implement this change by eliminating the two 
existing subcategories of ``covered bank''--``$10 to $50 billion 
covered bank'' and ``over $50 billion covered bank''--and revising the 
term ``covered bank'' to mean a State nonmember bank or State savings 
association with average total consolidated assets that are greater 
than $250 billion. In addition, the proposal would make certain 
technical and conforming changes to 12 CFR part 325 in order to 
consolidate requirements, such as those related to reporting and 
publication, that are currently referenced separately with respect to 
$10 billion to $50 billion covered banks and over $50 billion covered 
banks.

B. Frequency of Stress Testing

    Section 401 of EGRRCPA also changed the requirement under section 
165 of the Dodd-Frank Act to conduct stress tests from ``annual'' to 
``periodic.'' Consistent with proposals by the Board and the OCC, the 
NPR proposes that, in general, an FDIC-supervised institution that is a 
covered bank as of December 31, 2019, would be required to conduct, 
report, and publish a stress test once every two years, beginning on 
January 1, 2020, and continuing every even-numbered year thereafter 
(i.e., 2022, 2024, 2026, etc.). The proposed rule would also add a new 
defined term, ``reporting year,'' to the definitions at 12 CFR 325.2. A 
covered bank's reporting year would be the year in which a covered bank 
must conduct, report, and publish its stress test. As noted above, the 
``reporting year'' for most covered banks would generally be every 
even-numbered year. However, under the NPR, covered banks that are 
subsidiaries of global systemically important bank holding companies or 
bank holding companies that have $700 billion or more in total assets 
or cross-jurisdictional activity of $75 billion or more would be 
required to conduct, report, and publish stress test results on the 
same schedule as their bank holding companies, which would be annually 
under rules proposed by the Board.
    Subsequent to these changes, some covered banks would have a 
biennial reporting year (biennial stress testing covered banks) while 
others would have an annual reporting year (annual stress testing 
covered banks). In either case, under the NPR, the dates and deadlines 
in the FDIC's stress testing rule would apply for each reporting year 
for a covered bank. For example, a biennial stress testing covered bank 
preparing its 2022 stress test would rely on financial data available 
as of December 31, 2021; use stress test scenarios that would be 
provided by the FDIC no later than February 15, 2022; provide its 
report of the stress test to the FDIC by April 5, 2022; and publish a 
summary of the results of its stress test in the period starting June 
15 and ending July 15 of 2022.
    Based on the FDIC's experience overseeing and reviewing the results 
of company-run stress testing, the FDIC believes that a biennial stress 
testing cycle would be appropriate for most covered banks. For covered 
banks that would stress test on a biennial cycle, the FDIC nonetheless 
expects this level of frequency to provide the FDIC and the covered 
bank with information that is sufficient to satisfy the purposes of 
stress testing. In addition, the FDIC would continue to review the 
covered bank's stress testing processes and procedures. Under the 
proposed rule, all covered banks that would conduct stress tests on a 
biennial basis would be required to conduct stress tests in the same 
reporting year (i.e., the reporting years for biennial stress testing 
covered banks would be synchronized). By requiring these covered banks 
to conduct their stress tests in the same reporting year, the proposal 
would continue to allow the FDIC to make comparisons across banks for 
supervisory purposes and assess macroeconomic trends and risks to the 
banking industry.
    As discussed above, under the proposed rule, only certain covered 
banks would be required to conduct annual stress tests. This subset 
would be limited to covered banks that are consolidated under holding 
companies that are required to conduct stress tests more frequently 
than once every other year. This requirement reflects the FDIC's 
expectation that covered banks that would be required to stress test on 
an annual basis would be subsidiaries of the largest and most 
systemically important banking organizations, (i.e., subsidiaries of 
global systemically important bank holding companies or bank holding 
companies that have $700 billion or more in total assets or cross-
jurisdictional activity of $75 billion). This treatment aligns with the 
agencies' long-standing policy of applying similar standards to holding 
companies and their subsidiary banks.

C. Removal of ``Adverse'' Scenario

    As enacted by the Dodd-Frank Act, section 165(i)(2)(C) required the 
FDIC to establish methodologies for conducting stress tests and further 
required the inclusion of at least three different stress-testing 
scenarios: ``baseline,'' ``adverse,'' and ``severely adverse.'' EGRRCPA 
amended section 165(i) to no longer require the FDIC to include an 
``adverse'' stress-testing scenario and to reduce the minimum number of 
required stress test scenarios from three to two. Given that the 
``adverse'' stress-testing scenario has provided limited incremental 
information to the FDIC and market participants beyond what the 
``baseline'' and ``severely adverse'' stress testing scenarios provide, 
the NPR proposes to remove the ``adverse'' scenario in the FDIC's 
stress testing rule and to maintain the requirement to conduct stress 
tests under the ``baseline'' and ``severely adverse'' stress testing 
scenarios. The NPR would also amend the definition of ``severely 
adverse scenario'' so that the term is defined relative to the 
``baseline scenario,'' rather than relative to the ``adverse 
scenario.''

D. Transition Process for Covered Banks

    Currently, 12 CFR 325.3 provides for a transition period between 
when a bank becomes a covered bank and when the bank must report its 
first stress test. The NPR proposes to revise the transition period in 
12 CFR 325.3 to conform to the other changes in this proposal. 
Accordingly, proposed paragraph (a)(2) would generally require a state 
nonmember bank or state savings association that becomes a covered bank 
after December 31, 2019, to conduct its first stress test under this 
part in the first reporting year that begins more than three calendar 
quarters after the date the state nonmember bank or state savings 
association becomes a covered bank. For example, if a covered bank that 
conducts stress tests on a biennial basis becomes a covered bank on 
March 31 of a non-reporting year (e.g., 2023), the

[[Page 67151]]

bank would report its first stress test in the subsequent calendar year 
(i.e., 2024), which is its first reporting year. If the same bank 
becomes a covered bank on April 1 of a non-reporting year (e.g., 2023), 
it would skip the subsequent reporting calendar year and the following, 
non-reporting calendar year, and would report its first stress test in 
the next reporting year (i.e., 2026). As with other aspects of the 
stress test rule, the rule reserves to the FDIC the authority to change 
the transition period for a particular covered bank, as appropriate in 
light of the nature and level of the activities, complexity, risks, 
operations, and regulatory capital of the covered bank, in addition to 
any other relevant factors.\5\
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    \5\ 12 CFR 325.1(c).
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    The NPR would not establish a transition period for covered banks 
that move from a biennial stress testing requirement to an annual 
stress testing requirement. Accordingly, a covered bank that becomes 
subject to annual stress testing would be required to begin stress 
testing annually as of the next reporting year. The FDIC expects that 
covered banks would anticipate and make arrangements for this 
development. To the extent that particular circumstances warrant the 
extension of a transition period, the FDIC would do so based on its 
reservation of authority and supervisory discretion.

E. Review by Board of Directors

    Currently, 12 CFR 325.5(a)(2) requires a covered bank's board of 
directors, or a committee thereof, to approve and review the policies 
and procedures of the stress testing processes as frequently as 
economic conditions or the bank's condition may warrant, but no less 
than annually. The NPR would revise the frequency of this requirement 
from ``annual'' to ``once every reporting year'' in order to make 
review by the board of directors consistent with the covered bank's 
stress testing cycle.

F. Reservation of Authority

    12 CFR 325.1(c) currently includes a reservation of authority, 
pursuant to which the FDIC may revise the frequency and methodology of 
the stress testing requirement as appropriate for a particular covered 
bank. The NPR proposes to amend the reservation of authority by 
clarifying the FDIC's authority to exempt a covered bank from the 
requirement to conduct a stress test in a particular reporting year.

G. New Range of As-of Dates for Trading Scenario Component

    Under 12 CFR 325.4(c), the FDIC may require a covered bank with 
significant trading activities to include trading and counterparty 
components in its adverse and severely adverse scenarios. The trading 
data to be used in this component is as of a date between January 1 and 
March 1 of a calendar year.\6\ On February 3, 2017 the Board published 
a final rule that extended this range to run from October 1 of the 
calendar year preceding the year of the stress test to March 1 of the 
calendar year of the stress test.\7\ On February 23, 2018, the OCC 
published a final rule making the same change to its stress testing 
regulation.\8\ The proposed rule would make the same change to the 
FDIC's stress testing regulation (as was originally proposed in the 
April NPR). Extending the as-of date range would ensure consistency 
with the Board and OCC rules and increase the FDIC's flexibility to 
choose an appropriate as-of date.
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    \6\ 12 CFR 325.4(c).
    \7\ 82 FR 9308 (Feb 3, 2017).
    \8\ 83 FR 7951 (Feb. 23, 2018).
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H. Other Changes

    As originally proposed in the April NPR, the proposed rule would 
also remove certain obsolete transitional language in 12 CFR 325.3 that 
was included to facilitate a 2014 shift in the dates of the annual 
stress testing cycle.\9\ That transition is now complete and the 
regulatory transition language is no longer necessary.
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    \9\ 79 FR 69365 (Nov. 21, 2014).
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    Additionally, in order to update and standardize the language used 
in part 325, references to ``this subpart'' would be changed to ``this 
part'' following the redesignation of the FDIC's stress test rule from 
subpart C of 12 CFR part 325 to occupy all of part 325.\10\ Finally, 
the proposed rule would eliminate the reference to supervisory guidance 
in 12 CFR 325.5(b)(1).\11\
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    \10\ 83 FR 17737 (Apr. 24, 2018). Additional technical 
amendments to part 325 were recently proposed in a notice of 
proposed rulemaking to implement the current expected credit losses 
methodology for allowances. 83 FR 22312 (May 14, 2018).
    \11\ See Interagency Statement Clarifying the Role of 
Supervisory Guidance, Financial Institution Letter 49-2018 (Sep. 11, 
2018).
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III. Request for Comment

    The FDIC invites comment on all aspects of this proposed rule, 
including the following questions:
    1. The proposal would require a covered bank that is consolidated 
under a holding company that is required to conduct a stress test at 
least once every calendar year to treat every calendar year as a 
reporting year, unless otherwise determined by the FDIC. Is this the 
appropriate frequency for this group of banks? What are the advantages 
and disadvantages of requiring a covered bank to conduct a stress test 
at the same frequency as, or at a different frequency than, its holding 
company?
    2. As an alternative to the requirement that a covered bank be 
required to stress test annually based on the stress testing 
requirements of its holding company, should the FDIC establish separate 
criteria to capture certain large banks (e.g., banks above a specified 
asset threshold), regardless of whether they are consolidated under a 
holding company?
    3. All other covered banks that are not required to stress test 
annually would be required to stress test biennially. Is this the 
appropriate frequency for this category of banks? Should the FDIC 
further subdivide covered banks into additional categories that would 
be subject to different frequency requirements?
    4. Is the length of the transition period for new covered banks 
appropriate? Should the proposal establish a transition period for 
covered banks that are already required to stress test and that move 
from a biennial stress testing requirement to an annual stress testing 
requirement?

IV. Regulatory Analysis

A. Riegle Community Development and Regulatory Improvement Act of 1994

    The RCDRIA requires that the FDIC, in determining the effective 
date and administrative compliance requirements of new regulations that 
impose additional reporting, disclosure, or other requirements on 
insured depository institutions (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.\12\ In addition, in order to provide an adequate 
transition period, new 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.
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    \12\ 12 U.S.C. 4802.

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[[Page 67152]]

    The proposed rule imposes no additional reporting, disclosure, or 
other requirements on IDIs, including small depository institutions, 
nor on the customers of depository institutions. The proposed rule 
would reduce the frequency of company-run stress tests for a subset of 
banks, raise the threshold for covered banks from $10 billion to $250 
billion, and reduce the number of required stress test scenarios from 
three to two for all covered banks. The requirement to conduct, report, 
and publish a company-run stress testing is a previously existing 
requirement imposed by section 165(i) of the Dodd-Frank Act. 
Nonetheless, in connection with determining an effective date for the 
proposed rule, the FDIC invites comment on any administrative burdens 
that the proposed rule would place on depository institutions, 
including small depository institutions, and customers of depository 
institutions.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a proposed rule, to 
prepare and make available for public comment an initial regulatory 
flexibility analysis that describes the impact of a proposed rule on 
small entities.\13\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the rule would not have a 
significant economic impact on a substantial number of small entities. 
The Small Business Administration (SBA) has defined ``small entities'' 
to include banking organizations with total assets of less than or 
equal to $550 million that are independently owned and operated or 
owned by a holding company with less than $550 million in total 
assets.\14\ For the reasons described below and under section 605(b) of 
the RFA, the FDIC certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities.
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    \13\ 5 U.S.C. 601 et seq.
    \14\ The SBA defines a small banking organization as having $550 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended, effective December 2, 2014). ``SBA counts the 
receipts, employees, or other measure of size of the concern whose 
size is at issue and all of its domestic and foreign affiliates.'' 
See 13 CFR 121.103. Following these regulations, the FDIC uses a 
covered entity's affiliated and acquired assets, averaged over the 
preceding four quarters, to determine whether the covered entity is 
``small'' for the purposes of RFA.
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    The FDIC has considered the potential impact of the proposed rule 
on small entities in accordance with the RFA. The FDIC supervises 3,533 
depository institutions,\15\ of which, 2,726 are defined as small 
banking entities by the terms of the RFA.\16\ As discussed in the 
Background Section, 12 CFR part 325 implements company-run stress test 
requirements for all state nonmember banks and state savings 
associations with more than $10 billion in assets (covered banks). The 
proposed rule would raise the threshold for covered banks required to 
conduct company-run stress testing from $10 billion to $250 billion. No 
FDIC-supervised institutions with total consolidated assets of $550 
million or less are or would, as a result of the proposed rule, be 
subject to 12 CFR part 325. Therefore, the proposed rule would not 
affect any small, FDIC-supervised institutions.
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    \15\ FDIC-supervised institutions are set forth in 12 U.S.C. 
1813(q)(2).
    \16\ FDIC Call Report, September 30, 2018.
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    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
rule have any significant effects on small entities that the FDIC has 
not identified?

C. The Paperwork Reduction Act

    The FDIC has determined that this proposed rule involves a 
collection of information pursuant to the provisions of the Paperwork 
Reduction Act of 1995 (the PRA) (44 U.S.C. 3501 et seq.).
    A Federal agency may not conduct or sponsor, and an organization is 
not required to respond to, this information collection unless the 
information collection displays a currently valid Office of Management 
and Budget (OMB) control number. The FDIC has obtained an OMB control 
number for this information collection (3064-0189) and will make a 
submission to OMB in connection with the proposed rule.
    Revised Information Collection Title: Stress Test Reporting 
Templates and Documentation for Covered Banks with Total Consolidated 
Assets of $250 Billion or More.
    OMB Number: 3064-0189.
    Form Number: FDIC DFAST 14A Summary; FDIC DFAST 14A Scenario.
    Affected Public: Insured state nonmember banks.
    Burden Estimate:

                                                                Summary of Annual Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Estimated       Estimated    Estimated time     Estimated
  Information collection description        Type of burden       Obligation to respond      number of     frequency of    per response    annual burden
                                                                                           respondents      responses        (hours)         (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Methodologies and Practices..........  Recordkeeping..........  Mandatory..............              1*        Annually             640              640
Stress Test Reporting................  Reporting..............  Mandatory..............              1*        Annually             240              240
Publications.........................  Disclosure.............  Mandatory..............              1*        Annually             160              160
                                      ------------------------------------------------------------------------------------------------------------------
    Estimated Total Annual Burden....  .......................  .......................  ..............  ..............  ..............            1,040
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Note: FDIC estimates that none of the existing FDIC-supervised institutions are currently subject to the recordkeeping, reporting or disclosure
  requirements in the proposed rule. However, FDIC is reporting one respondent as a placeholder to preserve the burden estimate in case an institution
  becomes subject to these requirements in the future.

    Comments are invited on:
    1. Whether the information collections are necessary for the proper 
performance of the Agencies' functions, including whether the 
information has practical utility;
    2. The accuracy of the Agencies' estimates of the burden of the 
information collections, including the validity of the methodology and 
assumptions used;
    3. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    4. Ways to minimize the burden of information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    5. Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.

[[Page 67153]]

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use 
plain language in all proposed and final rules published after January 
1, 2000. The FDIC invites comment on how to make this proposed rule 
easier to understand.
    For example:
     Has the FDIC organized the material to inform your needs? 
If not, how could it present the proposed rule more clearly?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposal be more clearly stated?
     Does the proposed regulation 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 proposed 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 FDIC incorporate to make the 
proposed regulation easier to understand?

List of Subjects in 12 CFR Part 325

    Administrative practice and procedure, Banks, banking, Reporting 
and recordkeeping requirements, State savings associations, Stress 
tests.

Authority and Issuance

    For the reasons stated in the preamble, the FDIC proposes to amend 
12 CFR part 325 as follows:

PART 325--STRESS TESTING

0
1. The authority citation for part 325 continues to read as follows:

    Authority: 12 U.S.C. 5365(i)(2), 12 U.S.C. 5412(b)(2)(C), 12 
U.S.C. 1818, 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1831o, and 12 
U.S.C. 1831p-1.

0
2. The heading for part 325 is revised to read as set forth above.
0
3. In part 325, revise all references to ``subpart'' to read ``part''.
0
4. Amend Sec.  325.1 by:
0
a. Revising paragraph (b); and
0
b. Redesignating current paragraphs (c)(4), (5), and (6) as (c)(5), 
(6), and (7), and adding new paragraph (c)(4).
    The revisions read as follows:


Sec.  325.1  Authority, purpose, and reservation of authority.

* * * * *
    (b) Purpose. This part implements 12 U.S.C. 5365(i)(2), which 
requires the Corporation (in coordination with the Board of Governors 
of the Federal Reserve System (Board) and the Federal Insurance Office) 
to issue regulations that require each covered bank to conduct periodic 
stress tests, and establishes a definition of stress test, 
methodologies for conducting stress tests, and reporting and disclosure 
requirements.
    (c) * * *
* * * * *
    (4) The Corporation may also exempt a covered bank from the 
requirement to conduct a stress test in a particular reporting year.
* * * * *
0
4. Amend Sec.  325.2 by:
0
a. Removing paragraph (a) and redesignating current paragraphs (b) 
through (h) as paragraphs (a) through (g);
0
b. Revising the definitions of ``covered bank'' in paragraph (c),
0
c. Adding the definition of ``reporting year'' as paragraph (h);
0
d. Revising the definitions of ``scenarios'' in paragraph (i),
0
e. Revising the definitions of ``severely adverse scenario'' in 
paragraph (j), and
0
f. Revising the definitions of ``stress testing cycle'' in paragraph 
(m).
    The revisions and additions read as follows:


Sec.  325.2  Definitions.

    For purposes of this part--
* * * * *
    (c) Covered bank means any state nonmember bank or state savings 
association with average total consolidated assets calculated as 
required under this part that are greater than $250 billion.
* * * * *
    (h) Reporting year means the calendar year in which a covered 
institution must conduct, report, and publish its stress test, as 
required under 12 CFR 325.4(d).
    (i) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a covered bank that the 
Corporation determines are appropriate for use in the company-run 
stress tests, including, but not limited to, baseline and severely 
adverse scenarios.
    (j) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a covered bank and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
* * * * *
    (m) Stress test cycle means the period beginning January 1 of a 
reporting year and ending on December 31 of that reporting year.
0
5. Revise Sec.  325.3 to read as follows:


Sec.  325.3  Applicability.

    (a) Covered banks subject to stress testing. (1) A state nonmember 
bank or state savings association that is a covered bank as of December 
31, 2019, is subject to the requirements of this subpart for the 2020 
reporting year.
    (2) A state nonmember bank or state savings association that 
becomes a covered bank after December 31, 2019, shall conduct its first 
stress test under this part in the first reporting year that begins 
more than three calendar quarters after the date the state nonmember 
bank or state savings association becomes a covered bank, unless 
otherwise determined by the Corporation in writing.
    (b) Ceasing to be a covered bank. A covered bank shall remain 
subject to the stress test requirements of this part unless and until 
total consolidated assets of the covered bank falls to $250 billion or 
less for each of four consecutive quarters as reported on the covered 
bank's most recent Call Reports. The calculation will be effective on 
the as-of date of the fourth consecutive Call Report.
    (c) Covered bank subsidiaries of a bank holding company or savings 
and loan holding company subject to periodic stress test requirements. 
(1) Notwithstanding the requirements applicable to covered banks under 
this section, a covered bank that is a consolidated subsidiary of a 
bank holding company or savings and loan holding company that is 
required to conduct a periodic company-run stress test under applicable 
regulations of the Board of Governors of the Federal Reserve System may 
elect to conduct its stress test and report to the FDIC on the same 
timeline as its parent bank holding company or savings and loan holding 
company.
    (2) A covered bank that elects to conduct its stress test under 
paragraph (c)(1) of this section will remain subject to the same 
timeline requirements of its parent company until otherwise approved by 
the FDIC.
0
6. Revise Sec.  325.4 to read as follows:


Sec.  325.4  Periodic stress tests required.

    Each covered bank must conduct the periodic stress test under this 
part subject to the following requirements:
    (a) Financial data--A covered bank must use financial data as of 
December 31 of the calendar year prior to the reporting year.
    (b) Scenarios provided by the Corporation. In conducting the stress 
test under this part, each covered bank must use the scenarios provided 
by the

[[Page 67154]]

Corporation. The scenarios provided by the Corporation will reflect a 
minimum of two sets of economic and financial conditions, including 
baseline and severely adverse scenarios. The Corporation will provide a 
description of the scenarios required to be used by each covered bank 
no later than February 15 of the reporting year.
    (c) Significant trading activities. The Corporation may require a 
covered bank with significant trading activities, as determined by the 
Corporation, to include trading and counterparty components in its 
severely adverse scenarios. The trading and counterparty position data 
used in this component will be as of a date between October 1 of the 
year preceding the reporting year and March 1 of the reporting year, 
and the Corporation will communicate a description of the component to 
the covered bank no later than March 1 of the reporting year.
    (d) Frequency. A covered bank that is consolidated under a holding 
company that is required, pursuant to applicable regulations of the 
Board of Governors of the Federal Reserve System, to conduct a stress 
test at least once every calendar year must treat every calendar year 
as a reporting year, unless otherwise determined by the Corporation. 
All other covered banks must treat every even-numbered calendar year 
beginning January 1, 2020 (i.e., 2022, 2024, 2026, etc.), as a 
reporting year, unless otherwise determined by the Corporation.
0
7. Amend Sec.  325.5 by revising paragraph (b) to read as follows:


Sec.  325.5   Methodologies and practices.

* * * * *
    (b) Controls and oversight of stress testing processes. (1) The 
senior management of a covered bank must establish and maintain a 
system of controls, oversight, and documentation, including policies 
and procedures, that are designed to ensure that its stress test 
processes satisfy the requirements in this part. These policies and 
procedures must, at a minimum, describe the covered bank's stress test 
practices and methodologies, and processes for validating and updating 
the covered bank's stress test practices and methodologies consistent 
with applicable laws and regulations.
    (2) The board of directors, or a committee thereof, of a covered 
bank must approve and review the policies and procedures of the stress 
testing processes as frequently as economic conditions or the condition 
of the covered bank may warrant, but no less than once every reporting 
year. The board of directors and senior management of the covered bank 
must receive a summary of the results of the stress test.
    (3) The board of directors and senior management of each covered 
bank must consider the results of the stress tests in the normal course 
of business, including but not limited to, the covered bank's capital 
planning, assessment of capital adequacy, and risk management 
practices.
0
8. Revise Sec.  325.6 to read as follows:


Sec.  325.6  Required reports of stress test results to the FDIC and 
the Board of Governors of the Federal Reserve System.

    (a) Report required for periodic stress test results. A covered 
bank must report to the FDIC and to the Board of Governors of the 
Federal Reserve System, on or before April 5 of the reporting year, the 
results of the stress test in the manner and form specified by the 
FDIC.
    (b) Content of reports. (1) The reports required under paragraph 
(a) of this section must include under the baseline scenario, severely 
adverse scenario, and any other scenario required by the Corporation 
under this part, a description of the types of risks being included in 
the stress test, a summary description of the methodologies used in the 
stress test, and, for each quarter of the planning horizon, estimates 
of aggregate losses, pre-provision net revenue, provision for loan and 
lease losses, net income, and pro forma capital ratios (including 
regulatory and any other capital ratios specified by the FDIC). In 
addition, the report must include an explanation of the most 
significant causes for the changes in regulatory capital ratios and any 
other information required by the Corporation.
    (2) The description of aggregate losses and net income must include 
the cumulative losses and cumulative net income over the planning 
horizon, and the description of each regulatory capital ratio must 
include the beginning value, ending value, and minimum value of each 
ratio over the planning horizon.
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Corporation under this 
part and related materials will be determined in accordance with 
applicable law including any available exemptions under the Freedom of 
Information Act (5 U.S.C. 552(b)) and the FDIC's Rules and Regulations 
regarding the Disclosure of Information (12 CFR part 309).
0
9. Revise Sec.  325.7 to read as follows:


Sec.  325.7  Publication of stress test results.

    (a) Publication date--(1) A covered bank must publish a summary of 
the results of its stress tests in the period starting June 15 and 
ending July 15 of the reporting year, provided:
    (A) Unless the Corporation determines otherwise, if the covered 
bank is a consolidated subsidiary of a bank holding company or savings 
and loan holding company subject to supervisory stress tests conducted 
by the Board of Governors of the Federal Reserve System under 12 CFR 
part 252, then, within the June 15 to July 15 period, such covered bank 
may not publish the required summary of its periodic stress test 
earlier than the date that the Board of Governors of the Federal 
Reserve System publishes the supervisory stress test results of the 
covered bank's parent holding company.
    (B) If the Board of Governors of the Federal Reserve System 
publishes the supervisory stress test results of the covered bank's 
parent holding company prior to June 15, then such covered bank may 
publish its stress test results prior to June 15, but no later than 
July 15, through actual publication by the covered bank or through 
publication by the parent holding company under paragraph (b) of this 
section.
    (b) Publication method. The summary required under this section may 
be published on the covered bank's website or in any other forum that 
is reasonably accessible to the public. A covered bank that is a 
consolidated subsidiary of a bank holding company or savings and loan 
holding company that is required to conduct a company-run stress test 
under applicable regulations of the Board of Governors of the Federal 
Reserve System will be deemed to have satisfied the public disclosure 
requirements under this subpart if it publishes a summary of its stress 
test results with its parent bank holding company's or savings and loan 
holding company's summary of stress test results. Subsidiary covered 
banks electing to satisfy their public disclosure requirement in this 
manner must include a summary of changes in regulatory capital ratios 
of such covered bank over the planning horizon, and an explanation of 
the most significant causes for the changes in regulatory capital 
ratios.
    (c) Information to be disclosed in the summary. A covered bank must 
disclose the following information regarding the severely adverse 
scenario if it is not a consolidated subsidiary of a parent bank 
holding company or savings and loan holding company that has elected to

[[Page 67155]]

make its disclosure under 12 CFR 325.3(d):
* * * * *

    Dated at Washington, DC, on December 18, 2018.

    By order of the Board of Directors.

    Federal Deposit Insurance Corporation.
Valerie Best,
Assistant Executive Secretary.
[FR Doc. 2018-27824 Filed 12-27-18; 8:45 am]
 BILLING CODE 6714-01-P