[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Proposed Rules]
[Pages 21988-22036]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07895]
[[Page 21987]]
Vol. 84
Wednesday,
No. 94
May 15, 2019
Part III
Federal Reserve System
-----------------------------------------------------------------------
12 CFR Parts 217, 225, 238, et al.
Prudential Standards for Large Foreign Banking Organizations; Revisions
to Proposed Prudential Standards for Large Domestic Bank Holding
Companies and Savings and Loan Holding Companies; Proposed Rule
Federal Register / Vol. 84, No. 94 / Wednesday, May 15, 2019 /
Proposed Rules
[[Page 21988]]
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Parts 217, 225, 238, and 252
[Regulations Q, Y, LL, and YY; Docket No. R-1658; RIN 7100-AF45]
Prudential Standards for Large Foreign Banking Organizations;
Revisions to Proposed Prudential Standards for Large Domestic Bank
Holding Companies and Savings and Loan Holding Companies
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Notice of proposed rulemaking with request for public comment.
-----------------------------------------------------------------------
SUMMARY: The Board is requesting comment on a proposed rule that would
revise the framework for applying the enhanced prudential standards
applicable to foreign banking organizations under section 165 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended
by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
The proposal would establish categories that would be used to tailor
the stringency of enhanced prudential standards based on the risk
profile of a foreign banking organization's operations in the United
States. The proposal also would amend certain enhanced prudential
standards, including standards relating to liquidity, risk management,
stress testing, and single-counterparty credit limits, and would make
corresponding changes to reporting forms. The proposal would make
clarifying revisions and technical changes to the Board's October 31,
2018, proposal for large U.S. bank holding companies and certain
savings and loan holding companies relating to the Board's internal
liquidity stress testing requirements and GSIB surcharge rule.
Separately, the Board, the Office of the Comptroller of the Currency
(OCC) and the Federal Deposit Insurance Corporation (FDIC) (together,
the agencies) are requesting comment on a proposal to revise the
applicability of the agencies' capital and liquidity requirements for
foreign banking organizations based on the same categories, and the
Board is requesting comment on whether it should impose standardized
liquidity requirements on the U.S. branch and agency network of a
foreign banking organization, as well as possible approaches for doing
so. In addition, the Board and the FDIC are separately requesting
comment on a proposal to revise the applicability of the resolution
planning requirements applicable to large U.S. banking organizations
and foreign banking organizations, using a category approach that is
broadly consistent with the one set forth in this proposal.
DATES: Comments on the proposal, including elements of the proposal
that would be applied to domestic banking organizations and foreign
banking organizations, and other clarifying revisions and technical
changes discussed in section II.G of the Supplementary Information
Section, must be received by June 21, 2019.
ADDRESSES: You may submit comments, identified by Docket No. R-1658 and
RIN 7100-AF45, by any of the following methods:
Agency Website: http://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
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
personally identifiable information at the commenter's request. Public
comments may also be viewed electronically or in paper form in Room
146, 1709 New York Avenue, Washington, DC 20006 between 9:00 a.m. and
5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Constance Horsley, Deputy Associate
Director, (202) 452-5239; Elizabeth MacDonald, Manager, (202) 475-6316;
Brian Chernoff, Lead Financial Institution Policy Analyst, (202) 452-
2952; Mark Handzlik, Lead Financial Institution Policy Analyst, (202)
475-6636, J. Kevin Littler, Lead Financial Institution Policy Analyst,
(202) 475-6677; Matthew McQueeney, Senior Financial Institution Policy
Analyst II, (202) 452-2942; or Christopher Powell, Senior Financial
Policy Analyst II, (202) 452-3442, Division of Banking Supervision and
Regulation; or Laurie Schaffer, Associate General Counsel, (202) 452-
2272; Benjamin McDonough, Assistant General Counsel (202) 452-2036;
Asad Kudiya, Counsel, (202) 475-6358; Jason Shafer, Counsel (202) 728-
5811; Mary Watkins, Senior Attorney, (202) 452-3722; or Alyssa
O'Connor, Attorney, (202) 452-3886, Legal Division. Board of Governors
of the Federal Reserve System, 20th and C Streets NW, Washington, DC
20551.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background
B. Considerations in Tailoring Enhanced Prudential Standards for
Foreign Banking Organizations
II. Overview of the Proposal
A. Scope of Application
B. Scoping Criteria for Proposed Categories
1. Size
2. Other Risk-Based Indicators
a. Cross-Jurisdictional Activity
b. Nonbank Assets
c. Off-Balance Sheet Exposure
d. Weighted Short-Term Wholesale Funding
3. Alternative Scoping Criteria
4. Determination of Applicable Category of Standards
C. Enhanced Prudential Standards for Foreign Banking
Organizations
1. Category II Standards
2. Category III Standards
3. Category IV Standards
D. Single-Counterparty Credit Limits
E. Risk-Management and Risk Committee Requirements
F. Enhanced Prudential Standards for Foreign Banking
Organizations With a Smaller U.S. Presence
G. Technical Changes to the Regulatory Framework for Foreign
Banking Organizations and Domestic Banking Organizations
III. Proposed Reporting Changes
IV. Impact Assessment
A. Liquidity
B. Capital Planning and Stress Testing
C. Single-Counterparty Credit Limits
V. Administrative Law Matters
A. Solicitation of Comments and Use of Plain Language
B. Paperwork Reduction Act Analysis
C. Regulatory Flexibility Act Analysis
I. Introduction
The Board of Governors of the Federal Reserve System (Board) is
requesting comment on a proposed rule (the proposal) that would revise
the framework for applying enhanced prudential standards to foreign
banking organizations with total consolidated assets of $100 billion or
more.\1\
[[Page 21989]]
Specifically, the proposal would revise the thresholds for application
of enhanced prudential standards to foreign banking organizations and
tailor the stringency of those standards based on the U.S. risk
profiles of these firms. The proposal generally would align with the
framework the Board proposed for large U.S. bank holding companies and
certain savings and loan holding companies on October 31, 2018 (the
domestic proposal).\2\ The proposal also is consistent with the Board's
ongoing efforts to assess the impact of its regulations while exploring
alternatives that achieve regulatory objectives and improve upon the
regulatory framework's simplicity, transparency, and efficiency.
---------------------------------------------------------------------------
\1\ Foreign banking organization means a foreign bank that
operates a branch, agency, or commercial lending company subsidiary
in the United States; controls a bank in the United States; or
controls an Edge corporation acquired after March 5, 1987; and any
company of which the foreign bank is a subsidiary. See 12 CFR
211.21(o); 12 CFR 252.2(k). An agency is place of business of a
foreign bank, located in any state, at which credit balances are
maintained, checks are paid, money is lent, or, to the extent not
prohibited by state or federal law, deposits are accepted from a
person or entity that is not a citizen or resident of the United
States. A branch is a place of business of a foreign bank, located
in any state, at which deposits are received and that is not an
agency. See 12 CFR 211.21(b) and (e).
\2\ Prudential Standards for Large Bank Holding Companies and
Savings and Loan Holding Companies, 83 FR 61408 (November 29, 2018).
---------------------------------------------------------------------------
Under the proposal, a foreign banking organization with $100
billion or more in total consolidated assets and a significant U.S.
presence would be subject to Category II, Category III, or Category IV
\3\ enhanced prudential standards depending on the size of its U.S.
operations and the materiality of the same risk-based indicators that
were included in the domestic proposal: Cross-jurisdictional activity,
nonbank assets, off-balance sheet exposure, and weighted short-term
wholesale funding, as discussed below.\4\ Foreign banking organizations
with $100 billion or more in total consolidated assets that do not meet
the thresholds for application of Category II, Category III, or
Category IV standards due to their limited U.S. presence would be
subject to requirements that largely defer to compliance with similar
home-country standards at the consolidated level, with the exception of
certain risk-management standards.
---------------------------------------------------------------------------
\3\ Category I standards would apply only to U.S. global
systemically important bank holding companies. See infra note 28.
\4\ As explained further in this Supplementary Information
section, cross-jurisdictional activity would be measured (a)
excluding intercompany liabilities; and (b) would allow recognition
of financial collateral in calculating intercompany claims.
---------------------------------------------------------------------------
A. Background
The financial crisis revealed significant weaknesses in resiliency
and risk management in the financial sector, and demonstrated how the
failure or distress of large, leveraged, and interconnected financial
companies, including foreign banking organizations, could pose a threat
to U.S. financial stability. Certain foreign banking organizations with
the largest, most complex U.S. subsidiary operations maintained
insufficient capital in the United States and were not appropriately
positioned to support losses among those operations. Accordingly, these
firms were forced to significantly reduce assets in the United States
to address capital deficiencies. In addition, the funding models of
many foreign banking organizations presented unique vulnerabilities, as
they relied on dollar-denominated short-term wholesale funding obtained
in the United States to fund their global investment activities.
Disruptions in the U.S. wholesale funding market limited the ability of
these firms to satisfy liquidity demands, as some of them lacked
adequate risk-management practices to account for the liquidity
stresses of individual products or business lines, had not adequately
accounted for draws from off-balance sheet exposures, or had not
adequately planned for a disruption in funding sources. As a result,
many experienced significant distress and required unprecedented
liquidity support from U.S. and home-country authorities.\5\ For
example, analysis using Federal Reserve Board data on Term Auction
Facility usage in 2008 and 2009 finds that approximately 40 percent of
foreign banking organizations borrowed from the facility during the
financial crisis. Furthermore, on average, U.S. branches of foreign
banking organizations that used the facility funded approximately 10
percent of their assets through the Term Auction Facility during this
period.
---------------------------------------------------------------------------
\5\ See, e.g., Goldberg and Skeie, 2011, ``Why did U.S. branches
of foreign banks borrow at the discount window during the crisis?'',
Liberty Street Economics Blog, Federal Reserve Bank of New York.
---------------------------------------------------------------------------
Section 165 of the Dodd-Frank Act was enacted in response to the
financial crisis and directed the Board to establish enhanced
prudential standards for foreign banking organizations with total
consolidated assets of $50 billion or more.\6\ These standards must
include enhanced risk-based capital and leverage requirements,
liquidity requirements, risk-management requirements, and stress test
requirements, among others.\7\ These standards also must increase in
stringency based on certain statutory considerations in section 165.\8\
In applying section 165 to foreign banking organizations, the Dodd-
Frank Act also directs the Board to give due regard to the principles
of national treatment and equality of competitive opportunity and to
take into account the extent to which a foreign banking organization is
subject, on a consolidated basis, to home-country standards that are
comparable to those applied to financial companies in the United
States.\9\
---------------------------------------------------------------------------
\6\ 12 U.S.C. 5365.
\7\ In addition, the Dodd-Frank Act authorizes the Board to
establish additional enhanced prudential standards relating to
contingent capital, public disclosures, short-term debt limits, and
such other prudential standards as the Board determines appropriate.
\8\ See 12 U.S.C. 5365(a)(1), (b)(3).
\9\ 12 U.S.C. 5365(b)(2).
---------------------------------------------------------------------------
The Board's enhanced prudential standards implement section 165 of
the Dodd-Frank Act and strengthen capital, liquidity, risk-management,
and other prudential standards for banking organizations.\10\ In
applying section 165 to foreign banking organizations, the Board has
tailored enhanced prudential standards based, in part, on the size and
complexity of a foreign banking organization's activities in the United
States. The standards applicable to foreign banking organizations with
a more limited U.S. presence largely rely on compliance with comparable
home-country standards applied at the consolidated foreign parent
level. In comparison, a foreign banking organization with a significant
U.S. presence is subject to enhanced prudential standards and
supervisory expectations that apply to its combined U.S.
operations.\11\ A foreign banking organization with U.S. non-branch
assets of $50 billion or more \12\ also must form a U.S. intermediate
holding company \13\ that must calculate risk-based and leverage
capital ratios, create a risk-management structure (including for the
management of liquidity risk), and engage in stress testing in a manner
comparable to a similarly situated U.S. bank holding company.\14\
---------------------------------------------------------------------------
\10\ 12 CFR part 252.
\11\ The combined U.S. operations of a foreign banking
organization include any U.S. subsidiaries (including any U.S.
intermediate holding company, which would reflect on a consolidated
basis any U.S. depository institution subsidiaries thereof), U.S.
branches, and U.S. agencies.
\12\ U.S. non-branch assets are defined in Regulation YY. See 12
CFR 252.152(b)(2).
\13\ Risk-management and liquidity standards, as well as single-
counterparty credit limits, apply to a foreign banking organization
at the level of its combined U.S. operations. Capital standards
apply to a U.S. intermediate holding company, but they do not apply
to U.S. branches and agencies, which are not required to maintain
regulatory capital separately from the foreign banks of which they
are a part.
\14\ 12 CFR 252.153 et seq.
---------------------------------------------------------------------------
The presence of foreign banking organizations in the United States
brings competitive and countercyclical benefits to U.S. markets, as
these firms serve as an important source of credit to U.S. households
and businesses and contribute materially to the strength and liquidity
of U.S. financial markets. Post-
[[Page 21990]]
crisis financial regulations have resulted in substantial gains in
resiliency for individual firms and the financial system as a whole.
Foreign banking organizations' U.S. operations have become less
fragmented and maintain more capital and liquidity in the United
States.\15\ In addition, the U.S. operations of foreign banking
organizations subject to enhanced prudential standards generally have
made significant improvements in risk identification and management,
data infrastructure, and controls. These improvements have helped to
build a more resilient financial system that is better positioned to
provide American consumers, businesses, and communities access to the
credit they need, even under challenging economic conditions.
---------------------------------------------------------------------------
\15\ Sources: Consolidated Financial Statements for Holding
Companies (FR Y-9C) and Complex Institution Liquidity Monitoring
Report (FR 2052a).
---------------------------------------------------------------------------
The U.S. operations of foreign banking organizations vary in their
complexity and systemic significance, and can present significant risks
to U.S. financial stability. As shown in the financial crisis,
disproportionate use of dollar-denominated short-term wholesale funding
relative to more stable, insured deposits presents significant risks to
U.S. financial stability and the safety and soundness of an individual
firm; some foreign banking organizations remain heavily reliant on this
source of funding. Among all foreign banking organizations with
combined U.S. assets \16\ of $100 billion or more, short-term wholesale
funding is equivalent to approximately 30 percent of their U.S. assets,
ranging from 10 percent to as much as 60 percent.\17\ U.S. branches of
these firms tend to have particularly high reliance on short-term
wholesale funding because they generally lack access to retail
deposits.
---------------------------------------------------------------------------
\16\ See, infra note 18.
\17\ Source: FR 2052a, as of June 30, 2018.
---------------------------------------------------------------------------
In addition, some foreign banking organizations engage in complex
activities through broker-dealers in the United States, which are
highly interconnected to U.S. and foreign financial intermediaries.
Among foreign banking organizations with combined U.S. assets of $100
billion or more, U.S. broker-dealer subsidiaries comprise approximately
25 percent of these firms' U.S. assets in aggregate, with a range of
zero to 50 percent at individual firms.\18\ Overall, total nonbank
assets, including broker-dealer subsidiaries, in aggregate comprise
approximately 25 percent of the combined U.S. assets of these firms,
with a range of zero to 70 percent at individual firms.\19\ The crisis
experience demonstrated that nonbank activities could exacerbate the
effects of a banking organization's distress or failure, due to the
business and operational complexities associated with these activities.
---------------------------------------------------------------------------
\18\ Sources: Parent Company Only Financial Statements for Large
Holding Companies (FR Y-9LP), The Capital and Asset Report for
Foreign Banking Organizations (FR Y-7Q), and the Securities Exchange
Commission's Financial and Operational Combined Uniform Single
Report, as of September 30, 2018.
\19\ Id.
---------------------------------------------------------------------------
The U.S. operations of some foreign banking organizations also
exhibit greater complexity and face risks due to significant levels of
cross-jurisdictional activity and off-balance sheet exposure. Among
foreign banking organizations with combined U.S. assets of $100 billion
or more, cross-jurisdictional activity (excluding cross-jurisdictional
liabilities to non-U.S. affiliates) \20\ is equivalent to approximately
30 percent of those assets, ranging from 13 to as much as 81 percent,
whereas off-balance sheet exposure is equivalent to approximately 30
percent of those assets, ranging from 10 to as much as 51 percent.\21\
As discussed below, both cross-jurisdictional activity and off-balance
sheet exposure provide a measure of a banking organization's
interconnectedness, as well as other risks.
---------------------------------------------------------------------------
\20\ See section II.B.2.a of this Supplementary Information
section. In addition, while the proposal would allow recognition of
financial collateral in calculating intercompany claims, recognition
of financial collateral is not reflected in this analysis.
\21\ This analysis was based on data compiled from the FR Y-7Q,
as well as information collected from certain foreign banking
organizations supervised by the Board as of September 30, 2018.
---------------------------------------------------------------------------
The Board is proposing to modify the enhanced prudential standards
framework applicable to foreign banking organizations in a manner
commensurate with the risks such organizations pose to U.S. financial
stability, based on the risk-based indicators set forth in this
proposal.
B. Considerations in Tailoring Enhanced Prudential Standards for
Foreign Banking Organizations
The Board conducts periodic reviews of its rules to update, reduce
unnecessary costs associated with, and streamline regulatory
requirements based on its supervisory experience and consistent with
the effective implementation of its statutory responsibilities. These
efforts include assessing the impact of regulations as well as
exploring alternative approaches that achieve regulatory objectives
while improving the regulatory framework's simplicity, transparency,
and efficiency. The proposal is the result of this practice, and
reflects amendments to section 165 of the Dodd-Frank Act under the
Economic Growth, Regulatory Relief, and Consumer Protection Act
(EGRRCPA).\22\
---------------------------------------------------------------------------
\22\ Public Law 115-174, 132 Stat. 1296 (2018).
---------------------------------------------------------------------------
The proposal would raise the asset size threshold for the
application of enhanced prudential standards to foreign banking
organizations, consistent with EGRRCPA, and is designed to more
precisely address the risks presented by foreign banking organizations
to U.S. financial stability in a manner that broadly aligns with the
domestic proposal. The proposal builds upon the Board's practice of
tailoring enhanced prudential standards applied to foreign banking
organizations based on the risk profile of their combined U.S.
operations. By applying standards that are broadly consistent with the
standards that would apply to U.S. bank holding companies of a similar
risk profile under the domestic proposal, this proposal would take into
account the principles of national treatment and equality of
competitive opportunity between foreign and domestic banking
organizations.
The proposal would distinguish the manner in which a foreign
banking organization determines its applicable category of capital
standards as compared to its applicable category for all other
standards. For risk-management standards, liquidity standards, and
single-counterparty credit limits, a foreign banking organization would
determine the applicable category based on the risk profile of its
combined U.S. operations. This approach is consistent with the current
enhanced prudential standards framework and recognizes that certain
risks are more appropriately regulated across the combined U.S.
operations of a foreign banking organization to prevent or mitigate
risks to U.S. financial stability. For example, funding vulnerabilities
at a U.S. branch can expose a foreign banking organization's other U.S.
operations to heightened liquidity risk because their customers and
counterparties may not distinguish liquidity stress at one component of
the U.S. operations from the liquidity position of another part of the
U.S. operations. As a result, liquidity stress among the combined U.S.
operations of a foreign banking organization can manifest rapidly and
simultaneously, regardless of the source of that risk. Similarly,
single-counterparty credit limits that are based on and apply only to
one aspect of a foreign banking organization's operations in the United
States can create an incentive to
[[Page 21991]]
concentrate risk elsewhere in the organization's U.S. operations.
More generally, the tendency of market participants to take a more
holistic view of the financial strength and resilience of a foreign
banking organization's U.S. operations underscores the importance of
applying enhanced prudential standards comprehensively across those
operations. Accordingly, consistent with the current enhanced
prudential standards framework, the proposal would apply risk-
management and liquidity standards, as well as single-counterparty
credit limits, to a foreign banking organization at the level of its
combined U.S. operations.
For capital standards, a foreign banking organization would
determine the applicable category based on the risk profile of its U.S.
intermediate holding company, if any,\23\ and not the combined U.S.
operations of the foreign banking organization.\24\ Capital standards
under the proposed categories would apply to a foreign banking
organization at the U.S. intermediate holding company level. This
approach is consistent with the current enhanced prudential standards
framework and recognizes that U.S. branches and agencies do not
maintain regulatory capital separately from their foreign parents.
---------------------------------------------------------------------------
\23\ A foreign banking organization with no U.S. intermediate
holding company would be subject to requirements that defer largely
to compliance with home-country capital standards. Any U.S. bank
holding company or depository institution subsidiary of the foreign
banking organization would continue to be subject to the generally
applicable capital requirements under the agencies' regulatory
capital rule.
\24\ See supra note 9.
---------------------------------------------------------------------------
The visual below provides a simplified illustration of a how a
foreign banking organization may structure its U.S. operations, and
depicts the portion of those operations that would comprise its
combined U.S. operations for purposes of the proposal.
BILLING CODE 6210-01-P
[GRAPHIC] [TIFF OMITTED] TP15MY19.000
BILLING CODE 6210-01-C
II. Overview of the Proposal
The proposal would revise the framework for determining the
applicability of enhanced prudential standards for foreign banking
organizations with total consolidated assets of $100 billion or more,
based on the risk profile of their U.S. operations. The proposal
broadly aligns with the framework set forth in the domestic
proposal,\25\ with modifications, for example, to address the fact that
foreign banking organizations may operate in the United States directly
through U.S. branches and agencies or through subsidiaries.
Specifically, the proposal would establish three categories of
standards to address risk-management, liquidity, and single-
counterparty credit limits for foreign banking organizations
[[Page 21992]]
with $100 billion or more in total consolidated assets and a
significant U.S. presence (i.e., combined U.S. assets of $100 billion
or more). The proposal would also establish three categories of capital
standards for a U.S. intermediate holding company with total
consolidated assets of $100 billion or more, which would apply only to
a U.S. intermediate holding company. The requirements under each
category would be based on the risk profile of a foreign banking
organization's combined U.S. operations or U.S. intermediate holding
company, as measured by their size and the materiality of the following
risk-based indicators: Cross-jurisdictional activity, nonbank assets,
off-balance sheet exposure, and weighted short-term wholesale funding.
For foreign banking organizations with $100 billion or more in total
consolidated assets and a limited U.S. presence (i.e., less than $100
billion in combined U.S. assets), the proposal would not apply the
category framework, and instead would continue to rely largely on
compliance with similar home-country standards at the consolidated,
foreign-parent level. In addition, foreign banking organizations with
$50 billion or more in total consolidated assets would continue to be
required to meet U.S. risk management requirements.
---------------------------------------------------------------------------
\25\ See also Proposed Changes to Applicability Thresholds for
Regulatory Capital and Liquidity Requirements, 83 FR 66024 (December
21, 2018) (domestic interagency proposal).
---------------------------------------------------------------------------
The proposal also would implement reporting requirements that are
necessary to accommodate the use of the risk-based indicators for the
combined U.S. operations of a foreign banking organization, and make
certain technical amendments to the Board's enhanced prudential
standards framework related to the organization of the framework,
certain clarifying revisions, and the removal of outdated transitional
provisions.
Concurrently with this proposal, the agencies separately are
seeking comment on a proposal that would amend the agencies' capital
and liquidity requirements to introduce consistent categories for
tailoring those standards based on the risk profile of foreign banking
organizations' U.S. operations (the interagency foreign banking
organization capital and liquidity proposal). As part of that proposal,
the Board is requesting comment on, but is not proposing, whether it
should impose standardized liquidity requirements to address the
liquidity risks of the U.S. branches and agencies of a foreign banking
organization with significant U.S. operations, as well as potential
approaches to do so. In addition, the Board, together with the FDIC,
separately is seeking comment on a proposal that would address the
applicability of resolution planning requirements to large U.S. banking
organizations and foreign banking organizations based on a category
approach that is broadly consistent with the categories set forth in
this proposal.
A. Scope of Application
Consistent with the domestic proposal and EGRRCPA's amendments to
section 165 of the Dodd-Frank Act, this proposal generally would
increase the asset size threshold for application of the enhanced
prudential standards framework to foreign banking organizations from
$50 billion to $100 billion in total consolidated assets.\26\ Under the
proposal, such a foreign banking organization with $100 billion or more
in combined U.S. assets \27\ would be subject to Category II, Category
III, or Category IV enhanced prudential standards.\28\ The category of
standards that would apply to a foreign banking organization would be
based on the risk profile of its U.S. operations, as measured by size,
cross-jurisdictional activity, nonbank assets, off-balance sheet
exposure, and weighted short-term wholesale funding. The most stringent
requirements would apply to a foreign banking organization subject to
Category II standards. Requirements under this category would apply to
a foreign banking organization with very large U.S. operations or those
with significant cross-jurisdictional activity, and generally would
remain unchanged from existing requirements. In comparison,
requirements applicable to foreign banking organizations would become
increasingly less stringent under Category III and Category IV,
respectively, commensurate with the reduced sizes and risk profiles of
their U.S. operations. Category III standards would apply to a foreign
banking organization with U.S. operations that are significant in size
or have elevated U.S. risk profiles, measured based on the levels of
nonbank assets, off-balance sheet exposure, and weighted short-term
wholesale funding among those operations. The least stringent
prudential standards would apply under Category IV to a foreign banking
organization with combined U.S. assets of at least $100 billion that is
not subject to Category III or Category II standards based on its U.S.
risk profile.
---------------------------------------------------------------------------
\26\ Under the proposal, the threshold for application of risk-
management requirements would increase from $10 billion to $50
billion in total consolidated assets.
\27\ Combined U.S. assets means the sum of the consolidated
assets of each top-tier U.S. subsidiary of a foreign banking
organization (excluding any section 2(h)(2) company, if applicable)
and the total assets of each U.S. branch and U.S. agency of a
foreign banking organization, as reported by the foreign banking
organization on the Annual Report of Foreign Banking Organizations
(FR Y-7Q).
\28\ This proposal would not apply the most stringent Category I
standards to foreign banking organizations because, under the
domestic proposal, Category I standards would apply only to U.S.
global systemically important bank holding companies. Under Board
regulations, only a top-tier U.S. bank holding company can be
identified as a U.S. global systemically important bank holding
company. See 12 CFR 217.11(d); 12 CFR part 217, subpart H.
---------------------------------------------------------------------------
Section II.B. of this Supplementary Information section discusses
the proposed criteria for determining which category of standards would
apply to a foreign banking organization, and Sections II.C. through
II.E. of this Supplementary Information section discuss the standards
that would apply under each category. Section II.F. of this
Supplementary Information section discusses the standards that would
apply to foreign banking organizations with total consolidated assets
of $100 billion or more, but a U.S. presence that does not meet the
criteria for the application of prudential standards under the
categories described in this proposal and that presents lesser risk to
U.S. financial stability. Other than U.S. risk-management requirements,
the proposal would not apply enhanced prudential standards to foreign
banking organizations with total consolidated assets of less than $100
billion, consistent with EGRRCPA.
B. Scoping Criteria for Proposed Categories
Under the proposal, the three categories for determining the
enhanced prudential standards that apply to foreign banking
organizations with combined U.S. assets of $100 billion or more would
be defined based on the following criteria, measured based on the
combined U.S. operations of a foreign banking organization:
Category II standards, including risk-management
standards, liquidity requirements, and single-counterparty credit limit
requirements, would apply to foreign banking organizations the combined
U.S. operations of which have $700 billion or more in assets, or $75
billion or more in cross-jurisdictional activity.\29\ In addition,
under the interagency foreign banking organization capital and
liquidity proposal, the most stringent standardized liquidity
requirements would apply to the foreign banking organization at the
level of any U.S. intermediate holding company and
[[Page 21993]]
certain of its depository institution subsidiaries.
---------------------------------------------------------------------------
\29\ Cross-jurisdictional activity would be measured excluding
cross-jurisdictional liabilities to non-U.S. affiliates and cross-
jurisdictional claims on non-U.S. affiliates to the extent that
these claims are secured by financial collateral.
---------------------------------------------------------------------------
Category III standards, including risk-management
standards, liquidity requirements, and single-counterparty credit limit
requirements, would apply to foreign banking organizations that are not
subject to Category II standards and the combined U.S. operations of
which have $250 billion or more in assets or $75 billion or more in any
of the following indicators: Nonbank assets, weighted short-term
wholesale funding, or off-balance sheet exposure. Standardized
liquidity requirements \30\ (applicable at the level of its U.S.
intermediate holding company (and certain of its depository institution
subsidiaries), if any) would vary in stringency based on a foreign
banking organization's level of weighted short-term wholesale funding,
as described in the interagency foreign banking organization capital
and liquidity proposal.
---------------------------------------------------------------------------
\30\ The specific standardized liquidity requirements that would
apply under Categories III and IV based on weighted short-term
wholesale funding levels of $75 billion and $50 billion,
respectively, are discussed in the interagency foreign banking
organization capital and liquidity proposal. Proposed changes to the
liquidity data reporting requirements under FR 2052a are discussed
later in this proposal.
---------------------------------------------------------------------------
Category IV risk-management standards and liquidity
requirements would apply to foreign banking organizations with at least
$100 billion in combined U.S. assets that do not meet any of the
thresholds proposed for Categories II and III. In addition, as
discussed in the interagency foreign banking organization capital and
liquidity proposal, standardized liquidity requirements would apply to
a foreign banking organization with $50 billion or more in weighted
short-term wholesale funding at its combined U.S. operations, at the
level of its U.S. intermediate holding company (and certain of its
depository institution subsidiaries), if any.
Capital standards, including stress testing and capital planning,
would apply to a U.S. intermediate holding company that meets the
thresholds for Categories II, III and IV described above, based on its
total consolidated assets or the materiality of the risk-based
indicators. The stress testing and capital planning requirements would
increase in stringency commensurate with the risk profile of a U.S.
intermediate holding company.
The use of a multi-category approach would align the enhanced
prudential standards applicable to foreign banking organizations with
those set forth in the domestic proposal for U.S. firms with similar
risk profiles. Such an approach would allow firms and the public to
identify what requirements apply to a foreign banking organization's
U.S. operations and predict what requirements would apply if the risk
profile of those operations were to change. By taking into
consideration the materiality of each risk indicator that would be used
to determine the applicability of Category II, Category III, or
Category IV standards, the proposal would provide a basis for assessing
the extent to which a foreign banking organization's U.S. operations
present U.S. financial stability and safety and soundness risks. The
proposed thresholds would apply based on the level of each indicator
averaged over the preceding four calendar quarters, as described
further below, in order to capture significant changes in a foreign
banking organization's U.S. risk profile, rather than temporary
fluctuations.
In general, the proposed categories of standards align with the
categories that would apply under the domestic proposal to U.S. banking
organizations. The domestic proposal includes an additional category of
standards--Category I--that would apply to U.S. global systemically
important bank holding companies (U.S. GSIBs), identified using the
methodology under the Board's U.S. GSIB surcharge rule.\31\ Because the
U.S. GSIB surcharge rule would not identify a foreign banking
organization or U.S. intermediate holding company as a U.S. GSIB,
Category I standards would not apply to any foreign banking
organization or U.S. intermediate holding company under this proposal.
---------------------------------------------------------------------------
\31\ See 12 CFR part 217 subpart H; see also Regulatory Capital
Rules: Implementation of Risk-Based Capital Surcharge for Global
Systemically Important Bank Holding Companies, 80 FR 49082 (August
14, 2015).
---------------------------------------------------------------------------
Question 1: What would be the advantages and disadvantages of
including enhanced prudential standards that are more stringent than
those in Category II, comparable to those of Category I under the
domestic proposal, and applying them to a U.S. intermediate holding
company or the combined U.S. operations of a foreign banking
organization with a comparable systemic risk profile to that of a U.S.
GSIB? What differences in enhanced prudential standards would be
appropriate to apply to such a U.S. intermediate holding company or
foreign banking organization with respect to its combined U.S.
operations, relative to the standards that would apply under the
proposal?
1. Size
Section 165 of the Dodd-Frank Act, as amended by EGRRCPA, requires
the Board to apply enhanced prudential standards to foreign banking
organizations based on their total consolidated asset size. The
proposal would consider total consolidated asset size for determining
whether a foreign banking organization is subject to the enhanced
prudential standards framework, and tailor the application of those
standards based on the combined U.S. assets of a foreign banking
organization \32\ or, with respect to the application of capital
standards, the total consolidated assets of a foreign banking
organization's U.S. intermediate holding company.\33\ This approach is
similar to the current enhanced prudential standards framework.
---------------------------------------------------------------------------
\32\ Combined U.S. assets are reported on the FR Y-7 or FR Y-7Q.
Total consolidated assets of a U.S. intermediate holding company are
reported on the Consolidated Statements for Holding Companies, under
Form FR Y-9C. Consistent with the existing prudential standards
framework, the combined U.S. assets of a foreign banking
organization would continue to be calculated as the sum of the
consolidated assets of each top-tier U.S. subsidiary of the foreign
banking organizations (excluding any section 2(h)(2) company, if
applicable) and the total assets of each U.S. branch and U.S. agency
of the foreign banking organization.
\33\ All U.S. intermediate holding companies are required to
file Form FR Y-9C, regardless of whether they control a bank. If the
U.S. intermediate holding company has not filed an FR Y-9C for each
of the four most recent consecutive quarters, it must use the most
recent quarter or consecutive quarters as reported on FR Y-9C.
---------------------------------------------------------------------------
The Board believes a size threshold based on a foreign banking
organization's U.S. presence is appropriate for differentiating among
foreign banking organizations in view of the statutory purpose of the
enhanced prudential standards framework, which is to prevent or
mitigate risk to U.S. financial stability.\34\ In addition, a size
threshold based on the combined U.S. operations or U.S. intermediate
holding company of a foreign banking organization would more closely
align the application of enhanced prudential standards to both domestic
and foreign banking organizations. The asset size thresholds set forth
in this proposal are generally consistent with those that would apply
to large U.S. banking organizations under the domestic proposal for
Categories II through IV.
---------------------------------------------------------------------------
\34\ 12 U.S.C. 5365(a)(1).
---------------------------------------------------------------------------
In developing the asset size thresholds for the domestic proposal,
the Board considered the requirements of section 165 of the Dodd-Frank
Act, as amended by EGRRCPA, together with historical examples of large
U.S. banking organizations that experienced
[[Page 21994]]
significant distress or failure during the financial crisis. The
Board's analysis found that the crisis experience of domestic banking
organizations with total consolidated assets of $100 billion, $250
billion, and $700 billion presented materially different risks to U.S.
financial stability and the U.S. economy more broadly, which would
support the differentiation of enhanced prudential standards for firms
included within those size thresholds.\35\ In addition, size thresholds
of these orders of magnitude reflected observed differences in
structural and operational complexity, and in the range and scale of
financial services a firm provides.
---------------------------------------------------------------------------
\35\ 83 FR 61408, 61413-14 (November 29, 2018).
---------------------------------------------------------------------------
The Board recognizes that the U.S. operations of foreign banking
organizations are structured differently than domestic firms;
nevertheless, the risks to U.S. financial stability and safety and
soundness that stem from size are present regardless of structure.
Because foreign banking organizations operate through both branches and
agencies as well as U.S. subsidiaries, the proposal would establish
categories based on the foreign banking organization's combined U.S.
assets. The size of a foreign banking organization's U.S. operations
provides a measure of the extent to which U.S. customers or
counterparties may be exposed to a risk of loss or suffer a disruption
in the provision of services in the United States.\36\ For example,
during the financial crisis some large foreign banking organizations
rapidly deleveraged their U.S. operations to address capital
deficiencies, leaving commercial borrowers without a primary source of
funding and contributing to large-scale asset fire sales. For foreign
banking organizations with the largest U.S. operations, rapid
deleveraging among those operations could disrupt U.S. markets and
thereby present significant risks to U.S. financial stability in the
same way as similarly sized domestic firms, due to the materiality of
their presence in the United States.
---------------------------------------------------------------------------
\36\ For domestic banking organizations, categories of standards
are defined based on total consolidated assets, including the U.S.
banking organization's international operations.
---------------------------------------------------------------------------
Question 2: What are the advantages and disadvantages of using size
thresholds to tailor prudential standards for foreign banking
organizations? In what ways, if any, does the inclusion of asset size
thresholds in prudential standards drive changes in foreign banking
organizations' business models and risk profiles in ways that differ
from the effects of thresholds based on other risk-based indicators? To
what extent can other factors adequately differentiate among the risk
profiles of foreign banking organizations and serve as tools to tailor
prudential standards?
2. Other Risk-Based Indicators
Consistent with the domestic proposal, this proposal also would
consider the level of cross-jurisdictional activity, nonbank assets,
off-balance sheet exposure, and weighted short-term wholesale funding
levels of a foreign banking organization's U.S operations to determine
the applicable category of standards. The Board is proposing to apply a
uniform threshold of $75 billion for each of these risk-based
indicators. A threshold of $75 billion would represent at least 30
percent and as much as 75 percent of the size of the U.S. operations of
a foreign banking organization or a U.S. intermediate holding company
with combined U.S. assets or total consolidated assets, respectively,
of between $100 billion and $250 billion. The agencies also proposed a
$75 billion threshold for these indicators in the domestic interagency
proposal. Under this proposal and the domestic proposal, setting the
thresholds for these risk-based indicators at $75 billion would ensure
that domestic banking organizations and the U.S. operations of foreign
banking organizations that account for the vast majority--over 70
percent--of the total amount of each risk-based indicator would be
subject to enhanced prudential standards. To the extent the levels and
distribution of an indicator substantially change in the future, the
Board may consider modifications, if appropriate.
In addition to foreign banking organizations with $700 billion or
more in combined U.S. assets, Category II standards would apply to a
foreign banking organization with (1) $100 billion or more in combined
U.S. assets and (2) combined U.S. operations with $75 billion or more
in cross-jurisdictional activity. Similarly, in addition to foreign
banking organizations with $250 billion or more in combined U.S.
assets, Category III standards would apply to foreign banking
organization with (1) $100 billion or more in combined U.S assets and
(2) combined U.S. operations with at least $75 billion in weighted
short-term wholesale funding, nonbank assets, or off-balance sheet
exposure.\37\
---------------------------------------------------------------------------
\37\ For capital standards, in addition to U.S. intermediate
holding companies with $700 billion or more in total assets,
Category II would apply to a U.S. intermediate holding company with
(1) total consolidated assets of $100 billion or more and (2) $75
billion or more in cross-jurisdictional activity. In addition to
U.S. intermediate holding companies with $250 billion or more in
total assets, Category III capital standards would apply to a U.S.
intermediate holding company with (1) $100 billion or more in total
consolidated assets and (2) $75 billion or more in weighted short-
term wholesale funding, nonbank assets, or off-balance sheet
exposure.
---------------------------------------------------------------------------
a. Cross-Jurisdictional Activity
Foreign banking organizations with U.S. operations that engage in
significant cross-jurisdictional activity present complexities that
support the application of more stringent standards. For example,
significant cross-border activity of the U.S. operations of a foreign
banking organization may require more sophisticated risk management to
appropriately address the heightened interconnectivity and complexity
of those operations and the diversity of risks across all jurisdictions
in which the foreign banking organization provides financial services.
In addition, cross-jurisdictional activity may present increased
challenges in resolution because there could be legal or regulatory
restrictions that prevent the transfer of financial resources across
borders where multiple jurisdictions and regulatory authorities are
involved. The use of a threshold based on cross-jurisdictional activity
to differentiate prudential standards applicable to foreign banking
organizations is also intended to maintain consistency with the
thresholds proposed for large U.S. banking organizations under the
domestic proposal. The Board's capital and liquidity regulations
currently use total on-balance sheet foreign exposure, as reported on
the Country Exposure Report (FFIEC 009), to determine the application
of certain requirements for depository institution holding companies
and certain of their depository institution subsidiaries, such as the
supplementary leverage ratio and countercyclical capital buffer.\38\
---------------------------------------------------------------------------
\38\ See 12 CFR 217.10 (requiring advanced approaches Board-
regulated institutions to maintain a supplementary leverage ratio);
217.11(b) (requiring advanced approaches Board-regulated
institutions to maintain a countercyclical capital buffer);
217.100(b)(1) (describing the size and on-balance sheet foreign
exposure thresholds for determining an advanced approaches Board-
regulated institution).
---------------------------------------------------------------------------
For purposes of determining the application of prudential standards
under the proposal, a foreign banking organization would measure cross-
jurisdictional activity as the sum of the cross-jurisdictional assets
and liabilities of its combined U.S. operations or its U.S.
intermediate holding company, as applicable, excluding intercompany
liabilities and collateralized intercompany claims. Measuring cross-
jurisdictional activity taking into
[[Page 21995]]
account both assets and liabilities--instead of just assets--would
provide a broader gauge of the scale of cross-border operations and
associated risks, as it includes both borrowing and lending activities
outside of the United States.\39\ The proposal would adjust the
measurement of cross-jurisdictional activity to exclude intercompany
liabilities and to recognize collateral in calculating intercompany
claims in order to reflect the structural differences between foreign
banking organizations' operations in the United States and domestic
holding companies.
---------------------------------------------------------------------------
\39\ The Basel Committee on Banking Supervision (BCBS) recently
amended its measurement of cross-border activity to more
consistently reflect derivatives, and the Board anticipates it will
separately propose changes to the FR Y-15 in a manner consistent
with this change. Any related changes to the proposed cross-
jurisdictional activity indicator would be updated through those
separately proposed changes to the FR Y-15.
---------------------------------------------------------------------------
Specifically, the proposed cross-jurisdictional activity indicator
would exclude liabilities of the combined U.S. operations or U.S.
intermediate holding company that reflect transactions with non-U.S.
affiliates. Intercompany liabilities generally represent funding from
the foreign banking organization to its U.S. operations and, in the
case of certain long-term debt instruments, may be required by
regulation.\40\ The proposed exclusion recognizes the benefit of the
foreign banking organization providing support to its U.S. operations.
Short-term funding from affiliates, which may pose heightened liquidity
risks to the U.S. operations, would be captured in the proposal's
measure of weighted short-term wholesale funding.
---------------------------------------------------------------------------
\40\ See 12 CFR 252.162 and 12 CFR 252.165.
---------------------------------------------------------------------------
Foreign banking organizations' U.S. operations often intermediate
transactions between U.S. clients and foreign markets, including by
facilitating access for foreign clients to U.S. markets, and clearing
and settling U.S. dollar-denominated transactions. In addition, they
engage in transactions to manage enterprise-wide risks. In these roles,
they engage in substantial and regular transactions with non-U.S.
affiliates. In recognition that the U.S. operations have increased
cross-jurisdictional activity as a result of these activities, the
proposal would include in cross-jurisdictional claims only the net
exposure (i.e., net of collateral value subject to haircuts) of all
secured transactions with non-U.S. affiliates to the extent that these
claims are collateralized by financial collateral.\41\
---------------------------------------------------------------------------
\41\ See the definition of ``financial collateral'' at 12 CFR
217.2.
---------------------------------------------------------------------------
The proposed recognition of financial collateral would apply to all
types of claims, including repurchase agreements and securities lending
agreements. Specifically, claims on non-U.S. affiliates would be
reduced by the value of any financial collateral in a manner consistent
with the Board's capital rule,\42\ which permits, for example, banking
organizations to recognize financial collateral when measuring the
exposure amount of repurchase agreements and securities borrowing and
securities lending transactions (together, repo-style
transactions).\43\ The capital rule recognizes as financial collateral
certain types of high-quality collateral, including cash on deposit and
securities issued by the U.S. government, as well as certain types of
equity securities and debt. With the exception of cash on deposit, the
banking organization also is required to have a perfected, first-
priority interest in the collateral or, outside of the United States,
the legal equivalent thereof.\44\ Permitting the reduction of certain
claims on non-U.S. affiliates if the collateral meets the definition of
financial collateral would ensure that the collateral is liquid, while
the use of supervisory haircuts would also limit risk associated with
price volatility. In addition, relying on the capital rule's definition
of financial collateral would provide clarity regarding the types of
collateral eligible to reduce the amount of cross-jurisdictional claims
under this approach.
---------------------------------------------------------------------------
\42\ See 12 CFR 217.37.
\43\ See the definition of ``repo-style transaction'' at 12 CFR
217.2.
\44\ See 12 CFR 217.2. The proposal would differ from the FFIEC
009, on which U.S. intermediate holding companies report cross-
border claims, in two respects. The FFIEC 009 uses different rules
to recognize collateral, using the term ``eligible collateral,''
which includes cash as well as investment grade debt or marketable
equity securities. In addition, the FFIEC 009 requires reporting of
repurchase agreements, securities lending agreements and other
similar financing agreements at the value of the outstanding claim,
regardless of the amount of collateral provided. See Instructions
for the Preparation of the Country Exposure Report (FFIEC 009) at
12-13 (effective September 2016). The proposal would use the concept
of financial collateral from the capital rule and would recognize
collateral for any claim, including claims to which the collateral
haircut approach applies under the capital rule.
In addition, the FFIEC 009 measures cross-jurisdictional
activity on an ultimate-risk basis, whereby claims are allocated
based on the country of residence of the ultimate obligor, which, in
certain cases, can mean the country or residence of the collateral
provided (ultimate-risk basis). Securities lending agreements and
repurchase agreements, however, are allocated based on the residence
of the counterparty, without taking into consideration features of
the collateral. The proposal would require allocation of exposures
on an ultimate-risk basis (subject to the netting described above).
---------------------------------------------------------------------------
As an example of how the proposed financial collateral recognition
would operate, if the U.S. operations of a foreign banking organization
placed cash with the parent foreign banking organization through a
reverse repurchase agreement, and the parent foreign banking
organization provided securities that qualified as financial
collateral, the exposure of the U.S. operations would be reduced by the
value of the securities in a manner consistent with the capital rule's
collateral haircut approach. If the value of the claim exceeds the
value of the financial collateral after taking into account supervisory
haircuts, then the uncollateralized portion of the claim would be
included in the foreign banking organization's measure of cross-
jurisdictional activity. Conversely, if the value of the collateral
after taking into account supervisory haircuts exceeds the value of the
claim, the exposure to the non-U.S. affiliate would be excluded from
the measure of cross-jurisdictional activity.
In addition to the proposal to exclude intercompany liabilities and
certain collateralized intercompany claims from the measure of cross-
jurisdictional activity, the Board is requesting comment on
alternatives to adjusting the measure for cross-jurisdictional activity
to recognize that the U.S. intermediate holding company or combined
U.S. operations engage in substantial and regular transactions with
non-U.S. affiliates.
Under the first alternative, the Board would exclude all
transactions with non-U.S. affiliates from the computation of the
cross-jurisdictional activity of a U.S. intermediate holding company or
the combined U.S. operations of a foreign banking organization. This
alternative would focus only on third-party assets and liabilities and
may be a less burdensome way to account for the structural differences
between foreign banking organizations' operations in the United States
and large domestic holding companies.
Under the second alternative, the Board would adjust the $75
billion threshold for the cross-jurisdictional activity indicator. For
example, the Board could apply a threshold of $100 billion for cross-
jurisdictional activity such that the U.S. intermediate holding company
or combined U.S. operations of a foreign banking organization would be
subject to Category II capital or liquidity standards if it exceeded
this threshold. This alternative would recognize the flows between a
foreign banking organization's U.S. operations and its foreign
affiliates without making any additional adjustments to address
[[Page 21996]]
intercompany liabilities or collateralized intercompany claims. This
alternative would not require a foreign banking organization to monitor
collateral transfers or calculate supervisory haircuts in measuring its
cross-jurisdictional activity.
Question 3: What are the advantages and disadvantages of
recognizing the value of collateral for certain transactions with non-
U.S. affiliates in the computation of the cross-jurisdictional activity
of a U.S. intermediate holding company or the combined U.S. operations
of a foreign banking organization? How would this recognition align
with the objectives of the proposed indicator as a measure of
operational complexity, scope, and risks associated with operations and
activities in foreign jurisdictions and with principles of national
treatment and equality of competitive opportunity?
Question 4: What would be the advantages and disadvantages of
excluding from the measure of cross-jurisdictional activity liabilities
to non-U.S. affiliates? How would this exclusion align with the
objectives of the proposed indicator as a measure of operational
complexity, scope, and risks associated with operations and activities
in foreign jurisdictions and with principles of national treatment and
equality of competitive opportunity?
Question 5: What are the advantages and disadvantages of
recognizing collateral for all repo-style transactions and other
collateralized positions? To what extent should the type of transaction
determine whether collateral is recognized?
Question 6: What are the advantages and disadvantages of relying on
the definition of financial collateral in the capital rule and applying
supervisory haircuts in calculating the amount of cross-jurisdictional
claims? What are the burdens associated with this approach and how do
these burdens compare with the benefits? Are there other criteria that
the Board should consider in addition to this approach (e.g., the
amount of time that would be needed to monetize the collateral) and
why?
Question 7: What would be the advantages and disadvantages of other
ways to define eligible collateral, such relying on the definition of
high-quality liquid assets (HQLA) in the liquidity coverage ratio rule
(LCR rule)? \45\ Under this alternative approach, collateral would be
recognized in the calculation of the exposure if the collateral is
HQLA. Would relying on the definition of HQLA help ensure the
collateral is liquid and provide greater clarity on the types of
collateral that could be recognized? What are the burdens associated
with this approach and how do these burdens compare with the benefits?
---------------------------------------------------------------------------
\45\ See Liquidity Coverage Ratio: Liquidity Risk Measurement
Standards, 79 FR 61440, 61450 (Oct. 10, 2014), codified at 12 CFR
part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC).
For the definition of HQLA under the Board's LCR rule, see 12 CFR
249.20.
---------------------------------------------------------------------------
Question 8: As discussed above, measuring cross-jurisdictional
activity on an ultimate risk basis takes into consideration both the
type of collateral, and the location of the collateral or issuer. On
the FFIEC 009, if collateral is in the form of investment grade debt or
marketable securities, risk is allocated based on the residence of the
issuer of the security, while cash collateral is allocated based on the
residence of the legal entity where the cash is held. What would be the
advantages and disadvantages of allocating cross-jurisdictional claims
based on the location of the entity holding the collateral for
securities and cash?
Question 9: On the FFIEC 009, repurchase agreements, securities
lending agreements, and other similar financial transactions cannot be
re-allocated or ``transferred'' to a different jurisdiction based on
the location of the collateral or issuer. What would be the advantages
and disadvantages of allowing repurchase agreements, securities
financing transactions, and other similar agreements to be excluded
from the measure of cross-jurisdictional activity if the collateral was
issued by a U.S. entity or, for cash collateral, located in the United
States? How would such treatment align with the objectives of the
proposed indicator as a measure of operational complexity, scope, and
risks associated with operations and activities in foreign
jurisdictions and with principles of national treatment and equality of
competitive opportunity?
Question 10: What are the advantages and disadvantages of measuring
cross-jurisdictional activity on an immediate-counterparty basis (i.e.,
on the basis of the country of residence of the borrower) rather than
on an ultimate-risk basis? What, if any, clarifications could be made
to the measurement of cross-jurisdictional activity on an ultimate-risk
basis to ensure consistency across banking organizations and more
accurate assessment of risk?
Question 11: What is the most appropriate way in which the proposed
cross-jurisdictional activity indicator could account for the risk of
transactions with a delayed settlement date, and why? What are the
advantages and disadvantages of the use of settlement-date accounting
versus trade-date accounting for purposes of the cross-jurisdictional
activity indicator?
Question 12: What are the advantages or disadvantages of the
alternative approaches to measuring non-U.S. affiliate transactions for
purposes of the cross-jurisdictional activity indicator? How do these
alternatives compare to the proposal?
Question 13: What other positions, if any, should be excluded from
or included in the cross-jurisdictional activity indicator for purposes
of determining prudential standards, and why? How would excluding from
the cross-jurisdictional activity measure a broader or narrower set of
intercompany assets and liabilities align with the objectives of the
proposed indicator as a measure of operational complexity, scope, and
risks associated with operations and activities in foreign
jurisdictions and with principles of national treatment and equality of
competitive opportunity?
Question 14: What would be the advantages and disadvantages of
including in or excluding from the proposed cross-jurisdictional
activity indicator positions of the U.S. branches and agencies of a
foreign banking organization with the parent foreign banking
organization or other non-U.S. affiliates? For example, what would be
the advantages or disadvantages of including or excluding reported
gross due from and gross due to the parent foreign banking organization
or other non-U.S. affiliates?
Question 15: What modifications to the proposed cross-
jurisdictional activity measure should the Board consider to better
align it with the proposed treatment for U.S. banking organizations
under the domestic proposal and promote consistency in the measurement
of assets and liabilities across the Board's prudential standards
framework and applicable accounting standards, and why? How would any
such modification more appropriately account for the risks of cross-
jurisdictional activity for foreign banking organizations and mitigate
risks to U.S. financial stability?
Question 16: To what extent would using a particular measure of
cross-jurisdictional activity create incentives for foreign banking
organizations to restructure relationships between U.S. subsidiaries,
U.S. branches and agencies, and non-U.S. affiliates?
Question 17: What alternative indicators should the Board consider
to
[[Page 21997]]
the proposed cross-jurisdictional activity indicator as a measure of
cross-border activity of a foreign banking organization? How would any
alternative indicator align with the proposed cross-jurisdictional
activity measure for U.S. banking organizations under the domestic
interagency proposal?
Question 18: What are the advantages and disadvantages of the
proposal or the alternatives in combination with other potential
changes to the measurement and reporting of cross-jurisdictional
activity discussed above (e.g., ultimate-risk basis)? How would changes
to the measurement and reporting of cross-jurisdictional activity in
combination with the proposal or alternatives align with the objectives
of the proposed indicator as a measure of operational complexity,
scope, and risks associated with operations and activities in foreign
jurisdictions and with principles of national treatment and equality of
competitive opportunity?
Question 19: Data reported on the Banking Organization Systemic
Risk Report (FR Y-15) is used to measure the systemic risk of large
banking organizations, including to identify and calibrate surcharges
applied to U.S. GSIBs. The Board may amend the FR Y-15 in this context,
and would seek comment on the effect of any changes on the U.S. GSIB
surcharge framework as well as on the advantages and disadvantages of
incorporating these changes into the calculation of risk indicators.
The Board also may separately amend the FR Y-15 in the context of the
calculation of risk indicators. What are the advantages and
disadvantages of the risk-based indicator definitions tracking the
inputs to the U.S. GSIB surcharge framework?
b. Nonbank assets
The level of a banking organization's investment in nonbank
subsidiaries provides a measure of the organization's business and
operational complexity. Specifically, banking organizations with
significant investments in nonbank subsidiaries are more likely to have
complex corporate structures, inter-affiliate transactions, and funding
relationships. A banking organization's complexity is positively
correlated with the impact of the organization's failure or distress.
Through its U.S. intermediate holding company, a foreign banking
organization can maintain significant investments in nonbank
subsidiaries, and therefore may present structural, funding, and
resolution concerns analogous to those presented by domestic banking
organizations.
Nonbank activities also may involve a broader range of risks than
those associated with banking activities, and can increase
interconnectedness with other financial market participants, requiring
sophisticated risk management and governance, including capital
planning, stress testing, and liquidity risk management. If not
adequately managed, the risks associated with nonbanking activities
could present significant safety and soundness concerns and increase
financial stability risks. The distress or failure of a nonbank
subsidiary could be destabilizing to the U.S. operations of a foreign
banking organization and the foreign banking organization itself, and
cause counterparties and creditors to lose confidence in the
organization's global operations. Nonbank assets also reflect the
degree to which a foreign banking organization and its U.S. operations
may be engaged in activities through legal entities that are not
subject to separate capital requirements or to the direct regulation
and supervision applicable to a regulated banking entity.
The proposed nonbank assets indicator would align with the measure
of nonbank assets currently used in the capital plan rule to tailor
certain requirements as well as with the nonbank assets indicator in
the domestic proposal.\46\
---------------------------------------------------------------------------
\46\ The capital plan rule defines ``average total nonbank
assets'' as the average of the total nonbank assets of a U.S.
intermediate holding company subject to the capital plan rule,
calculated in accordance with the instructions to the FR Y-9LP, for
the four most recent consecutive quarters or, if the intermediate
holding company has not filed the FR Y-9LP, for each of the four
most recent consecutive quarters, for the most recent quarter or
consecutive quarters, as applicable. See 12 CFR 225.8(d)(2).
---------------------------------------------------------------------------
c. Off-Balance Sheet Exposure
Off-balance sheet exposure complements the measure of size by
taking into consideration financial and banking activities not
reflected on the balance sheet of a foreign banking organization with
respect to its U.S. operations. Like size, off-balance sheet exposure
provides a measure of the extent to which customers or counterparties
may be exposed to a risk of loss or suffer a disruption in the
provision of services. In addition, off-balance sheet exposure can lead
to significant future draws on liquidity, particularly in times of
stress. During the financial crisis, for example, vulnerabilities among
the U.S. operations of foreign banking organizations were exacerbated
by margin calls on derivative exposures and draws on commitments. These
exposures can be a source of safety and soundness risk, as
organizations with significant off-balance sheet exposure may have to
fund these positions in the market in a time of stress. These risks
also may affect financial stability because they can manifest rapidly
and with less transparency to other market participants, in comparison
to the risks associated with on-balance sheet positions. In addition,
because draws on off-balance sheet exposures such as committed credit
and liquidity facilities tend to increase in times of stress, they can
exacerbate the effects of stress conditions.\47\
---------------------------------------------------------------------------
\47\ See William F. Bassett, Simon Gilchrist, Gretchen C.
Weinbach, Egon Zakraj[scaron]ek, ``Improving Our Ability to Monitor
Bank Lending,'' in Risk Topography: Systemic Risk and Macro Modeling
149-161 (Markus Brunnermeier and Arvind Krishnamurthy, eds. 2014),
available at: http://www.nber.org/chapters/c12554.
---------------------------------------------------------------------------
Off-balance sheet exposure may also serve as a measure of
interconnectedness. Some off-balance sheet exposures, such as
derivatives, are concentrated among the largest financial firms.\48\
The distress or failure of one party to a financial contract, such as a
derivative or securities financing transaction, can trigger disruptive
terminations of these contracts that destabilize the defaulting party's
otherwise solvent affiliates.\49\ Such a default also can lead to
disruptions in other financial markets, for example, by causing market
participants to rapidly unwind trading positions.\50\ In this way, the
effects of one party's failure or distress can be amplified by its off-
balance sheet connections with other financial market participants.
---------------------------------------------------------------------------
\48\ See, e.g., Sheri M. Markose, Systemic Risk from Global
Financial Derivatives: A Network Analysis of Contagion and its
Mitigation with Super-Spreader Tax, IMF Working Papers (Nov. 30,
2012), available at: https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Systemic-Risk-from-Global-Financial-Derivatives-A-Network-Analysis-of-Contagion-and-Its-40130.
\49\ To address these risks, the agencies have established
restrictions relating to the qualified financial contracts of U.S.
GSIBs, the insured depository institution subsidiaries of U.S.
GSIBs, and the U.S. operations of systemically important foreign
banking organizations. See 12 CFR part 252, subpart I (Board); 12
CFR part 47 (OCC); and 12 CFR part 382 (FDIC). That rule does not
apply to savings and loan holding companies, to the U.S. operations
of other large foreign banking organizations, or to other large bank
holding companies.
\50\ See e.g., The Orderly Liquidation of Lehman Brothers
Holdings Inc. under the Dodd-Frank Act, 5 FDIC Quarterly No. 2, 31
(2011), https://www.fdic.gov/bank/analytical/quarterly/2011-vol5-2/article2.pdf.
---------------------------------------------------------------------------
Under the proposal, off-balance sheet exposure would be measured as
the difference between total exposure and
[[Page 21998]]
on-balance sheet assets.\51\ Total exposure includes on-balance sheet
assets plus certain off-balance sheet exposures, including derivative
exposures, repo-style transactions, and other off-balance sheet
exposures (such as commitments).
---------------------------------------------------------------------------
\51\ In connection with extending the applicability of the FR Y-
15 reporting requirements to U.S. branches and agencies of a foreign
banking organization (discussed below), the proposal would add this
measure of off-balance sheet exposure to the FR Y-15 reporting form
as a separate line item.
---------------------------------------------------------------------------
d. Weighted Short-Term Wholesale Funding
The proposed weighted short-term wholesale funding indicator would
provide a measure of the liquidity risk presented by the U.S.
operations of a foreign banking organization, as reliance on short-
term, generally uninsured funding from more sophisticated
counterparties can make those operations vulnerable to large-scale
funding runs. In particular, foreign banking organizations with U.S.
operations that fund long-term assets with short-term liabilities from
financial intermediaries such as investment funds may need to rapidly
sell less liquid assets to meet withdrawals and maintain their
operations in a time of stress, which they may be able to do only at
``fire sale'' prices. Asset fire sales can cause rapid deterioration in
a foreign banking organization's financial condition and adversely
affect U.S. financial stability by driving down asset prices across the
market. As a result, the use of weighted short-term wholesale funding
presents both safety and soundness and financial stability risks.
Short-term wholesale funding also provides a measure of
interconnectedness among market participants, including other financial
sector entities, which can provide a mechanism for transmission of
distress.
The proposed short-term wholesale funding indicator would measure
the extent to which the U.S. operations of a foreign banking
organization rely on short-term wholesale funding sources.\52\ Weighted
short-term wholesale funding would include exposures between the U.S.
operations of a foreign banking organization and its non-U.S.
affiliates, as reliance on short-term wholesale funding from affiliates
can contribute to a firm's funding vulnerability in times of stress.
---------------------------------------------------------------------------
\52\ Specifically, short-term wholesale funding is the amount of
a firm's funding obtained from wholesale counterparties or retail
brokered deposits and sweeps with a remaining maturity of one year
or less. Categories of short-term wholesale funding are then
weighted based on four residual maturity buckets; the asset class of
collateral, if any, backing the funding; and characteristics of the
counterparty. See, 12 CFR 217.406 and Regulatory Capital Rules:
Implementation of Risk-Based Capital Surcharges for Global
Systemically Important Bank Holding Companies, 80 FR 49082 (August
14, 2015).
---------------------------------------------------------------------------
Weighted short-term wholesale funding levels would serve as both a
threshold for the general application of Category III standards, as
well as a separate threshold for applying enhanced liquidity
requirements to foreign banking organizations whose combined U.S.
operations reflect heightened liquidity risk profiles. A foreign
banking organization whose combined U.S. operations have weighted
short-term wholesale funding of at least $75 billion would be subject
to the general application of Category III standards, which would
include daily liquidity data reporting under this proposal and full
standardized liquidity requirements applicable to a U.S. intermediate
holding company and certain depository institution subsidiaries, if
any, under the interagency foreign banking organization capital and
liquidity proposal. By contrast, a foreign banking organization subject
to Category III standards whose combined U.S. operations have less than
$75 billion of weighted short-term wholesale funding would be subject
to a monthly liquidity data reporting requirement under this proposal
and reduced standardized liquidity requirements applicable to a U.S.
intermediate holding company and certain depository institution
subsidiaries, if any, under the interagency foreign banking
organization capital and liquidity proposal.\53\
---------------------------------------------------------------------------
\53\ In addition, as discussed in more detail in the interagency
foreign banking organization capital and liquidity proposal,
domestic and foreign banking organizations subject to Category IV
standards that have weighted short-term wholesale funding levels of
at least $50 billion would be subject to reduced standardized
liquidity requirements, which would apply to its U.S. intermediate
holding company and certain of its depository institution
subsidiaries, if any. The Board is requesting comment on whether it
should impose standardized liquidity requirements on the U.S. branch
and agency network of a foreign banking organization, as well as
possible approaches for doing so, which would be proposed through a
future rulemaking.
---------------------------------------------------------------------------
Question 20: What are the advantages and disadvantages of the
proposed risk-based indicators? What different indicators should the
Board use, and why?
Question 21: The Board is considering whether Category II standards
should apply based on weighted short-term wholesale funding, nonbank
assets, and off-balance sheet exposure, using a higher threshold than
the $75 billion threshold that would apply for Category III standards,
in addition to the thresholds discussed above based on asset size and
cross-jurisdictional activity. For example, a foreign banking
organization or U.S. intermediate holding company could be subject to
Category II standards if one or more of these indicators equals or
exceeds a level such as $100 billion or $200 billion. A threshold of
$200 billion would represent at least 30 percent and as much as 80
percent of total assets for the U.S. operations of a foreign banking
organization with between $250 billion and $700 billion in combined
U.S. assets. If the Board were to adopt additional indicators for
purposes of identifying foreign banking organizations with U.S.
operations that should be subject to Category II standards, at what
level should the threshold for each indicator be set, and why?
Commenters are encouraged to provide data supporting their
recommendations.
3. Alternative Scoping Criteria
An alternative approach for tailoring the application of enhanced
prudential standards to a foreign banking organization would be to use
a single, comprehensive score to assess the risk profile and systemic
footprint of a foreign banking organization's combined U.S. operations
or U.S. intermediate holding company. The Board uses such an
identification methodology (scoring methodology) to identify a U.S.
bank holding company as a U.S. GSIB and apply risk-based capital
surcharges to these firms. As an alternative in the domestic proposal,
the Board described a scoring methodology that could be used to tailor
prudential standards for domestic banking organizations.
The scoring methodology in the Board's regulations is used to
calculate a U.S. GSIB's capital surcharge under two methods.\54\ The
first method is based on the sum of a bank holding company's systemic
indicator scores reflecting its size, interconnectedness, cross-
jurisdictional activity, substitutability, and complexity (method 1).
The second method is based on the sum of these same measures of risk,
except that the substitutability measures are replaced with a measure
of the bank holding company's reliance on short-term wholesale funding
(method 2).\55\ Consistent with the domestic
[[Page 21999]]
proposal and as an alternative to the threshold approach under this
proposal, the Board is seeking comment on use of the scoring
methodology to tailor the application of enhanced prudential standards
to the U.S. operations of foreign banking organizations.
---------------------------------------------------------------------------
\54\ Application of a U.S. GSIB's capital surcharge is
determined based on an annual calculation. Similarly, the
alternative scoping criteria under this proposal would be based on
an annual calculation. See 12 CFR part 217, subpart H.
\55\ For more discussion relating to the scoring methodology,
please see the Board's final rule establishing the scoring
methodology. See Regulatory Capital Rules: Implementation of Risk-
Based Capital Surcharges for Global Systemically Important Bank
Holding Companies, 80 FR 49082 (Aug. 14, 2015).
---------------------------------------------------------------------------
The scoring methodology was designed to identify and assess the
systemic risk of a large banking organization, and similarly can be
used to measure the risks posed by the U.S. operations of foreign
banking organizations.\56\ The component measures of the scoring
methodology identify banking organizations that have heightened risk
profiles and provide a basis for assessing risk to safety and soundness
and U.S. financial stability. Size, interconnectedness, cross-
jurisdictional activity, substitutability, complexity, and short-term
wholesale funding are indicators of risk for both foreign and domestic
banking organizations. Similar to the thresholds-based approach set
forth in this proposal, the indicators used in the scoring methodology
closely align with the risk-based factors specified in section 165 of
the Dodd-Frank Act. Because this information would be reported
publicly, use of the scoring methodology would promote transparency in
the application of such standards to foreign banking organizations.
---------------------------------------------------------------------------
\56\ See infra note 41.
---------------------------------------------------------------------------
The Board has previously used the scoring methodology and global
methodology \57\ to identify and apply enhanced prudential standards to
U.S. subsidiaries and operations of foreign global systemically
important banking organizations (foreign GSIBs). For example, the
Board's restrictions on qualified financial contracts and total loss-
absorbing capacity requirements apply to U.S. GSIBs and the U.S.
operations of foreign GSIBs, with the latter identified under the
Board's scoring methodology or the global methodology.\58\ Accordingly,
use of the scoring methodology would promote consistency with the
Board's existing regulations.
---------------------------------------------------------------------------
\57\ Global methodology means the assessment methodology and the
higher loss absorbency requirement for global systemically important
banks issued by the BCBS, as updated from time to time. See 12 CFR
252.2.
\58\ See 12 CFR 252.82(b) (definition of ``covered entity'' with
regard to restrictions on qualified financial contracts); 12 CFR
252.160 (definition of ``covered IHC'' with regard to total loss-
absorbing capacity requirements). See also 12 CFR 252.153(b)
(identification of foreign GSIBs in the enhanced prudential
standards rule; 12 CFR 252.170(a)(2)(ii) (definition of ``major
foreign banking organization'' in single counterparty credit limits
rule).
---------------------------------------------------------------------------
Under the alternative scoring approach, the size of a foreign
banking organization's combined U.S. assets, together with the method 1
or method 2 score of its U.S. operations under the scoring methodology,
would be used to determine which category of standards would apply.
Consistent with the proposal, most enhanced prudential standards would
be based on the method 1 or method 2 score applicable to a foreign
banking organization's combined U.S. operations. The application of
capital standards, however, would apply based on the method 1 or method
2 score of a foreign banking organization's U.S. intermediate holding
company. U.S. intermediate holding companies already report information
required to calculate method 1 and method 2 scores, and in connection
with this proposal, those reporting requirements would be extended to
include a foreign banking organization's combined U.S. operations.\59\
---------------------------------------------------------------------------
\59\ As discussed below, under the proposal, the FR Y-15 would
be amended to collect risk-indicator data for the combined U.S.
operations of foreign banking organizations.
---------------------------------------------------------------------------
To determine which category of standards would apply under the
alternative scoring methodology, the Board considered the distribution
of method 1 and method 2 scores of the U.S. operations of foreign
banking organizations, U.S. intermediate holding companies, domestic
bank holding companies and certain savings and loan holding companies
with at least $100 billion in total consolidated assets.\60\ As
discussed below, the Board is providing ranges of scores for the
application of Category II and Category III standards. If the Board
adopts a final rule that uses the scoring methodology to establish
tailoring thresholds, the Board would set a single score within the
listed ranges for the application of Category II and Category III
standards.
---------------------------------------------------------------------------
\60\ In conducting its analysis, the Board considered method 1
and method 2 scores as of September 30, 2018.
---------------------------------------------------------------------------
Category II. In selecting the ranges of method 1 or method 2 scores
that could define the application of Category II standards, the Board
considered the potential of a firm's material distress or failure to
disrupt the U.S. financial system or economy. The Board estimated
method 1 and method 2 scores for domestic banking organizations with
more than $250 billion in total consolidated assets, and foreign
banking organizations with more than $250 billion in combined U.S.
assets. To this sample, the Board added estimates of method 1 and
method 2 scores for a banking organization whose distress impacted U.S.
financial stability during the crisis (Wachovia), and estimated method
1 and method 2 scores assuming significant growth in operations (e.g.,
if one or more U.S. intermediate holding companies each had $700
billion in assets). The Board also considered the outlier method 1 and
method 2 scores for domestic and foreign banking organizations with
more than $250 billion in total consolidated assets that are not U.S.
GSIBs.\61\
---------------------------------------------------------------------------
\61\ Outliers can be determined by a number of statistical
methods. For these purposes, the Board computed an outlier as the
third quartile plus three times the interquartile range of method 1
and method 2 scores of U.S. bank holding companies, certain U.S.
savings and loan holding companies, U.S. intermediate holding
companies, and the combined U.S. operations of foreign banking
organizations.
---------------------------------------------------------------------------
Based on this analysis and to maintain comparability to the
domestic proposal, under the alternative scoring approach the Board
would apply Category II standards to any foreign banking organization
with at least $100 billion in combined U.S. assets whose combined U.S.
operations have (a) a method 1 score that meets or exceeds a minimum
score between 60 and 80, or (b) a method 2 score that meets or exceeds
a minimum score between 100 and 150. These same size thresholds and
score ranges would apply to U.S. intermediate holding companies for the
application of capital standards.
Category III. Under the proposal, the Board would apply Category
III standards to a foreign banking organization with combined U.S.
assets of $250 billion or more, or for capital standards, a U.S.
intermediate holding company with total consolidated assets of $250
billion or more, that does not meet the criteria for Category II. This
reflects, among other things, the crisis experience of domestic banking
organizations with total consolidated assets of $250 billion or more,
which presented materially different risks to U.S. financial stability
relative to firms with less than $250 billion in assets. Similarly,
under the domestic proposal, the Board would at a minimum apply
Category III standards to a firm with assets of $250 billion or more,
reflecting the threshold above which the Board must apply enhanced
prudential standards under section 165.
The domestic proposal seeks comment on an alternative scoring
approach under which a firm with total consolidated assets between $100
billion and $250 billion that has a method 1 or method 2 score within a
specified range would be subject to
[[Page 22000]]
Category III standards. Specifically, the Board proposed selecting a
minimum score for application of Category III standards between 25 and
45 under method 1, or between 50 and 85 under method 2. The maximum
score for application of the Category III standards would be one point
lower than the minimum score selected for application of Category II
standards. In selecting these ranges, the Board compared the scores of
domestic firms with total consolidated assets of between $100 billion
and $250 billion with those of firms with total consolidated assets
greater than $250 billion. The Board performed a similar analysis
including the scores of foreign banking organizations and found similar
results. The Board is therefore considering the same thresholds for
application of Category III standards to foreign banking organizations
under the alternative scoring approach. Use of these thresholds would
maintain comparable treatment between domestic firms and the U.S.
operations of foreign banking organizations under the alternative
scoring approach.
Specifically, under the alternative scoring approach, Category III
standards would apply to a foreign banking organization with combined
U.S. assets between $100 billion and $250 billion with a method 1 score
that meets or exceeds a minimum score between 25 and 45 or a method 2
score that meets or exceeds a minimum score between 50 and 85, and in
either case is below the score threshold for Category II standards.
These same size thresholds and score ranges would apply to U.S.
intermediate holding companies for the application of capital
standards.
Category IV: Under the alternative scoring approach, Category IV
standards would apply to a foreign banking organization with at least
$100 billion in combined U.S. assets whose method 1 or method 2 score
for its combined U.S. operations is below the minimum score threshold
for Category III. Likewise, Category IV capital standards would apply
to a foreign banking organization with a U.S. intermediate holding
company that has at least $100 billion in total assets and does not
meet the minimum score threshold for Category III.
Question 22: What are the advantages and disadvantages to the use
of the alternative scoring approach and category thresholds described
above instead of the proposed thresholds for foreign banking
organizations?
Question 23: If the Board were to use the alternative scoring
approach to differentiate foreign banking organizations' U.S.
operations for purposes of tailoring prudential standards, should the
Board use method 1 scores, method 2 scores, or both? What are the
challenges of applying the alternative scoring approach to the combined
U.S. operations or U.S. intermediate holding company of a foreign
banking organization? What modifications to the alternative scoring
approach, if any, should the Board consider and why (e.g., should
intercompany transactions be reflected in the calculation of
indicators)?
Question 24: If the Board adopted the alternative scoring approach,
what would be the advantages or disadvantages of requiring scores to be
calculated for the U.S. operations of a foreign banking organization at
a frequency greater than annually, including, for example, requiring
scores to be calculated on a quarterly basis?
Question 25: With respect to each category of standards described
above, at what level should the method 1 or method 2 score thresholds
be set and why? Commenters are encouraged to provide data supporting
their recommendations.
Question 26: What other approaches should the Board consider in
setting thresholds for tailored prudential standards for foreign
banking organizations and why? How would any such approach affect the
comparability of requirements across domestic banking organizations and
foreign banking organizations?
4. Determination of Applicable Category of Standards
Under the proposal, a foreign banking organization with combined
U.S. assets of $100 billion or more would be required to determine the
category of standards that would apply to its combined U.S. operations
or U.S. intermediate holding company, as applicable. In order to
capture significant changes, rather than temporary fluctuations, in a
foreign banking organization's U.S. risk profile, a category of
standards would apply to a foreign banking organization's U.S.
operations or its U.S. intermediate holding company based on a four-
quarter average of the levels for each indicator.\62\ A foreign banking
organization would remain subject to a category of standards until it
no longer meets the indicators for that category in each of the four
most recent calendar quarters, or until the foreign banking
organization met the criteria for another category of standards based
on an increase in the value of one or more indicators, averaged over
the preceding four calendar quarters. This approach would be consistent
with the existing applicability and cessation requirements of the
enhanced prudential standards rule.\63\
---------------------------------------------------------------------------
\62\ With respect to a foreign banking organization that has
reported an indicator for less than four quarters, the proposal
would refer to the average of the most recent quarter or quarters.
The measurement approach discussed in this section would apply to
all standards within a given category, including regulatory and
reporting requirements for a foreign banking organization.
\63\ See e.g., 12 CFR 252.150.
---------------------------------------------------------------------------
If a foreign banking organization becomes subject to a different
category of standards, the standards under that category would be
effective on the first day of the second quarter following the date on
which the foreign banking organization met the criteria for that
category of standards. For example, a foreign banking organization that
changes from Category IV to Category III standards based on an increase
in the value of a risk-based indicator averaged over the first, second,
third, and fourth quarters of a calendar year would be subject to
Category III standards beginning on April 1 (the first day of the
second quarter) of the following year.
Under the proposal, a foreign banking organization could be subject
to different categories of standards for its combined U.S. operations
and U.S. intermediate holding company. Consider, for example, a foreign
banking organization with combined U.S. assets of $400 billion, cross-
jurisdictional activity of $80 billion at its combined U.S. operations,
and a U.S. intermediate holding company with consolidated total assets
of $260 billion and $45 billion of cross-jurisdictional activity. In
this example, the combined U.S. operations of the foreign banking
organization would be subject to Category II liquidity and risk-
management standards as well as single-counterparty credit limits \64\
because together, the U.S. intermediate holding company and branch and
agency network have more than $75 billion in cross-jurisdictional
activity. However, the U.S. intermediate holding company would be
subject to Category III capital standards based on its total
consolidated assets (which exceed $250 billion) and lower level of
cross-jurisdictional activity.
---------------------------------------------------------------------------
\64\ Single-counterparty credit limits are discussed in section
II.D. of this Supplementary Information section.
---------------------------------------------------------------------------
Question 27: What are the advantages and disadvantages of
determining the category of standards applicable to a foreign banking
organization's combined U.S. operations or U.S. intermediate holding
company on a quarterly basis? Would making this
[[Page 22001]]
determination on an annual basis would be more appropriate and why?
Question 28: What are the advantages and disadvantages of the
proposed transition period for foreign banking organizations that meet
the criteria for a different category of standards due to changes in
its U.S. risk profile? What would be the advantages or disadvantages of
providing additional time to conform to new requirements?
C. Enhanced Prudential Standards for Foreign Banking Organizations
1. Category II Standards
Category II standards would apply to a foreign banking organization
with $700 billion or more in combined U.S. assets, or $75 billion or
more in cross-jurisdictional activity. In view of its complexity,
interconnectedness, and the materiality of its U.S. presence, the
distress or failure of a foreign banking organization with U.S.
operations that would be subject to Category II standards could impose
substantial costs on the U.S. financial system and economy. As
discussed in section II.B. of this Supplementary Information section,
foreign banking organizations with the largest U.S. operations
typically have more complex operational and management structures and
provide financial services in the United States on a broader range and
scale than smaller firms. In addition, foreign banking organizations
with U.S. operations that engage in heightened levels of cross-
jurisdictional activity present operational complexities and
interconnectivity concerns, and are exposed to a greater diversity of
risks as a result of the multiple jurisdictions in which they provide
financial services. The risks and operational complexities associated
with cross-jurisdictional activity can present significant challenges
to the recovery and resolution process.
To address these risks and maintain consistency with the domestic
proposal, under this proposal a U.S intermediate holding company
subject to Category II capital standards would continue to submit an
annual capital plan, and the Federal Reserve would conduct an
assessment of the company's capital plan according to the capital plan
rule.\65\ The proposal also would maintain annual supervisory stress
testing for these U.S. intermediate holding companies and require
company-run stress testing on an annual basis.\66\ In addition, U.S.
intermediate holding companies subject to Category II capital standards
would continue to report the information required under the existing FR
Y-14 reporting forms to inform the Board's supervisory stress test and
facilitate review of the firm's capital plan, as well as the ongoing
monitoring and supervision of these companies.
---------------------------------------------------------------------------
\65\ 12 CFR 225.8.
\66\ The proposal would remove the mid-cycle company-run stress
testing requirement for a U.S. intermediate holding company subject
to Category II standards. In the Board's experience, the mandatory
mid-cycle stress test provided modest risk-management benefits and
limited incremental information to market participants beyond what
the annual company-run stress test provides.
---------------------------------------------------------------------------
The proposal would maintain the enhanced prudential standards
rule's existing liquidity risk-management, monthly internal liquidity
stress testing, and liquid asset buffer requirements for a foreign
banking organization with combined U.S. operations subject to Category
II liquidity standards. Daily liquidity data reporting under Form FR
2052a also would apply to a foreign banking organization with combined
U.S. operations subject to Category II standards. These requirements
help to ensure that a foreign banking organization has effective
governance and risk management processes to measure and estimate
liquidity needs, and sufficient liquid assets to cover risks and
exposures and to support activities through a range of conditions. In
particular, internal liquidity stress testing, liquidity buffer, and
liquidity risk-management requirements help to ensure that a foreign
banking organization with large U.S. operations can appropriately
manage liquidity risk and withstand disruptions in funding sources.\67\
Consistent with current requirements, for foreign banking organizations
with both a U.S. intermediate holding company and a U.S. branch or
agency, the foreign banking organization would conduct internal
liquidity stress tests separately for each of its U.S. intermediate
holding company, the U.S. branch or agency network, and the combined
U.S. operations.\68\
---------------------------------------------------------------------------
\67\ As discussed in the interagency foreign banking
organization capital and liquidity proposal, the implementation of
standardized liquidity requirements to complement a firm's own
internal liquidity stress testing and buffer requirements would help
address liquidity risk.
\68\ The proposal would revise the FR 2052a reporting
requirements to require all foreign banking organizations subject to
Category II standards to report the FR 2052a on a daily basis (daily
reporting requirements would also apply to foreign banking
organizations subject to Category III standards that have weighted
short-term wholesale funding of $75 billion or more in respect of
their combined U.S. operations). Some foreign banking organizations
that would be subject to Category II standards currently report FR
2052a data on a monthly basis. For these firms, the proposal would
increase the frequency of reporting requirements under the FR 2052a.
---------------------------------------------------------------------------
The proposal would make changes to the Board's single-counterparty
credit limits to align the thresholds for application of these
requirements with the proposed thresholds for other enhanced prudential
standards and to tailor further the requirements applicable to U.S.
intermediate holding companies. Under the proposal, single-counterparty
credit limits would apply to the combined U.S. operations of a foreign
banking organization subject to Category II or Category III standards.
The proposed revisions to the single-counterparty credit limits rule
are discussed in section II.D. of this Supplementary Information
section.
Question 29: What modifications, if any, should the Board consider
to the proposed Category II prudential standards for foreign banking
organizations, and why?
2. Category III Standards
Category III standards would apply to a foreign banking
organization with combined U.S. assets of $250 billion or more, or a
heightened risk profile as measured based on the level of weighted
short-term wholesale funding, nonbank assets, and off-balance sheet
exposure among its combined U.S. operations.\69\ A foreign banking
organization with U.S. operations of this size or risk profile
heightens the need for sophisticated capital planning and more
intensive oversight through stress testing, as well as sophisticated
measures to monitor and manage liquidity risk. For example, U.S.
intermediate holding companies that engage in heightened levels of
nonbank activities may be exposed to a relatively broader range of
risks, and the application of more sophisticated capital planning and
stress testing requirements would be appropriate to support those
activities. Similarly, a foreign banking organization with heightened
levels of off-balance sheet exposure among its combined U.S. operations
may be required to fulfill substantial draws on commitments and margin
calls on derivatives during times of stress. Rigorous risk management
and liquidity monitoring would appropriately support risks associated
with these exposures.
---------------------------------------------------------------------------
\69\ Category III capital standards would apply to a U.S.
intermediate holding company with total consolidated assets of $250
billion or more, or a heightened risk profile based on its level or
weighted short-term wholesale funding, nonbank assets, and off-
balance sheet exposure.
---------------------------------------------------------------------------
The Board's current prudential standards framework generally
applies the same capital standards to all U.S. intermediate holding
companies with $250 billion or more in total
[[Page 22002]]
consolidated assets.\70\ The proposed framework would further
differentiate among foreign banking organizations with $250 billion or
more in combined U.S. assets, consistent with the domestic proposal. In
particular, Category II would include standards generally consistent
with those developed by the BCBS that are appropriate for very large or
complex firms, whereas Category III would include less stringent
standards, based on the relatively lower U.S. risk profiles of foreign
banking organizations that would be subject to Category III standards.
---------------------------------------------------------------------------
\70\ For example, the supplementary leverage ratio,
countercyclical capital buffer, and requirement to recognize most
elements of accumulated other comprehensive income (AOCI) in
regulatory capital generally apply to U.S. intermediate holding
companies with $250 billion or more in total consolidated assets or
$10 billion or more in on-balance sheet foreign exposure. In
addition, if a U.S. intermediate holding company that meets this
threshold has an insured depository institution subsidiary, the U.S.
intermediate holding company also is subject to the LCR rule.
---------------------------------------------------------------------------
The proposal would largely maintain the existing capital planning
and stress testing standards under the capital plan and enhanced
prudential standards rules for U.S. intermediate holding companies that
would be subject to Category III capital standards, but would remove
the mid-cycle company-run stress testing requirement and require public
disclosure of company-run stress test results every other year rather
than annually. The Board would continue to conduct supervisory stress
testing of these U.S. intermediate holding companies on an annual
basis.
In regard to capital planning, a U.S. intermediate holding company
subject to Category III capital standards would continue to submit
confidential data to the Board using the existing schedule for FR Y-14
reports. Such a U.S. intermediate holding company also would submit an
annual capital plan and report the information required under the FR Y-
14A. The FR Y-14 and Y-14A reports are inputs into the supervisory
stress test and inform the Board's review of the firm's capital plan,
as well as the ongoing monitoring and supervision of these companies.
In addition, as part of the internal stress test, a U.S. intermediate
holding company must establish and maintain internal processes for
assessing capital adequacy under expected and stressful conditions,
which represent an important risk management capability for a U.S.
intermediate holding company of this size or risk profile.
A U.S. intermediate holding company subject to Category III capital
standards would publicly disclose the results of company-run stress
tests only once every two years, rather than annually.\71\ Because such
a U.S. intermediate holding company would continue to submit an annual
capital plan (including the results of an internal capital stress test)
and would be subject to annual supervisory stress testing, a reduction
in the frequency of disclosures related to the company-run stress test
should reduce compliance costs without a material increase in safety
and soundness or financial stability risks.\72\ Public disclosure of
supervisory stress test results would continue to be made on an annual
basis.
---------------------------------------------------------------------------
\71\ The company-run stress testing requirement under the
enhanced prudential standards rule includes a mandatory public
disclosure component, whereas the capital plan rule does not.
Compare 12 CFR 252.58 with 12 CFR 225.8. The proposal would maintain
the annual internal stress test requirement under the capital plan
rule, but reduce the required frequency of company-run stress
testing under the enhanced prudential standards rule to every other
year. As a result, in the intervening year between company-run
stress tests under the enhanced prudential standards rule, the
proposed Category III standards would require a U.S. intermediate
holding company to conduct an internal capital stress test only as
part of its annual capital plan submission, without required public
disclosure.
\72\ Consistent with the domestic proposal, a U.S. intermediate
holding company of a foreign banking organizations subject to
Category II capital standards would conduct and publicly report the
results of a company-run stress test more frequently (annually) than
U.S. intermediate holding companies of foreign banking organizations
subject to Category III standards (every two years), based on the
differences in size, cross-jurisdictional activity, complexity, and
risk profile indicated by the scoping criteria for each of these
categories. 83 FR 66024 (December 21, 2018).
---------------------------------------------------------------------------
For the reasons described under the discussion of Category II
standards, the proposal would maintain existing liquidity risk
management, monthly internal liquidity stress testing, and liquidity
buffer requirements for the combined U.S. operations of a foreign
banking organization subject to Category III liquidity standards. The
proposal also would include liquidity data reporting requirements under
FR 2052a for a foreign banking organization subject to Category III
liquidity standards, and tailor those requirements based on the level
of weighted short-term wholesale funding. Some foreign banking
organizations that would be subject to Category III standards currently
report FR 2052a data for their combined U.S. operations on a monthly
basis. However, under the proposal, if the combined U.S. operations of
a foreign banking organization have $75 billion or more in weighted
short-term wholesale funding, FR 2052a data would be submitted for each
business day.\73\ Daily reporting is appropriate for a foreign banking
organization with heightened levels of weighted short-term wholesale
funding, because a firm that relies more on unsecured, less-stable
funding relative to deposits typically must rollover liabilities in
order to fund its routine activities. Accordingly, short-term wholesale
funding can be indicative of a firm that has heightened liquidity risk.
---------------------------------------------------------------------------
\73\ FR 2052a data would be submitted on a monthly basis for
combined U.S. operations of a foreign banking organization subject
to Category III standards with less than $75 billion in weighted
short-term wholesale funding.
---------------------------------------------------------------------------
Question 30: What modifications, if any, should the Board consider
to the proposed Category III prudential standards for foreign banking
organizations, and why?
Question 31: What are the advantages and disadvantages of reducing
the frequency of the company-run stress test and related disclosures to
every other year for a U.S. intermediate holding company subject
Category III standards?
3. Category IV Standards
Under the proposal, Category IV standards would apply to foreign
banking organizations with combined U.S. assets of $100 billion or more
that do not meet the criteria for Categories II or III with respect to
their combined U.S. operations or U.S. intermediate holding companies
(as applicable). Based on an analysis of the crisis experience of large
domestic banking organizations, the Board found that the failure or
distress of a U.S. banking organization that meets or exceeds the
thresholds for Category IV standards, while not likely to have as great
of an impact on U.S. financial stability as the failure or distress of
a firm subject to Category II or III standards, could nonetheless have
an amplified negative effect on economic growth and employment relative
to the failure or distress of smaller firms. Notwithstanding structural
differences between the U.S. operations of foreign banking
organizations and domestic firms, the size and risk profile of such
U.S. operations could present similar risk to financial stability and
safety and soundness as those presented by U.S. firms.
Relative to current requirements under the enhanced prudential
standards rule, the proposed Category IV standards would maintain core
elements of the capital and liquidity standards, and tailor these
requirements to reflect the lower risk profile and lesser degree of
complexity of a foreign banking organization subject to this category
of standards.
The proposal would tailor the application of capital standards for
U.S. intermediate holding companies subject
[[Page 22003]]
to Category IV capital standards, consistent with the domestic
proposal. Specifically, the proposal would reduce the frequency of
supervisory stress testing to every other year, and eliminate the
requirement to conduct and publicly report the results of a company-run
stress test. A supervisory stress test cycle of this frequency would be
consistent with the domestic proposal and appropriate for the risk
profile of a U.S. intermediate holding company subject to this category
of standards. The proposal would maintain the existing FR Y-14
reporting for these U.S. intermediate holding companies in order to
provide the Board with the data it needs to conduct supervisory stress
testing and inform the Board's ongoing monitoring and supervision of
these companies.\74\
---------------------------------------------------------------------------
\74\ The Board plans to separately propose reductions in FR Y-14
reporting requirements for firms subject to Category IV standards as
part of the capital plan proposal at a later date, to align with
changes the Board would propose to the capital plan rule.
---------------------------------------------------------------------------
The Board continues to expect a U.S. intermediate holding company
of a foreign banking organization subject to Category IV capital
standards to have a sound capital position and sound capital planning
practices. Capital is central to the ability of a U.S. intermediate
holding company to absorb unexpected losses and continue to lend to
creditworthy businesses and consumers. To be resilient under a range of
conditions, a U.S. intermediate holding company must maintain
sufficient levels of capital to support the risks associated with its
exposures and activities. As a result, processes for managing and
allocating capital resources are critical to a company's financial
strength and resiliency, and also to the stability and effective
functioning of the U.S. financial system.
In April 2018, the Board issued a proposal to apply stress buffer
requirements to large bank holding companies and U.S. intermediate
holding companies.\75\ As part of a future capital plan proposal, the
Board intends to propose that the stress buffer requirements under
Category IV would be calculated in a manner that aligns with the
proposed two-year supervisory stress testing cycle. Specifically, the
Board plans to propose that the stress buffer requirements would be
updated annually to reflect planned distributions, but only every two
years to reflect stress loss projections.\76\
---------------------------------------------------------------------------
\75\ See Amendments to the Regulatory Capital, Capital Plan, and
Stress Test Rules, 83 FR 18160 (proposed April 25, 2018).
\76\ Under the capital plan rule, the Board may require a U.S.
intermediate holding company to resubmit its capital plan if there
has been, or will likely be, a material change in the firm's risk
profile, financial condition, or corporate structure. See 12 CFR
225.8(e)(4). In the event of a resubmission, the Board may conduct a
quantitative evaluation of that capital plan. As noted in the April
2018 proposal, the Board may recalculate a firm's stress buffer
requirements whenever the firm chooses or is required to resubmit
its capital plan. 83 FR 18171.
---------------------------------------------------------------------------
As part of the capital plan proposal, the Board intends to maintain
the requirement that the firm submit an annual capital plan, but
provide greater flexibility to U.S. intermediate holding companies to
develop their annual capital plans. Under such an approach, Category IV
standards could require a capital plan to include estimates of
revenues, losses, reserves, and capital levels based on a forward-
looking analysis, taking into account the U.S. intermediate holding
company's idiosyncratic risks under a range of conditions; however, it
would not require submission of the results of company-run stress tests
on the FR Y-14A. This change would align with the proposal to remove
company-run stress testing requirements from Category IV standards
under this proposal. The Board also intends at a future date to revise
its guidance relating to capital planning to align with the proposed
categories of standards and to allow more flexibility in how all firms
subject to Category IV standards perform capital planning.
Category IV liquidity standards would include liquidity risk
management, stress testing, and buffer requirements. The combined U.S.
operations of a foreign banking organization that would be subject to
Category IV standards typically do not present the risks to U.S.
financial stability that are associated with size, cross-jurisdictional
activity, nonbank assets, and off-balance sheet exposure. Accordingly,
the proposal would reduce the frequency of required internal liquidity
stress testing to at least quarterly, rather than monthly.\77\ Under
the proposed Category IV standards, a foreign banking organization
would continue to be required to maintain a liquidity buffer at its
U.S. intermediate holding company that is sufficient to meet the
projected net stressed cash-flow need over the 30-day planning horizon
under the internal liquidity stress test and a liquidity buffer at its
U.S. branches and agencies that is sufficient to meet projected needs
over the first fourteen days of a stress test with a 30-day planning
horizon.
---------------------------------------------------------------------------
\77\ Combined U.S. operations of a foreign banking organization
subject to Category IV standards would remain subject to monthly FR
2052a liquidity reporting requirements.
---------------------------------------------------------------------------
The proposal also would modify certain liquidity risk-management
requirements under Category IV. First, the combined U.S. operations of
a foreign banking organization subject to this category of standards
would calculate collateral positions on a monthly basis, rather than
weekly. Second, the proposal would clarify that risk limits established
to monitor sources of liquidity risk must be consistent with the
established liquidity risk tolerance for the combined U.S. operations a
foreign banking organization and appropriately reflect their risk
profile. Importantly, limits established in accordance with the
proposal would not need to consider activities or risks that are not
relevant to the combined U.S. operations of a foreign banking
organization. Third, while the proposal would continue to require a
foreign banking organization subject to Category IV standards to
establish and maintain procedures for monitoring intraday risk that are
consistent with the risk profile of its combined U.S. operations,
Category IV standards would not specify any required elements of those
procedures.
Question 32: What modifications, if any, should the Board consider
to the proposed Category IV standards, and why?
Question 33: What are the advantages and disadvantages of
conducting a supervisory stress test every other year, rather than
annually, and eliminating the company-run stress testing requirement
for purposes of Category IV standards? What would be the advantages or
disadvantages of the Board conducting supervisory stress tests for
these U.S. intermediate holding companies on a more frequent basis? How
should the Board consider providing U.S. intermediate holding companies
with additional flexibility in their capital plans?
D. Single-Counterparty Credit Limits
Section 165(e) of the Dodd-Frank Act requires the Board to
establish single-counterparty credit limits for large U.S. and foreign
banking organizations in order to limit the risks that the failure of
any individual firm could pose to other firms subject to such
requirements.\78\ Under the Board's enhanced prudential standards
framework, single-counterparty credit limits apply to the combined U.S.
operations of a foreign banking organization with $250 billion or more
in total consolidated assets, and separately to any subsidiary U.S.
intermediate holding company of such a
[[Page 22004]]
firm with total consolidated assets of $50 billion or more.\79\
---------------------------------------------------------------------------
\78\ 12 U.S.C. 5365(e).
\79\ 12 CFR 252.72(a).
---------------------------------------------------------------------------
The single-counterparty credit limits that apply to those foreign
banking organizations and their U.S. intermediate holding companies
increase in stringency in a manner commensurate with their size and
risk profile. All foreign banking organizations are subject to an
aggregate net credit exposure limit to any single counterparty equal to
25 percent of tier 1 capital. In addition, if a foreign banking
organization has the characteristics of a ``major foreign banking
organization,'' \80\ it also is subject to an aggregate net credit
exposure limit to any ``major counterparty'' \81\ equal to 15 percent
of tier 1 capital.\82\ These requirements apply to the combined U.S.
operations of a foreign banking organization and are determined with
respect to the foreign banking organization's tier 1 capital.
Alternatively, a foreign banking organization may comply with these
requirements by certifying that it meets, on a consolidated basis,
standards established by its home country supervisor that are
consistent with the BCBS large exposure standard.\83\
---------------------------------------------------------------------------
\80\ ``Major foreign banking organization'' means a top-tier
foreign banking organization that has the characteristics of a
global systemically important banking organization under the global
methodology, or is identified by the Board as a major foreign
banking organization. 12 CFR 252.171(z).
\81\ ``Major counterparty'' means a U.S. GSIB, a foreign banking
organization that is a global systemically important banking
organization, and any nonbank financial company supervised by the
Board. 12 CFR 252.171(y).
\82\ 12 CFR 252.172(c).
\83\ 12 CFR 252.172(d). See also BCBS, Supervisory Framework for
Measuring and Controlling Large Exposures (April 2014). The large
exposures standard establishes an international single-counterparty
credit limit framework for internationally active banks.
---------------------------------------------------------------------------
For those foreign banking organizations' U.S. intermediate holding
companies, the Board's single-counterparty credit limits apply a
similar approach. For a U.S. intermediate holding company with total
consolidated assets of at least $50 billion and less than $250 billion,
its aggregate net credit exposure to a single counterparty cannot
exceed 25 percent of total regulatory capital plus the balance of its
allowance for loan and lease losses that is not includable in tier 2
capital.\84\ In comparison, a U.S. intermediate holding company with
total consolidated assets of at least $250 billion and less than $500
billion is subject to an aggregate net credit exposure limit of 25
percent of tier 1 capital.\85\ For ``major U.S. intermediate holding
companies,'' the rule applies the same aggregate limits that apply to a
major foreign banking organization--(i) an aggregate net credit
exposure limit to any single counterparty equal to 25 percent of tier 1
capital,\86\ and (ii) an aggregate net credit exposure limit to a
``major counterparty'' equal to 15 percent of tier 1 capital.\87\
---------------------------------------------------------------------------
\84\ 12 CFR 252.172(a).
\85\ Id. at 252.172(b)(1).
\86\ Id.
\87\ Id. at 252.172(c)(1).
---------------------------------------------------------------------------
Other provisions of the single-counterparty credit limits apply
only to U.S. intermediate holding companies with total consolidated
assets of $250 billion or more. Specifically, the current rule sets
forth requirements for the treatment of exposures to securitization
vehicles, investment funds, and other special purpose vehicles
(collectively, SPVs),\88\ and the application of economic
interdependence and control relationship tests to aggregate connected
counterparties \89\ for U.S. intermediate holding companies that meet
or exceed this asset size threshold. In addition, U.S. intermediate
holding companies with $250 billion or more in total consolidated
assets must comply with the rule on a daily basis as of the end of each
business day and submit a quarterly report to demonstrate its
compliance.\90\
---------------------------------------------------------------------------
\88\ Id. at 252.175. For a discussion of the treatment of
exposures to SPVs under the single-counterparty credit limit rule,
see ``Single-Counterparty Credit Limits for Bank Holding Companies
and Foreign Banking Organizations,'' 83 FR 38460, 38480-82 (Aug. 6,
2018).
\89\ 12 CFR 252.176. For a discussion of the economic
interdependence and control relationship tests to aggregate
connected counterparties under the single-counterparty credit limit
rule, see id. at 38482-84.
\90\ 12 CFR 252.178(a)(1) and (a)(3). A U.S. intermediate
holding company with less than $250 billion in total consolidated
assets must comply with single-counterparty credit limits as of the
end of each quarter. See 12 CFR 252.178(a)(2).
---------------------------------------------------------------------------
The proposal would revise the Board's single-counterparty credit
limits to align the thresholds for application of these requirements
with the proposed thresholds for other enhanced prudential standards.
Under the proposal, single-counterparty credit limits would apply to
the combined U.S. operations of a foreign banking organization subject
to Category II or Category III standards or of a foreign banking
organization with $250 billion or more in total consolidated assets. A
foreign banking organization would continue to be able to comply with
the single-counterparty credit limits by certifying to the Board that
it meets comparable home-country standards that apply on a consolidated
basis.
The proposal also would apply single-counterparty credit limits
separately to a U.S. intermediate holding company of a foreign banking
organization subject to Category II or Category III standards but would
modify the requirements currently applicable to those U.S. intermediate
holding companies. First, the proposal would eliminate the requirements
applicable to major U.S. intermediate holding companies and instead
subject all U.S. intermediate companies to a uniform aggregate net
credit exposure limit to a single counterparty equal to 25 percent of
tier 1 capital. In addition, the proposal would remove the bifurcated
treatment under the current rule regarding exposures to SPVs and the
application of the economic interdependence and control relationship
tests, as well as compliance requirements. Under the proposal, these
requirements would apply to all U.S. intermediate holding companies as
they apply currently to U.S. intermediate holding companies with $250
billion or more in total consolidated assets. These revisions are
intended to more appropriately balance the single-counterparty credit
limits that apply to U.S. intermediate holding companies by maintaining
the core aggregate net credit exposure limit and extending the
applicability of other requirements that are integral to the framework.
While these revisions would increase the compliance burden relative to
the single-counterparty credit limits currently applicable to certain
U.S. intermediate holding companies with less than $250 billion in
assets, they are consistent with the focus of the post-crisis reform
framework as it relates to reducing interconnectivity within the
financial system and the maintenance of higher-quality forms of capital
and, therefore, could help to mitigate risks to U.S. financial
stability. In particular, the Board has stated that basing single-
counterparty credit limits on tier 1 capital sets the limits relative
to the company's ability to absorb losses on a going-concern basis and
acknowledges market participants' focus on higher-quality capital
during the financial crisis.\91\
---------------------------------------------------------------------------
\91\ See 83 FR 38460, 38471 (Aug. 6, 2018).
---------------------------------------------------------------------------
The proposal would not apply single-counterparty credit limits to
the combined U.S. operations of foreign banking organizations subject
to Category IV standards unless such a foreign banking organization has
$250 billion or more in total consolidated assets, as required by
federal law.\92\ In addition, the proposal only would apply single-
counterparty credit limits to U.S.
[[Page 22005]]
intermediate holding companies of foreign banking organizations subject
to Category II or Category III standards. As discussed above, the
proposed indicators for Category II and Category III represent measures
of vulnerability to safety and soundness and financial stability risks,
which may be exacerbated if a foreign banking organization has combined
U.S. operations with outsized credit exposure to a single counterparty.
Accordingly, application of these limits would help to mitigate this
risk. In addition, foreign banking organizations with combined U.S.
operations that have high reliance on weighted short-term wholesale
funding or a significant concentration of nonbank assets or off-balance
sheet exposure often also have a high degree of interconnectedness with
other market participants and may be likely to transmit their distress
or failure to those participants. Single-counterparty credit limits may
reduce the extent of that transmission.\93\ Foreign banking
organizations with combined U.S. operations that would be subject to
Category IV standards typically do not present these risks.
---------------------------------------------------------------------------
\92\ See supra note 71.
\93\ The limitation on a U.S. intermediate holding company's
exposure to a single counterparty also may reduce the likelihood
that distress at another firm would be transmitted to the U.S.
intermediate holding company.
---------------------------------------------------------------------------
Question 34: What are the advantages and disadvantages of the
proposed revisions to the applicability requirements for single-
counterparty credit limits and the removal of aggregate net credit
exposure limits applicable to major U.S. intermediate holding
companies?
Question 35: What are the advantages and disadvantages of extending
to U.S. intermediate holding companies with less than $250 billion in
total consolidated assets that are subject to Category II or Category
III standards the requirements under the single-counterparty credit
limits framework regarding the treatment of exposures to SPVs and the
application of the economic interdependence and control relationship
tests, as well as heightened compliance requirements?
E. Risk-Management and Risk-Committee Requirements
Sound enterprise-wide risk management supports the safe and sound
operation of banking organizations and reduces the likelihood of their
material distress or failure, and thus promotes U.S. financial
stability. Section 165(h) of the Dodd-Frank Act requires certain
publicly traded bank holding companies, which includes foreign banking
organizations, to establish a risk committee that is ``responsible for
the oversight of the enterprise-wide risk management practices'' that
meets other statutory requirements.\94\ EGRRCPA raised the threshold
for mandatory application of the risk-committee requirement from
publicly traded bank holding companies with $10 billion in total
consolidated assets to publicly traded bank holding companies with $50
billion or more in total consolidated assets. Additionally, the Board
has discretion to apply risk-committee requirements to publicly traded
bank holding companies with under $50 billion in total consolidated
assets if the Board determines doing so is necessary or appropriate to
promote sound risk management practices.
---------------------------------------------------------------------------
\94\ 12 U.S.C. 5363(h).
---------------------------------------------------------------------------
Under the current enhanced prudential standards rule, all foreign
banking organizations with total consolidated assets of $50 billion or
more, and publicly traded foreign banking organizations with at least
$10 billion in total consolidated assets, must maintain a risk
committee that meets specified requirements.\95\ These requirements
vary based on a foreign banking organization's total consolidated
assets and combined U.S. assets. Foreign banking organizations with at
least $10 billion but less than $50 billion in total consolidated
assets, as well as foreign banking organizations with total
consolidated assets of $50 billion or more but less than $50 billion in
combined U.S. assets, must annually certify to the Board that they
maintain a qualifying committee that oversees the risk management
policies of the combined U.S. operations of the foreign banking
organization. In contrast, foreign banking organizations with total
consolidated assets of $50 billion or more and $50 billion or more in
combined U.S. assets are subject to more detailed risk-committee and
risk-management requirements, including the requirement to appoint a
U.S. chief risk officer.\96\
---------------------------------------------------------------------------
\95\ See 12 CFR 252.144, 252.155, and subpart M.
\96\ 12 CFR 252.155.
---------------------------------------------------------------------------
Consistent with EGRRCPA, the proposal would raise the total
consolidated asset threshold for application of the risk-committee
requirement to foreign banking organizations and would not change the
substance of the risk-committee requirement for these firms.
Maintaining these risk-committee requirements for foreign banking
organizations with total consolidated assets of $50 billion or more
would help support the safety and soundness of a foreign banking
organization's U.S. operations in a manner commensurate with its U.S.
risk profile. Under the proposal, foreign banking organizations with at
least $50 billion but less than $100 billion in total consolidated
assets, as well as foreign banking organizations with total
consolidated assets of $100 billion or more but less than $50 billion
in combined U.S. assets, would be required to maintain a risk committee
and make an annual certification to that effect. Additionally, foreign
banking organizations with total consolidated assets of $100 billion or
more and $50 billion or more in combined U.S. assets would be required
to comply with the more detailed risk-committee and risk-management
requirements in the Board's enhanced prudential standards rule
(Regulation YY), which include the chief risk officer requirement. The
proposal would eliminate the risk-committee requirements that apply for
foreign banking organizations with less than $50 billion in total
consolidated assets.
Similar to its approach for domestic banking organizations, the
Board historically has assessed the adequacy of risk management of
foreign banking organizations through the examination process as
informed by supervisory guidance; the requirements in section 165(h) of
the Dodd-Frank Act supplement, but do not replace, the Board's existing
risk management guidance and supervisory expectations.\97\ Given the
activities and risk profiles of foreign banking organizations with less
than $50 billion in total consolidated assets, the Board expects to
review these firms' risk management practices through the supervisory
process. The Board would continue to expect foreign banking
organizations with less than $50 billion in total consolidated assets
to establish risk management processes and procedures commensurate with
their risks.
---------------------------------------------------------------------------
\97\ See Enhanced Prudential Standards for Bank Holding
Companies and Foreign Banking Organizations, 79 FR 17239, 17247
(Mar. 27, 2014).
---------------------------------------------------------------------------
F. Enhanced Prudential Standards for Foreign Banking Organizations With
a Smaller U.S. Presence
The current regulatory framework for foreign banking organizations
tailors the application of enhanced prudential standards based on the
size and complexity of a foreign banking organization's U.S.
operations. Under the Board's current enhanced prudential standards
rule, foreign banking organizations with at least $10 billion but less
than $50 billion in total consolidated assets are subject to
[[Page 22006]]
company-run stress testing requirements in subpart L and the risk-
management and risk-committee requirements in subpart M, the latter of
which is described above.\98\ Additionally, foreign banking
organizations with at least $50 billion in total consolidated assets
but less than $50 billion in combined U.S. assets are subject to risk-
based and leverage capital, risk-management and risk-committee,
liquidity risk management, and capital stress testing requirements in
subpart N of the Board's enhanced prudential standards rule.\99\ The
Board largely requires the foreign banking organization's compliance
with home-country capital and liquidity standards at the consolidated
level, and imposes certain risk-management requirements that are
specific to the U.S. operations of a foreign banking organization.
---------------------------------------------------------------------------
\98\ The company-run stress testing requirements in subpart L
also currently apply to foreign savings and loan holding companies
with at least $10 billion in total consolidated assets. See 12 CFR
252.120 et seq.
\99\ 12 CFR 252.140 et seq.
---------------------------------------------------------------------------
The proposal generally adopts this approach for foreign banking
organizations with a limited U.S. presence; however, it would also
implement targeted changes to reduce the stringency of certain
requirements applicable to these firms, as described below. It would
also maintain certain risk-management and capital requirements for a
U.S. intermediate holding company of a foreign banking organization
that does not meet the thresholds under the proposal for the
application of Category II, Category III or Category IV standards.
1. Enhanced Prudential Standards for Foreign Banking Organizations With
Less Than $50 Billion in Total Consolidated Assets
The proposal would eliminate risk-committee and risk-management
requirements for foreign banking organizations with less than $50
billion in total consolidated assets, as described above.
In addition, consistent with EGRRCPA, the proposal would eliminate
subpart L of the Board's enhanced prudential standards rule, which
currently prescribes company-run stress testing requirements for
foreign banking organizations with more than $10 billion but less than
$50 billion in total consolidated assets.\100\ EGRRCPA raised the
threshold for mandatory application of company-run stress testing
requirements from financial companies with more than $10 billion in
total consolidated assets to financial companies with more than $250
billion in total consolidated assets. As a result, foreign banking
organizations with less than $50 billion in total consolidated assets
would no longer be required to be subject to a home-country capital
stress testing regime, or if the foreign banking organization was not
subject to qualifying home country standards, additional stress testing
requirements in subpart L.\101\
---------------------------------------------------------------------------
\100\ Subpart L also currently applies to foreign savings and
loan holding companies with more than $10 billion in total
consolidated assets. Id.
\101\ For foreign savings and loan holding companies, the
proposal would apply company-run stress testing requirements to
foreign savings and loan holding companies with more than $250
billion in total consolidated assets. These requirements would be
the same as those that currently apply in subpart L of the enhanced
prudential standards rule. See id. Raising the asset size threshold
for application of company-run stress testing requirements for
foreign savings and loan holding companies to more than $250 billion
in total consolidated assets would be consistent with section
165(i)(2) of the Dodd-Frank Act, as amended by EGRRCPA. Under this
proposal, company-run stress test requirements for foreign savings
and loan holding companies would be in the new subpart R of
Regulation LL.
---------------------------------------------------------------------------
2. Enhanced Prudential Standards for Foreign Banking Organizations With
$100 Billion or More in Total Consolidated Assets but Less Than $100
Billion in Combined U.S. Assets
Under the Board's existing enhanced prudential standards rule,
subpart N applies to foreign banking organizations with $50 billion or
more in total consolidated assets but less than $50 billion in combined
U.S. assets. Currently, the standards in subpart N--which include risk-
based and leverage capital, liquidity risk management, and capital
stress testing requirements--largely require compliance with home-
country standards.
Consistent with EGRRCPA, the proposal would raise the threshold for
application of subpart N to foreign banking organizations with $100
billion or more in total consolidated assets but less than $100 billion
in combined U.S. assets. Under the proposed rule, the requirements
under subpart N would continue to largely defer to home-country
standards and remain generally unchanged from the requirements that
apply currently to a foreign banking organization with a limited U.S
presence, including liquidity risk management requirements, risk-based
and leverage capital requirements, and capital stress testing
requirements. However, consistent with the proposed stress testing
frequency for smaller and less complex domestic holding companies, the
proposal would require foreign banking organizations with total
consolidated assets of less than $250 billion that do not meet the
criteria for application of Category II, Category III, or Category IV
standards to be subject to a home-country supervisory stress test on a
biennial basis, rather than annually as under the current framework.
As mentioned above in section II.E. of this Supplementary
Information, risk-committee requirements in subpart N would be further
differentiated based on combined U.S. assets. Under the proposal,
foreign banking organizations with $100 billion or more in total
consolidated assets but less than $50 billion in combined U.S. assets
would be required to certify on an annual basis that they maintain a
qualifying risk committee that oversees the risk management policies of
the combined U.S. operations of the foreign banking organization. In
contrast, foreign banking organizations with $100 billion or more in
total consolidated assets, and at least $50 billion but less than $100
billion in combined U.S. assets would be subject to more detailed risk-
committee and risk-management requirements, which include the chief
risk officer requirement. These more detailed risk-committee
requirements would be the same requirements that apply to foreign
banking organizations with $100 billion or more in combined U.S.
assets.
The proposal would not revise the $50 billion U.S. non-branch asset
threshold for the U.S. intermediate holding company formation
requirement. This requirement has resulted in substantial gains in the
resilience and safety and soundness of foreign banking organizations'
U.S. operations. Therefore, a foreign banking organization subject to
subpart N (i.e., one with less than $100 billion in combined U.S.
assets) may have or could be required to form a U.S. intermediate
holding company. A U.S. intermediate holding company of such a foreign
banking organization would not be subject to Category II, Category III,
or Category IV capital standards, but it would remain subject to the
risk-based and leverage capital requirements that apply to a U.S. bank
holding company of a similar size and risk profile under the Board's
capital rule.\102\ Similarly, a U.S. intermediate holding company of a
foreign banking organization subject to subpart N would be required to
comply with risk-management and risk-committee requirements. As under
the
[[Page 22007]]
current rule, under the proposal the risk committee of the U.S.
intermediate holding company may also serve as the U.S. risk committee
for the foreign banking organization's combined U.S. operations.
---------------------------------------------------------------------------
\102\ 12 CFR part 217. As discussed in the interagency foreign
banking organization capital and liquidity proposal, such a U.S.
intermediate holding company would be subject to the generally
applicable risk-based and leverage capital requirements.
---------------------------------------------------------------------------
G. Technical Changes to the Regulatory Framework for Foreign Banking
Organizations and Domestic Banking Organizations
The proposal would make several technical changes and clarifying
revisions to the Board's enhanced prudential standards rule. In
addition to any defined terms described previously in this
Supplementary Information section, the proposal would add defined terms
for foreign banking organizations with combined U.S. operations subject
to Category II, III, or IV standards, defined as ``Category II foreign
banking organizations'', ``Category III foreign banking
organizations'', or ``Category IV foreign banking organizations'',
respectively. Similarly, the proposal would add defined terms for
``Category II U.S. intermediate holding companies'', ``Category III
U.S. intermediate holding companies'', and ``Category IV U.S.
intermediate holding companies''. The addition of these terms would
facilitate the requirements for application of enhanced prudential
standards under the category framework set forth in this proposal.
The proposal would revise the requirements for establishment of a
U.S. intermediate holding company to eliminate the requirement to
submit an implementation plan. The implementation plan requirement was
intended to facilitate initial compliance with the U.S. intermediate
holding company requirement. To assess compliance with the U.S.
intermediate holding company requirement under the proposal,
information would be requested through the supervisory process. Such
information could include information on the U.S. subsidiaries of the
foreign banking organization that would be transferred, a projected
timeline for the structural reorganization, and a discussion of the
firm's plan to comply with the enhanced prudential standards that would
be applicable to the U.S. intermediate holding company.
The proposal also would make conforming amendments to the process
for requesting an alternative organizational structure for a U.S.
intermediate holding company, as well as clarify that a foreign banking
organization may submit a request for an alternative organizational
structure in the context of a reorganization, anticipated acquisition,
or prior to formation of a U.S. intermediate holding company. In light
of the requests received under this section following the initial
compliance with the U.S. intermediate holding company requirement, the
time period for the Board's expected action would be shortened from 180
days to 90 days. These amendments would apply to a U.S. intermediate
holding company formed under subpart N or subpart O.
As discussed above, capital requirements would apply to a U.S.
intermediate holding company based on its risk profile, while other
requirements would be based on the risk profile of the combined U.S.
operations of a foreign banking organization. Subpart O of Regulation
YY currently provides that a foreign banking organization that forms
two or more U.S. intermediate holding companies would meet any
threshold governing applicability of particular requirements by
aggregating the total consolidated assets of the U.S. intermediate
holding companies. The proposal would not change this aggregation
requirement, but would amend the requirement to consider the risk-based
indicators discussed above.
In addition, the proposal would provide a reservation of authority
to permit a foreign banking organization to comply with the
requirements of Regulation YY through a subsidiary foreign bank or
company of the foreign banking organization. In making this
determination, the Board would take into consideration the ownership
structure of the foreign banking organization, including (1) whether
the foreign banking organization is owned or controlled by a foreign
government; (2) whether the action would be consistent with the
purposes of this part; and (3) any other factors that the Board
determines are relevant. For example, if top-tier foreign banking
organization is a sovereign wealth fund that controls a U.S. bank
holding company, with prior approval of the Board the U.S. bank holding
company could comply with the requirements established under Regulation
YY instead of the sovereign wealth fund, provided that doing so would
not raise significant supervisory or policy issues and would be
consistent with the purposes of section 165. The reservation of
authority is intended to provide additional flexibility to address
certain foreign banking organization structures, as well as to provide
clarity and reduce burden for these institutions.
The proposal also would amend Regulation YY to eliminate transition
and initial applicability provisions that were relevant only for
purposes of the initial adoption and implementation of the enhanced
prudential standards framework.
For both foreign and domestic banking organizations, the Board is
soliciting comment on whether to more closely align the assets that
qualify as highly liquid assets in the enhanced prudential standards
rule \103\ with HQLA under the current LCR rule.\104\
---------------------------------------------------------------------------
\103\ 12 CFR 252.35(b) and 12 CFR 252.157(c).
\104\ See Liquidity Coverage Ratio: Liquidity Risk Measurement
Standards, 79 FR 61440, 61450 (Oct. 10, 2014), codified at 12 CFR
part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR part 329 (FDIC).
For the definition of HQLA under the Board's LCR rule, see 12 CFR
249.20.
---------------------------------------------------------------------------
Specifically, the enhanced prudential standards rule requires
certain large foreign and domestic banking organizations to hold
buffers of highly liquid assets. The rule defines highly liquid assets
to include cash, certain securities issued or guaranteed by the U.S.
government or a U.S. government-sponsored enterprise, and other assets
that a firm demonstrates to the Board's satisfaction meet specific
liquidity criteria.\105\
---------------------------------------------------------------------------
\105\ Id.
---------------------------------------------------------------------------
The LCR rule describes assets that are HQLA that may be used by a
firm to meets its net cash outflow amount.\106\ HQLA are expected to be
easily and immediately convertible into cash with little or no expected
loss of value during a period of stress.\107\ Certain HQLA are subject
to additional, asset-specific requirements, including, for example,
that the assets be liquid and readily marketable.\108\
---------------------------------------------------------------------------
\106\ 12 CFR 50.20 (OCC), 12 CFR 249.20 (Board), and 12 CFR
329.20 (FDIC).
\107\ See 79 FR at 61450.
\108\ 12 CFR 50.20 (OCC), 12 CFR 249.20 (Board), and 12 CFR
329.20 (FDIC).
---------------------------------------------------------------------------
When the Board adopted the enhanced prudential standards rule in
2014, the Board stated that HQLA under the then-proposed LCR rule would
be liquid under most scenarios, but a covered company would still be
required to demonstrate to the Board that these assets meet the
criteria for highly liquid assets set forth in the enhanced prudential
standards rule.\109\ After several years of supervising firms that are
subject to the enhanced prudential standards rule and LCR rule, the
Board is considering whether it would be appropriate to expand the list
of enumerated highly liquid assets to include certain assets that are
HQLA (potentially reflecting operational requirements of the LCR rule),
or otherwise adjust the definition of highly liquid assets to align
with the LCR rule. Under this approach, a banking organization would no
longer be required to obtain a determination from
[[Page 22008]]
the Board for assets that are HQLA, as those assets would be enumerated
as highly liquid assets in Regulation YY.
---------------------------------------------------------------------------
\109\ See 79 FR 17259-60 (Oct. 10, 2014).
---------------------------------------------------------------------------
Question 36: How, if at all, should the Board adjust the current
definition of highly liquid assets in 12 CFR 252.35(b)(3) and
252.157(c)(7) of the enhanced prudential standards rule to improve
alignment with the definition of HQLA? Should the enumerated list of
highly liquid assets be expanded to include any or all of certain
categories of HQLA (e.g., level 1 liquid assets, all level 1 and level
2A liquid assets, certain level 1 liquid assets, certain level 2A
liquid assets, etc.) or certain assets that are HQLA (e.g., sovereign
bonds that are assigned a zero percent risk weight under the Board's
capital regulation)? Should ``cash'' in the enhanced prudential
standards rule be clarified to mean Reserve Bank balances and foreign
withdrawable reserves, to more closely align with the enumerated list
of level 1 liquid assets that are not securities in the LCR rule?
Question 37: What are the advantages and disadvantages of
incorporating into the definition of highly liquid assets other
requirements of the LCR rule related to HQLA, including, for example,
the requirements for an asset to be ``eligible HQLA,'' the haircuts
applied to HQLA, or the quantitative limits on the composition of the
HQLA amount? \110\
---------------------------------------------------------------------------
\110\ 12 CFR 249.21 and 249.22.
---------------------------------------------------------------------------
Question 38: If a firm's HQLA satisfy the requirements in the LCR
rule to be eligible HQLA,\111\ what are the advantages and
disadvantages of requiring the firm to separately demonstrate that the
HQLA meet the other requirements in the enhanced prudential standards
rule for highly liquid assets? \112\ What would be the advantages and
disadvantages of adding other requirements for highly liquid assets in
the enhanced prudential standards rule, including a requirement that a
firm take into account potential conflicts to a business or risk
management strategy stemming from the monetization of these assets?
---------------------------------------------------------------------------
\111\ See 12 CFR 50.22 (OCC); 12 CFR 249.22 (Board); 12 CFR
329.50 (FDIC).
\112\ 12 CFR 252.35(b)(3) and 252.157(c)(7).
---------------------------------------------------------------------------
In addition, the proposal would amend the internal liquidity stress
testing requirements to provide a banking organization with notice and
an opportunity to respond if the Board determined that the banking
organization must change the frequency of its internal liquidity stress
testing. The proposed procedures would allow a banking organization to
respond to the Board's determination before such requirement takes
effect. The proposed procedures are consistent with other similar
notice procedures in Regulation YY. The proposed changes would help
ensure that the internal liquidity stress tests conducted by a banking
organization are consistent with that banking organization's liquidity
risk profile.\113\
---------------------------------------------------------------------------
\113\ The proposed procedures would not limit the authority of
the Board under any other provision of law or regulation to take
supervisory or enforcement action, including action to address
unsafe or unsound practices or conditions, deficient liquidity
levels, or violations of law.
---------------------------------------------------------------------------
For domestic bank holding companies, the proposal would amend the
Board's GSIB surcharge rule to require a bank holding company subject
to Category III standards to compute its method 1 score on an annual
basis to determine whether it is a U.S. GSIB. Currently, the Board's
GSIB surcharge rule applies only to a domestic bank holding company
that is an advanced approaches Board-regulated institution (a bank
holding company with $250 billion or more in total consolidated assets
or $10 billion or more in on-balance sheet foreign exposure), as a bank
holding company that does not meet these thresholds is less likely to
pose heightened risks to U.S. financial stability.\114\
---------------------------------------------------------------------------
\114\ See 12 CFR 217.400(b)(1). See 80 FR 49082 (August 14,
2015).
---------------------------------------------------------------------------
In the domestic interagency proposal, the Board proposed to revise
the definition of advanced approaches Board-regulated institution to
include a bank holding company that is identified as a U.S. GSIB or a
bank holding company that has either $700 billion in total consolidated
assets or $75 billion in cross-jurisdictional activity. The Board did
not address whether a Category III banking organization would need to
calculate its method 1 score in the domestic proposal or the domestic
interagency proposal. As noted by the Board in the domestic proposal,
Category III standards would apply to domestic bank holding companies
that could pose heightened risks to U.S financial stability and would
further the safety and soundness of a bank holding company of such size
and risk profile.\115\ Accordingly, because of the risk profile of
these firms, the Board is proposing to revise the GSIB surcharge rule
to require Category III banking organizations to calculate their method
1 scores annually. The proposed change would not increase the number of
firms that currently calculate their method 1 GSIB score annually, as
all proposed Category III domestic bank holding companies are advanced
approaches Board-regulated institutions under the Board's existing GSIB
surcharge rule.
---------------------------------------------------------------------------
\115\ 83 FR 61408, 61413 (November 29, 2018).
---------------------------------------------------------------------------
Question 39: How could the Board further improve the structure of
the enhanced prudential standards framework in Regulation YY and
proposed prudential standards in Regulation LL? For example, would
providing all definitions under one section facilitate compliance with
the framework? Are there other structural or technical changes to
Regulation YY and Regulation LL the Board should consider and, if so,
why? Are there other clarifications to Regulation YY that the Board
should consider and, if so, how and why? For example, are there defined
terms that could be further clarified?
Question 40: What are the advantages or disadvantages of providing
foreign banking organizations additional flexibility in complying with
the Board's risk-committee requirements? What, if any, additional
flexibility should the Board provide to foreign banking organizations
with $50 billion or more in combined U.S. assets to maintain their risk
committees at entities other than at the top-tier foreign banking
organization or at the foreign banking organization's U.S. intermediate
holding company? What alternative structures should the Board consider?
What factors should the Board consider in determining whether to
provide foreign banking organizations with additional flexibility or
permit an alternative structure in complying with the risk-committee
requirements? In particular, to what extent should the Board consider
(a) the scope of the risk committee's oversight of the combined U.S.
operations of the foreign banking organization; and (b) the reporting
lines from the risk committee to the global board of directors of the
foreign banking organization?
Question 41: What are the advantages or disadvantages of requiring
a domestic bank holding company subject to Category III standards to
compute its method 1 score? What would be the advantages or
disadvantages of the Board, instead of the bank holding companies
subject to the GSIB surcharge rule, computing the method 1 scores for
all, or some, bank holding companies subject to the GSIB surcharge
rule?
III. Proposed Reporting Changes
To accommodate the proposed revisions to the framework for
determining the applicability of enhanced prudential standards to
foreign banking organizations, the proposal would make various changes
to related reporting forms. Specifically,
[[Page 22009]]
the proposal would amend the FR Y-7, FR Y-7Q, FR Y-9C, FR Y-14, FR Y-
15, and FR 2052a.
The Board is proposing to revise Item 5 on the FR Y-7, Regulation
YY Compliance for the Foreign Banking Organization (FBO), to align the
reporting form with the applicability thresholds set forth in this
proposal and other regulatory changes that are consistent with the
Board's July 2018 statement concerning EGRRCPA.\116\ Specifically, Item
5(a) would be amended to apply only to foreign savings and loan holding
companies with more than $250 billion in total consolidated assets, and
would assess compliance with the capital stress testing requirements
under proposed section 238.162 of the Board's Regulation LL, as revised
under this proposal. Items 5(b) and 5(c) would continue to assess
compliance with the risk committee requirements in sections 252.132(a)
and 252.144(a) of the Board's Regulation YY, respectively, but the
descriptions for each Item would be updated to conform to the asset
size thresholds under this proposal. For Item 5(b), the description
would also eliminate language referring to foreign banking
organizations that are publicly traded, as that distinction would be
eliminated under this proposal. Similarly, the Board is proposing to
revise Items 5(d) and 5(e) to align the descriptions of the
requirements with the asset size thresholds under this proposal. These
Items would continue to assess compliance with the capital stress
testing requirements in sections 252.146(b) and 252.158(b) of the
Board's Regulation YY.
---------------------------------------------------------------------------
\116\ See Board statement regarding the impact of the Economic
Growth, Regulatory Relief, and Consumer Protection Act, July 6,
2018, available at https://www.federalreserve.gov/newsevents/pressreleases/bcreg20180706b.htm.
---------------------------------------------------------------------------
The proposal would amend the FR Y-7Q to align with revisions to
Regulation YY. Currently, top-tier foreign banking organizations with
$50 billion or more in total consolidated assets must report Part 1B--
Capital and Asset Information for Top-tier Foreign Banking
Organizations with Consolidated Assets of $50 billion or more. The
proposal would now require top-tier foreign banking organizations that
are subject to either sections 252.143 or 252.154 of the Board's
Regulation YY to report Part 1B. Section 252.143 outlines risk-based
and leverage capital requirements for foreign banking organizations
with total consolidated assets of $250 billion or more but combined
U.S. assets of less than $100 billion, while section 252.154 describes
risk-based and leverage capital requirements for foreign banking
organizations with $100 billion or more in total consolidated assets
and combined U.S. assets of $100 billion or more.
The Board is proposing to amend the FR Y-9C to further clarify
requirements for U.S. intermediate holding companies subject to
Category III capital standards. In the domestic proposal, the Board
proposed to amend the FR Y-9C to clarify that Category III Board-
regulated institutions would not be included in the proposed definition
of ``advanced approaches banking organizations'' but would be required
to comply with the supplementary leverage ratio and countercyclical
capital buffer requirements. Specifically, the domestic proposal would
require line item 45 to be completed by ``advanced approaches banking
organizations and Category III Board-regulated institutions.'' This
proposal would make additional changes to line item 45 to further
clarify that the supplementary leverage ratio and countercyclical
capital buffer apply to Category III U.S. intermediate holding
companies. Accordingly, line item 45 would be amended to apply to
``advanced approaches holding companies, Category III bank holding
companies, Category III savings and loan holding companies or Category
III U.S. intermediate holding companies.'' The instructions for the FR
Y-9C also would be amended in this proposal to align with the proposed
revisions to line item 45. Under the domestic proposal, the
instructions for Schedule HC-R of the FR Y-9C would be clarified to
indicate that Category III Board-regulated institutions are not subject
to the advanced approaches rule but are subject to the supplementary
leverage ratio and countercyclical capital buffer. This proposal would
amend those instructions to further clarify that the supplementary
leverage ratio and countercyclical capital buffer also apply to
Category III bank holding companies, Category III savings and loan
holding companies, and Category III U.S. intermediate holding
companies.
Consistent with EGRRCPA and the Board's July 2018 statement
relating to EGRRCPA, the proposal would revise the FR Y-14A, Y-14M, and
Y-14Q to revise the threshold for U.S. intermediate holding companies
that would be required to submit these forms, by increasing it to U.S.
intermediate holding companies with $100 billion or more in total
consolidated assets. U.S. intermediate holding companies below this
size threshold would no longer be required to submit these forms. The
proposal would also make technical changes to the definitions of
``large and complex'' and ``large and noncomplex'' bank holding company
to align with proposed changes in Sec. 225.8(d)(9).
The Board is proposing to modify the FR Y-15 report to require a
foreign banking organization to report data for its combined U.S.
operations that are related to the criteria for determining the
applicability of enhanced prudential standards under this proposal.
Currently, only U.S. intermediate holding companies are required to the
FR Y-15. Extending FR Y-15 reporting requirements to the combined U.S.
operations of a foreign banking organization would allow the Board to
determine the applicable category of standards, as well as monitor the
risk profile of those operations, consistent with the scope of
application of this proposal. Specifically, foreign banking
organizations would be required to report the information required
under new schedules H through N of the FR Y-15, which would replicate
schedules A through G of the current FR Y-15 for domestic holding
companies (with the exception of cross-jurisdictional activity, as
discussed below).\117\ Schedules H through N would be structured to
include three columns, in which a foreign banking organization would
report the information request for each item for (i) its U.S.
intermediate holding company, (ii) its U.S. branch and agency network,
and (iii) its combined U.S. operations. In calculating an item for its
U.S. branch and agency network, a foreign banking organization would
not be required to reflect transactions between its individual branches
and agencies; such transactions would be treated as if they were
transactions between affiliates under generally accepted accounting
principles, and thus eliminated in consolidation. Similarly, in
calculating an item for its combined U.S. operations, a foreign banking
organization would not be required to reflect transactions between
entities that comprise the combined U.S. operations of the foreign
banking organization. Consistent with the domestic proposal, the
proposal would add two line items to Schedule H of the FR Y-15 to
calculate total off-balance sheet exposure. New line item M4 (total
consolidated assets) would report the total consolidated on-balance
sheet assets for the respondent, as calculated under Schedule HC, item
12 (total consolidated assets) on the FR Y-9C. New line item M5 (total
off-balance sheet exposures) would be total
[[Page 22010]]
exposure, as currently defined on the FR Y-15, minus line item M4. For
purposes of reporting cross-jurisdictional activity, the FR Y-15 would
require foreign banking organizations to report assets and liabilities
of the U.S. intermediate holding company and U.S. branch and agency
network, excluding cross-jurisdictional liabilities to non-U.S.
affiliates and cross-jurisdictional claims on non-U.S. affiliates to
the extent that these claims are secured by eligible financial
collateral. To effectuate this change, the proposal would add new line
items to proposed Schedule L and amend the instructions accordingly.
Finally, the proposed changes to the FR Y-15 would make a number of
additional edits to the form's instructions to clarify reporting
requirements given the new scope of reporting for foreign banking
organizations, and further align the form with the proposed
categorization framework (e.g., amending references to ``advanced
approaches'' institutions).
---------------------------------------------------------------------------
\117\ U.S. intermediate holding companies would no longer be
required to report on schedules A through G of the FR Y-15.
---------------------------------------------------------------------------
The Board is proposing to revise the FR 2052a report to modify the
current reporting frequency as described previously in this
Supplementary Information section. Consistent with EGRRCPA, the
revisions would remove foreign banking organizations with less than
$100 billion in combined U.S. assets from the scope of FR 2052a
reporting requirements. Additionally, the proposal would require
foreign banking organizations with combined U.S. assets of $100 billion
or more to report the FR 2052a on a daily basis if they are: (i)
Subject to Category II standards, or (ii) have $75 billion or more in
weighted short-term wholesale funding. This would increase the
frequency of reporting for foreign banking organizations subject to
Category II standards with less than $700 billion in combined U.S.
assets and foreign banking organizations subject to Category III
standards with $75 billion or more in weighted short-term wholesale
funding; these foreign banking organizations currently report the FR
2052a liquidity data on a monthly basis. Reporting daily liquidity data
would facilitate enhanced supervisory monitoring based on these firms'
liquidity risk profile, as indicated by their size, level of weighted
short-term wholesale funding or cross-jurisdictional activity. The
proposal to require daily FR 2052a liquidity data based on whether a
foreign banking organization is subject to Category II standards or has
weighted short-term wholesale funding (among its combined U.S.
operations) of $75 billion or more would replace the existing criteria
for determining whether a foreign banking organization is required to
submit FR 2052a liquidity data on a daily basis, which is whether a
foreign banking organizations is subject to supervision within the
Board's Large Institution Supervision Coordinating Committee (LISCC)
portfolio.\118\ All other foreign banking organizations with combined
U.S. assets of $100 billion or more would be subject to monthly filing
requirements. The proposal also would clarify reporting transition
periods if a change in category or level of short-term wholesale
funding alters a firm's FR 2052a reporting frequency.
---------------------------------------------------------------------------
\118\ See SR Letter 12-17, ``Consolidated Supervision Framework
for Large Financial Institutions'' (December 17, 2012).
---------------------------------------------------------------------------
Question 42: What are the challenges, if any, of reporting the
information required under the FR Y-15 for the combined U.S. operations
of a foreign banking organization?
Question 43: What are the costs and benefits of the proposed
changes to the FR 2052a, including the advantages and disadvantages of
the proposed reporting frequency for firms subject to Category II and
III standards?
Question 44: What changes should the Board consider to the proposed
reporting requirements to alleviate burden? Commenters are encouraged
to explain how any such changes would allow the Board to effectively
monitor and supervise foreign banking organizations subject to the
proposed reporting requirements, as appropriate to prevent or mitigate
risks to U.S. financial stability.
Question 45: What systems modifications would be required to report
the information that would be required under the FR Y-15 in connection
with this proposal? How much time would be required to implement any
such modifications?
Question 46: As a part of this proposal, the Federal Reserve has
released proposed Y-15 forms that would add Schedules H-N to be
reported by foreign banking organizations. As an alternative, the
Federal Reserve could add two new columns to Schedules A-G instead of
creating new schedules for these firms. What are the advantages and
disadvantages of these two approaches? What other approaches should the
Board consider for collecting the Y-15 data from the U.S. branches and
agencies, as well as the combined U.S. operations for foreign banking
organizations?
IV. Impact Assessment
In general, the Board expects the proposed adjustments to the
capital and liquidity enhanced prudential standards would reduce
aggregate compliance costs for foreign banking organizations with $100
billion or more in combined U.S. assets, with minimal effects on the
safety and soundness of these firms and U.S. financial stability.\119\
With respect to reporting burden, certain foreign banking organizations
with weighted short-term wholesale funding of $75 billion or more that
previously filed the FR 2052a on a monthly basis may experience a minor
increase in compliance costs due to the increase in reporting frequency
of the FR 2052a to daily. For additional impact information, commenters
should also review the interagency foreign banking organization capital
and liquidity proposal.
---------------------------------------------------------------------------
\119\ Foreign banking organizations with less than $100 billion
in combined U.S. assets (and U.S. intermediate holding companies
with less than $100 billion in total consolidated assets) would have
significantly reduced compliance costs, as these firms would no
longer be subject to subpart O of the enhanced prudential standards
rule or the capital plan rule, and would no longer be required to
file FR Y-14, FR Y-15, or FR 2052a reports. While these foreign
banking organizations would no longer be subject to internal
liquidity stress testing and buffer requirements with respect to
their U.S. operations, these firms' U.S. operations currently hold
HLA well in excess of their current liquidity buffer requirements.
---------------------------------------------------------------------------
A. Liquidity
The proposed changes to liquidity requirements are expected to
reduce compliance costs for firms that would be subject to Category IV
standards by reducing the required frequency of internal liquidity
stress tests and tailoring the liquidity risk management requirements
to the risk profiles of these firms. The Board does not expect these
proposed changes to materially affect the liquidity buffer levels held
by these firms or these firms' exposure to liquidity risk.
B. Capital Planning and Stress Testing
First, while the Board expects the proposed changes to capital
planning and stress testing requirements to have no material impact on
the capital levels of U.S. intermediate holding companies with $100
billion or more in total consolidated assets, the proposal would reduce
compliance costs for U.S. intermediate holding companies subject to
Category III or IV capital standards. These firms currently must
conduct company-run stress tests on a semi-annual basis. For U.S.
intermediate holding companies that would be subject to Category III
standards, the
[[Page 22011]]
proposal would reduce this frequency to every other year. For U.S.
intermediate holding companies that would be subject to Category IV
standards, the proposal would remove this requirement altogether.\120\
In addition, under the proposal the Board would conduct supervisory
stress tests of U.S. intermediate holding companies subject to Category
IV standards on a two-year, rather than annual, cycle. For U.S.
intermediate holding companies subject to Category III or Category IV
standards, the proposed changes would reduce the compliance costs
associated with capital planning and stress testing.
---------------------------------------------------------------------------
\120\ Although the proposal would not modify the requirement for
a U.S. intermediate holding company that would be subject to
Category IV standards to conduct an internal capital stress test as
part of its annual capital plan submission, the Board intends to
propose changes in the future capital plan proposal to align with
the proposed removal of company-run stress testing requirements for
these firms. See section IV.D of this Supplementary Information
section.
---------------------------------------------------------------------------
C. Single-Counterparty Credit Limits
The proposed changes to the single-counterparty credit limits
framework are not expected to increase risks to U.S. financial
stability. The proposal would remove U.S. intermediate holding
companies of a foreign banking organization subject to Category IV
standards (as measured based on the combine U.S. operations of the
foreign banking organization) from the applicability of single-
counterparty credit limits. While these U.S. intermediate holding
companies would recognize reductions in compliance costs associated
with these requirements, they typically do not present the risks that
are intended to be addressed by the single-counterparty credit limits
framework. In addition, the proposal would remove the single-
counterparty credit limits applicable to major U.S. intermediate
holding companies; however, there currently are no U.S. intermediate
holding companies that meet or exceed the asset size threshold for
these requirements.
The proposal would increase the costs of compliance for U.S.
intermediate holding companies with less than $250 billion in total
consolidated assets and that are subject to Category II or Category III
standards, as determined based on the combined U.S. operations of a
foreign banking organization. The proposal would extend the
applicability of certain provisions under the single-counterparty
credit limits framework to these U.S. intermediate companies, which
currently apply only to those with $250 billion or more in total
consolidated assets.
V. Administrative Law Matters
A. Solicitation of Comments and Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires the federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. The Board has sought to present the proposal in a
simple and straightforward manner, and invites comment on the use of
plain language. For example:
Has the Board organized the material to suit your needs?
If not, how could it present the proposal more clearly?
Are the requirements in the proposal clearly stated? If
not, how could the proposal 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?
Would more, but shorter, sections be better? If so, which
sections should be changed?
What other changes can the Board incorporate to make the
regulation easier to understand?
B. Paperwork Reduction Act Analysis
Certain provisions of the proposed rule contain ``collections of
information'' within the meaning of the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3501-3521). The Board 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 reviewed the proposed rule under the
authority delegated to the Board by OMB.
The proposed rule contains reporting requirements subject to the
PRA. To implement these requirements, the Board proposes to revise the
(1) Complex Institution Liquidity Monitoring Report (FR 2052a; OMB No.
7100-0361), (2) Annual Report of Foreign Banking Organizations (FR Y-7;
OMB No. 7100-0297), (3) Capital and Asset Report for Foreign Banking
Organizations (FR Y-7Q; OMB No. 7100-0125), (4) Consolidated Financial
Statements for Holding Companies (FR Y-9C; OMB No. 7100-0128), (5)
Capital Assessments and Stress Testing (FR Y-14A/Q/M; OMB No. 7100-
0341), and (6) Banking Organization Systemic Risk Report (FR Y-15; OMB
No. 7100-0352).
The proposed rule also contains reporting and recordkeeping
requirements subject to the PRA. To implement these requirements, the
Board proposes to revise reporting and recordkeeping requirements
associated with Regulations Y, LL and YY: (7) Reporting and
Recordkeeping Requirements Associated with Regulation Y (Capital Plans)
(FR Y-13; OMB No. 7100-0342), (8) Reporting Requirements Associated
with Regulation LL (FR LL; OMB No. 7100-NEW), and (9) Reporting,
Recordkeeping, and Disclosure Requirements Associated with Regulation
YY (FR YY; OMB No. 7100-0350). This document contains Paperwork
Reduction Act burden estimates for the proposed changes to Regulations
Y, LL and YY for this proposed rule, as well as the burden estimates
for the proposed reporting and recordkeeping requirements in
Regulations Y, LL and YY in the proposal issued by the Board for
domestic banking organizations on October 31, 2018 (83 FR 61408).
Foreign banking organizations do not currently report all of the data
for the measure of cross-jurisdictional activity and, accordingly, the
burden estimates rely on firm categorizations using best available
data.
Comments are invited on:
(a) Whether the proposed collections of information are necessary
for the proper performance of the Board's functions, including whether
the information has practical utility;
(b) The accuracy of the estimates of the burden of the proposed
information collections, including the validity of the methodology and
assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or startup costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on
aspects of this proposed rule that may affect reporting, recordkeeping,
or disclosure requirements and burden estimates should be sent to Ann
E. Misback, Secretary, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue NW, Washington, DC 20551. A
copy of the comments may
[[Page 22012]]
also be submitted to the OMB desk officer to the Office of Information
and Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235, 725 17th Street NW, Washington, DC 20503
or by fax to 202-395-6974.
Proposed Revision, With Extension, of the Following Information
Collections
(1) Report title: Complex Institution Liquidity Monitoring Report.
Agency form number: FR 2052a.
OMB control number: 7100-0361.
Frequency: Monthly, each business day (daily).
Affected Public: Businesses or other for-profit.
Respondents: U.S. bank holding companies, U.S. savings and loan
holding companies, and foreign banking organizations with U.S. assets.
Estimated number of respondents: Monthly: 25; Daily: 17.
Estimated average hours per response: Monthly: 120; Daily: 220.
Estimated annual burden hours: 971,000.
General description of report: The FR 2052a is used to monitor the
overall liquidity profile of institutions supervised by the Board.
These data provide detailed information on the liquidity risks within
different business lines (e.g., financing of securities positions,
prime brokerage activities). In particular, these data serve as part of
the Board's supervisory surveillance program in its liquidity risk
management area and provide timely information on firm-specific
liquidity risks during periods of stress. Analyses of systemic and
idiosyncratic liquidity risk issues are then used to inform the Board's
supervisory processes, including the preparation of analytical reports
that detail funding vulnerabilities.
Legal authorization and confidentiality: The FR 2052a is authorized
pursuant to section 5 of the Bank Holding Company Act (12 U.S.C. 1844),
section 8 of the International Banking Act (12 U.S.C. 3106), section 10
of HOLA (12 U.S.C. 1467a), and section 165 of the Dodd-Frank Act (12
U.S.C. 5365) and is mandatory. Section 5(c) of the Bank Holding Company
Act authorizes the Board to require bank holding companies (BHCs) to
submit reports to the Board regarding their financial condition.
Section 8(a) of the International Banking Act subjects foreign banking
organizations to the provisions of the Bank Holding Company Act.
Section 10(b)(2) of HOLA authorizes the Board to require savings and
loan holding companies (SLHCs) to file reports with the Board
concerning their operations. Section 165 of the Dodd-Frank Act requires
the Board to establish prudential standards, including liquidity
requirements, for certain BHCs and foreign banking organizations.
Financial institution information required by the FR 2052a is
collected as part of the Board's supervisory process. Therefore, such
information is entitled to confidential treatment under exemption 8 of
the Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(8)). In
addition, the institution information provided by each respondent would
not be otherwise available to the public and its disclosure could cause
substantial competitive harm. Accordingly, it is entitled to
confidential treatment under the authority of exemption 4 of the FOIA
(5 U.S.C. 552(b)(4), which protects from disclosure trade secrets and
commercial or financial information.
Current Actions: To implement the reporting requirements of the
proposed rule, the Board is proposing to modify the current FR 2052a
reporting frequency. Consistent with EGRRCPA's changes, the revisions
would remove foreign banking organizations with less than $100 billion
in combined U.S. assets from the scope of FR 2052a reporting
requirements. Additionally, the proposal would require foreign banking
organizations with combined U.S. assets of $100 billion or more to
report the FR 2052a on a daily basis if they are (1) subject to
Category II standards or (2) have $75 billion or more in weighted
short-term wholesale funding. All other foreign banking organizations
with combined U.S. assets of $100 billion or more would be subject to
monthly filing requirements. The Board estimates that proposed
revisions to the FR 2052a would decrease the respondent count by 6.
Specifically, the Board estimates that the number of monthly filers
would decrease from 36 to 25, but the number of daily filers would
increase from 12 to 17. The Board estimates that proposed revisions to
the FR 2052a would increase the estimated annual burden by 259,160
hours. The draft reporting forms and instructions are available on the
Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
(2) Report title: Annual Report of Holding Companies; Annual Report
of Foreign Banking Organizations; Report of Changes in Organizational
Structure; Supplement to the Report of Changes in Organizational
Structure.
Agency form number: FR Y-6; FR Y-7; FR Y-10; FR Y-10E.
OMB control number: 7100-0297.
Frequency: Annual and event-generated.
Affected Public: Businesses or other for-profit.
Respondents: Bank holding companies (BHCs), savings and loan
holding companies (SLHCs), securities holding companies (SHCs), and
intermediate holding companies (IHCs) (collectively, holding companies
(HCs)), foreign banking organizations (FBOs), state member banks (SMBs)
unaffiliated with a BHC, Edge Act and agreement corporations, and
nationally chartered banks that are not controlled by a BHC (with
regard to their foreign investments only).
Estimated number of respondents: FR Y-6: 4,079; FR Y-7: 257; FR Y-
10: 4,269; FR Y-10E: 4,269.
Estimated average hours per response: FR Y-6: 5.5; FR Y-7: 4.5; FR
Y-10: 2.5; FR Y-10E: 0.5.
Estimated annual burden hours: FR Y-6: 22,435; FR Y-7: 1,157; FR Y-
10: 32,018; FR Y-10E: 2,135.
General description of report: The FR Y-6 is an annual information
collection submitted by top-tier domestic HCs and FBOs that are non-
qualifying. It collects financial data, an organization chart,
verification of domestic branch data, and information about
shareholders. The Federal Reserve uses the data to monitor HC
operations and determine HC compliance with the provisions of the BHC
Act, Regulation Y (12 CFR part 225), the Home Owners' Loan Act (HOLA),
Regulation LL (12 CFR part 238), and Regulation YY (12 CFR part 252).
The FR Y-7 is an annual information collection submitted by FBOs
that are qualifying to update their financial and organizational
information with the Federal Reserve. The FR Y-7 collects financial,
organizational, shareholder, and managerial information. The Federal
Reserve uses the information to assess an FBO's ability to be a
continuing source of strength to its U.S. operations and to determine
compliance with U.S. laws and regulations.
The FR Y-10 is an event-generated information collection submitted
by FBOs; top-tier HCs; securities holding companies as authorized under
Section 618 of the Dodd-Frank Act (12 U.S.C. 1850a(c)(1)); state member
banks unaffiliated with a BHC; Edge and agreement corporations that are
not controlled by a member bank, a domestic BHC, or an FBO; and
nationally chartered banks that are not controlled by a BHC (with
regard to their foreign investments only) to capture changes in their
regulated investments and activities. The Federal Reserve uses the data
to monitor
[[Page 22013]]
structure information on subsidiaries and regulated investments of
these entities engaged in banking and nonbanking activities.
The FR Y-10E is an event-driven supplement that may be used to
collect additional structural information deemed to be critical and
needed in an expedited manner.
Legal authorization and confidentiality: These information
collections are mandatory as follows:
FR Y-6: Section 5(c)(1)(A) of the Bank Holding Company Act (BHC
Act) (12 U.S.C. 1844(c)(1)(A)); sections 8(a) and 13(a) of the
International Banking Act (IBA) (12 U.S.C. 3106(a) and 3108(a));
sections 11(a)(1), 25, and 25A of the Federal Reserve Act (FRA) (12
U.S.C. 248(a)(1), 602, and 611a); and sections 113, 165, 312, 618, and
809 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act) (12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and
5468(b)(1)).
FR Y-7: Sections 8(a) and 13(a) of the IBA (12 U.S.C. 3106(a) and
3108(a)); sections 113, 165, 312, 618, and 809 of the Dodd-Frank Act
(12 U.S.C. 5361, 5365, 5412, 1850a(c)(1), and 5468(b)(1)).
FR Y-10 and FR Y-10E: Sections 4(k) and 5(c)(1)(A) of the BHC Act
(12 U.S.C. 1843(k), and 1844(c)(1)(A)); section 8(a) of the IBA (12
U.S.C. 3106(a)); sections 11(a)(1), 25(7), and 25A of the FRA (12
U.S.C. 248(a)(1), 321, 601, 602, 611a, 615, and 625); sections 113,
165, 312, 618, and 809 of the Dodd-Frank Act (12 U.S.C. 5361, 5365,
5412, 1850a(c)(1), and 5468(b)(1)); and section 10(c)(2)(H) of the Home
Owners' Loan Act (HOLA) (12 U.S.C. 1467a(c)(2)(H)).
Except as discussed below, the data collected in the FR Y-6, FR Y-
7, FR Y-10, and FR Y-10E are generally not considered confidential.
With regard to information that a banking organization may deem
confidential, the institution may request confidential treatment of
such information under one or more of the exemptions in the Freedom of
Information Act (FOIA) (5 U.S.C. 552). The most likely case for
confidential treatment will be based on FOIA exemption 4, which permits
an agency to exempt from disclosure ``trade secrets and commercial or
financial information obtained from a person and privileged and
confidential'' (5 U.S.C. 552(b)(4)). To the extent an institution can
establish the potential for substantial competitive harm, such
information would be protected from disclosure under the standards set
forth in National Parks & Conservation Association v. Morton, 498 F.2d
765 (DC Cir. 1974). In particular, the disclosure of the responses to
the certification questions on the FR Y-7 may interfere with home
country regulators' administration, execution, and disclosure of their
stress test regime and its results, and may cause substantial
competitive harm to the FBO providing the information, and thus this
information may be protected from disclosure under FOIA exemption 4.
Exemption 6 of FOIA might also apply with regard to the respondents'
submission of non-public personal information of owners, shareholders,
directors, officers and employees of respondents. Exemption 6 covers
``personnel and medical files and similar files the disclosure of which
would constitute a clearly unwarranted invasion of personal privacy''
(5 U.S.C. 552(b)(6)). All requests for confidential treatment would
need to be reviewed on a case-by-case basis and in response to a
specific request for disclosure.
Current Actions: The Board is proposing to revise item 5 on the FR
Y-7, Regulation YY Compliance for the Foreign Banking Organization
(FBO), to align the reporting form with the applicability thresholds
set forth in this proposal and other regulatory changes that are
consistent with the Board's July 2018 statement concerning EGRRCPA. The
Board estimates that proposed revisions to the FR Y-7 would not impact
the respondent count, but the estimated average hours per response
would decrease from 6 hours to 4.5 hours. The Board estimates that
proposed revisions to the FR Y-7 would decrease the estimated annual
burden by 385 hours. The draft reporting forms and instructions are
available on the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
(3) Report title: Financial Statements of U.S. Nonbank Subsidiaries
Held by Foreign Banking Organizations, Abbreviated Financial Statements
of U.S. Nonbank Subsidiaries Held by Foreign Banking Organizations, and
Capital and Asset Report for Foreign Banking Organizations.
Agency form number: FR Y-7N, FR Y-7NS, and FR Y-7Q.
OMB control number: 7100-0125.
Frequency: Quarterly and annually.
Affected Public: Businesses or other for-profit.
Respondents: Foreign banking organizations (FBOs).
Estimated number of respondents: FR Y-7N (quarterly): 35; FR Y-7N
(annual): 19; FR Y-7NS: 22; FR Y-7Q (quarterly): 130; FR Y-7Q (annual):
29.
Estimated average hours per response: FR Y-7N (quarterly): 7.6; FR
Y-7N (annual): 7.6; FR Y-7NS: 1; FR Y-7Q (quarterly): 2.25; FR Y-7Q
(annual): 1.5.
Estimated annual burden hours: FR Y-7N (quarterly): 1,064; FR Y-7N
(annual): 144; FR Y-7NS: 22; FR Y-7Q (quarterly): 1,170; FR Y-7Q
(annual): 44.
General description of report: The FR Y-7N and the FR Y-7NS are
used to assess an FBO's ability to be a continuing source of strength
to its U.S. operations and to determine compliance with U.S. laws and
regulations. FBOs file the FR Y-7N quarterly or annually or the FR Y-
7NS annually predominantly based on asset size thresholds. The FR Y-7Q
is used to assess consolidated regulatory capital and asset information
from all FBOs. The FR Y-7Q is filed quarterly by FBOs that have
effectively elected to become or be treated as a U.S. financial holding
company (FHC) and by FBOs that have total consolidated assets of $50
billion or more, regardless of FHC status. All other FBOs file the FR
Y-7Q annually.
Legal authorization and confidentiality: With respect to FBOs and
their subsidiary IHCs, section 5(c) of the BHC Act, in conjunction with
section 8 of the International Banking Act (12 U.S.C. 3106), authorizes
the board to require FBOs and any subsidiary thereof to file the FR Y-
7N reports, and the FR Y-7Q.
Information collected in these reports generally is not considered
confidential. However, because the information is collected as part of
the Board's supervisory process, certain information may be afforded
confidential treatment pursuant to exemption 8 of FOIA (5 U.S.C.
552(b)(8)). Individual respondents may request that certain data be
afforded confidential treatment pursuant to exemption 4 of the FOIA if
the data has not previously been publically disclosed and the release
of the data would likely cause substantial harm to the competitive
position of the respondent (5 U.S.C. 552(b)(4)). Additionally,
individual respondents may request that personally identifiable
information be afforded confidential treatment pursuant to exemption 6
of the FOIA if the release of the information would constitute a
clearly unwarranted invasion of personal privacy (5 U.S.C. 552(b)(6)).
The applicability of FOIA exemptions 4 and 6 would be determined on a
case-by-case basis.
Current Actions: The proposal would amend the FR Y-7Q to align with
revisions to the enhanced prudential standards rule. Currently, top-
tier foreign banking organizations with $50 billion or more in total
consolidated assets must report Part 1B--Capital and Asset Information
for Top-tier Foreign Banking Organizations with Consolidated Assets of
$50 billion or more. The proposal would now require top-tier foreign
banking organizations
[[Page 22014]]
that are subject to either sections 252.143 or 252.154 of the enhanced
prudential standards rule to report Part 1B. The Board estimates that
proposed revisions to the FR Y-7Q would not impact the respondent
count, but the estimated average hours per response would decrease from
3 hours to 2.25 hours. The Board estimates that proposed revisions to
the FR Y-7Q would decrease the estimated annual burden by 390 hours.
The draft reporting forms and instructions are available on the Board's
public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
(4) Report title: Consolidated Financial Statements for Holding
Companies.
Agency form number: FR Y-9C, FR Y-9LP, FR Y-9SP, FR Y-9ES, and FR
Y-9CS.
OMB control number: 7100-0128.
Frequency: Quarterly, semiannually, and annually.
Affected Public: Businesses or other for-profit.
Respondents: Bank holding companies (BHCs), savings and loan
holding companies (SLHCs), securities holding companies (SHCs), and
U.S. Intermediate Holding Companies (IHCs) (collectively, holding
companies (HCs)).
Estimated number of respondents: FR Y-9C (non-advanced approaches
holding companies): 292; FR Y-9C (advanced approached holding
companies): 19; FR Y-9LP: 338; FR Y-9SP: 4,238; FR Y-9ES: 82; FR Y-9CS:
236.
Estimated average hours per response: FR Y-9C (non-advanced
approaches holding companies): 46.34; FR Y-9C (advanced approached
holding companies): 47.59; FR Y-9LP: 5.27; FR Y-9SP: 5.40; FR Y-9ES:
0.50; FR Y-9CS: 0.50.
Estimated annual burden hours: FR Y-9C (non advanced approaches
holding companies): 54,125; FR Y-9C (advanced approached holding
companies): 3,617; FR Y-9LP: 7,125; FR Y-9SP: 45,770; FR Y-9ES: 41; FR
Y-9CS: 472.
General description of report: The FR Y-9 family of reporting forms
continues to be the primary source of financial data on HCs on which
examiners rely between on-site inspections. Financial data from these
reporting forms is used to detect emerging financial problems, review
performance, conduct preinspection analysis, monitor and evaluate
capital adequacy, evaluate HC mergers and acquisitions, and analyze an
HC's overall financial condition to ensure the safety and soundness of
its operations. The FR Y-9C, FR Y-9LP, and FR Y-9SP serve as
standardized financial statements for the consolidated holding company.
The Board requires HCs to provide standardized financial statements to
fulfill the Board's statutory obligation to supervise these
organizations. The FR Y-9ES is a financial statement for HCs that are
Employee Stock Ownership Plans. The Board uses the FR Y-9CS (a free-
form supplement) to collect additional information deemed to be
critical and needed in an expedited manner. HCs file the FR Y-9C on a
quarterly basis, the FR Y-9LP quarterly, the FR Y-9SP semiannually, the
FR Y-9ES annually, and the FR Y-9CS on a schedule that is determined
when this supplement is used.
Legal authorization and confidentiality: The FR Y-9 family of
reports is authorized by section 5(c) of the Bank Holding Company Act
(12 U.S.C. 1844(c)), section 10(b) of the Home Owners' Loan Act (12
U.S.C. 1467a(b)), section 618 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 1850a(c)(1)), and
section 165 of the Dodd-Frank Act (12 U.S.C. 5365). The obligation of
covered institutions to report this information is mandatory.
With respect to FR Y-9LP, FR Y-9SP, FR Y-ES, and FR Y-9CS, the
information collected would generally not be accorded confidential
treatment. If confidential treatment is requested by a respondent, the
Board will review the request to determine if confidential treatment is
appropriate.
With respect to FR Y-9C, Schedule HI's item 7(g) ``FDIC deposit
insurance assessments,'' Schedule HC-P's item 7(a) ``Representation and
warranty reserves for 1-4 family residential mortgage loans sold to
U.S. government agencies and government sponsored agencies,'' and
Schedule HC-P's item 7(b) ``Representation and warranty reserves for 1-
4 family residential mortgage loans sold to other parties'' are
considered confidential. Such treatment is appropriate because the data
is not publicly available and the public release of this data is likely
to impair the Board's ability to collect necessary information in the
future and could cause substantial harm to the competitive position of
the respondent. Thus, this information may be kept confidential under
exemptions (b)(4) of the Freedom of Information Act, which exempts from
disclosure ``trade secrets and commercial or financial information
obtained from a person and privileged or confidential'' (5 U.S.C.
552(b)(4)), and (b)(8) of the Freedom of Information Act, which exempts
from disclosure information related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions (5 U.S.C. 552(b)(8)).
Current Actions: To implement the reporting requirements of the
proposed rule, the Board is proposing to amend the FR Y-9C to further
clarify requirements for U.S. intermediate holding companies subject to
Category III capital standards. This proposal would amend those
instructions to further clarify that the supplementary leverage ratio
and countercyclical buffer also apply to Category III bank holding
companies, Category III savings and loan holding companies, and
Category III U.S. intermediate holding companies. The Board estimates
that proposed revisions to the FR Y-9C would increase the respondent
count by 1. The draft reporting forms and instructions are available on
the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
(5) Report title: Capital Assessments and Stress Testing.
Agency form number: FR Y-14A/Q/M.
OMB control number: 7100-0341.
Frequency: Annually, semiannually, quarterly, and monthly.
Affected Public: Businesses or other for-profit.
Respondents: The respondent panel consists of any top-tier bank
holding company (BHC) that has $100 billion or more in total
consolidated assets, as determined based on (1) the average of the
firm's total consolidated assets in the four most recent quarters as
reported quarterly on the firm's FR Y-9C or (2) the average of the
firm's total consolidated assets in the most recent consecutive
quarters as reported quarterly on the firm's FR Y-9Cs, if the firm has
not filed an FR Y-9C for each of the most recent four quarters. The
respondent panel also consists of any U.S. intermediate holding company
(IHC). Reporting is required as of the first day of the quarter
immediately following the quarter in which the respondent meets this
asset threshold, unless otherwise directed by the Board.
Estimated number of respondents: 35.
Estimated average hours per response: FR Y-14A: Summary, 887; Macro
Scenario, 31; Operational Risk, 18; Regulatory Capital Instruments, 21;
Business Plan Changes, 16; and Adjusted Capital Plan Submission, 100.
FR Y-14Q: Retail, 15; Securities, 13; PPNR, 711; Wholesale, 151;
Trading, 1,926; Regulatory Capital Transitions, 23; Regulatory Capital
Instruments, 54; Operational Risk, 50; MSR Valuation, 23; Supplemental,
4; Retail FVO/HFS, 15; Counterparty, 514; and Balances, 16.
[[Page 22015]]
FR Y-14M: 1st Lien Mortgage, 516; Home Equity, 516; and Credit Card,
512. FR Y-14: Implementation, 7,200; Ongoing Automation Revisions, 480.
FR Y-14 Attestation--Implementation, 4,800; Attestation On-going Audit
and Review, 2,560.
Estimated annual burden hours: FR Y-14A: Summary, 62,090; Macro
Scenario, 2,170; Operational Risk, 630; Regulatory Capital Instruments,
735; Business Plan Changes, 560; and Adjusted Capital Plan Submission,
500. FR Y-14Q: Retail, 2,100; Securities, 1,820; Pre-Provision Net
Revenue (PPNR), 99,540; Wholesale, 21,140; Trading, 92,448; Regulatory
Capital Transitions, 3,220; Regulatory Capital Instruments, 7,560;
Operational risk, 7,000; Mortgage Servicing Rights (MSR) Valuation,
1,380; Supplemental, 560; Retail Fair Value Option/Held for Sale
(Retail FVO/HFS), 1,500; Counterparty, 24,672; and Balances, 2,240. FR
Y-14M: 1st Lien Mortgage, 204,336; Home Equity, 167,184; and Credit
Card, 79,872. FR Y-14: Implementation, and On-going Automation
Revisions, 16,800. FR Y-14 Attestation On-going Audit and Review,
33,280.
General description of report: These collections of information are
applicable to top-tier BHCs with total consolidated assets of $100
billion or more and U.S. IHCs. This family of information collections
is composed of the following three reports:
1. The FR Y-14A collects quantitative projections of balance sheet,
income, losses, and capital across a range of macroeconomic scenarios
and qualitative information on methodologies used to develop internal
projections of capital across scenarios either annually or semi-
annually.
2. The quarterly FR Y-14Q collects granular data on various asset
classes, including loans, securities, and trading assets, and PPNR for
the reporting period.
3. The monthly FR Y-14M is comprised of three retail portfolio- and
loan-level schedules, and one detailed address-matching schedule to
supplement two of the portfolio and loan-level schedules.
The data collected through the FR Y-14A/Q/M reports provide the
Board with the information and perspective needed to help ensure that
large firms have strong, firm-wide risk measurement and management
processes supporting their internal assessments of capital adequacy and
that their capital resources are sufficient given their business focus,
activities, and resulting risk exposures. The annual CCAR exercise
complements other Board supervisory efforts aimed at enhancing the
continued viability of large firms, including continuous monitoring of
firms' planning and management of liquidity and funding resources, as
well as regular assessments of credit, market and operational risks,
and associated risk management practices. Information gathered in this
data collection is also used in the supervision and regulation of these
financial institutions. To fully evaluate the data submissions, the
Board may conduct follow-up discussions with, or request responses to
follow up questions from, respondents. Respondent firms are currently
required to complete and submit up to 18 filings each year: Two semi-
annual FR Y-14A filings, four quarterly FR Y-14Q filings, and 12
monthly FR Y-14M filings. Compliance with the information collection is
mandatory.
Legal authorization and confidentiality: The Board has the
authority to require BHCs to file the FR Y-14A/Q/M reports pursuant to
section 5 of the Bank Holding Company Act (BHC Act) (12 U.S.C. 1844),
and to require the U.S. IHCs of FBOs to file the FR Y-14 A/Q/M reports
pursuant to section 5 of the BHC Act, in conjunction with section 8 of
the International Banking Act (12 U.S.C. 3106). The Board has authority
to require SLHCs to file the FR Y-14A/Q/M reports pursuant to section
10 of HOLA (12 U.S.C. 1467a).
The information collected in these reports is collected as part of
the Board's supervisory process, and therefore is afforded confidential
treatment pursuant to exemption 8 of the Freedom of Information Act
(FOIA) (5 U.S.C. 552(b)(8)). In addition, individual respondents may
request that certain data be afforded confidential treatment pursuant
to exemption 4 of FOIA if the data has not previously been publicly
disclosed and the release of the data would likely cause substantial
harm to the competitive position of the respondent (5 U.S.C.
552(b)(4)). Determinations of confidentiality based on exemption 4 of
FOIA would be made on a case-by-case basis.
Current Actions: To implement the reporting requirements of the
proposed rule, the Board proposes to revise the FR Y-14 threshold for
U.S. intermediate holding companies that would be required to submit
these forms, by increasing it to apply only U.S. intermediate holding
companies with $100 billion or more in total consolidated assets. U.S.
intermediate holding companies below this size threshold would no
longer be required to submit these forms. The Board estimates that
proposed revisions to the FR Y-14 would decrease the reporting panel by
1 respondent. The draft reporting forms and instructions are available
on the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
(6) Report title: Banking Organization Systemic Risk Report.
Agency form number: FR Y-15.
OMB control number: 7100-0352.
Frequency: Quarterly.
Affected Public: Businesses or other for-profit.
Respondents: U.S. bank holding companies (BHCs), covered savings
and loan holding companies (SLHCs), and U.S. intermediate holding
companies (IHCs) of foreign banking organizations with $100 billion or
more in total consolidated assets, and any BHC designated as a global
systemically important bank holding company (GSIB) that does not
otherwise meet the consolidated assets threshold for BHCs.
Estimated number of respondents: 42.
Estimated average hours per response: 408.01.
Estimated annual burden hours: 68,546.
General description of report: The FR Y-15 quarterly report
collects systemic risk data from U.S. bank holding companies (BHCs),
covered savings and loan holding companies (SLHCs), and U.S.
intermediate holding companies (IHCs) with total consolidated assets of
$50 billion or more, and any BHC identified as a global systemically
important banking organization (GSIB) based on its method 1 score
calculated as of December 31 of the previous calendar year. The Board
uses the FR Y-15 data to monitor, on an ongoing basis, the systemic
risk profile of institutions that are subject to enhanced prudential
standards under section 165 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act). In addition, the FR Y-15 is
used to (1) facilitate the implementation of the GSIB surcharge rule,
(2) identify other institutions that may present significant systemic
risk, and (3) analyze the systemic risk implications of proposed
mergers and acquisitions.
Legal authorization and confidentiality: The mandatory FR Y-15 is
authorized by sections 163 and 165 of the Dodd-Frank Act (12 U.S.C.
5463 and 5365), the International Banking Act (12 U.S.C. 3106 and
3108), the Bank Holding Company Act (12 U.S.C. 1844), and HOLA (12
U.S.C. 1467a).
Most of the data collected on the FR Y-15 is made public unless a
specific request for confidentiality is submitted by the reporting
entity, either on the FR Y-15 or on the form from which the data item
is obtained. Such information
[[Page 22016]]
will be accorded confidential treatment under exemption 4 of the
Freedom of Information Act (FOIA) (5 U.S.C. 552(b)(4)) if the submitter
substantiates its assertion that disclosure would likely cause
substantial competitive harm. In addition, items 1 through 4 of
Schedule G of the FR Y-15, which contain granular information regarding
the reporting entity's short-term funding, will be accorded
confidential treatment under exemption 4 for observation dates that
occur prior to the liquidity coverage ratio disclosure standard being
implemented. To the extent confidential data collected under the FR Y-
15 will be used for supervisory purposes, it may be exempt from
disclosure under Exemption 8 of FOIA (5 U.S.C. 552(b)(8)).
Current Actions: To implement the reporting requirements of the
proposed rule, the Board is proposing to modify the FR Y-15 report to
require a foreign banking organization to report data for its combined
U.S. operations that are related to the criteria for determining the
applicability of enhanced prudential standards under this proposal.
Foreign banking organizations would be required to report the
information required under new schedules H through N of the FR Y-15,
which would replicate schedules A through F of the current FR Y-15 for
domestic holding companies (with the exception of cross-jurisdictional
activity, as discussed below).\121\ Schedules H through N would be
structured to include three columns, in which a foreign banking
organization would report the information request for each item for (i)
its U.S. intermediate holding company, (ii) its U.S. branch and agency
network, and (iii) its combined U.S. operations. Consistent with the
domestic proposal, the proposal would add two line items to Schedule H
of the FR Y-15 to calculate total off-balance sheet exposure. New line
item M4 (total consolidated assets) would report the total consolidated
on-balance sheet assets for the respondent, as calculated under
Schedule HC, item 12 (total consolidated assets) on the FR Y-9C. New
line item M5 (total off-balance sheet exposures) would be total
exposure, as currently defined on the FR Y-15, minus line item M4. For
purposes of reporting cross-jurisdictional activity, the FR Y-15 would
require foreign banking organizations to report assets and liabilities
of the U.S. intermediate holding company and U.S. branch and agency
network, excluding cross-jurisdictional liabilities to non-U.S.
affiliates and cross-jurisdictional claims on non-U.S. affiliates to
the extent that these claims are secured by eligible financial
collateral. To effectuate this change, the proposal would add new line
items to proposed Schedule L and amend the instructions accordingly.
The proposal would clarify that Line Item 2(a) should be completed only
with respect to the U.S. intermediate holding company's liabilities to
its foreign subsidiaries, if any, and not liabilities to non-U.S.
affiliates of the foreign banking organization not held by the U.S.
intermediate holding company. Line Item 2(a) would be left blank for
the U.S. branch or agency. The Board estimates that the proposed
changes to the FR Y-15 would increase the respondent count by 5
respondents. The Board also estimates that proposed revisions to the FR
Y-15 would increase the estimated average hours per response by 7.01
hours and would increase the estimated annual burden by 9,198 hours.
The draft reporting forms and instructions are available on the Board's
public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
---------------------------------------------------------------------------
\121\ U.S. intermediate holding companies would no longer be
required to report on schedules A through G of the FR Y-15.
---------------------------------------------------------------------------
(7) Report title: Reporting and Recordkeeping Requirements
Associated with Regulation Y (Capital Plans).
Agency form number: FR Y-13.
OMB control number: 7100-0342.
Frequency: Annually.
Affected Public: Businesses or other for-profit.
Respondents: BHCs and IHCs.
Estimated number of respondents: 36.
Estimated average hours per response: Annual capital planning
reporting (225.8(e)(1)(ii)), 80 hours; data collections reporting
(225.8(e)(3)), 1,005 hours; data collections reporting (225.8(e)(4)),
100 hours; review of capital plans by the Federal Reserve reporting
(225.8(f)(3)(i)), 16 hours; prior approval request requirements
reporting (225.8(g)(1), (3), & (4)), 100 hours; prior approval request
requirements exceptions (225.8(g)(3)(iii)(A)), 16 hours; prior approval
request requirements reports (225.8(g)(6)), 16 hours; annual capital
planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and complex
firms), 11,920 hours; annual capital planning recordkeeping
(225.8(c)(1)(i)) (large and noncomplex firms), 8,920 hours; annual
capital planning recordkeeping (225.8(e)(1)(iii)), 100 hours.
Estimated annual burden hours: Annual capital planning reporting
(225.8(e)(1)(ii)), 2,720 hours; data collections reporting
(225.8(e)(3)), 25,125 hours; data collections reporting (225.8(e)(4)),
1,000 hours; review of capital plans by the Federal Reserve reporting
(225.8(f)(3)(i)), 32 hours; prior approval request requirements
reporting (225.8(g)(1), (3), & (4)), 2,300 hours; prior approval
request requirements exceptions (225.8(g)(3)(iii)(A)), 32 hours; prior
approval request requirements reports (225.8(g)(6)), 32 hours; annual
capital planning recordkeeping (225.8(e)(1)(i)) (LISCC and large and
complex firms), 214,560 hours; annual capital planning recordkeeping
(225.8(c)(1)(i)) (large and noncomplex firms), 142,720 hours; annual
capital planning recordkeeping (225.8(e)(1)(iii)), 3,400 hours.
General description of report: Regulation Y (12 CFR part 225)
requires large bank holding companies (BHCs) to submit capital plans to
the Federal Reserve on an annual basis and to require such BHCs to
request prior approval from the Federal Reserve under certain
circumstances before making a capital distribution.
Current Actions: This proposal and the Board's proposal on
prudential standards for domestic banking organizations (83 FR 61408)
would make various changes to the Board's capital plan rule. First, the
threshold for application of Sec. 225.8 would be raised from bank
holding companies with $50 billion or more in total consolidated assets
to bank holding companies with $100 billion or more in total
consolidated assets. Second, the proposals would amend the definition
of ``large and noncomplex bank holding company'' to be Category IV
banking organizations, pursuant to 12 CFR 252.5. The proposed changes
would reduce the panels for various provisions in Sec. 225.8.
(8) Title of Information Collection: Reporting Requirements
Associated with Regulation LL.
Agency Form Number: FR LL.
OMB control number: 7100-NEW.
Frequency: Biennial.
Affected Public: Businesses or other for-profit.
Respondents: Savings and loan holding companies.
Description of the Information Collection: Section
252.122(b)(1)(iii) of the Board's Regulation YY currently requires,
unless the Board otherwise determines in writing, a foreign savings and
loan holding company with more than $10 billion in total consolidated
assets that does not meet applicable home-country stress testing
standards to report on an annual basis a summary of the results of the
stress test to the Board.
Current Actions: The Board proposes to move the requirement for
foreign savings and loan holding companies currently in Sec.
252.122(b)(1)(iii) of
[[Page 22017]]
Regulation YY into the proposed Sec. [thinsp]238.162(b)(1)(ii) of
Regulation LL. In doing so, the Board proposes to amend the frequency
of the reporting requirement in proposed Sec. 238.162(b)(1)(ii) from
annual to at least biennial. The Board also proposes to raise the
threshold for applicability of section 238.162 from more than $10
billion in total consolidated assets to more than $250 billion in total
consolidated assets.
Legal authorization and confidentiality: This information
collection is authorized by section 10 of the Home Owners' Loan Act
(HOLA) and section 165(i)(2) of the Dodd-Frank Act. The obligation of
covered institutions to report this information is mandatory. This
information would be disclosed publicly and, as a result, no issue of
confidentiality is raised.
Estimated number of respondents: 1.\122\
---------------------------------------------------------------------------
\122\ Currently, there are no foreign savings and loan holding
companies in existence. For PRA purposes, ``1'' is used as a
placeholder.
---------------------------------------------------------------------------
Estimated average hours per response: 80.
Estimated annual burden hours: 40.
(8) Title of Information Collection: Reporting, Recordkeeping, and
Disclosure Requirements Associated with Regulation YY (Enhanced
Prudential Standards).
Agency Form Number: FR YY.
OMB Control Number: 7100-0350.
Frequency of Response: Annual, semiannual, quarterly.
Affected Public: Businesses or other for-profit.
Respondents: State member banks, U.S. bank holding companies,
savings and loan holding companies, nonbank financial companies,
foreign banking organizations, U.S. intermediate holding companies,
foreign saving and loan holding companies, and foreign nonbank
financial companies supervised by the Board.
Number of respondents: 24 U.S. bank holding companies with total
consolidated assets of $50 billion or more, 46 U.S. bank holding
companies with total consolidated assets over $10 billion and less than
$50 billion, 21 state member banks with total consolidated assets over
$10 billion, 39 savings and loan holding companies with total
consolidated assets over $10 billion, 24 foreign banking organizations
with total consolidated assets of $50 billion or more and combined U.S.
assets of $50 billion or more, 17 U.S. intermediate holding companies,
and 102 foreign banking organizations with total consolidated assets of
more than $10 billion and combined U.S. assets of less than $50
billion.
Description of the Information Collection: Section 165 of the Dodd-
Frank Act, as amended by EGRRCPA, requires the Board to implement
enhanced prudential standards for bank holding companies and foreign
banking organizations with total consolidated assets of $250 billion or
more, and provides the Board with discretion to apply enhanced
prudential standards to certain bank holding companies and foreign
banking organizations with $100 billion or more, but less than $250
billion, in total consolidated assets. The enhanced prudential
standards include risk-based and leverage capital requirements,
liquidity standards, requirements for overall risk management
(including establishing a risk committee), stress test requirements,
and debt-to-equity limits for companies that the Financial Stability
Oversight Council has determined pose a grave threat to financial
stability.
Current Actions: As described below, the Board is amending
reporting, recordkeeping and disclosure requirements in Regulation YY
to be consistent with EGRRCPA's changes to section 165 of the Dodd-
Frank; the Board's proposal to amend prudential standards for domestic
banking organizations (83 FR 61408); and the proposal described in this
Federal Register document, which amends prudential standards for
foreign banking organizations and foreign savings and loan holding
companies.
Subpart D--The domestic proposal proposed to change applicability
thresholds for application of subpart D from bank holding companies
with $50 billion or more in total consolidated assets to bank holding
companies with $100 billion or more in total consolidated. In doing so,
the number of respondents for collections of information in Sec. Sec.
252.34 and 252.35 would decrease. Additionally, the burden hours for
compliance with Sec. Sec. 252.34(h)(1) and (3) would be reduced.
Section 252.34(h)(1) would require a bank holding company with total
consolidated assets of $100 billion or more to establish and maintain
policies and procedures to monitor assets that have been, or are
available to be, pledged as collateral in connection with transactions
to which it or its affiliates are counterparties and sets forth minimum
standards for those procedures. Category IV bank holding companies
would be required to calculate their collateral positions on a monthly
basis; all other bank holding companies subject to the section would be
required to calculate their collateral positions on a weekly basis.
Currently, all bank holding companies subject to this provision must
calculate collateral positions weekly (or more frequently, as directed
by the Board).
Section 252.34(h)(3) would require a bank holding company with
total consolidated assets of $100 billion or more to establish and
maintain procedures for monitoring intraday liquidity risk exposure
that are consistent with the bank holding company's capital structure,
risk profile, complexity, activities, and size. If the bank holding
company is a global systemically important bank holding company,
Category II bank holding company, or a Category III bank holding
company, these procedures must address how the management of the bank
holding company will: (1) Monitor and measure expected daily gross
liquidity inflows and outflows; (2) manage and transfer collateral to
obtain intraday credit; (3) identify and prioritize time-specific
obligations so that the bank holding company can meet these obligations
as expected and settle less critical obligations as soon as possible;
(4) manage the issuance of credit to customers where necessary; and (5)
consider the amounts of collateral and liquidity needed to meet payment
systems obligations when assessing the bank holding company's overall
liquidity needs. Category IV bank holding companies would not be
subject to the proscriptive language.
Subpart L--The proposal would eliminate subpart L. In doing so, the
proposal would eliminate Sec. 252.122(b)(1)(iii), which currently
requires, unless the Board otherwise determines in writing, a foreign
banking organization with total consolidated assets of more than $10
billion but less than $50 billion or a foreign savings and loan holding
company with total consolidated assets of more than $10 billion that
does not meet the home-country stress testing standards set forth in
the rule to report on an annual basis a summary of the results of the
stress test to the Board. This requirement would continue to exist for
foreign banking organizations with total consolidated assets of more
than $100 billion in proposed Sec. Sec. 252.146 and 252.158 of
Regulation YY, and for a foreign savings and loan holding company with
total consolidated assets of more than $250 billion in proposed Sec.
238.162 of Regulation LL.
Subpart M--The proposal would change the applicability thresholds
for application of subpart M from foreign banking organizations with
between $10 and $50 billion in total consolidated assets to foreign
banking organizations with between $50 and $100 billion in
[[Page 22018]]
total consolidated assets. In doing so, the number of respondents for
collections of information in Sec. 252.132 would decrease.
Subpart N--The proposal would change the applicability thresholds
for application of subpart N from foreign banking organizations with
$50 billion or more in total consolidated assets but combined U.S.
assets of less than $50 billion to foreign banking organizations with
$100 billion or more in total consolidated assets but combined U.S.
assets of less than $100 billion. In doing so, the number of
respondents for collections of information in Sec. Sec. 252.143,
252.144, 252.145, 252.146, 252.154, 252.157, and 252.158 would
decrease. Moreover, some of the requirements in subpart N would only
apply to foreign banking organizations with $250 billion or more in
total consolidated assets. These provisions include Sec. Sec.
252.143(a) and 252.145(a).
Subpart O--The proposal would change the applicability thresholds
for application of subpart O from foreign banking organizations with
$50 billion or more in total consolidated assets and combined U.S.
assets of $50 billion or more to foreign banking organizations with
$100 billion or more in total consolidated assets and combined U.S.
assets of $100 billion or more. In doing so, the number of respondents
for collections of information in Sec. Sec. 252.153, 252.156, and
252.157 would decrease. The proposal would also eliminate
implementation plans in Sec. 252.153(d), which would result in a
reduction of annual burden hours.
The burden hours for compliance with Sec. 252.156(g)(1) and (3)
also would be reduced. Section 252.156(g)(1) would require a foreign
banking organization with combined U.S. assets of $100 billion or more
to establish and maintain policies and procedures to monitor assets
that have been or are available to be pledged as collateral in
connection with transactions to which entities in its U.S. operations
are counterparties. Previously, all foreign banking organizations
subject to this provision were required to calculate collateral
positions on a weekly basis (or more frequently, as directed by the
Board). As proposed, Category IV foreign banking organizations
companies would calculate all of the collateral positions for its
combined U.S. operations on a monthly basis; all other foreign banking
organizations with at least $100 billion in combined U.S. assets would
calculate on a weekly basis.
Section 252.156(g)(3) would require a foreign banking organization
with combined U.S. assets of $100 billion or more to establish and
maintain procedures for monitoring intraday liquidity risk exposure for
its combined U.S. operations that are consistent with the capital
structure, risk profile, complexity, activities, and size of the
foreign banking organization and its combined U.S. operations. If the
foreign banking organization is a Category II foreign banking
organization or a Category III foreign banking organization, these
procedures must address how the management of the combined U.S.
operations will: (1) Monitor and measure expected gross daily inflows
and outflows; (2) manage and transfer collateral to obtain intraday
credit; (3) identify and prioritize time-specific obligations so that
the foreign banking organizations can meet these obligations as
expected and settle less critical obligations as soon as possible; (4)
manage the issuance of credit to customers where necessary; and (5)
consider the amounts of collateral and liquidity needed to meet payment
systems obligations when assessing the overall liquidity needs of the
combined U.S. operations. Category IV foreign banking organizations
would not be subject to the proscriptive language.
Current estimated annual burden: 41,619 hours.
Proposed revisions estimated annual burden: (11,238) hours.
Total estimated annual burden: 30,381 hours.
C. Regulatory Flexibility Act Analysis
In accordance with the Regulatory Flexibility Act (RFA), 5 U.S.C.
601 et seq., the Board is publishing an initial regulatory flexibility
analysis of the proposal. The RFA requires each federal agency to
prepare an initial regulatory flexibility analysis in connection with
the promulgation of a proposed rule, or certify that the proposed rule
will not have a significant economic impact on a substantial number of
small entities.\123\ Under regulations issued by the SBA, a small
entity includes a bank, bank holding company, or savings and loan
holding company with assets of $550 million or less (small banking
organization).\124\ Based on the Board's 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 banking
organizations
---------------------------------------------------------------------------
\123\ See 5 U.S.C. 603, 604, and 605.
\124\ See 13 CFR 121.201.
---------------------------------------------------------------------------
As discussed in the Supplementary Information section, the Board is
proposing to adopt amendments to Regulations Q,\125\ Y,\126\ LL,\127\
and YY \128\ that would affect the regulatory requirements that apply
to foreign banking organizations and foreign savings and loan holding
companies with more than $10 billion in total consolidated assets and
U.S. depository institution holding companies with $100 billion or more
in total consolidated assets. Therefore, companies that are affected by
the proposal substantially exceed the $550 million asset threshold at
which a banking entity is considered a ``small entity'' under SBA
regulations.
---------------------------------------------------------------------------
\125\ 12 CFR part 217.
\126\ 12 CFR part 225.
\127\ 12 CFR part 238.
\128\ 12 CFR part 252.
---------------------------------------------------------------------------
Because the proposal is not likely to apply to any company with
assets of $550 million or less if adopted in final form, the proposal
is not expected to affect any small entity for purposes of the RFA. The
Board does not believe that the proposal duplicates, overlaps, or
conflicts with any other Federal rules. In light of the foregoing, the
Board does not believe that the proposal, if adopted in final form,
would have a significant economic impact on a substantial number of
small entities supervised. Nonetheless, the Board seeks comment on
whether the proposal would impose undue burdens on, or have unintended
consequences for, small banking organizations, and whether there are
ways such potential burdens or consequences could be minimized in a
manner consistent the purpose of the proposal.
List of Subjects
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies, Reporting and recordkeeping
requirements, Risk, Securities.
12 CFR Part 225
Administrative practice and procedure, Banks, Banking, Capital
planning, Holding companies, Reporting and recordkeeping requirements,
Securities, Stress testing.
12 CFR Part 238
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Reporting and recordkeeping requirements, Securities.
12 CFR Part 252
Administrative practice and procedure, Banks, Banking, Capital
planning, Federal Reserve System,
[[Page 22019]]
Holding companies, Reporting and recordkeeping requirements,
Securities, Stress testing.
Authority and Issuance
For the reasons stated in the Supplementary Information, Chapter II
of title 12 of the Code of Federal Regulations is proposed to be
amended as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
1. 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-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.
Subpart H--Risk-based Capital Surcharge for Global Systemically
Important Bank Holding Companies
0
2. Amend Sec. 217.400 by:
0
a. Revising paragraph (b)(1);
0
b. Removing the text to paragraph (b)(2) introductory text;
0
c. Revising paragraph (b)(2)(i); and
0
d. Removing paragraph (b)(3).
The revisions read as follows:
Sec. 217.400 Purpose and applicability.
* * * * *
(b) * * *
(1) General. This subpart applies to a bank holding company that:
(i) Is an advanced approaches Board-regulated institution or a
Category III Board-regulated institution;
(ii) Is not a consolidated subsidiary of a bank holding company;
and
(iii) Is not a consolidated subsidiary of a foreign banking
organization.
(2) * * *
(i) A bank holding company identified in Sec. 217.400(b)(1) is
subject to Sec. 217.402 of this part and must determine whether it
qualifies as a global systemically important BHC beginning the year
immediately following the year in which the bank holding company
becomes an advanced approaches Board-regulated institution or a
Category III Board-regulated institution;
* * * * *
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
3. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
Subpart A--General Provisions
0
4. In Sec. 225.8, as proposed to be amended at 83 FR 61408 (November
29, 2018), is further amended by revising paragraph (c) and paragraph
(d)(9) to read as follows:
Sec. 225.8 Capital planning.
* * * * *
(c) Transitional arrangements--Transition periods for certain bank
holding companies.
(1) A bank holding company that meets the $100 billion asset
threshold (as measured under paragraph (b) of this section) on or
before September 30 of a calendar year must comply with the
requirements of this section beginning on January 1 of the next
calendar year, unless that time is extended by the Board in writing.
(2) A bank holding company that meets the $100 billion asset
threshold after September 30 of a calendar year must comply with the
requirements of this section beginning on January 1 of the second
calendar year after the bank holding company meets the $100 billion
asset threshold, unless that time is extended by the Board in writing.
(3) The Board or the appropriate Reserve Bank with the concurrence
of the Board, may require a bank holding company described in paragraph
(c)(1)(i) or (ii) of this section to comply with any or all of the
requirements in paragraphs (e)(1), (e)(3), (f), or (g) of this section
if the Board or appropriate Reserve Bank with concurrence of the Board,
determines that the requirement is appropriate on a different date
based on the company's risk profile, scope of operation, or financial
condition and provides prior notice to the company of the determination
(d) * * *
(9) Large and noncomplex bank holding company means any bank
holding company subject to this section that, as of December 31 of the
calendar year prior to the capital plan cycle, is identified as a
Category IV banking organization pursuant to 12 CFR 252.5.
* * * * *
PART 238--SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)
0
5. The authority citation for part 238 continues to read as follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463,
1464, 1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972, 15 U.S.C.
78 l.
Subpart N--Risk Committee, Liquidity Risk Management, and Liquidity
Buffer Requirements for Covered Savings and Loan Holding Companies
With Total Consolidated Assets of $100 Billion or More
0
6. Section 238.124, as proposed to be added at 83 FR 61408 (November
29, 2018), is further amended by adding paragraph (a)(8) to read as
follows:
Sec. 238.124 Liquidity stress testing and buffer requirements
(a) * * *
(8) Notice and Response. (i) If the Board determines that a savings
and loan holding company must conduct liquidity stress tests according
to a frequency other than the frequency provided in paragraphs
(a)(2)(i) and (ii) of this section, the Board will notify the savings
and loan holding company before the change in frequency takes effect,
and describe the basis for its determination. Within 14 calendar days
of receipt of a notification under this paragraph, the savings and loan
holding company may request in writing that the Board reconsider the
requirement. The Board will respond in writing to the company's request
for reconsideration prior to requiring the company conduct liquidity
stress tests according to a frequency other than the frequency provided
in paragraphs (a)(2)(i) and (ii) of this section.
* * * * *
0
7. Add subpart R to read as follows:
Subpart R--Company-Run Stress Test Requirements for Foreign Savings and
Loan Holding Companies With Total Consolidated Assets Over $250 Billion
Sec.
238.160 Definitions.
238.161 Applicability.
238.162 Capital stress testing requirements.
Subpart R--Company-Run Stress Test Requirements for Foreign Savings
and Loan Holding Companies With Total Consolidated Assets Over $250
Billion
Sec. 238.160 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Foreign savings and loan holding company means a savings and
loan holding company as defined in section 10 of the Home Owners' Loan
Act (12 U.S.C. 1467a(a)) that is incorporated or organized under the
laws of a country other than the United States.
(b) Pre-provision net revenue means revenue less expenses before
adjusting for total loan loss provisions.
(c) Stress test cycle has the same meaning as in subpart O of this
part.
(d) Total loan loss provisions means the amount needed to make
reserves
[[Page 22020]]
adequate to absorb estimated credit losses, based upon management's
evaluation of the loans and leases that the company has the intent and
ability to hold for the foreseeable future or until maturity or payoff,
as determined under applicable accounting standards.
Sec. 238.161 Applicability.
(a) Applicability for foreign savings and loan holding companies
with total consolidated assets of more than $250 billion--(1) General.
A foreign savings and loan holding company must comply with the stress
test requirements set forth in this section beginning on the first day
of the ninth quarter following the date on which its total consolidated
assets exceed $250 billion.
(2) Total consolidated assets. Total consolidated assets of a
foreign savings and loan holding company for purposes of this subpart
are equal to the average of total assets for the four most recent
calendar quarters as reported by the foreign savings and loan holding
company on its applicable regulatory report. If the foreign savings and
loan holding company has reported total consolidated assets for the
four most recent calendar quarters, total consolidated assets are equal
to the average of total consolidated assets as reported for the most
recent quarter or quarters, or most recent year.
(3) Cessation of requirements. A foreign savings and loan holding
company will remain subject to requirements of this subpart until the
date on which the foreign savings and loan holding company's total
consolidated assets are below $250 billion for each of four most recent
calendar quarters.
(b) [Reserved]
Sec. 238.162 Capital stress testing requirements.
(a) In general. (1) A foreign savings and loan holding company with
total consolidated assets of more than $250 billion must:
(i) Be subject on a consolidated basis to a capital stress testing
regime by its home-country supervisor that meets the requirements of
paragraph (a)(2) of this section; and
(ii) Conduct such stress tests or be subject to a supervisory
stress test and meet any minimum standards set by its home-country
supervisor with respect to the stress tests.
(2) The capital stress testing regime of a foreign savings and loan
holding company's home-country supervisor must include:
(i) A supervisory capital stress test conducted by the relevant
home-country supervisor or an evaluation and review by the home-country
supervisor of an internal capital adequacy stress test conducted by the
foreign savings and loan holding company, conducted on at least a
biennial basis; and
(ii) Requirements for governance and controls of stress testing
practices by relevant management and the board of directors (or
equivalent thereof).
(b) Additional standards. (1) Unless the Board otherwise determines
in writing, a foreign savings and loan holding company that does not
meet each of the requirements in paragraphs (a)(1) and (2) of this
section must:
(i) Conduct an annual stress test of its U.S. subsidiaries to
determine whether those subsidiaries have the capital necessary to
absorb losses as a result of adverse economic conditions; and
(ii) Report on at least a biennial basis a summary of the results
of the stress test to the Board that includes a description of the
types of risks included in the stress test, a description of the
conditions or scenarios used in the stress test, a summary description
of the methodologies used in the stress test, estimates of aggregate
losses, pre-provision net revenue, total loan loss provisions, net
income before taxes and pro forma regulatory capital ratios required to
be computed by the home-country supervisor of the foreign savings and
loan holding company and any other relevant capital ratios, and an
explanation of the most significant causes for any changes in
regulatory capital ratios.
(2) An enterprise-wide stress test that is approved by the Board
may meet the stress test requirement of paragraph (b)(1)(ii) of this
section.
PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)
0
8. 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.
Subpart A--General Provisions
0
9. Amend Sec. 252.1 by adding paragraph (c) to read as follows:
Sec. 252.1 Authority and purpose.
* * * * *
(c) Reservation of authority. The Board may permit a foreign
banking organization to comply with the requirements of this part
through a subsidiary foreign bank or company of the foreign banking
organization. In making this determination, the Board shall consider:
(1) The ownership structure of the foreign banking organization,
including whether the foreign banking organization is owned or
controlled by a foreign government;
(2) Whether the action would be consistent with the purposes of
this part; and
(3) Any other factors that the Board determines are relevant.
0
10. Revise Sec. 252.2 to read as follows:
Sec. 252.2 Definitions.
Unless otherwise specified, the following definitions apply for
purposes of this part:
Affiliate has the same meaning as in section 2(k) of the Bank
Holding Company Act (12 U.S.C. 1841(k)) and Sec. 225.2(a) of this
chapter.
Applicable accounting standards means U.S. generally accepted
accounting principles, international financial reporting standards, or
such other accounting standards that a company uses in the ordinary
course of its business in preparing its consolidated financial
statements.
Average combined U.S. assets means the average of combined U.S.
assets for the four most recent calendar quarters or, if the banking
organization has not reported combined U.S. assets for each of the four
most recent calendar quarters, the average of combined U.S. assets for
the most recent calendar quarter or quarters, as applicable.
Average cross-jurisdictional activity means the average of cross-
jurisdictional activity for the four most recent calendar quarters or,
if the banking organization has not reported cross-jurisdictional
activity for each of the four most recent calendar quarters, the
average of cross-jurisdictional activity for the most recent calendar
quarter or quarters, as applicable.
Average off-balance sheet exposure means the average of off-balance
sheet exposure for the four most recent calendar quarters or, if the
banking organization has not reported total exposure and total
consolidated assets for each of the four most recent calendar quarters,
the average of off-balance sheet exposure for the most recent calendar
quarter or quarters, as applicable.
Average total consolidated assets means the average of total
consolidated assets for the four most recent calendar quarters or, if
the banking organization has not reported total consolidated assets for
each of the four most recent calendar quarters, the average of total
consolidated assets for the most recent calendar quarter or quarters,
as applicable.
Average total nonbank assets means the average of total nonbank
assets for
[[Page 22021]]
the four most recent calendar quarters or, if the banking organization
has not reported or calculated total nonbank assets for each of the
four most recent calendar quarters, the average of total nonbank assets
for the most recent calendar quarter or quarters, as applicable.
Average weighted short-term wholesale funding means the average of
weighted short-term wholesale funding for each of the four most recent
calendar quarters or, if the banking organization has not reported
weighted short-term wholesale funding for each of the four most recent
calendar quarters, the average of weighted short-term wholesale funding
for the most recent quarter or quarters, as applicable.
Bank holding company has the same meaning as in section 2(a) of the
Bank Holding Company Act (12 U.S.C. 1841(a)) and Sec. 225.2(c) of this
chapter.
Banking organization means:
(1) A bank holding company that is a U.S. bank holding company,
which means a bank holding company that is:
(i) Incorporated in or organized under the laws of the United
States or in any State; and
(ii) Not a consolidated subsidiary of a bank holding company that
is incorporated in or organized under the laws of the United States or
in any State;
(2) A U.S. intermediate holding company; or
(3) A foreign banking organization.
Board means the Board of Governors of the Federal Reserve System.
Category II bank holding company means a U.S. bank holding company
identified as a Category II banking organization pursuant to Sec.
252.5.
Category II foreign banking organization means a foreign banking
organization identified as a Category II banking organization pursuant
to Sec. 252.5.
Category II U.S. intermediate holding company means a U.S.
intermediate holding company identified as a Category II banking
organization pursuant to Sec. 252.5.
Category III bank holding company means a U.S. bank holding company
identified as a Category III banking organization pursuant to Sec.
252.5.
Category III foreign banking organization means a foreign banking
organization identified as a Category III banking organization pursuant
to Sec. 252.5.
Category III U.S. intermediate holding company means a U.S.
intermediate holding company identified as a Category III banking
organization pursuant to Sec. 252.5.
Category IV bank holding company means a U.S. bank holding company
identified as a Category IV banking organization pursuant to Sec.
252.5.
Category IV foreign banking organization means a foreign banking
organization identified as a Category IV banking organization pursuant
to Sec. 252.5.
Category IV U.S. intermediate holding company means a U.S.
intermediate holding company identified as a Category IV banking
organization pursuant to Sec. 252.5.
Combined U.S. assets means the sum of the consolidated assets of
each top-tier U.S. subsidiary of the foreign banking organization
(excluding any section 2(h)(2) company, if applicable) and the total
assets of each U.S. branch and U.S. agency of the foreign banking
organization, as reported by the foreign banking organization on the FR
Y-7Q.
Combined U.S. operations means:
(1) The U.S. branches and agencies of the foreign banking
organization, if any; and
(2) The U.S. subsidiaries of the foreign banking organization
(excluding any section 2(h)(2) company, if applicable) and subsidiaries
of such U.S. subsidiaries.
Company means a corporation, partnership, limited liability
company, depository institution, business trust, special purpose
entity, association, or similar organization.
Control has the same meaning as in section 2(a) of the Bank Holding
Company Act (12 U.S.C. 1841(a)), and the terms controlled and
controlling shall be construed consistently with the term control.
Council means the Financial Stability Oversight Council established
by section 111 of the Dodd-Frank Act (12 U.S.C. 5321).
Credit enhancement means a qualified financial contract of the type
set forth in section 210(c)(8)(D)(ii)(XII), (iii)(X), (iv)(V), (v)(VI),
or (vi)(VI) of Title II of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C. 5390(c)(8)(D)(ii)(XII), (iii)(X),
(iv)(V), (v)(VI), or (vi)(VI)) or a credit enhancement that the Federal
Deposit Insurance Corporation determines by regulation is a qualified
financial contract pursuant to section 210(c)(8)(D)(i) of Title II of
the act (12 U.S.C. 5390(c)(8)(D)(i)).
Cross-jurisdictional activity. (1) The cross-jurisdictional
activity of a U.S. bank holding company is equal to the sum of its
cross-jurisdictional claims and cross-jurisdictional liabilities, as
reported on the FR Y-15.
(2) The cross-jurisdictional activity of a U.S. intermediate
holding company is equal to the sum of cross-jurisdictional claims and
cross-jurisdictional liabilities of the U.S. intermediate holding
company, as reported on the FR Y-15.
(3) The cross-jurisdictional activity of a foreign banking
organization is equal to the sum of cross-jurisdictional claims and
cross-jurisdictional liabilities of the combined U.S. operations of the
foreign banking organization, as reported on the FR Y-15.
Depository institution has the same meaning as in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
DPC branch subsidiary means any subsidiary of a U.S. branch or a
U.S. agency acquired, or formed to hold assets acquired, in the
ordinary course of business and for the sole purpose of securing or
collecting debt previously contracted in good faith by that branch or
agency.
Foreign banking organization has the same meaning as in Sec.
211.21(o) of this chapter, provided that if the top-tier foreign
banking organization is incorporated in or organized under the laws of
any State, the foreign banking organization shall not be treated as a
foreign banking organization for purposes of this part.
FR Y-7 means the Annual Report of Foreign Banking Organizations
reporting form.
FR Y-7Q means the Capital and Asset Report for Foreign Banking
Organizations reporting form.
FR Y-9C means the Consolidated Financial Statements for Holding
Companies reporting form.
FR Y-9LP means the Parent Company Only Financial Statements of
Large Holding Companies.
FR Y-15 means the Systemic Risk Report.
Global methodology means the assessment methodology and the higher
loss absorbency requirement for global systemically important banks
issued by the Basel Committee on Banking Supervision, as updated from
time to time.
Global systemically important banking organization means a global
systemically important bank, as such term is defined in the global
methodology.
Global systemically important BHC means a bank holding company
identified as a global systemically important BHC pursuant to 12 CFR
217.402.
Global systemically important foreign banking organization means a
top-tier foreign banking organization that is identified as a global
systemically important foreign banking organization under Sec.
252.153(b)(4).
[[Page 22022]]
GAAP means generally accepted accounting principles as used in the
United States.
Home country, with respect to a foreign banking organization, means
the country in which the foreign banking organization is chartered or
incorporated.
Home country resolution authority, with respect to a foreign
banking organization, means the governmental entity or entities that
under the laws of the foreign banking organization's home county has
responsibility for the resolution of the top-tier foreign banking
organization.
Home-country supervisor, with respect to a foreign banking
organization, means the governmental entity or entities that under the
laws of the foreign banking organization's home county has
responsibility for the supervision and regulation of the top-tier
foreign banking organization.
Nonbank financial company supervised by the Board means a company
that the Council has determined under section 113 of the Dodd-Frank Act
(12 U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
Non-U.S. affiliate means any affiliate of a foreign banking
organization that is incorporated or organized in a country other than
the United States.
Off-balance sheet exposure. (1) The off-balance sheet exposure of a
U.S. bank holding company or U.S. intermediate holding company is equal
to:
(i) The total exposure of such banking organization, as reported by
the banking organization on the FR Y-15; minus
(ii) The total consolidated assets of such banking organization for
the same calendar quarter.
(2) The off-balance sheet exposure of a foreign banking
organization is equal to:
(i) The total exposure of the combined U.S. operations of the
foreign banking organization, as reported by such foreign banking
organization on the FR Y-15; minus
(ii) The combined U.S. assets of the foreign banking organization
for the same calendar quarter.
Publicly traded means an instrument that is traded on:
(1) Any exchange registered with the U.S. Securities and Exchange
Commission as a national securities exchange under section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(2) Any non-U.S.-based securities exchange that:
(i) Is registered with, or approved by, a non-U.S. national
securities regulatory authority; and
(ii) Provides a liquid, two-way market for the instrument in
question, meaning that there are enough independent bona fide offers to
buy and sell so that a sales price reasonably related to the last sales
price or current bona fide competitive bid and offer quotations can be
determined promptly and a trade can be settled at such price within a
reasonable time period conforming with trade custom.
(3) A company can rely on its determination that a particular non-
U.S.-based securities exchange provides a liquid two-way market unless
the Board determines that the exchange does not provide a liquid two-
way market.
Section 2(h)(2) company has the same meaning as in section 2(h)(2)
of the Bank Holding Company Act (12 U.S.C. 1841(h)(2)).
State means any state, commonwealth, territory, or possession of
the United States, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, American Samoa,
Guam, or the United States Virgin Islands.
Subsidiary has the same meaning as in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813).
Top-tier foreign banking organization, with respect to a foreign
bank, means the top-tier foreign banking organization or,
alternatively, a subsidiary of the top-tier foreign banking
organization designated by the Board.
Total consolidated assets. (1) Total consolidated assets of a U.S.
bank holding company or a U.S. intermediate holding company is equal to
the total consolidated assets of such banking organization, as reported
on the FR Y-9C.
(2) Total consolidated assets of a foreign banking organization is
equal to the total consolidated assets of the foreign banking
organization, as reported on the FR Y-7Q.
Total nonbank assets. (1) Total nonbank assets of a U.S. bank
holding company or U.S. intermediate holding company is equal to the
total nonbank assets of such banking organization, as reported on the
FR Y-9LP.
(2) Total nonbank assets of a foreign banking organization is equal
to:
(i) The sum of the assets of the foreign banking organization's
nonbank U.S. subsidiaries, including the total nonbank assets of any
U.S. intermediate holding company, excluding the assets of any section
2(h)(2) company; plus
(ii) The sum of the foreign banking organization's equity
investments in unconsolidated U.S. subsidiaries, excluding equity
investments in any section 2(h)(2) company.
U.S. agency has the same meaning as the term ``agency'' in Sec.
211.21(b) of this chapter.
U.S. branch has the same meaning as the term ``branch'' in Sec.
211.21(e) of this chapter.
U.S. branches and agencies means the U.S. branches and U.S.
agencies of a foreign banking organization.
U.S. government agency means an agency or instrumentality of the
United States whose obligations are fully and explicitly guaranteed as
to the timely payment of principal and interest by the full faith and
credit of the United States.
U.S. government-sponsored enterprise means an entity originally
established or chartered by the U.S. government to serve public
purposes specified by the U.S. Congress, but whose obligations are not
explicitly guaranteed by the full faith and credit of the United
States.
U.S. intermediate holding company means the top-tier U.S. company
that is required to be established pursuant to Sec. 252.147 or Sec.
252.153.
U.S. subsidiary means any subsidiary that is incorporated in or
organized under the laws of the United States or in any State,
commonwealth, territory, or possession of the United States, the
Commonwealth of Puerto Rico, the Commonwealth of the North Mariana
Islands, the American Samoa, Guam, or the United States Virgin Islands.
Weighted short-term wholesale funding means the weighted short-term
wholesale funding of a banking organization, as reported on the FR Y-
15.
0
11. In Sec. 252.5, as proposed to be added at 83 FR 61408 (November
29, 2018), is revised to read as follows:
Sec. 252.5 Categorization of banking organizations.
(a) General. (1) A U.S. bank holding company with average total
consolidated assets of $100 billion or more must determine its category
among the four categories described in paragraphs (b) through (e) of
this section at least quarterly.
(2) A U.S. intermediate holding company with average total
consolidated assets of $100 billion or more must determine its category
among the three categories described in paragraphs (c) through (e) of
this section at least quarterly.
(3) A foreign banking organization with total consolidated assets
of $100 billion or more and average combined U.S. assets of $100
billion or more must
[[Page 22023]]
determine its category among the three categories described in
paragraphs (c) through (e) of this section at least quarterly.
(b) Global systemically important BHC. A banking organization is a
global systemically important BHC if it is identified as a global
systemically important BHC pursuant to 12 CFR 217.402.
(c) Category II. (1) A banking organization is a Category II
banking organization if the banking organization:
(i) Has:
(A)(1) For a U.S. bank holding company or a U.S. intermediate
holding company, $700 billion or more in average total consolidated
assets;
(2) For a foreign banking organization, $700 billion or more in
average combined U.S. assets; or
(B)(1) Has $75 billion or more in average cross-jurisdictional
activity; and
(2)(i) For a U.S. bank holding company or a U.S. intermediate
holding company, $100 billion or more in average total consolidated
assets; or
(ii) For a foreign banking organization, $100 billion or more in
average combined U.S. assets; and
(ii) Is not a global systemically important BHC.
(2) After meeting the criteria in paragraph (c)(1) of this section,
a banking organization continues to be a Category II banking
organization until the banking organization:
(i) Has:
(A)(1) For a U.S. bank holding company or a U.S. intermediate
holding company, less than $700 billion in total consolidated assets
for each of the four most recent calendar quarters; or
(2) For a foreign banking organization, less than $700 billion in
combined U.S. assets for each of the four most recent calendar
quarters; and
(B) Less than $75 billion in cross-jurisdictional activity for each
of the four most recent calendar quarters;
(ii)(A) For a U.S. bank holding company or a U.S. intermediate
holding company, less than $100 billion in total consolidated assets
for each of the four most recent calendar quarters;
(B) For a foreign banking organization, less than $100 billion in
combined U.S. assets for each of the four most recent calendar
quarters; or
(iii) Meets the criteria in paragraph (b) to be a global
systemically important BHC.
(d) Category III. (1) A banking organization is a Category III
banking organization if the banking organization:
(i) Has:
(A)(1) For a U.S. bank holding company or a U.S. intermediate
holding company, $250 billion or more in average total consolidated
assets; or
(2) For a foreign banking organization, $250 billion or more in
average combined U.S. assets; or
(B)(1)(i) For a U.S. bank holding company or a U.S. intermediate
holding company, $100 billion or more in average total consolidated
assets; or
(ii) For a foreign banking organization, $100 billion in average
combined U.S. assets; and
(2) At least:
(i) $75 billion in average total nonbank assets;
(ii) $75 billion in average weighted short-term wholesale funding;
or
(iii) $75 billion in average off-balance sheet exposure;
(ii) Is not a global systemically important BHC; and
(iii) Is not a Category II banking organization.
(2) After meeting the criteria in paragraph (d)(1) of this section,
a banking organization continues to be a Category III banking
organization until the banking organization:
(i) Has:
(A)(1) For a U.S. bank holding company or a U.S. intermediate
holding company, less than $250 billion in total consolidated assets
for each of the four most recent calendar quarters; or
(2) For a foreign banking organization, less than $250 billion in
combined U.S. assets for each of the four most recent calendar
quarters;
(B) Less than $75 billion in total nonbank assets for each of the
four most recent calendar quarters;
(C) Less than $75 billion in weighted short-term wholesale funding
for each of the four most recent calendar quarters; and
(D) Less than $75 billion in off-balance sheet exposure for each of
the four most recent calendar quarters; or
(ii) Has:
(A) For a U.S. bank holding company or a U.S. intermediate holding
company, less than $100 billion in total consolidated assets for each
of the four most recent calendar quarters; or
(B) For a foreign banking organization, less than $100 billion in
combined U.S. assets for each of the four most recent calendar
quarters;
(iii) Meets the criteria in paragraph (b) of this section to be a
global systemically important BHC; or
(iv) Meets the criteria in paragraph (c)(1) of this section to be a
Category II banking organization.
(e) Category IV. (1) A banking organization is a Category IV
banking organization if the banking organization:
(i) Is not global systemically important BHC;
(ii) Is not a Category II banking organization;
(iii) Is not a Category III banking organization; and
(iv) Has:
(A) For a U.S. bank holding company or a U.S. intermediate holding
company, average total consolidated assets of $100 billion or more; or
(B) For a foreign banking organization, average combined U.S.
assets of $100 billion or more.
(2) After meeting the criteria in paragraph (e)(1), a banking
organization continues to be a Category IV banking organization until
the banking organization:
(i) Has:
(A) For a U.S. bank holding company or a U.S. intermediate holding
company, less than $100 billion in total consolidated assets for each
of the four most recent calendar quarters;
(B) For a foreign banking organization, less than $100 billion in
combined U.S. assets for each of the four most recent calendar
quarters;
(ii) Meets the criteria in paragraph (b) of this section to be a
global systemically important BHC;
(iii) Meets the criteria in paragraph (c)(1) of this section to be
a Category II banking organization; or
(iv) Meets the criteria in paragraph (d)(1) of this section to be a
Category III banking organization.
0
12. Revise the heading of subpart D to read as follows:
Subpart D--Enhanced Prudential Standards for Bank Holding Companies
With Total Consolidated Assets of $100 Billion or More
0
13. Section 252.35 is amended by adding paragraph (a)(8) to read as
follows:
(a) * * *
(8) Notice and Response. If the Board determines that a bank
holding company must conduct liquidity stress tests according to a
frequency other than the frequency provided in paragraphs (a)(2)(i) and
(ii) of this section, the Board will notify the bank holding company
before the change in frequency takes effect, and describe the basis for
its determination. Within 14 calendar days of receipt of a notification
under this paragraph, the bank holding company may request in writing
that the Board reconsider the requirement. The Board will respond in
writing to the company's request for reconsideration prior to requiring
the company conduct liquidity stress tests according to a frequency
other than the frequency provided in paragraphs (a)(2)(i) and (ii) of
this section.
* * * * *
0
14. Revise the heading of subpart E to read as follows:
[[Page 22024]]
Subpart E--Supervisory Stress Test Requirements for Certain U.S.
Banking Organizations With $100 Billion or More in Total
Consolidated Assets and Nonbank Financial Companies Supervised by
the Board
0
15. Section 252.43 is amended by revising paragraph (a)(2) to read as
follows:
Sec. 252.43 Applicability.
(a) * * *
(2) Ongoing applicability. A bank holding company or U.S.
intermediate holding company (including any successor company) that is
subject to any requirement in this subpart shall remain subject to any
such requirement unless and until its total consolidated assets fall
below $100 billion for each of four consecutive quarters, as reported
on the FR Y-9C and, effective on the as-of date of the fourth
consecutive FR Y-9C.
* * * * *
0
16. Section 252.44, as proposed to be amended at 83 FR 61408 (November
29, 2018), is further amended by revising paragraph (c) to read as
follows:
Sec. 252.44 Analysis conducted by the Board.
* * * * *
(c) Frequency of analysis conducted by the Board. (1) Except as
provided in paragraph (c)(2) of this section, the Board will conduct
its analysis of a covered company on an annual basis.
(2) The Board will conduct its analysis of a Category IV bank
holding company or a Category IV U.S. intermediate holding company on a
biennial basis and occurring in each year ending in an even number.
0
17. In Sec. 252.53, republish paragraphs (a)(1)(i) through (iii) and
as proposed to be revised in 83 FR 61408 (November 29, 2018) further
revise paragraphs (a)(1)(iv) through (vi) to read as follows:
Sec. 252.53 Applicability.
(a) Scope--(1) Applicability. Except as provided in paragraph (b)
of this section, this subpart applies to any covered company, which
includes:
(i) A global systemically important BHC;
(ii) Any Category II bank holding company;
(iii) Any Category III bank holding company;
(iv) Any Category II U.S. intermediate holding company subject to
this section pursuant to Sec. 252.153;
(v) Any Category III U.S. intermediate holding company subject to
this section pursuant to Sec. 252.153; and
(vi) Any nonbank financial company supervised by the Board that is
made subject to this section pursuant to a rule or order of the Board.
(2) Ongoing applicability. (i) A bank holding company (including
any successor company) that is subject to any requirement in this
subpart shall remain subject to any such requirement unless and until
the bank holding company:
(A) Is not a global systemically important BHC;
(B) Is not a Category II bank holding company; and
(C) Is not a Category III bank holding company.
(ii) A U.S. intermediate holding company (including any successor
company) that is subject to any requirement in this subpart shall
remain subject to any such requirement unless and until the U.S.
intermediate holding company:
(A) Is not a Category II U.S. intermediate holding company; and
(B) Is not a Category III U.S. intermediate holding company.
* * * * *
0
18. Section 252.54, as proposed to be amended at 83 FR 61408 (November
29, 2018), is further amended by revising paragraph (a) to read as
follows:
Sec. 252.54 Stress test.
(a) Stress test--(1) In general. A covered company must conduct a
stress test as required under this subpart.
(2) Frequency. (i) Except as provided in paragraph (a)(2)(ii) of
this section, a covered company must conduct an annual stress test. The
stress test must be conducted by April 5 of each calendar year based on
data as of December 31 of the preceding calendar year, unless the time
or the as-of date is extended by the Board in writing.
(ii) A Category III bank holding company or a Category III U.S.
intermediate holding company must conduct a biennial stress test. The
stress test must be conducted by April 5 of each calendar year ending
in an even number, based on data as of December 31 of the preceding
calendar year, unless the time or the as-of date is extended by the
Board in writing.
* * * * *
Sec. 252.55 [Removed and Reserved]
0
19. Section 252.55 is removed and reserved.
0
20. Section 252.56 is amended by revising paragraphs (a) introductory
text, (b) introductory text, and (c)(1) to read as follows:
Sec. 252.56 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
Sec. 252.54, for each quarter of the planning horizon, a covered
company must estimate the following for each scenario required to be
used:
* * * * *
(b) Assumptions regarding capital actions. In conducting a stress
test under Sec. 252.54, a covered company is required to make the
following assumptions regarding its capital actions over the planning
horizon:
* * * * *
(c) * * *
(1) In general. The senior management of a covered company must
establish and maintain a system of controls, oversight, and
documentation, including policies and procedures, that are designed to
ensure that its stress testing processes are effective in meeting the
requirements in this subpart. These policies and procedures must, at a
minimum, describe the covered company's stress testing practices and
methodologies, and processes for validating and updating the company's
stress test practices and methodologies consistent with applicable laws
and regulations.
* * * * *
0
21. Section 252.57 is amended by revising paragraph (a) to read as
follows:
Sec. 252.57 Reports of stress test results.
(a) Reports to the Board of stress test results. A covered company
must report the results of the stress test required under Sec. 252.54
to the Board in the manner and form prescribed by the Board. Such
results must be submitted by April 5 of the calendar year in which the
stress test is performed pursuant to Sec. 252.54, unless that time is
extended by the Board in writing.
* * * * *
0
22. Section 252.58 is amended by revising paragraph (a)(1) to read as
follows:
Sec. 252.58 Disclosure of stress test results.
(a) Public disclosure of results--(1) In general. A covered company
must publicly disclose a summary of the results of the stress test
required under Sec. 252.54 within the period that is 15 calendar days
after the Board publicly discloses the results of its supervisory
stress test of the covered company pursuant to Sec. 252.46(c), unless
that time is extended by the Board in writing.
* * * * *
Subpart L--[Removed and Reserved]
0
23. Remove and reserve subpart L, consisting of Sec. Sec. 252.120
through 252.122.
0
24. Revise the heading for subpart M to read as follows.
[[Page 22025]]
Subpart M--Risk Committee Requirement for Foreign Banking
Organizations With Total Consolidated Assets of at Least $50
Billion but Less Than $100 Billion
0
25. In Sec. 252.131, revise paragraphs (a) and (c) to read as follows:
Sec. 252.131 Applicability.
(a) General applicability. A foreign banking organization with
total consolidated assets of at least $50 billion but less than $100
billion must comply with the risk-committee requirements set forth in
this subpart beginning on the first day of the ninth quarter following
the date on which its total consolidated assets equal or exceed $50
billion.
* * * * *
(c) Cessation of requirements. A foreign banking organization will
remain subject to the risk-committee requirements of this section until
the earlier of the date on which:
(1) Its reported total consolidated assets on the FR Y-7 are below
$50 billion for each of four consecutive calendar quarters; and
(2) It becomes subject to the requirements of subpart N or subpart
O of this part.
* * * * *
0
26. In Sec. 252.132 revise the section heading, paragraph (a)
introductory text, and paragraph (d) to read as follows:
Sec. 252.132 Risk-committee requirements for foreign banking
organizations with total consolidated assets of $50 billion or more but
less than $100 billion.
(a) U.S. risk committee certification. A foreign banking
organization with total consolidated assets of at least $50 billion but
less than $100 billion, must, on an annual basis, certify to the Board
that it maintains a committee of its global board of directors (or
equivalent thereof), on a standalone basis or as part of its
enterprise-wide risk committee (or equivalent thereof) that:
* * * * *
(d) Noncompliance with this section. If a foreign banking
organization does not satisfy the requirements of this section, the
Board may impose requirements, conditions, or restrictions relating to
the activities or business operations of the combined U.S. operations
of the foreign banking organization. The Board will coordinate with any
relevant State or Federal regulator in the implementation of such
requirements, conditions, or restrictions. If the Board determines to
impose one or more requirements, conditions, or restrictions under this
paragraph, the Board will notify the organization before it applies any
requirement, condition or restriction, and describe the basis for
imposing such requirement, condition, or restriction. Within 14
calendar days of receipt of a notification under this paragraph, the
company may request in writing that the Board reconsider the
requirement, condition, or restriction. The Board will respond in
writing to the organization's request for reconsideration prior to
applying the requirement, condition, or restriction.
Subpart N--Enhanced Prudential Standards for Foreign Banking
Organizations With Total Consolidated Assets of $100 Billion or
More but Combined U.S. Assets of Less Than $100 Billion
0
27. Revise the heading of subpart N to read as set forth above.
0
28. Revise Sec. 252.140 to read as follows:
Sec. 252.140 Scope.
This subpart applies to foreign banking organizations with total
consolidated assets of $100 billion or more, but combined U.S. assets
of less than $100 billion.
0
29. In Sec. 252.142, revise paragraph (a), add paragraph (b)(3), and
revise paragraph (c) to read as follows:
Sec. 252.142 Applicability.
(a) General applicability. A foreign banking organization with
total consolidated assets of $100 billion or more and combined U.S.
assets of less than $100 billion must:
(1) Comply with the capital stress testing, risk-management and
risk committee requirements set forth in this subpart beginning no
later than on the first day of the ninth quarter the date on which its
total consolidated assets equal or exceed $100 billion; and
(2) Comply with the risk-based and leverage capital requirements
and liquidity risk-management requirements set forth in this subpart
beginning no later than on the first day of the ninth quarter following
the date on which its total consolidated assets equal or exceed $250
billion; and
(3) Comply with the U.S. intermediate holding company requirement
set forth in Sec. 252.147 beginning no later than on the first day of
the ninth quarter following the date on which its U.S. non-branch
assets equal or exceed $50 billion.
(b) * * *
(3) U.S. non-branch assets. U.S. non-branch assets are equal to the
sum of the consolidated assets of each top-tier U.S. subsidiary of the
foreign banking organization (excluding any section 2(h)(2) company and
DPC branch subsidiary, if applicable).
(i) For purposes of this subpart, U.S. non-branch assets of a
foreign banking organization are calculated as the average of the sum
of the total consolidated assets of the top-tier U.S. subsidiaries of
the foreign banking organization (excluding any section 2(h)(2) company
and DPC branch subsidiary) for the four most recent calendar quarters,
as reported to the Board on the FR Y-7Q, or, if the foreign banking
organization has not reported this information on the FR Y-7Q for each
of the four most recent calendar quarters, the average for the most
recent quarter or consecutive quarters as reported on the FR Y-7Q.
(ii) In calculating U.S. non-branch assets, a foreign banking
organization must reduce its U.S. non-branch assets calculated under
this paragraph by the amount corresponding to balances and transactions
between a top-tier U.S. subsidiary and any other top-tier U.S.
subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to
the extent such items are not already eliminated in consolidation.
(iii) U.S. non-branch assets are measured on the as-of date of the
most recent FR Y-7Q used in the calculation of the average.
(c) Cessation of requirements--(1) Enhanced prudential standards
applicable to the foreign banking organization. A foreign banking
organization will remain subject to the requirements set forth in this
subpart until its reported total consolidated assets on the FR Y-7Q are
below $100 billion for each of four consecutive calendar quarters, or
it becomes subject to the requirements of subpart O of this part.
(2) Intermediate holding company requirement. A foreign banking
organization will remain subject to the U.S. intermediate holding
company requirement set forth in Sec. 252.147 until the sum of the
total consolidated assets of the top-tier U.S. subsidiaries of the
foreign banking organization (excluding any section 2(h)(2) company and
DPC branch subsidiary) is below $50 billion for each of four
consecutive calendar quarters, or it becomes subject to the U.S.
intermediate holding company requirements of subpart O of this part.
0
30. In Sec. 252.143, revise the section heading and paragraphs (a)(1)
introductory text, (b), and (c) to read as follows:
[[Page 22026]]
Sec. 252.143 Risk-based and leverage capital requirements for
foreign banking organizations with total consolidated assets of $250
billion or more but combined U.S. assets of less than $100 billion.
(a) * * *
(1) A foreign banking organization with total consolidated assets
of $250 billion or more and combined U.S. assets of less than $100
billion must certify to the Board that it meets capital adequacy
standards on a consolidated basis established by its home-country
supervisor that are consistent with the regulatory capital framework
published by the Basel Committee on Banking Supervision, as amended
from time to time (Basel Capital Framework).
* * * * *
(b) Reporting. A foreign banking organization with total
consolidated assets of $250 billion or more and combined U.S. assets of
less than $100 billion must provide to the Board reports relating to
its compliance with the capital adequacy measures described in
paragraph (a) of this section concurrently with filing the FR Y-7Q.
(c) Noncompliance with the Basel Capital Framework. If a foreign
banking organization does not satisfy the requirements of this section,
the Board may impose requirements, conditions, or restrictions,
including risk-based or leverage capital requirements, relating to the
activities or business operations of the U.S. operations of the
organization. The Board will coordinate with any relevant State or
Federal regulator in the implementation of such requirements,
conditions, or restrictions. If the Board determines to impose one or
more requirements, conditions, or restrictions under this paragraph,
the Board will notify the organization before it applies any
requirement, condition or restriction, and describe the basis for
imposing such requirement, condition, or restriction. Within 14
calendar days of receipt of a notification under this paragraph, the
organization may request in writing that the Board reconsider the
requirement, condition, or restriction. The Board will respond in
writing to the organization's request for reconsideration prior to
applying the requirement, condition, or restriction.
0
31. Revise Sec. 252.144 to read as follows:
Sec. 252.144 Risk-management and risk committee requirements for
foreign banking organizations with total consolidated assets of $100
billion or more but combined U.S. assets of less than $100 billion.
(a) Risk-management and risk-committee requirements for foreign
banking organizations with combined U.S. assets of less than $50
billion--(1) U.S. risk committee certification. Each foreign banking
organization with combined U.S. assets of less than $50 billion must,
on an annual basis, certify to the Board that it maintains a committee
of its global board of directors (or equivalent thereof), on a
standalone basis or as part of its enterprise-wide risk committee (or
equivalent thereof) that:
(i) Oversees the risk management policies of the combined U.S.
operations of the foreign banking organization; and
(ii) Includes at least one member having experience in identifying,
assessing, and managing risk exposures of large, complex firms.
(2) Timing of certification. The certification required under
paragraph (a) of this section must be filed on an annual basis with the
Board concurrently with the FR Y-7.
(b) Risk-management and risk committee requirements for foreign
banking organizations with combined U.S. assets of more than $50
billion but less than $100 billion--(1) U.S. risk committee--(i)
General. Each foreign banking organization with combined U.S. assets of
more than $50 billion but less than $100 billion must maintain a U.S.
risk committee that approves and periodically reviews the risk
management policies of the combined U.S. operations of the foreign
banking organization and oversees the risk-management framework of such
combined U.S. operations.
(ii) Risk-management framework. The foreign banking organization's
risk-management framework for its combined U.S. operations must be
commensurate with the structure, risk profile, complexity, activities,
and size of its combined U.S. operations and consistent with its
enterprise-wide risk management policies. The framework must include:
(A) Policies and procedures establishing risk-management
governance, risk-management procedures, and risk-control infrastructure
for the combined U.S. operations of the foreign banking organization;
and
(B) Processes and systems for implementing and monitoring
compliance with such policies and procedures, including:
(1) Processes and systems for identifying and reporting risks and
risk-management deficiencies, including regarding emerging risks, on a
combined U.S. operations basis and ensuring effective and timely
implementation of actions to address emerging risks and risk-management
deficiencies;
(2) Processes and systems for establishing managerial and employee
responsibility for risk management of the combined U.S. operations;
(3) Processes and systems for ensuring the independence of the
risk-management function of the combined U.S. operations; and
(4) Processes and systems to integrate risk management and
associated controls with management goals and the compensation
structure of the combined U.S. operations.
(iii) Placement of the U.S. risk committee. (A) A foreign banking
organization that conducts its operations in the United States solely
through a U.S. intermediate holding company must maintain its U.S. risk
committee as a committee of the board of directors of its U.S.
intermediate holding company (or equivalent thereof).
(B) A foreign banking organization that conducts its operations
through U.S. branches or U.S. agencies (in addition to through its U.S.
intermediate holding company, if any) may maintain its U.S. risk
committee either:
(1) As a committee of the global board of directors (or equivalent
thereof), on a standalone basis or as a joint committee with its
enterprise-wide risk committee (or equivalent thereof); or
(2) As a committee of the board of directors of its U.S.
intermediate holding company (or equivalent thereof), on a standalone
basis or as a joint committee with the risk committee of its U.S.
intermediate holding company required pursuant to Sec. 252.147(e)(3).
(iv) Corporate governance requirements. The U.S. risk committee
must meet at least quarterly and otherwise as needed, and must fully
document and maintain records of its proceedings, including risk-
management decisions.
(v) Minimum member requirements. The U.S. risk committee must:
(A) Include at least one member having experience in identifying,
assessing, and managing risk exposures of large, complex financial
firms; and
(B) Have at least one member who:
(1) Is not an officer or employee of the foreign banking
organization or its affiliates and has not been an officer or employee
of the foreign banking organization or its affiliates during the
previous three years; and
(2) Is not a member of the immediate family, as defined in Sec.
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a
person who is, or has been within the last three years, an executive
officer, as defined in Sec. 215.2(e)(1) of the Board's Regulation O
[[Page 22027]]
(12 CFR 215.2(e)(1)) of the foreign banking organization or its
affiliates.
(2) [Reserved]
(c) U.S. chief risk officer--(1) General. A foreign banking
organization with combined U.S. assets of more than $50 billion but
less than $100 billion or its U.S. intermediate holding company, if
any, must appoint a U.S. chief risk officer with experience in
identifying, assessing, and managing risk exposures of large, complex
financial firms.
(2) Responsibilities. (i) The U.S. chief risk officer is
responsible for overseeing:
(A) The measurement, aggregation, and monitoring of risks
undertaken by the combined U.S. operations;
(B) The implementation of and ongoing compliance with the policies
and procedures for the foreign banking organization's combined U.S.
operations set forth in paragraph (b)(1)(ii)(A) of this section and the
development and implementation of processes and systems set forth in
paragraph (b)(1)(ii)(B) of this section; and
(C) The management of risks and risk controls within the parameters
of the risk-control framework for the combined U.S. operations, and the
monitoring and testing of such risk controls.
(ii) The U.S. chief risk officer is responsible for reporting risks
and risk-management deficiencies of the combined U.S. operations, and
resolving such risk-management deficiencies in a timely manner.
(3) Corporate governance and reporting. The U.S. chief risk officer
must:
(i) Receive compensation and other incentives consistent with
providing an objective assessment of the risks taken by the combined
U.S. operations of the foreign banking organization;
(ii) Be employed by and located in the U.S. branch, U.S. agency,
U.S. intermediate holding company, if any, or another U.S. subsidiary;
(iii) Report directly to the U.S. risk committee and the global
chief risk officer or equivalent management official (or officials) of
the foreign banking organization who is responsible for overseeing, on
an enterprise-wide basis, the implementation of and compliance with
policies and procedures relating to risk-management governance,
practices, and risk controls of the foreign banking organization,
unless the Board approves an alternative reporting structure based on
circumstances specific to the foreign banking organization;
(iv) Regularly provide information to the U.S. risk committee,
global chief risk officer, and the Board regarding the nature of and
changes to material risks undertaken by the foreign banking
organization's combined U.S. operations, including risk-management
deficiencies and emerging risks, and how such risks relate to the
global operations of the foreign banking organization; and
(v) Meet regularly and as needed with the Board to assess
compliance with the requirements of this section.
(d) Responsibilities of the foreign banking organization. The
foreign banking organization must take appropriate measures to ensure
that its combined U.S. operations implement the risk management
policies overseen by the U.S. risk committee described in paragraphs
(a) or (b) of this section, and its combined U.S. operations provide
sufficient information to the U.S. risk committee to enable the U.S.
risk committee to carry out the responsibilities of this subpart.
(e) Noncompliance with this section. If a foreign banking
organization does not satisfy the requirements of this section, the
Board may impose requirements, conditions, or restrictions relating to
the activities or business operations of the combined U.S. operations
of the foreign banking organization. The Board will coordinate with any
relevant State or Federal regulator in the implementation of such
requirements, conditions, or restrictions. If the Board determines to
impose one or more requirements, conditions, or restrictions under this
paragraph, the Board will notify the organization before it applies any
requirement, condition, or restriction, and describe the basis for
imposing such requirement, condition, or restriction. Within 14
calendar days of receipt of a notification under this paragraph, the
organization may request in writing that the Board reconsider the
requirement, condition, or restriction. The Board will respond in
writing to the organization's request for reconsideration prior to
applying the requirement, condition, or restriction.
0
32. In Sec. 252.145, revise the section heading and paragraph (a) to
read as follows:
Sec. 252.145 Liquidity risk-management requirements for foreign
banking organizations with total consolidated assets of $250 billion or
more but combined U.S. assets of less than $100 billion.
(a) A foreign banking organization with total consolidated assets
of $250 billion or more and combined U.S. assets of less than $100
billion must report to the Board on an annual basis the results of an
internal liquidity stress test for either the consolidated operations
of the foreign banking organization or the combined U.S. operations of
the foreign banking organization. Such liquidity stress test must be
conducted consistently with the Basel Committee principles for
liquidity risk management and must incorporate 30-day, 90-day, and one-
year stress-test horizons. The ``Basel Committee principles for
liquidity risk management'' means the document titled ``Principles for
Sound Liquidity Risk Management and Supervision'' (September 2008) as
published by the Basel Committee on Banking Supervision, as
supplemented and revised from time to time.
* * * * *
0
33. In Sec. 252.146, revise the section heading and paragraphs (b)(1)
introductory text, (b)(2)(i), and (c)(1)(ii) and (iii) to read as
follows:
Sec. 252.146 Capital stress testing requirements for foreign banking
organizations with total consolidated assets of $100 billion or more
but combined U.S. assets of less than $100 billion.
* * * * *
(b) In general. (1) A foreign banking organization with total
consolidated assets of more than $100 billion and combined U.S. assets
of less than $100 billion must:
* * * * *
(2) * * *
(i) A supervisory capital stress test conducted by the foreign
banking organization's home-country supervisor or an evaluation and
review by the foreign banking organization's home-country supervisor of
an internal capital adequacy stress test conducted by the foreign
banking organization, according to the frequency specified in the
following paragraphs (b)(2)(i)(A) and (B):
(A) If the foreign banking organization has total consolidated
assets of $250 billion or more, on at least an annual basis; or
(B) If the foreign banking organization has total consolidated
assets of less than $250 billion, at least biennially; and
* * * * *
(c) * * *
(1) * * *
(ii) Conduct a stress test of its U.S. subsidiaries to determine
whether those subsidiaries have the capital necessary to absorb losses
as a result of adverse economic conditions, according to the frequency
specified in the following paragraphs (c)(1)(ii)(A) and (B):
(A) If the foreign banking organization has total consolidated
assets of $250 billion or more, on at least an annual basis; or
(B) If the foreign banking organization has total consolidated
assets of less than $250 billion, at least biennially; and
[[Page 22028]]
(iii) Report a summary of the results of the stress test to the
Board that includes a description of the types of risks included in the
stress test, a description of the conditions or scenarios used in the
stress test, a summary description of the methodologies used in the
stress test, estimates of aggregate losses, pre-provision net revenue,
total loan loss provisions, net income before taxes and pro forma
regulatory capital ratios required to be computed by the home-country
supervisor of the foreign banking organization and any other relevant
capital ratios, and an explanation of the most significant causes for
any changes in regulatory capital ratios.
* * * * *
0
34. Add Sec. 252.147 to read as follows:
Sec. 252.147 U.S. intermediate holding company requirement for
foreign banking organizations with combined U.S. assets of less than
$100 billion but U.S. non-branch assets of $50 billion or more.
(a) Requirement to form a U.S. intermediate holding company. (1)
Formation. A foreign banking organization with U.S. non-branch assets
of $50 billion or more must establish a U.S. intermediate holding
company, or designate an existing subsidiary that meets the
requirements of paragraph (a)(2) of this section, as its U.S.
intermediate holding company.
(2) Structure. The U.S. intermediate holding company must be:
(i) Organized under the laws of the United States, any one of the
fifty states of the United States, or the District of Columbia; and
(ii) Be governed by a board of directors or managers that is
elected or appointed by the owners and that operates in an equivalent
manner, and has equivalent rights, powers, privileges, duties, and
responsibilities, to a board of directors of a company chartered as a
corporation under the laws of the United States, any one of the fifty
states of the United States, or the District of Columbia.
(3) Notice. Within 30 days of establishing or designating a U.S.
intermediate holding company under this section, a foreign banking
organization must provide to the Board:
(i) A description of the U.S. intermediate holding company,
including its name, location, corporate form, and organizational
structure;
(ii) A certification that the U.S. intermediate holding company
meets the requirements of this section; and
(iii) Any other information that the Board determines is
appropriate.
(b) Holdings and regulation of the U.S. intermediate holding
company--(1) General. Subject to paragraph (c) of this section, a
foreign banking organization that is required to form a U.S.
intermediate holding company under paragraph (a) of this section must
hold its entire ownership interest in any U.S. subsidiary (excluding
each section 2(h)(2) company or DPC branch subsidiary, if any) through
its U.S. intermediate holding company.
(2) Reporting. Each U.S. intermediate holding company shall submit
information in the manner and form prescribed by the Board.
(3) Examinations and inspections. The Board may examine or inspect
any U.S. intermediate holding company and each of its subsidiaries and
prepare a report of their operations and activities.
(4) Global systemically important banking organizations. For
purposes of this part, a top-tier foreign banking organization with
U.S. non-branch assets that equal or exceed $50 billion is a global
systemically important foreign banking organization if any of the
following conditions are met:
(i) The top-tier foreign banking organization determines, pursuant
to paragraph (b)(6) of this section, that the top-tier foreign banking
organization has the characteristics of a global systemically important
banking organization under the global methodology; or
(ii) The Board, using information available to the Board,
determines:
(A) That the top-tier foreign banking organization would be a
global systemically important banking organization under the global
methodology;
(B) That the top-tier foreign banking organization, if it were
subject to the Board's Regulation Q, would be identified as a global
systemically important BHC under 12 CFR 217.402 of the Board's
Regulation Q; or
(C) That the U.S. intermediate holding company, if it were subject
to 12 CFR 217.402 of the Board's Regulation Q, would be identified as a
global systemically important BHC.
(5) Notice. Each top-tier foreign banking organization that
controls a U.S. intermediate holding company shall submit to the Board
by January 1 of each calendar year through the U.S. intermediate
holding company:
(i) Notice of whether the home-country supervisor (or other
appropriate home country regulatory authority) of the top-tier foreign
banking organization of the U.S. intermediate holding company has
adopted standards consistent with the global methodology; and
(ii) Notice of whether the top-tier foreign banking organization
prepares or reports the indicators used by the global methodology to
identify a banking organization as a global systemically important
banking organization and, if it does, whether the top-tier foreign
banking organization has determined that it has the characteristics of
a global systemically important banking organization under the global
methodology pursuant to paragraph (b)(6) of this section.
(6) Global systemically important banking organization under the
global methodology. A top-tier foreign banking organization that
controls a U.S. intermediate holding company and prepares or reports
for any purpose the indicator amounts necessary to determine whether
the top-tier foreign banking organization is a global systemically
important banking organization under the global methodology must use
the data to determine whether the top-tier foreign banking organization
has the characteristics of a global systemically important banking
organization under the global methodology.
(c) Alternative organizational structure--(1) General. Upon a
written request by a foreign banking organization, the Board may permit
the foreign banking organization to establish or designate multiple
U.S. intermediate holding companies; use an alternative organizational
structure to hold its combined U.S. operations; or not transfer its
ownership interests in certain subsidiaries to a U.S. intermediate
holding company.
(2) Factors. In making a determination under paragraph (c)(1) of
this section, the Board may consider whether applicable law would
prohibit the foreign banking organization from owning or controlling
one or more of its U.S. subsidiaries through a single U.S. intermediate
holding company, or whether circumstances otherwise warrant an
exception based on the foreign banking organization's activities, scope
of operations, structure, or similar considerations.
(3) Request--(i) Contents. A request submitted under this section
must include an explanation of why the request should be granted and
any other information required by the Board.
(ii) Timing. The Board shall act on a request for an alternative
organizational structure within 90 days of receipt of a complete
request, unless the Board provides notice to the company that it is
extending the period for action.
(4) Conditions. The Board may grant relief under this section upon
such conditions as the Board deems appropriate, including, but not
limited to, requiring the U.S. operations of the
[[Page 22029]]
foreign banking organization to comply with additional enhanced
prudential standards, or requiring the foreign banking organization to
enter into supervisory agreements governing such alternative
organizational structure.
(d) Modifications. The Board may modify the application of any
section of this subpart to a foreign banking organization that is
required to form a U.S. intermediate holding company or to such U.S.
intermediate holding company if appropriate to accommodate the
organizational structure of the foreign banking organization or
characteristics specific to such foreign banking organization and such
modification is appropriate and consistent with the capital structure,
size, complexity, risk profile, scope of operations, or financial
condition of each U.S. intermediate holding company, safety and
soundness, and the financial stability mandate of section 165 of the
Dodd-Frank Act.
(e) Enhanced prudential standards for U.S. intermediate holding
companies--(1) Capital requirements for a U.S. intermediate holding
company. (i)(A) A U.S. intermediate holding company must comply with 12
CFR part 217, other than subpart E of 12 CFR part 217, in the same
manner as a bank holding company.
(B) A U.S. intermediate holding company may choose to comply with
subpart E of 12 CFR part 217.
(ii) A U.S. intermediate holding company must comply with capital
adequacy standards beginning on the date it is required to established
under this subpart, or if the U.S. intermediate holding company is
subject to capital adequacy standards on the date that the foreign
banking organization becomes subject to Sec. 252.142(a)(3), on the
date that the foreign banking organization becomes subject to this
subpart.
(2) Risk-management and risk committee requirements--(i) General. A
U.S. intermediate holding company must establish and maintain a risk
committee that approves and periodically reviews the risk management
policies and oversees the risk-management framework of the U.S.
intermediate holding company. The risk committee must be a committee of
the board of directors of the U.S. intermediate holding company (or
equivalent thereof). The risk committee may also serve as the U.S. risk
committee for the combined U.S. operations required pursuant to Sec.
252.144(b).
(ii) Risk-management framework. The U.S. intermediate holding
company's risk-management framework must be commensurate with the
structure, risk profile, complexity, activities, and size of the U.S.
intermediate holding company and consistent with the risk management
policies for the combined U.S. operations of the foreign banking
organization. The framework must include:
(A) Policies and procedures establishing risk-management
governance, risk-management procedures, and risk-control infrastructure
for the U.S. intermediate holding company; and
(B) Processes and systems for implementing and monitoring
compliance with such policies and procedures, including:
(1) Processes and systems for identifying and reporting risks and
risk-management deficiencies at the U.S. intermediate holding company,
including regarding emerging risks and ensuring effective and timely
implementation of actions to address emerging risks and risk-management
deficiencies;
(2) Processes and systems for establishing managerial and employee
responsibility for risk management of the U.S. intermediate holding
company;
(3) Processes and systems for ensuring the independence of the
risk-management function of the U.S. intermediate holding company; and
(4) Processes and systems to integrate risk management and
associated controls with management goals and the compensation
structure of the U.S. intermediate holding company.
(iii) Corporate governance requirements. The risk committee of the
U.S. intermediate holding company must meet at least quarterly and
otherwise as needed, and must fully document and maintain records of
its proceedings, including risk-management decisions.
(iv) Minimum member requirements. The risk committee must:
(A) Include at least one member having experience in identifying,
assessing, and managing risk exposures of large, complex financial
firms; and
(B) Have at least one member who:
(1) Is not an officer or employee of the foreign banking
organization or its affiliates and has not been an officer or employee
of the foreign banking organization or its affiliates during the
previous three years; and
(2) Is not a member of the immediate family, as defined in Sec.
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a
person who is, or has been within the last three years, an executive
officer, as defined in Sec. 215.2(e)(1) of the Board's Regulation O
(12 CFR 215.2(e)(1)) of the foreign banking organization or its
affiliates.
(v) The U.S. intermediate holding company must take appropriate
measures to ensure that it implements the risk management policies for
the U.S. intermediate holding company and it provides sufficient
information to the U.S. risk committee to enable the U.S. risk
committee to carry out the responsibilities of this subpart;
(vi) A U.S. intermediate holding company must comply with risk
committee and risk management requirements beginning on the date that
it is required to established under this subpart or, if the U.S.
intermediate holding company is subject to risk committee and risk
management requirements on the date that the foreign banking
organization becomes subject to Sec. 252.147(a)(3), on the date that
the foreign banking organization becomes subject to this subpart.
Subpart O--Enhanced Prudential Standards for Foreign Banking
Organizations With Total Consolidated Assets of $100 Billion or
More and Combined U.S. Assets of $100 Billion or More
0
35. Revise Sec. 252.150 to read as follows:
Sec. 252.150 Scope.
This subpart applies to foreign banking organizations with total
consolidated assets of $100 billion or more and combined U.S. assets of
$100 billion or more.
0
36. Revise Sec. 252.152 to read as follows:
Sec. 252.152 Applicability.
(a) General applicability. (1) A foreign banking organization must:
(i) Comply with the requirements of this subpart (other than the
U.S. intermediate holding company requirement set forth in Sec.
252.153) beginning on the first day of the ninth quarter following the
date on which its combined U.S. assets equal or exceed $100 billion;
and
(ii) Comply with the requirement to establish or designate a U.S.
intermediate holding company requirement set forth in Sec. 252.153(a)
beginning on the first day of the ninth quarter following the date on
which its U.S. non-branch assets equal or exceed $50 billion or, if the
foreign banking organization has established or designated a U.S.
intermediate holding company pursuant to Sec. 252.147, beginning on
the first day following the date on which the foreign banking
organization's combined U.S. assets equal or exceed $100 billion.
(2) Changes in requirements following a change in category. A
foreign banking
[[Page 22030]]
organization that changes from one category of banking organization
described in Sec. 252.5(c) through (e) to another of such categories
must comply with the requirements applicable to the new category under
this subpart no later than on the first day of the second quarter
following the change in the foreign banking organization's category.
(b) Asset measures--(1) Combined U.S. assets. Combined U.S. assets
of a foreign banking organization are equal to the sum of the
consolidated assets of each top-tier U.S. subsidiary of the foreign
banking organization (excluding any section 2(h)(2) company, if
applicable) and the total assets of each U.S. branch and U.S. agency of
the foreign banking organization. For purposes of this subpart,
``combined U.S. assets'' are calculated as the average of the total
combined assets of U.S. operations for the four most recent consecutive
quarters as reported by the foreign banking organization on the FR Y-
7Q, or, if the foreign banking organization has not reported this
information on the FR Y-7Q for each of the four most recent consecutive
quarters, the average of the combined U.S. assets for the most recent
quarter or consecutive quarters as reported on the FR Y-7Q. Combined
U.S. assets are measured on the as-of date of the most recent FR Y-7Q
used in the calculation of the average.
(2) U.S. non-branch assets. U.S. non-branch assets are equal to the
sum of the consolidated assets of each top-tier U.S. subsidiary of the
foreign banking organization (excluding any section 2(h)(2) company and
DPC branch subsidiary, if applicable).
(i) For purposes of this subpart, U.S. non-branch assets of a
foreign banking organization are calculated as the average of the sum
of the total consolidated assets of the top-tier U.S. subsidiaries of
the foreign banking organization (excluding any section 2(h)(2) company
and DPC branch subsidiary) for the four most recent consecutive
quarters, as reported to the Board on the FR Y-7Q, or, if the foreign
banking organization has not reported this information on the FR Y-7Q
for each of the four most recent consecutive quarters, the average for
the most recent quarter or consecutive quarters as reported on the FR
Y-7Q.
(ii) In calculating U.S. non-branch assets, a foreign banking
organization must reduce its U.S. non-branch assets calculated under
this paragraph by the amount corresponding to balances and transactions
between a top-tier U.S. subsidiary and any other top-tier U.S.
subsidiary (excluding any 2(h)(2) company or DPC branch subsidiary) to
the extent such items are not already eliminated in consolidation.
(iii) U.S. non-branch assets are measured on the as-of date of the
most recent FR Y-7Q used in the calculation of the average.
(3) Total consolidated assets. (i) Total consolidated assets of a
foreign banking organization are equal to the consolidated assets of
the foreign banking organization. For purposes of this subpart, ``total
consolidated assets'' are calculated as the average of the foreign
banking organization's total assets for the four most recent calendar
quarters as reported by the foreign banking organization on the FR Y-
7Q. If the foreign banking organization has not filed the FR Y-7Q for
the four most recent calendar quarters, the Board shall use an average
of the foreign banking organization's total consolidated assets
reported on its most recent two FR Y-7Qs. Total consolidated assets are
measured on the as-of date of the most recent FR Y-7Q used in the
calculation of the average.
(ii) Total consolidated assets of a U.S. intermediate holding
company purposes of this subpart are equal to its consolidated assets,
calculated based on the average of the holding company's total
consolidated assets in the four most recent quarters as reported
quarterly on the FR Y-9C. If the holding company has not filed the FR
Y-9C for each of the four most recent calendar quarters, total
consolidated assets means the average of its total consolidated assets,
as reported on the FR Y-9C, for the most recent quarter or quarters, as
applicable. Total consolidated assets are measured on the as-of date of
the most recent FR Y-9C used in the calculation of the average to its
total consolidated assets, as reported on the FR Y-9C;
(c) Cessation of requirements--(1) Enhanced prudential standards
applicable to the foreign banking organization. Subject to paragraph
(c)(2) of this section, a foreign banking organization will remain
subject to the applicable requirements of this subpart until its
reported combined U.S. assets on the FR Y-7Q are below $100 billion for
each of four consecutive calendar quarters.
(2) Intermediate holding company requirement. A foreign banking
organization will remain subject to the U.S. intermediate holding
company requirement set forth in Sec. 252.153 until the sum of the
total consolidated assets of the top-tier U.S. subsidiaries of the
foreign banking organization (excluding any section 2(h)(2) company and
DPC branch subsidiary) is below $50 billion for each of four
consecutive calendar quarters, or until the foreign banking
organization is subject to subpart N of this part and is in compliance
with the U.S. intermediate holding company requirements as set forth in
Sec. 252.147.
0
37. In Sec. 252.153, revise paragraphs (a)(1) and (3) and (c) through
(e) to read as follows:
Sec. 252.153 U.S. intermediate holding company requirement for
foreign banking organizations with U.S. non-branch assets of $50
billion or more.
(a) * * *
(1) A foreign banking organization with U.S. non-branch assets of
$50 billion or more must establish a U.S. intermediate holding company,
or designate an existing subsidiary that meets the requirements of
paragraph (a)(2) of this section, as its U.S. intermediate holding
company.
* * * * *
(3) Notice. Within 30 days of establishing or designating a U.S.
intermediate holding company under this section, a foreign banking
organization must provide to the Board:
(i) A description of the U.S. intermediate holding company,
including its name, location, corporate form, and organizational
structure;
(ii) A certification that the U.S. intermediate holding company
meets the requirements of this section; and
(iii) Any other information that the Board determines is
appropriate.
* * * * *
(c) Alternative organizational structure--(1) General. Upon a
written request by a foreign banking organization, the Board may permit
the foreign banking organization to establish or designate multiple
U.S. intermediate holding companies; use an alternative organizational
structure to hold its combined U.S. operations; or not transfer its
ownership interests in certain subsidiaries to a U.S. intermediate
holding company.
(2) Factors. In making a determination under paragraph (c)(1) of
this section, the Board may consider whether applicable law would
prohibit the foreign banking organization from owning or controlling
one or more of its U.S. subsidiaries through a single U.S. intermediate
holding company, or whether circumstances otherwise warrant an
exception based on the foreign banking organization's activities, scope
of operations, structure, or similar considerations.
(3) Request--(i) Contents. A request submitted under this section
must include an explanation of why the request should be granted and
any other information required by the Board.
(ii) Timing. The Board shall act on a request for an alternative
organizational
[[Page 22031]]
structure within 90 days of receipt of a complete request, unless the
Board provides notice to the company that it is extending the period
for action.
(4) Conditions. (i) The Board may grant relief under this section
upon such conditions as the Board deems appropriate, including, but not
limited to, requiring the U.S. operations of the foreign banking
organization to comply with additional enhanced prudential standards,
or requiring the foreign banking organization to enter into supervisory
agreements governing such alternative organizational structure.
(ii) If the Board permits a foreign banking organization to form
two or more U.S. intermediate holding companies under this section,
each U.S. intermediate holding company must determine its category
pursuant to section 252.5 of this part as though the U.S. intermediate
holding companies were a consolidated company.
(d) Modifications. The Board may modify the application of any
section of this subpart to a foreign banking organization that is
required to form a U.S. intermediate holding company or to such U.S.
intermediate holding company if appropriate to accommodate the
organizational structure of the foreign banking organization or
characteristics specific to such foreign banking organization and such
modification is appropriate and consistent with the capital structure,
size, complexity, risk profile, scope of operations, or financial
condition of each U.S. intermediate holding company, safety and
soundness, and the financial stability mandate of section 165 of the
Dodd-Frank Act.
(e) Enhanced prudential standards for U.S. intermediate holding
companies--(1) Capital requirements for a U.S. intermediate holding
company. (i)(A) A U.S. intermediate holding company must comply with 12
CFR part 217, other than subpart E of 12 CFR part 217, in the same
manner as a bank holding company.
(B) A U.S. intermediate holding company may choose to comply with
subpart E of 12 CFR part 217.
(ii) A U.S. intermediate holding company must comply with capital
adequacy standards beginning on the date that it is required to
established under this subpart or, if the U.S. intermediate holding
company is subject to capital adequacy standards on the date that the
foreign banking organization becomes subject to section
252.153(a)(1)(ii), on the date that the foreign banking organization
becomes subject to this subpart.
(2) Capital planning. (i) A U.S. intermediate holding company with
total consolidated assets of $100 billion or more must comply with 12
CFR 225.8 in the same manner as a bank holding company.
(ii) A U.S. intermediate holding company with total consolidated
assets of $100 billion or more must comply with 12 CFR 225.8 in
accordance with the transition provisions of 12 CFR 225.8 of Regulation
Y.
(3) Risk-management and risk committee requirements--(i) General. A
U.S. intermediate holding company must establish and maintain a risk
committee that approves and periodically reviews the risk management
policies and oversees the risk-management framework of the U.S.
intermediate holding company. The risk committee must be a committee of
the board of directors of the U.S. intermediate holding company (or
equivalent thereof). The risk committee may also serve as the U.S. risk
committee for the combined U.S. operations required pursuant to Sec.
252.155(a).
(ii) Risk-management framework. The U.S. intermediate holding
company's risk-management framework must be commensurate with the
structure, risk profile, complexity, activities, and size of the U.S.
intermediate holding company and consistent with the risk management
policies for the combined U.S. operations of the foreign banking
organization. The framework must include:
(A) Policies and procedures establishing risk-management
governance, risk-management procedures, and risk-control infrastructure
for the U.S. intermediate holding company; and
(B) Processes and systems for implementing and monitoring
compliance with such policies and procedures, including:
(1) Processes and systems for identifying and reporting risks and
risk-management deficiencies at the U.S. intermediate holding company,
including regarding emerging risks and ensuring effective and timely
implementation of actions to address emerging risks and risk-management
deficiencies;
(2) Processes and systems for establishing managerial and employee
responsibility for risk management of the U.S. intermediate holding
company;
(3) Processes and systems for ensuring the independence of the
risk-management function of the U.S. intermediate holding company; and
(4) Processes and systems to integrate risk management and
associated controls with management goals and the compensation
structure of the U.S. intermediate holding company.
(iii) Corporate governance requirements. The risk committee of the
U.S. intermediate holding company must meet at least quarterly and
otherwise as needed, and must fully document and maintain records of
its proceedings, including risk-management decisions.
(iv) Minimum member requirements. The risk committee must:
(A) Include at least one member having experience in identifying,
assessing, and managing risk exposures of large, complex financial
firms; and
(B) Have at least one member who:
(1) Is not an officer or employee of the foreign banking
organization or its affiliates and has not been an officer or employee
of the foreign banking organization or its affiliates during the
previous three years; and
(2) Is not a member of the immediate family, as defined in Sec.
225.41(b)(3) of the Board's Regulation Y (12 CFR 225.41(b)(3)), of a
person who is, or has been within the last three years, an executive
officer, as defined in Sec. 215.2(e)(1) of the Board's Regulation O
(12 CFR 215.2(e)(1)) of the foreign banking organization or its
affiliates.
(v) The U.S. intermediate holding company must take appropriate
measures to ensure that it implements the risk management policies for
the U.S. intermediate holding company and it provides sufficient
information to the U.S. risk committee to enable the U.S. risk
committee to carry out the responsibilities of this subpart.
(vi) A U.S. intermediate holding company must comply with risk
committee and risk management requirements beginning on the date that
it is required to established under this subpart or, if the U.S.
intermediate holding company is subject to risk committee and risk
management requirements on the date that the foreign banking
organization becomes subject to Sec. 252.153(a)(1)(ii), on the date
that the foreign banking organization becomes subject to this subpart.
(4) Liquidity requirements. (i) A U.S. intermediate holding company
must comply with the liquidity risk-management requirements in Sec.
252.156 and conduct liquidity stress tests and hold a liquidity buffer
pursuant to Sec. 252.157.
(ii) A U.S. intermediate holding company must comply with liquidity
risk-management, liquidity stress test, and liquidity buffer
requirements beginning on the date that it is required to established
under this subpart.
(5) Stress test requirements. (i)(A) A U.S. intermediate holding
company
[[Page 22032]]
with total consolidated assets of $100 billion or more must comply with
the requirements of subpart E of this part in the same manner as a bank
holding company;
(B) A U.S. intermediate holding company must comply with the
requirements of subpart E beginning the later of:
(1) The stress test cycle of the calendar year after the calendar
year in which it becomes subject to regulatory capital requirements; or
(2) In accordance with the transition provisions of subpart E.
(ii)(A) A Category II U.S. intermediate holding company and a
Category III U.S. intermediate holding company must comply with the
requirements of subpart F of this part in the same manner as a bank
holding company;
(B) A U.S. intermediate holding company must comply with the
requirements of subpart F beginning the later of:
(1) The stress test cycle of the calendar year after the calendar
year in which it becomes subject to regulatory capital requirements; or
(2) In accordance with the transition provisions of subpart F.
0
38. In Sec. 252.154 revise the section heading and paragraphs (a)(1),
(b), and (c) to read as follows:
Sec. 252.154 Risk-based and leverage capital requirements for
foreign banking organizations with combined U.S. assets of $100 billion
or more.
(a) * * *
(1) A foreign banking organization with combined U.S. assets of
$100 billion or more must certify to the Board that it meets capital
adequacy standards on a consolidated basis established by its home-
country supervisor that are consistent with the regulatory capital
framework published by the Basel Committee on Banking Supervision, as
amended from time to time (Basel Capital Framework).
* * * * *
(b) Reporting. A foreign banking organization with combined U.S.
assets of $100 billion or more must provide to the Board reports
relating to its compliance with the capital adequacy measures described
in paragraph (a) of this section concurrently with filing the FR Y-7Q.
(c) Noncompliance with the Basel Capital Framework. If a foreign
banking organization does not satisfy the requirements of this section,
the Board may impose requirements, conditions, or restrictions relating
to the activities or business operations of the U.S. operations of the
foreign banking organization. The Board will coordinate with any
relevant State or Federal regulator in the implementation of such
requirements, conditions, or restrictions. If the Board determines to
impose one or more requirements, conditions, or restrictions under this
paragraph, the Board will notify the organization before it applies any
requirement, condition or restriction, and describe the basis for
imposing such requirement, condition, or restriction. Within 14
calendar days of receipt of a notification under this paragraph, the
company may request in writing that the Board reconsider the
requirement, condition, or restriction. The Board will respond in
writing to the organizations request for reconsideration prior to
applying the requirement, condition, or restriction.
0
39. In Sec. 252.155 revise the section heading and paragraphs (a)(1)
and (3) and (b)(1) to read as follows:
Sec. 252.155 Risk-management and risk-committee requirements for
foreign banking organizations with combined U.S. assets of $100 billion
or more.
(a) * * *
(1) General. Each foreign banking organization with combined U.S.
assets of $100 billion or more must maintain a U.S. risk committee that
approves and periodically reviews the risk management policies of the
combined U.S. operations of the foreign banking organization and
oversees the risk-management framework of such combined U.S.
operations. The U.S. risk committee's responsibilities include the
liquidity risk-management responsibilities set forth in Sec.
252.156(a).
* * * * *
(3) Placement of the U.S. risk committee. (i) A foreign banking
organization that conducts its operations in the United States solely
through a U.S. intermediate holding company must maintain its U.S. risk
committee as a committee of the board of directors of its U.S.
intermediate holding company (or equivalent thereof).
(ii) A foreign banking organization that conducts its operations
through U.S. branches or U.S. agencies (in addition to through its U.S.
intermediate holding company, if any) may maintain its U.S. risk
committee either:
(A) As a committee of the global board of directors (or equivalent
thereof), on a standalone basis or as a joint committee with its
enterprise-wide risk committee (or equivalent thereof); or
(B) As a committee of the board of directors of its U.S.
intermediate holding company (or equivalent thereof), on a standalone
basis or as a joint committee with the risk committee of its U.S.
intermediate holding company required pursuant to Sec. 252.153(e)(3).
* * * * *
(b) * * *
(1) General. A foreign banking organization with combined U.S.
assets of $100 billion or more or its U.S. intermediate holding
company, if any, must appoint a U.S. chief risk officer with experience
in identifying, assessing, and managing risk exposures of large,
complex financial firms.
* * * * *
0
40. In Sec. 252.156, revise the section heading and paragraphs (a)(1),
(b)(1) and (2), (b)(3)(i), (b)(4) through (6), (c)(1), (c)(2)(ii),
(d)(1), (e)(1), (e)(2)(i)(A) and (C), (e)(2)(ii)(A), (f), (g)
introductory text, (g)(1) introductory text, (g)(1)(i), (g)(3)
introductory text, (g)(3)(i), (ii) and (iv), and republish (g)(3)(v) to
read as follows:
Sec. 252.156 Liquidity risk-management requirements for foreign
banking organizations with combined U.S. assets of $100 billion or
more.
(a) * * *
(1) The U.S. risk committee established by a foreign banking
organization pursuant to Sec. 252.155(a) (or a designated subcommittee
of such committee composed of members of the board of directors (or
equivalent thereof)) of the U.S. intermediate holding company or the
foreign banking organization, as appropriate must:
* * * * *
(b) * * *
(1) Liquidity risk. The U.S. chief risk officer of a foreign
banking organization with combined U.S. assets of $100 billion or more
must review the strategies and policies and procedures established by
senior management of the U.S. operations for managing the risk that the
financial condition or safety and soundness of the foreign banking
organization's combined U.S. operations would be adversely affected by
its inability or the market's perception of its inability to meet its
cash and collateral obligations (liquidity risk).
(2) Liquidity risk tolerance. The U.S. chief risk officer of a
foreign banking organization with combined U.S. assets of $100 billion
or more must review information provided by the senior management of
the U.S. operations to determine whether the combined U.S. operations
are operating in accordance with the established liquidity risk
tolerance. The U.S. chief risk officer must regularly, and, at least
semi-annually, report to the foreign banking organization's U.S. risk
committee and enterprise-wide risk committee, or the equivalent thereof
(if any) (or a
[[Page 22033]]
designated subcommittee of such committee composed of members of the
relevant board of directors (or equivalent thereof)) on the liquidity
risk profile of the foreign banking organization's combined U.S.
operations and whether it is operating in accordance with the
established liquidity risk tolerance for the U.S. operations, and must
establish procedures governing the content of such reports.
(3) * * *
(i) The U.S. chief risk officer of a foreign banking organization
with combined U.S. assets of $100 billion or more must approve new
products and business lines and evaluate the liquidity costs, benefits,
and risks of each new business line and each new product offered,
managed or sold through the foreign banking organization's combined
U.S. operations that could have a significant effect on the liquidity
risk profile of the U.S. operations of the foreign banking
organization. The approval is required before the foreign banking
organization implements the business line or offers the product through
its combined U.S. operations. In determining whether to approve the new
business line or product, the U.S. chief risk officer must consider
whether the liquidity risk of the new business line or product (under
both current and stressed conditions) is within the foreign banking
organization's established liquidity risk tolerance for its combined
U.S. operations.
* * * * *
(4) Cash-flow projections. The U.S. chief risk officer of a foreign
banking organization with combined U.S. assets of $100 billion or more
must review the cash-flow projections produced under paragraph (d) of
this section at least quarterly (or more often, if changes in market
conditions or the liquidity position, risk profile, or financial
condition of the foreign banking organization or the U.S. operations
warrant) to ensure that the liquidity risk of the foreign banking
organization's combined U.S. operations is within the established
liquidity risk tolerance.
(5) Liquidity risk limits. The U.S. chief risk officer of a foreign
banking organization with combined U.S. assets of $100 billion or more
must establish liquidity risk limits as set forth in paragraph (f) of
this section and review the foreign banking organization's compliance
with those limits at least quarterly (or more often, if changes in
market conditions or the liquidity position, risk profile, or financial
condition of the U.S. operations of the foreign banking organization
warrant).
(6) Liquidity stress testing. The U.S. chief risk officer of a
foreign banking organization with combined U.S. assets of $100 billion
or more must:
(i) Approve the liquidity stress testing practices, methodologies,
and assumptions required in Sec. 252.157(a) at least quarterly, and
whenever the foreign banking organization materially revises its
liquidity stress testing practices, methodologies or assumptions;
(ii) Review the liquidity stress testing results produced under
Sec. 252.157(a) of this subpart at least quarterly; and
(iii) Approve the size and composition of the liquidity buffer
established under Sec. 252.157(c) of this subpart at least quarterly.
(c) * * *
(1) A foreign banking organization with combined U.S. assets of
$100 billion or more must establish and maintain a review function that
is independent of the management functions that execute funding for its
combined U.S. operations to evaluate the liquidity risk management for
its combined U.S. operations.
(2) * * *
(ii) Assess whether the foreign banking organization's liquidity
risk management function of its combined U.S. operations complies with
applicable laws and regulations, and sound business practices; and
* * * * *
(d) * * *
(1) A foreign banking organization with combined U.S. assets of
$100 billion or more must produce comprehensive cash-flow projections
for its combined U.S. operations that project cash flows arising from
assets, liabilities, and off-balance sheet exposures over, at a
minimum, short- and long-term time horizons. The foreign banking
organization must update short-term cash-flow projections daily and
must update longer-term cash-flow projections at least monthly.
* * * * *
(e) * * *
(1) A foreign banking organization with combined U.S. assets of
$100 billion or more must establish and maintain a contingency funding
plan for its combined U.S. operations that sets out the foreign banking
organization's strategies for addressing liquidity needs during
liquidity stress events. The contingency funding plan must be
commensurate with the capital structure, risk profile, complexity,
activities, size, and the established liquidity risk tolerance for the
combined U.S. operations. The foreign banking organization must update
the contingency funding plan for its combined U.S. operations at least
annually, and when changes to market and idiosyncratic conditions
warrant.
(2) * * *
(i) * * *
(A) Identify liquidity stress events that could have a significant
impact on the liquidity of the foreign banking organization or its
combined U.S. operations;
* * * * *
(C) Identify the circumstances in which the foreign banking
organization would implement its action plan described in paragraph
(e)(2)(ii)(A) of this section, which circumstances must include failure
to meet any minimum liquidity requirement imposed by the Board on the
foreign banking organization's combined U.S. operations;
* * * * *
(ii) * * *
(A) Include an action plan that clearly describes the strategies
that the foreign banking organization will use to respond to liquidity
shortfalls in its combined U.S. operations for identified liquidity
stress events, including the methods that the organization or the
combined U.S. operations will use to access alternative funding
sources;
* * * * *
(f) Liquidity risk limits--(1) Liquidity risk limits for Category
II and III foreign banking organizations. A Category II foreign banking
organization or Category III foreign banking organization must monitor
sources of liquidity risk and establish limits on liquidity risk,
including limits on:
(A) Concentrations in sources of funding by instrument type, single
counterparty, counterparty type, secured and unsecured funding, and as
applicable, other forms of liquidity risk;
(B) The amount of liabilities that mature within various time
horizons; and
(C) Off-balance sheet exposures and other exposures that could
create funding needs during liquidity stress events.
(ii) Each limit established pursuant to paragraph (g)(1) of this
section must be consistent with the company's established liquidity
risk tolerance and must reflect the organization's capital structure,
risk profile, complexity, activities, and size.
(2) Liquidity risk limits for Category IV foreign banking
organizations. A Category IV foreign banking organization must monitor
sources of liquidity risk and establish limits on liquidity risk that
are consistent with the organization's established liquidity
[[Page 22034]]
risk tolerance and that reflect the organization's capital structure,
risk profile, complexity, activities, and size.
(g) Collateral, legal entity, and intraday liquidity risk
monitoring. A foreign banking organization with combined U.S. assets of
$100 billion or more must establish and maintain procedures for
monitoring liquidity risk as set forth in this paragraph.
(1) Collateral. The foreign banking organization must establish and
maintain policies and procedures to monitor assets that have been or
are available to be pledged as collateral in connection with
transactions to which entities in its U.S. operations are
counterparties. These policies and procedures must provide that the
foreign banking organization:
(i) Calculates all of the collateral positions for its combined
U.S. operations according to the frequency specified in paragraphs
(g)(1)(i)(A) and (B) or as directed by the Board, specifying the value
of pledged assets relative to the amount of security required under the
relevant contracts and the value of unencumbered assets available to be
pledged:
(A) If the foreign banking organization is not a Category IV
foreign banking organization, on a weekly basis; or
(B) If the foreign banking organization is a Category IV foreign
banking organization, on a monthly basis;
* * * * *
(3) Intraday exposure. The foreign banking organization must
establish and maintain procedures for monitoring intraday liquidity
risk exposure for its combined U.S. operations that are consistent with
the capital structure, risk profile, complexity, activities, and size
of the foreign banking organization and its combined U.S. operations.
If the foreign banking organization is a Category II foreign banking
organization or a Category III foreign banking organization these
procedures must address how the management of the combined U.S.
operations will:
(i) Monitor and measure expected gross daily inflows and outflows;
(ii) Manage and transfer collateral to obtain intraday credit;
* * * * *
(iv) Manage the issuance of credit to customers where necessary;
and
(v) Consider the amounts of collateral and liquidity needed to meet
payment systems obligations when assessing the overall liquidity needs
of the combined U.S. operations.
0
41. Amend Sec. 252.157 by:
0
a. Revising the section heading and paragraphs (a)(1)(i) introductory
text, (a)(1)(ii) through (iv), (a)(2), and (a)(7)(i) and (ii);
0
b. Adding paragraph (a)(8); and
0
c. Revising paragraphs (b) and (c)(1).
The revisions and addition read as follows:
Sec. 252.157 Liquidity stress testing and buffer requirements for
foreign banking organizations with combined U.S. assets of $100 billion
or more.
(a) * * *
(1) * * *
(i) A foreign banking organization with combined U.S. assets of
$100 billion or more must conduct stress tests to separately assess the
potential impact of liquidity stress scenarios on the cash flows,
liquidity position, profitability, and solvency of:
* * * * *
(ii) Each liquidity stress test required under this paragraph
(a)(1) must use the stress scenarios described in paragraph (a)(3) of
this section and take into account the current liquidity condition,
risks, exposures, strategies, and activities of the combined U.S.
operations.
(iii) The liquidity stress tests required under this paragraph
(a)(1) must take into consideration the balance sheet exposures, off-
balance sheet exposures, size, risk profile, complexity, business
lines, organizational structure and other characteristics of the
foreign banking organization and its combined U.S. operations that
affect the liquidity risk profile of the combined U.S. operations.
(iv) In conducting a liquidity stress test using the scenarios
described in paragraphs (a)(3)(i) and (iii) of this section, the
foreign banking organization must address the potential direct adverse
impact of associated market disruptions on the foreign banking
organization's combined U.S. operations and the related indirect effect
such impact could have on the combined U.S. operations of the foreign
banking organization and incorporate the potential actions of other
market participants experiencing liquidity stresses under the market
disruptions that would adversely affect the foreign banking
organization or its combined U.S. operations.
(2) Frequency. The foreign banking organization must perform the
liquidity stress tests required under paragraph (a)(1) according to the
frequency specified in paragraphs (a)(2)(i) and (ii) or as directed by
the Board:
(i) If the foreign banking organization is not a Category IV
foreign banking organization, at least monthly; or
(ii) If the foreign banking organization is a Category IV foreign
banking organization, at least quarterly.
* * * * *
(7) * * *
(i) Stress test function. A foreign banking organization with
combined U.S. assets of $100 billion or more, within its combined U.S.
operations and its enterprise-wide risk management, must establish and
maintain policies and procedures governing its liquidity stress testing
practices, methodologies, and assumptions that provide for the
incorporation of the results of liquidity stress tests in future stress
testing and for the enhancement of stress testing practices over time.
(ii) Controls and oversight. The foreign banking organization must
establish and maintain a system of controls and oversight that is
designed to ensure that its liquidity stress testing processes are
effective in meeting the requirements of this section. The controls and
oversight must ensure that each liquidity stress test appropriately
incorporates conservative assumptions with respect to the stress
scenario in paragraph (a)(3) of this section and other elements of the
stress-test process, taking into consideration the capital structure,
risk profile, complexity, activities, size, and other relevant factors
of the combined U.S. operations. These assumptions must be approved by
U.S. chief risk officer and subject to independent review consistent
with the standards set out in Sec. 252.156(c).
* * * * *
(8) Notice and response. If the Board determines that a foreign
banking organization must conduct liquidity stress tests according to a
frequency other than the frequency provided in paragraphs (a)(2)(i) and
(ii) of this section, the Board will notify the foreign banking
organization before the change in frequency takes effect, and describe
the basis for its determination. Within 14 calendar days of receipt of
a notification under this paragraph, the foreign banking organization
may request in writing that the Board reconsider the requirement. The
Board will respond in writing to the organization's request for
reconsideration prior to requiring the foreign banking organization to
conduct liquidity stress tests according to a frequency other than the
frequency provided in paragraphs (a)(2)(i) and (ii) of this section.
(b) Reporting of liquidity stress tests required by home-country
regulators. A foreign banking organization with combined U.S. assets of
$100 billion or more must make available to the Board, in a timely
manner, the results of any liquidity internal stress tests and
establishment of liquidity buffers required by regulators in its home
jurisdiction. The report required under
[[Page 22035]]
this paragraph must include the results of its liquidity stress test
and liquidity buffer, if required by the laws or regulations
implemented in the home jurisdiction, or expected under supervisory
guidance.
(c) * * *
(1) General. A foreign banking organization with combined U.S.
assets of $100 billion or more must maintain a liquidity buffer for its
U.S. intermediate holding company, if any, calculated in accordance
with paragraph (c)(2) of this section, and a separate liquidity buffer
for its U.S. branches and agencies, if any, calculated in accordance
with paragraph (c)(3) of this section.
* * * * *
0
42. In Sec. 252.158, revise the section heading and paragraphs (b)(1)
introductory text, (b)(2)(i), (c)(1) introductory text and (c)(2)
introductory text to read as follows:
Sec. 252.158 Capital stress testing requirements for foreign banking
organizations with combined U.S. assets of $100 billion or more.
* * * * *
(b) * * *
(1) A foreign banking organization with combined U.S. assets of
$100 billion or more and that has a U.S. branch or U.S. agency must:
* * * * *
(2) * * *
(i) A supervisory capital stress test conducted by the foreign
banking organization's home-country supervisor or an evaluation and
review by the foreign banking organization's home-country supervisor of
an internal capital adequacy stress test conducted by the foreign
banking organization, according to the frequency specified in
paragraphs (b)(2)(A) and (B):
(A) If the foreign banking organization is not a Category IV
foreign banking organization, on at least an annual basis; or
(B) If the foreign banking organization is a Category IV foreign
banking organization, at least biennially; and
* * * * *
(c) * * *
(1) In general. A foreign banking organization with combined U.S.
assets of $100 billion or more must report to the Board by January 5 of
each calendar year, unless such date is extended by the Board, summary
information about its stress-testing activities and results, including
the following quantitative and qualitative information:
* * * * *
(2) Additional information required for foreign banking
organizations in a net due from position. If, on a net basis, the U.S.
branches and agencies of a foreign banking organization with combined
U.S. assets of $100 billion or more provide funding to the foreign
banking organization's non-U.S. offices and non-U.S. affiliates,
calculated as the average daily position over a stress test cycle for a
given year, the foreign banking organization must report the following
information to the Board by January 5 of each calendar year, unless
such date is extended by the Board:
* * * * *
Subpart Q--Single-Counterparty Credit Limits
0
43. Revise Sec. 252.170 to read as follows:
Sec. 252.170 Applicability and general provisions.
(a) In general. (1) This subpart establishes single counterparty
credit limits for a covered foreign entity.
(2) For purposes of this subpart:
(i) Covered foreign entity means:
(A) A Category II foreign banking organization;
(B) A Category III foreign banking organization;
(C) A foreign banking organization with total consolidated assets
that equal or exceed $250 billion with respect to its combined U.S.
operations; and
(D) Any U.S. intermediate holding company of a Category II foreign
banking organization or a Category III foreign banking organization.
(ii) Major foreign banking organization means a foreign banking
organization that is a covered foreign entity and meets the
requirements of Sec. 252.172(c)(3) through (5).
(b) Credit exposure limits. (1) Section 252.172 establishes credit
exposure limits for covered foreign entities and major foreign banking
organizations.
(2) A covered foreign entity is required to calculate its aggregate
net credit exposure, gross credit exposure, and net credit exposure to
a counterparty using the methods in this subpart.
(c) Applicability of this subpart--(1) Foreign banking
organizations. (i) A foreign banking organization that is a covered
foreign entity as of October 5, 2018, must comply with the requirements
of this subpart, including but not limited to Sec. 252.172, beginning
on July 1, 2020, unless that time is extended by the Board in writing.
(ii) Notwithstanding paragraph (c)(1)(i) of this section, a foreign
banking organization that is a major foreign banking organization as of
October 5, 2018, must comply with the requirements of this subpart,
including but not limited to Sec. 252.172, beginning on January 1,
2020, unless that time is extended by the Board in writing.
(iii) A foreign banking organization that becomes a covered foreign
entity subject to this subpart after October 5, 2018, must comply with
the requirements of this subpart beginning on the first day of the
ninth calendar quarter after it becomes a covered foreign entity,
unless that time is accelerated or extended by the Board in writing.
(2) U.S. intermediate holding companies. (i) A U.S. intermediate
holding company that is a covered foreign entity as of October 5, 2018,
must comply with the requirements of this subpart, including but not
limited to Sec. 252.172, beginning on July 1, 2020, unless that time
is extended by the Board in writing.
(ii) [Reserved]
(iii) A U.S. intermediate holding company that becomes a covered
foreign entity subject to this subpart after October 5, 2018, must
comply with the requirements of this subpart beginning on the first day
of the ninth calendar quarter after it becomes a covered foreign
entity, unless that time is accelerated or extended by the Board in
writing.
(d) Cessation of requirements--(1) Foreign banking organizations.
(i) Any foreign banking organization that becomes a covered foreign
entity will remain subject to the requirements of this subpart unless
and until:
(A) The covered foreign entity is not a Category II foreign banking
organization;
(B) The covered foreign entity is not a Category III foreign
banking organization; and
(C) Its total consolidated assets fall below $250 billion for each
of four consecutive quarters, as reported on the covered foreign
entity's FR Y-7Q, effective on the as-of date of the fourth consecutive
FR Y-7Q.
(ii) A foreign banking organization that is a covered foreign
entity and that has ceased to be a major foreign banking organization
for purposes of Sec. 252.172(c) is no longer subject to the
requirements of Sec. 252.172(c) beginning on the first day of the
calendar quarter following the reporting date on which it ceased to be
a major foreign banking organization; provided that the foreign banking
organization remains subject to the requirements of this subpart,
unless it ceases to be a foreign banking organization that is a covered
foreign entity pursuant to paragraph (d)(1)(i) of this section.
[[Page 22036]]
(2) U.S. intermediate holding companies. (i) Any U.S. intermediate
holding company that becomes a covered foreign entity will remain
subject to the requirements of this subpart unless and until:
(A) The covered foreign entity is not the subsidiary of a Category
II foreign banking organization;
(B) The covered foreign entity is not the subsidiary of a Category
III foreign banking organization; or
(C) The covered foreign entity's total consolidated assets fall
below $50 billion for each of four consecutive quarters, as reported on
the covered foreign entity's FR Y-9C, effective on the as-of date of
the fourth consecutive FR Y-9C.
0
44. Amend Sec. 252.171 by;
0
a. Revising paragraph (f)(1);
0
b. Removing paragraph (aa); and
0
c. Redesignating paragraphs (bb) through (ll) as (aa) through (kk)
respectively.
The revision reads as follows:
Sec. 252.171 Definitions.
* * * * *
(f) * * *
(1) With respect to a natural person, the natural person, and, if
the credit exposure of the covered foreign entity to such natural
person exceeds 5 percent of its tier 1 capital, the natural person and
members of the person's immediate family collectively;
* * * * *
0
45. Amend Sec. 252.172 by:
0
a. Removing and reserving paragraph (a);
0
b. Revising paragraph (b);
0
c. Removing and reserving paragraph (c)(1); and
0
d. Revising paragraph (c)(2).
The revisions read as follows:
Sec. 252.172 Credit exposure limits.
* * * * *
(b) Limit on aggregate net credit exposure for covered foreign
entities. (1) No U.S. intermediate holding company that is a covered
foreign entity may have an aggregate net credit exposure to any
counterparty that exceeds 25 percent of the tier 1 capital of the U.S.
intermediate holding company.
(2) No foreign banking organization that is a covered foreign
entity may permit its combined U.S. operations to have aggregate net
credit exposure to any counterparty that exceeds 25 percent of the tier
1 capital of the foreign banking organization.
(c) * * *
(2) No major foreign banking organization may permit its combined
U.S. operations to have aggregate net credit exposure to any major
counterparty that exceeds 15 percent of the tier 1 capital of the major
foreign banking organization.
* * * * *
0
46. Amend Sec. 252.173 by removing and reserving paragraph (b)(1) and
revising paragraph (b)(2) to read as follows:
Sec. 252.173 Gross credit exposure.
* * * * *
(b) * * *
(2) A covered foreign entity must calculate pursuant to Sec.
252.175 its gross credit exposure due to any investment in the debt or
equity of, and any credit derivative or equity derivative between the
covered foreign entity and a third party where the covered foreign
entity is the protection provider and the reference asset is an
obligation or equity security of, or equity investment in, a
securitization vehicle, investment fund, and other special purpose
vehicle that is not an affiliate of the covered foreign entity.
* * * * *
Sec. 252.175 [Amended]
0
47. In Sec. 252.175, remove and reserve paragraph (a)(1) to read as
follows:
0
48. In Sec. 252.176 remove and reserve paragraph (a)(1) and revise
paragraph (a)(2)(i) to read as follows:
Sec. 252.176 Aggregation of exposures to more than one counterparty
due to economic interdependence or control relationships.
(a) * * *
(2)(i) If a covered foreign entity has an aggregate net credit
exposure to any counterparty that exceeds 5 percent of its tier 1
capital, the covered foreign entity must assess its relationship with
the counterparty under paragraph (b)(2) of this section to determine
whether the counterparty is economically interdependent with one or
more other counterparties of the covered foreign entity and under
paragraph (c)(1) of this section to determine whether the counterparty
is connected by a control relationship with one or more other
counterparties.
* * * * *
0
49. Amend Sec. 252.178 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (a)(2); and
0
c. Revising paragraph (c)(2).
The revisions read as follows:
Sec. 252.178 Compliance.
(a) * * *
(1) Using all available data, including any data required to be
maintained or reported to the Federal Reserve under this subpart, a
covered foreign entity must comply with the requirements of this
subpart on a daily basis at the end of each business day.
* * * * *
(c) * * *
(2) A covered foreign entity may request a special temporary credit
exposure limit exemption from the Board. The Board may grant approval
for such exemption in cases where the Board determines that such credit
transactions are necessary or appropriate to preserve the safety and
soundness of the covered foreign entity or U.S. financial stability. In
acting on a request for an exemption, the Board will consider the
following:
(i) A decrease in the covered foreign entity's tier 1 capital;
(ii) The merger of the covered foreign entity with another covered
foreign entity;
(iii) A merger of two counterparties; or
(iv) An unforeseen and abrupt change in the status of a
counterparty as a result of which the covered foreign entity's credit
exposure to the counterparty becomes limited by the requirements of
this section; or
(v) Any other factor(s) the Board determines, in its discretion, is
appropriate.
* * * * *
By order of the Board of Governors of the Federal Reserve
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2019-07895 Filed 5-14-19; 8:45 am]
BILLING CODE 6210-01-P