[Federal Register Volume 84, Number 206 (Thursday, October 24, 2019)]
[Rules and Regulations]
[Pages 56929-56935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23036]



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 Rules and Regulations
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  Federal Register / Vol. 84, No. 206 / Thursday, October 24, 2019 / 
Rules and Regulations  

[[Page 56929]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AE84


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

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is adopting a 
final rule to amend the FDIC's company-run stress testing regulations 
applicable to state nonmember banks and state savings associations, 
consistent with section 401 of the Economic Growth, Regulatory Relief, 
and Consumer Protection Act (EGRRCPA). Specifically, the final rule 
revises the minimum threshold for applicability from $10 billion to 
$250 billion, revises the frequency of required stress tests by FDIC-
supervised institutions, and reduces the number of required stress 
testing scenarios from three to two. The final rule also makes certain 
conforming and technical changes.

DATES: The final rule is effective November 25, 2019.

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

SUPPLEMENTARY INFORMATION: 

I. Policy Objective

    The policy objective of the final rule is to conform the FDIC's 
regulations to section 401 of EGRRCPA, which raises the applicability 
threshold for company-run stress testing required by section 165(i)(2) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) from $10 billion to $250 billion, revises the required 
periodicity of such stress testing from ``annual'' to ``periodic,'' and 
removes the requirement that such stress testing include an ``adverse'' 
scenario.

II. Background

    Prior to the enactment of EGRRCPA, section 165(i)(2) of the Dodd-
Frank Act required a financial company, including an insured depository 
institution, with total consolidated assets of more than $10 billion 
and regulated by a primary federal regulatory agency to conduct annual 
stress tests and submit a report to the Board of Governors of the 
Federal Reserve System (Board) and to its primary federal regulatory 
agency.\1\ Section 165(i)(2)(C) required each primary federal regulator 
to issue consistent and comparable regulations to: (1) Implement the 
stress testing requirements, including establishing methodologies for 
conducting stress tests that provided for at least three different sets 
of conditions, including baseline, adverse, and severely adverse; (2) 
establish the form and content of the required reports, and (3) require 
companies to publish a summary of the stress test results.
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    \1\ Public Law 111-203, section 165(i)(2), 124 Stat. 1376, 1430-
31 (2010).
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    In October 2012, the FDIC published in the Federal Register its 
rule implementing the Dodd-Frank Act stress testing requirement.\2\ The 
FDIC regulation at 12 CFR part 325 implements the company-run stress 
test requirements of section 165(i)(2) of the Dodd-Frank Act with 
respect to state nonmember banks and state savings associations with 
more than $10 billion in assets (covered banks). Although 12 CFR part 
325 applies to all covered banks that exceed $10 billion in assets, the 
regulation differentiates between ``$10 billion to $50 billion covered 
banks'' and ``over $50 billion covered banks.''
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    \2\ 77 FR 62417 (October 15, 2012). The Board and the Office of 
the Comptroller of the Currency contemporaneously issued comparable 
regulations. See 77 FR 62380 (October 12, 2012) (Board); 77 FR 61238 
(October 9, 2012) (OCC).
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    EGRRCPA, enacted on May 24, 2018,\3\ amended certain aspects of the 
company-run stress-testing requirements in section 165(i)(2) of the 
Dodd-Frank Act. Specifically, section 401 of EGRRCPA raises the minimum 
asset threshold for the company-run stress testing requirement from $10 
billion to $250 billion; replaces the requirement for banks to conduct 
stress tests ``annually'' with the requirement to conduct stress tests 
``periodically;'' and no longer requires the ``adverse'' stress testing 
scenario, thus reducing the number of required stress testing scenarios 
from three to two. The EGRRCPA amendments to the section 165(i)(2) 
stress testing requirements are effective eighteen months after 
enactment.
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    \3\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
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    Prior to the enactment of EGRRCPA, on April 2, 2018, the FDIC 
issued a notice of proposed rulemaking that also proposed certain 
revisions to the FDIC stress testing regulations (April 2018 NPR).\4\ 
Certain changes proposed in the April NPR, particularly those 
establishing a stress testing transition process for ``over $50 billion 
covered banks'' are no longer relevant as a result of EGRRCPA's 
increase in the stress testing asset threshold to $250 billion. 
However, other revisions originally proposed in the April NPR remain 
necessary to ensure the FDIC's stress testing regulations remain 
consistent with those of the Board and the Office of the Comptroller of 
the Currency (OCC).
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    \4\ 83 FR 13880 (April 2, 2018).
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III. Proposed Rule

    On December 28, 2018, the FDIC published in the Federal Register a 
notice of proposed rulemaking (proposed rule or proposal) to amend 12 
CFR part 325 consistent with section 401 of EGRRCPA. Specifically, the 
proposal would have raised the applicability threshold for covered 
banks required to conduct stress tests from $10 billion to $250 
billion, reduced the frequency by which covered banks would generally 
be required to conduct stress tests from annually to biennially, and 
eliminated the requirement that covered banks use the ``adverse'' 
scenario when conducting stress tests. The proposal also included 
various technical changes to facilitate the above revisions, a proposed 
transition period, and proposed revisions to the regulation's

[[Page 56930]]

reservation of authority. The proposed rule also included certain 
provisions initially proposed in the April 2018 NPR, such as extending 
the as-of date range for trading and counterparty components for 
covered banks with significant trading activities.
    The FDIC received six comments in response to the proposed rule. 
With respect to raising the applicability threshold from $10 to $250 
billion, some commenters supported raising the threshold, others 
acknowledged that such a revision was statutorily required, and others 
expressed concern that eliminating stress testing requirements for 
banks under $250 billion may raise prudential concerns. Similarly, some 
commenters supported the proposed rule's elimination of the ``adverse'' 
scenario, positing that the adverse scenario is of limited utility,\5\ 
some acknowledged that removing the ``adverse'' scenario is statutorily 
required, and others expressed concern that eliminating the ``adverse'' 
scenario may reduce the efficacy of company-run stress testing. The 
FDIC appreciates the concerns raised by commenters, but does not 
believe that they warrant changes to the proposal, and is finalizing 
without change the proposal to align the regulatory threshold for 
company-run stress testing by covered banks with the statutory 
threshold of $250 billion established by section 401 of EGRCCPA, and to 
eliminate the ``adverse'' scenario requirement, consistent with section 
401 of EGRCCPA.
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    \5\ One commenter recommended that the FDIC, OCC, and FRB 
(agencies) not include the adverse scenario in the 2019 stress 
tests. The FDIC did not consider it necessary to do so, and notes 
that the EGRRCPA amendments to the Dodd-Frank Act's company-run 
stress testing requirements are effective November 24, 2019.
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    With respect to the proposed rule's requirement that covered banks 
generally be subject to biennial stress testing, some commenters 
supported biennial stress testing as being an appropriate frequency for 
most covered banks, while others contended that reducing the frequency 
from annual to biennial would not be appropriate. Among the concerns 
highlighted by these commenters was that such a reduction in the 
frequency of stress testing could lead to complacency by covered banks 
in managing risk, and that biennial stress tests would not be 
sufficiently current to be credible. One commenter specifically 
suggested that a data-driven empirical analysis should support the 
change from annual to biennial stress testing, and that biennial stress 
testing would not be appropriate since firms make choices about 
dividends and repurchases on an annual basis. This commenter also 
suggested that the risks associated with reducing the frequency of 
stress testing would be amplified by other regulatory proposals 
addressing capital and liquidity requirements.
    Based on its experience in overseeing and reviewing the results of 
company-run stress testing, the FDIC believes that biennial stress 
testing would be appropriate under most conditions for covered banks. 
The FDIC expects biennial stress testing to sufficiently satisfy the 
purposes of stress testing, including assisting in an overall 
assessment of a covered bank's capital adequacy, identifying risks and 
the potential impact of adverse financial and economic conditions on a 
covered bank's capital adequacy, and determining whether additional 
analytical techniques and exercises would be appropriate for a covered 
bank to employ in identifying, measuring, and monitoring risks to the 
soundness of the covered bank. In addition, the FDIC would continue to 
review the covered bank's stress testing processes and procedures. 
Under the final rule, all covered banks that conduct stress tests on a 
biennial basis are required to conduct stress tests in the same 
reporting year (i.e., the reporting years for biennial stress testing 
covered banks would be synchronized). By requiring these covered banks 
to conduct their stress tests in the same reporting year, the final 
rule allows the FDIC to make comparisons across banks for supervisory 
purposes and assess macroeconomic trends and risks to the banking 
industry. The FDIC also notes that it retains the ability to require 
more frequent stress testing pursuant to its reservation of authority 
under 12 CFR 325.1(c).

IV. Final Rule

    The FDIC is adopting without change the proposed revisions to the 
FDIC's stress testing rule, as described in detail below.

A. Covered Banks

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

B. Frequency of Stress Testing

    Section 401 of EGRRCPA also changed the requirement under section 
165 of the Dodd-Frank Act to conduct stress tests from ``annual'' to 
``periodic.'' Consistent with proposals by the Board and the OCC, the 
final rule provides that, in general, an FDIC-supervised institution 
that is a covered bank as of December 31, 2019, is required to conduct, 
report, and publish a stress test once every two years, beginning on 
January 1, 2020, and continuing every even-numbered year thereafter 
(i.e., 2022, 2024, 2026, etc.). The final rule also adds a new defined 
term, ``reporting year,'' to the definitions at 12 CFR 325.2. A covered 
bank's reporting year is the year in which a covered bank must conduct, 
report, and publish its stress test. As noted above, the ``reporting 
year'' for most covered banks would generally be every even-numbered 
year.
    Certain covered banks may be required to conduct stress tests 
annually under the final rule. This subset of covered banks is limited 
to those that are consolidated under holding companies that are 
required to conduct stress tests more frequently than once every other 
year. On November 29, 2018, the Board published a proposed rule that 
would establish risk-based categories for determining the application 
of prudential standards, including stress testing.\6\ The proposed rule 
would distinguish between four risk-based categories for holding 
companies. Three of these categories--``global systemically important 
BHCs,'' ``Category II bank holding companies,'' and ``Category III bank 
holding companies''--would be required to conduct company-run stress 
tests. Category I holding companies and Category II holding companies 
would be required to conduct company-run stress tests annually, while 
Category III holding companies would be required to conduct company-run 
stress tests biennially.\7\
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    \6\ See ``Prudential Standards for Large Bank Holding Companies 
and Savings and Loan Holding Companies,'' 83 FR 61408 (Nov. 29, 
2018).
    \7\ A Category III holding company would be a holding company 
that is not a Category II holding company and that has (1) $250 
billion or more in average total consolidated assets or (2) $100 
billion or more in average total consolidated assets and $75 billion 
or more in total consolidated assets in one of three risk 
indicators.

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[[Page 56931]]

    Because the FDIC's final stress testing rule would require a 
covered institution to conduct stress tests annually if its parent 
holding company is required to do so under Board regulations, the 
FDIC's stress testing regulation would adopt by reference any potential 
changes to stress testing frequency in the Board's regulations, 
including from the Board's proposed rule. This treatment aligns with 
the FDIC's, OCC's, and Board's long-standing policy of applying similar 
standards to holding companies and their subsidiary banks, and reflects 
the FDIC's expectation that covered banks that would be required to 
stress test on an annual basis would be subsidiaries of the largest and 
most systemically important banking organizations, (i.e., under the 
Board's proposed rule, subsidiaries of global systemically important 
bank holding companies or bank holding companies that have $700 billion 
or more in total assets or cross-jurisdictional activity of $75 
billion). There are currently no FDIC-supervised covered banks that are 
subsidiaries of bank holding companies that would be required to 
conduct annual company-run stress tests under the Board's proposed 
rule.
    For covered banks that are required to conduct stress tests 
biennially or annually, the dates and deadlines in the FDIC's stress 
testing rule applies for each reporting year for a covered bank. For 
example, a biennial stress testing covered bank preparing its 2022 
stress test would rely on financial data available as of December 31, 
2021; use stress test scenarios that would be provided by the FDIC no 
later than February 15, 2022; provide its report of the stress test to 
the FDIC by April 5, 2022; and publish a summary of the results of its 
stress test in the period starting June 15 and ending July 15 of 2022.

C. Removal of ``Adverse'' Scenario

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

D. Transition Process for Covered Banks

    Currently, 12 CFR 325.3 provides for a transition period between 
when a bank becomes a covered bank and when the bank must report its 
first stress test. The final rule revises the transition period in 12 
CFR 325.3 to conform to the other changes in this final rule. 
Accordingly, paragraph (a)(2) generally requires a state nonmember bank 
or state savings association that becomes a covered bank after December 
31, 2019, to conduct its first stress test under this part in the first 
reporting year that begins more than three calendar quarters after the 
date the state nonmember bank or state savings association becomes a 
covered bank. For example, if a covered bank that conducts stress tests 
on a biennial basis becomes a covered bank on March 31 of a non-
reporting year (e.g., 2023), the bank would report its first stress 
test in the subsequent calendar year (i.e., 2024), which is its first 
reporting year. If the same bank becomes a covered bank on April 1 of a 
non-reporting year (e.g., 2023), it would skip the subsequent reporting 
calendar year and the following, non-reporting calendar year, and would 
report its first stress test in the next reporting year (i.e., 2026). 
As with other aspects of the stress test rule, the rule reserves to the 
FDIC the authority to change the transition period for a particular 
covered bank, as appropriate in light of the nature and level of the 
activities, complexity, risks, operations, and regulatory capital of 
the covered bank, in addition to any other relevant factors.\8\
---------------------------------------------------------------------------

    \8\ 12 CFR 325.1(c).
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    The final rule does not establish a transition period for covered 
banks that move from a biennial stress testing requirement to an annual 
stress testing requirement. Accordingly, a covered bank that becomes 
subject to annual stress testing would be required to begin stress 
testing annually as of the next reporting year. The FDIC expects that 
covered banks would anticipate and make arrangements for this 
development. To the extent that particular circumstances warrant the 
extension of a transition period, the FDIC would do so based on its 
reservation of authority and supervisory discretion.

E. Review by Board of Directors

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

F. Reservation of Authority

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

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

    Under 12 CFR 325.4(c), the FDIC may require a covered bank with 
significant trading activities to include trading and counterparty 
components in its adverse and severely adverse scenarios. The trading 
data to be used in this component is as of a date between January 1 and 
March 1 of a calendar year.\9\ On February 3, 2017, the Board published 
a final rule that extended this range to run from October 1 of the 
calendar year preceding the year of the stress test to March 1 of the 
calendar year of the stress test.\10\ On February 23, 2018, the OCC 
published a final rule making the same change to its stress testing 
regulation.\11\ On April 2, 2018, the FDIC issued a notice of proposed 
rulemaking that proposed such a change, and the proposed rule re-
proposed this provision.\12\ No comments were received regarding this 
aspect of the proposal. The final rule adopts the same change to the 
FDIC's stress testing regulation, extending the range of as-of dates 
from October 1 of

[[Page 56932]]

the preceding calendar year to March 1 of the calendar year of the 
stress test. Extending the as-of date range ensures consistency with 
the Board and OCC rules and increases the FDIC's flexibility to choose 
an appropriate as-of date.
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    \9\ 12 CFR 325.4(c).
    \10\ 82 FR 9308 (Feb. 3, 2017).
    \11\ 83 FR 7951 (Feb. 23, 2018).
    \12\ 83 FR 13880 (April 2, 2018).
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H. Other Changes

    As originally proposed in the April NPR and in the proposed rule, 
the final rule removes certain obsolete transitional language in 12 CFR 
325.3 that was included to facilitate a 2014 shift in the dates of the 
annual stress testing cycle.\13\ That transition is now complete and 
the regulatory transition language is no longer necessary.
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    \13\ 79 FR 69365 (Nov. 21, 2014).
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    Additionally, in order to update and standardize the language used 
in part 325, references to ``this subpart'' is changed to ``this part'' 
following the redesignation of the FDIC's stress test rule from Subpart 
C of 12 CFR part 325 to occupy all of part 325.\14\ Lastly, the final 
rule eliminates the reference to supervisory guidance in 12 CFR 
325.5(b)(1).\15\
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    \14\ 83 FR 17737 (Apr. 24, 2018). Additional technical 
amendments to part 325 were recently proposed in a notice of 
proposed rulemaking to implement the current expected credit losses 
methodology for allowances. 83 FR 22312 (May 14, 2018).
    \15\ See Interagency Statement Clarifying the Role of 
Supervisory Guidance, Financial Institution Letter 49-2018 (Sep. 11, 
2018).
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IV. Regulatory Analysis

A. Riegle Community Development and Regulatory Improvement Act of 1994

    The RCDRIA requires that the FDIC, in determining the effective 
date and administrative compliance requirements of new regulations that 
impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), consider, consistent with 
principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions, as well as the benefits of such 
regulations.\16\ In addition, in order to provide an adequate 
transition period, new regulations that impose additional reporting, 
disclosures, or other new requirements on IDIs generally must take 
effect on the first day of a calendar quarter that begins on or after 
the date on which the regulations are published in final form.
---------------------------------------------------------------------------

    \16\ 12 U.S.C. 4802.
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    The final rule imposes no additional reporting, disclosure, or 
other requirements on IDIs, including small depository institutions, 
nor on the customers of depository institutions. The final rule reduces 
the frequency of company-run stress tests for a subset of banks, raises 
the threshold for covered banks from $10 billion to $250 billion, and 
reduces the number of required stress test scenarios from three to two 
for all covered banks. The requirement to conduct, report, and publish 
a company-run stress testing is a previously existing requirement 
imposed by section 165(i) of the Dodd-Frank Act. Accordingly, RCDRIA 
does not apply to the final rule.
    The final rule is effective 30 days after publication in the 
Federal Register.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a final rule, to 
prepare and make available for public comment a final regulatory 
flexibility analysis that describes the impact of a final rule on small 
entities.\17\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the rule would not have a 
significant economic impact on a substantial number of small entities. 
The Small Business Administration (SBA) has defined ``small entities'' 
to include banking organizations with total assets of less than or 
equal to $600 million that are independently owned and operated or 
owned by a holding company with less than $600 million in total 
assets.\18\ For the reasons described below and under section 605(b) of 
the RFA, the FDIC certifies that this proposed rule would not have a 
significant economic impact on a substantial number of small entities.
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    \17\ 5 U.S.C. 601 et seq.
    \18\ The SBA defines a small banking organization as having $600 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' See 13 CFR 
121.201 (as amended by 84 FR 34261, effective August 19, 2019). 
``SBA counts the receipts, employees, or other measure of size of 
the concern whose size is at issue and all of its domestic and 
foreign affiliates.'' See 13 CFR 121.103. Following these 
regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
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    The FDIC has considered the potential impact of the final rule on 
small entities in accordance with the RFA. The FDIC supervises 3,424 
depository institutions,\19\ of which, 2,665 are defined as small 
banking entities by the terms of the RFA.\20\ As discussed in the 
Background Section, 12 CFR part 325 implements company-run stress test 
requirements for all state nonmember banks and state savings 
associations with more than $10 billion in assets (covered banks). The 
final rule raises the threshold for covered banks required to conduct 
company-run stress testing from $10 billion to $250 billion. No FDIC-
supervised institutions with total consolidated assets of $600 million 
or less are subject to 12 CFR part 325. Therefore, the final rule would 
not affect any small, FDIC-supervised institutions.
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    \19\ FDIC-supervised institutions are set forth in 12 U.S.C. 
1813(q)(2).
    \20\ FDIC Call Report, June 30, 2019.
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C. The Paperwork Reduction Act

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

[[Page 56933]]



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

    Estimated Total Annual Burden: 1,040 hours.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use 
plain language in all proposed and final rules published after January 
1, 2000. In the proposal, the FDIC requested comment on how to make 
this proposed rule easier to understand, and received no responsive 
comments.

F. The Congressional Review Act

    Pursuant to the Congressional Review Act, the Office of Management 
and Budget's Office of Information and Regulatory Affairs designated 
this rule as not a ``major rule,'' as defined at 5 U.S.C. 804(2).

List of Subjects in 12 CFR Part 325

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

Authority and Issuance

    For the reasons stated in the preamble, the FDIC amends 12 CFR part 
325 as follows:

PART 325--STRESS TESTING

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

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


0
2. The heading for part 325 is revised to read as set forth above.

0
3. In part 325, revise all references to ``subpart'' to read ``part''.

0
4. Amend Sec.  325.1 by revising paragraphs (b) and (c) to read as 
follows:


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

* * * * *
    (b) Purpose. This part implements 12 U.S.C. 5365(i)(2), which 
requires the Corporation (in coordination with the Board of Governors 
of the Federal Reserve System (Board) and the Federal Insurance Office) 
to issue regulations that require each covered bank to conduct periodic 
stress tests, and establishes a definition of stress test, 
methodologies for conducting stress tests, and reporting and disclosure 
requirements.
    (c) Reservation of authority. Notwithstanding any other provisions 
of this part, the Corporation may modify some or all of the 
requirements of this part.
    (1) The Corporation may accelerate or extend any deadline for 
stress testing, reporting, or publication of the stress test results.
    (2) The Corporation may require different or additional tests not 
otherwise required by this part or may require or permit different or 
additional analytical techniques and methodologies, different or 
additional scenarios (including components for the scenarios), or 
different assumptions for the covered bank to use in meeting the 
requirements of this part. In addition, the FDIC may specify a 
different as-of date for any or all categories of financial data used 
by the stress test.
    (3) The Corporation may modify the reporting requirements of a 
report under this part or may require additional reports. The 
Corporation may modify the publication requirements of this part and or 
may require different or additional publication disclosures.
    (4) The Corporation may also exempt a covered bank from the 
requirement to conduct a stress test in a particular reporting year.
    (5) Factors considered: Any exercise of authority under this 
section by the Corporation will be in writing and will consider the 
activities, level of complexity, risk profile, scope of operations, and 
the regulatory capital of the covered bank, in addition to any other 
relevant factors.
    (6) Notice and comment procedures: In exercising its authority to 
require different or additional stress tests and different or 
additional scenarios (including components for the scenarios) under 
paragraph (c)(2) of this section, the Corporation will apply notice and 
response procedures in the same manner and to the same extent as the 
notice and response procedures in 12 CFR 324.5, as appropriate.
    (7) Nothing in this subpart limits the authority of the Corporation 
under any other provision of law or regulation to take supervisory or 
enforcement action, including action to address unsafe and unsound 
practices or conditions, or violations of law or regulation.

0
4. Amend Sec.  325.2 by:
0
a. Removing paragraph (a) and redesignating paragraphs (b) through (h) 
as paragraphs (a) through (g);
0
b. Revising newly redesignated paragraph (c)
0
c. Adding a new paragraph (h); and
0
d. Revising paragraphs (i), (j), and (m).
    The revisions and addition read as follows:


Sec.  325.2   Definitions.

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

0
5. Revise Sec.  325.3 to read as follows:

[[Page 56934]]

Sec.  325.3   Applicability.

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

0
6. Revise Sec.  325.4 to read as follows:


Sec.  325.4   Periodic stress tests required.

    Each covered bank must conduct the periodic stress test under this 
part subject to the following requirements:
    (a) Financial data. A covered bank must use financial data as of 
December 31 of the calendar year prior to the reporting year.
    (b) Scenarios provided by the Corporation. In conducting the stress 
test under this part, each covered bank must use the scenarios provided 
by the Corporation. The scenarios provided by the Corporation will 
reflect a minimum of two sets of economic and financial conditions, 
including baseline and severely adverse scenarios. The Corporation will 
provide a description of the scenarios required to be used by each 
covered bank no later than February 15 of the reporting year.
    (c) Significant trading activities. The Corporation may require a 
covered bank with significant trading activities, as determined by the 
Corporation, to include trading and counterparty components in its 
severely adverse scenarios. The trading and counterparty position data 
used in this component will be as of a date between October 1 of the 
year preceding the reporting year and March 1 of the reporting year, 
and the Corporation will communicate a description of the component to 
the covered bank no later than March 1 of the reporting year.
    (d) Frequency. A covered bank that is consolidated under a holding 
company that is required, pursuant to applicable regulations of the 
Board of Governors of the Federal Reserve System, to conduct a stress 
test at least once every calendar year must treat every calendar year 
as a reporting year, unless otherwise determined by the Corporation. 
All other covered banks must treat every even-numbered calendar year 
beginning January 1, 2020 (i.e., 2022, 2024, 2026, etc.), as a 
reporting year, unless otherwise determined by the Corporation.

0
7. Amend Sec.  325.5 by revising paragraph (b) to read as follows:


Sec.  325.5   Methodologies and practices.

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

0
8. Revise Sec.  325.6 to read as follows:


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

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

0
9. Amend Sec.  325.7 by revising paragraphs (a) and (b) and paragraph 
(c) introductory text to read as follows:

[[Page 56935]]

Sec.  325.7   Publication of stress test results.

    (a) Publication date. A covered bank must publish a summary of the 
results of its stress tests in the period starting June 15 and ending 
July 15 of the reporting year, provided:
    (1) Unless the Corporation determines otherwise, if the covered 
bank is a consolidated subsidiary of a bank holding company or savings 
and loan holding company subject to supervisory stress tests conducted 
by the Board of Governors of the Federal Reserve System under 12 CFR 
part 252, then, within the June 15 to July 15 period, such covered bank 
may not publish the required summary of its periodic stress test 
earlier than the date that the Board of Governors of the Federal 
Reserve System publishes the supervisory stress test results of the 
covered bank's parent holding company.
    (2) If the Board of Governors of the Federal Reserve System 
publishes the supervisory stress test results of the covered bank's 
parent holding company prior to June 15, then such covered bank may 
publish its stress test results prior to June 15, but no later than 
July 15, through actual publication by the covered bank or through 
publication by the parent holding company under paragraph (b) of this 
section.
    (b) Publication method. The summary required under this section may 
be published on the covered bank's website or in any other forum that 
is reasonably accessible to the public. A covered bank that is a 
consolidated subsidiary of a bank holding company or savings and loan 
holding company that is required to conduct a company-run stress test 
under applicable regulations of the Board of Governors of the Federal 
Reserve System will be deemed to have satisfied the public disclosure 
requirements under this subpart if it publishes a summary of its stress 
test results with its parent bank holding company's or savings and loan 
holding company's summary of stress test results. Subsidiary covered 
banks electing to satisfy their public disclosure requirement in this 
manner must include a summary of changes in regulatory capital ratios 
of such covered bank over the planning horizon, and an explanation of 
the most significant causes for the changes in regulatory capital 
ratios.
    (c) Information to be disclosed in the summary. A covered bank must 
disclose the following information regarding the severely adverse 
scenario if it is not a consolidated subsidiary of a parent bank 
holding company or savings and loan holding company that has elected to 
make its disclosure under 12 CFR 325.3(d):
* * * * *

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on October 15, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-23036 Filed 10-23-19; 8:45 am]
 BILLING CODE 6714-01-P