[Federal Register Volume 84, Number 212 (Friday, November 1, 2019)]
[Rules and Regulations]
[Pages 59032-59123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23662]



[[Page 59031]]

Vol. 84

Friday,

No. 212

November 1, 2019

Part IV





 Federal Reserve System





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12 CFR Parts 217, 225, 238, et al.





 Prudential Standards for Large Bank Holding Companies, Savings and 
Loan Holding Companies, and Foreign Banking Organizations; Final Rule

  Federal Register / Vol. 84 , No. 212 / Friday, November 1, 2019 / 
Rules and Regulations  

[[Page 59032]]


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FEDERAL RESERVE SYSTEM

12 CFR Parts 217, 225, 238, 242, and 252

[Regulations Q, Y, LL, PP, and YY; Docket No. R-1658]
RIN 7100-AF 45


Prudential Standards for Large Bank Holding Companies, Savings 
and Loan Holding Companies, and Foreign Banking Organizations

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Final rule.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is adopting a final rule that establishes risk-based categories for 
determining prudential standards for large U.S. banking organizations 
and foreign banking organizations, consistent with 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 
(EGRRCPA), and with the Home Owners' Loan Act. The final rule amends 
certain prudential standards, including standards relating to 
liquidity, risk management, stress testing, and single-counterparty 
credit limits, to reflect the risk profile of banking organizations 
under each category; applies prudential standards to certain large 
savings and loan holding companies using the same categories; makes 
corresponding changes to reporting forms; and makes additional 
modifications to the Board's company-run stress test and supervisory 
stress test rules, consistent with section 401 of EGRRCPA. Separately, 
the Office of the Comptroller of the Currency (OCC), the Board, and the 
Federal Deposit Insurance Corporation (FDIC) are adopting a final rule 
that revises the criteria for determining the applicability of 
regulatory capital and standardized liquidity requirements for large 
U.S. banking organizations and the U.S. intermediate holding companies 
of foreign banking organizations, using a risk-based category framework 
that is consistent with the framework described in this final rule. In 
addition, the Board and the FDIC are separately adopting a final rule 
that amends the resolution planning requirements under section 165(d) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act using 
a risk-based category framework that is consistent with the framework 
described in this final rule.

DATES: The final rule is effective December 31, 2019.

FOR FURTHER INFORMATION CONTACT:  Constance M. Horsley, Deputy 
Associate Director, (202) 452-5239; Elizabeth MacDonald, Manager, (202) 
475-6216; Peter Goodrich, Lead Financial Institution Policy Analyst, 
(202) 872-4997; Mark Handzlik, Lead Financial Institution Policy 
Analyst, (202) 475-6636; Kevin Littler, Lead Financial Institution 
Policy Analyst, (202) 475-6677; Althea Pieters, Lead Financial 
Institution Policy Analyst, (202) 452-3397; Peter Stoffelen, Lead 
Financial Institution Policy Analyst, (202) 912-4677; Hillel Kipnis, 
Senior Financial Institution Policy Analyst II, (202) 452-2924; Matthew 
McQueeney, Senior Financial Institution Policy Analyst II, (202) 452-
2942; Christopher Powell, Senior Financial Institution Policy Analyst 
II, (202) 452-3442, Division of Supervision and Regulation; or Asad 
Kudiya, Senior Counsel, (202) 475-6358; Jason Shafer, Senior Counsel 
(202) 728-5811; Mary Watkins, Senior Attorney (202) 452-3722; Laura 
Bain, Counsel, (202) 736-5546; 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. For the hearing impaired 
only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. Background
III. Overview of the Notices of Proposed Rulemaking and General 
Summary of Comments
IV. Overview of Final Rule
V. Tailoring Framework
    A. Indicators-Based Approach and the Alternative Scoring 
Methodology
    B. Dodd-Frank Act Statutory Framework
    C. Choice of Risk-Based Indicators
    D. Application of Standards Based on the Proposed Risk-Based 
Indicators
    E. Calibration of Thresholds and Indexing
    F. The Risk-Based Categories
    G. Specific Aspects of the Foreign Bank Proposal--Treatment of 
Inter-Affiliate Transactions
    H. Determination of Applicable Category of Standards
VI. Prudential Standards for Large U.S. and Foreign Banking 
Organizations
    A. Category I Standards
    B. Category II Standards
    C. Category III Standards
    D. Category IV Standards
VII. Single-Counterparty Credit Limits
VIII. Covered Savings and Loan Holding Companies
IX. Risk Management and Risk Committee Requirements
X. Enhanced Prudential Standards for Foreign Banking Organizations 
With a Smaller U.S. Presence
XI. Technical Changes to the Regulatory Framework for Foreign 
Banking Organizations and Domestic Banking Organizations
XII. Changes to Liquidity Buffer Requirements
XIII. Changes to Company-Run Stress Testing Requirements for State 
Member Banks, Removal of the Adverse Scenario, and Other Technical 
Changes Proposed in January 2019
    A. Minimum Asset Threshold for State Member Banks
    B. Frequency of Stress Testing for State Member Banks
    C. Removal of ``Adverse'' Scenario
    D. Review by Board of Directors
    E. Scope of Applicability for Savings and Loan Holding Companies
XIV. Changes to Dodd-Frank Definitions
XV. Reporting Requirements
    A. FR Y-14
    B. FR Y-15
    C. FR 2052a
    D. Summary of Reporting Effective Dates
XVI. Impact Assessment
    A. Liquidity
    B. Stress Testing
    C. Single-Counterparty Credit Limits
    D. Covered Savings and Loan Holding Companies
XVII. Administrative Law Matters
    A. Paperwork Reduction Act Analysis
    B. Regulatory Flexibility Act Analysis
    C. Riegle Community Development and Regulatory Improvement Act 
of 1994

I. Introduction

    In 2018 and 2019, the Board of Governors of the Federal Reserve 
System (Board) sought comment on two separate proposals to revise the 
framework for determining application of prudential standards to large 
banking organizations. First, on October 31, 2018, the Board sought 
comment on a proposal to revise the criteria for determining the 
application of prudential standards for U.S. banking organizations with 
$100 billion or more in total consolidated assets (domestic 
proposal).\1\ Then, on April 8, 2019, the Board sought comment on a 
proposal to revise the criteria for determining the application of 
prudential standards for foreign banking organizations with total 
consolidated assets of $100 billion or more (foreign bank proposal, 
and, together with the domestic proposal, the proposals).\2\
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    \1\ See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm; Prudential Standards for Large Bank Holding 
Companies and Savings and Loan Holding Companies, 83 FR 61408 (Nov. 
29, 2018).
    \2\ See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190408a.htm; Prudential Standards for Large Foreign Banking 
Organizations; Revisions to Proposed Prudential Standards for Large 
Domestic Bank Holding Companies and Savings and Loan Holding 
Companies, 84 FR 21988 (May 15, 2019). 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. 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).

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[[Page 59033]]

    The Board is finalizing the framework set forth under the 
proposals, with certain adjustments.\3\ Specifically, the final rule 
revises the thresholds for application of prudential standards to large 
banking organizations and tailors the stringency of these standards 
based on the risk profiles of these firms. For U.S. banking 
organizations with $100 billion or more in total consolidated assets 
and foreign banking organizations with $100 billion or more in combined 
U.S. assets, the final rule establishes four categories of prudential 
standards. The most stringent set of standards (Category I) applies to 
U.S. global systemically important bank holding companies (U.S. GSIBs) 
based on the methodology in the Board's GSIB surcharge rule.\4\ The 
remaining categories of standards apply to U.S. and foreign banking 
organizations based on indicators of a firm's size, cross-
jurisdictional activity, weighted short-term wholesale funding, nonbank 
assets, and off-balance sheet exposure. The framework set forth in the 
final rule will be used throughout the Board's prudential standards 
framework for large banking organizations.
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    \3\ On January 8, 2019, the Board also issued a proposal that 
would revise the stress testing requirements that were proposed in 
the domestic proposal for certain savings and loan holding 
companies. See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190108a.htm; Regulations LL and YY; Amendments 
to the Company-Run and Supervisory Stress Test Rules, 84 FR 4002 
(Feb. 19, 2019). This final rule adopts those proposed changes, with 
certain adjustments.
    \4\ 12 CFR 217.403.
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    In connection with a proposal on which the Board sought comment in 
January 2019, and consistent with EGRRCPA, this final rule also revises 
the minimum asset threshold for state member banks to conduct stress 
tests, revises the frequency by which state member banks would be 
required to conduct stress tests, and removes the adverse scenario from 
the list of required scenarios in the Board's stress test rules. This 
final rule also makes conforming changes to the Board's Policy 
Statement on the Scenario Design Framework for Stress Testing.\5\
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    \5\ See 12 CFR part 252, appendix A. The proposals would have 
revised the scope of applicability of the capital plan rule to apply 
to U.S. bank holding companies and U.S. intermediate holding 
companies with $100 billion or more in assets. In addition, the 
proposals would have revised the definition of large and noncomplex 
bank holding company to mean banking organizations subject to 
Category IV standards. The Board received a number of comments about 
its capital requirements. While the Board intends separately to 
propose modifications at a future date to capital planning 
requirements to incorporate the proposed risk-based categories, the 
final rule revises the scope of applicability of the Board's capital 
plan rule to apply to U.S. bank holding companies and U.S. 
intermediate holding companies with $100 billion or more in total 
assets. This final rule does not revise the definition of large and 
noncomplex bank holding company.
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    Concurrently with this final rule, the Board, with the Office of 
the Comptroller of the Currency (OCC) and Federal Deposit Insurance 
Corporation (FDIC) (together, the agencies), is separately finalizing 
amendments to the agencies' regulatory capital rule and liquidity 
coverage ratio (LCR) rule, to introduce the same risk-based categories 
for tailoring standards (the interagency capital and liquidity final 
rule). The Board and FDIC are also finalizing changes to the resolution 
planning requirements (resolution plan final rule) that would adopt the 
same risk-based category framework.

II. 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. To address weaknesses in the banking 
sector that were evident in the financial crisis, the Board 
strengthened prudential standards for large U.S. and foreign banking 
organizations. These enhanced standards included capital planning 
requirements; supervisory and company-run stress testing; liquidity 
risk management, stress testing, and buffer requirements; and single-
counterparty credit limits. The Board's enhanced standards also 
implemented section 165 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act), which directed the Board to 
establish enhanced prudential standards for bank holding companies and 
foreign banking organizations with total consolidated assets of $50 
billion or more.\6\
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    \6\ 12 U.S.C. 5365.
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    The Board has calibrated the stringency of requirements based on 
the size and complexity of a banking organization. Regulatory capital 
requirements, such as the GSIB capital surcharge, advanced approaches 
capital requirements, enhanced supplementary leverage ratio standards 
for U.S. GSIBs,\7\ as well as the requirements under the capital plan 
rule,\8\ are examples of this tailoring.\9\ For foreign banking 
organizations, the Board tailored enhanced 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 generally apply 
to its combined U.S. operations.\10\
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    \7\ 12 CFR 217.11.
    \8\ 12 CFR 225.8.
    \9\ For example, prior to the adoption of this final rule, 
heightened capital requirements and full LCR requirements applied to 
firms with $250 billion or more in total consolidated assets or $10 
billion or more in on-balance sheet foreign exposure, including the 
requirement to calculate regulatory capital requirements using 
internal models and meeting a minimum supplementary leverage ratio 
requirement.
    \10\ The combined U.S. operations of a foreign banking 
organization include any U.S. subsidiaries (including any U.S. 
intermediate holding company), U.S. branches, and U.S. agencies.
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    The Board regularly reviews its regulatory framework to update and 
streamline regulatory requirements based on its experience implementing 
the rules and consistent with the statutory provisions that motivated 
the rules. These efforts include assessing the impact of regulations as 
well as considering alternatives that achieve regulatory objectives 
while improving the simplicity, transparency, and efficiency of the 
regulatory regime. The final rule is the result of this practice and 
reflects amendments to section 165 of the Dodd-Frank Act made by the 
Economic Growth, Regulatory Relief, and Consumer Protection Act 
(EGRRCPA).\11\
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    \11\ Public Law 115-174, 132 Stat. 1296 (2018).
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    Specifically, EGRRCPA amended section 165 of the Dodd-Frank Act by 
raising the threshold for general application of enhanced prudential 
standards. By taking into consideration a broader range of risk-based 
indicators and establishing four categories of standards, the final 
rule enhances the risk sensitivity and efficiency of the Board's 
regulatory framework. This approach better aligns the prudential 
standards applicable to large banking organizations with their risk 
profiles, taking into account the size and complexity of these banking 
organizations as well as their potential

[[Page 59034]]

to pose systemic risk. The final rule also maintains the fundamental 
reforms of the post-crisis framework and supports large banking 
organizations' resilience.

III. Overview of the Notices of Proposed Rulemaking and General Summary 
of Comments

    As noted above, the Board sought comment on two separate proposals 
to establish a framework for determining the prudential standards that 
would apply to large banking organizations. Specifically, the proposals 
would have calibrated requirements for large banking organizations 
using four risk-based categories. Category I would have been based on 
the methodology in the Board's GSIB surcharge rule for identification 
of U.S. GSIBs, while Categories II through IV would have been based on 
measures of size and the levels of the following indicators: Cross-
jurisdictional activity, weighted short-term wholesale funding, nonbank 
assets, and off-balance sheet exposure (together with size, the risk-
based indicators). The applicable standards would have included 
supervisory and company-run stress testing; risk committee and risk 
management requirements; liquidity risk management, stress testing, and 
buffer requirements; and single-counterparty credit limits. 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 have been 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.
    The proposals would have applied to U.S. banking organizations, 
foreign banking organizations, and certain large savings and loan 
holding companies using the same categories, with some differences 
particular to foreign banking organizations. Specifically, while the 
foreign bank proposal was largely consistent with the domestic 
proposal, it would have included certain adjustments to reflect the 
unique structures through which foreign banking organizations operate 
in the United States. As Category I standards under the domestic 
proposal would have applied only to U.S. GSIBs, foreign banking 
organizations would have been subject to standards in Categories II, 
III, or IV. The foreign bank proposal based the requirements of 
Categories II, III, and IV on the risk profile of a foreign banking 
organization's combined U.S. operations or U.S. intermediate holding 
company, as measured by the level of the same risk-based indicators as 
under the domestic proposal. However, in order to reflect the 
structural differences between foreign banking organizations' 
operations in the United States and domestic holding companies, the 
foreign bank proposal would have adjusted the measurement of cross-
jurisdictional activity to exclude inter-affiliate liabilities and to 
recognize collateral in calculating inter-affiliate claims.

A. General Summary of Comments

    The Board received approximately 50 comments on the proposals from 
U.S. and foreign banking organizations, public entities, public 
interest groups, private individuals, and other interested parties.\12\ 
Many commenters supported the proposals as meaningfully tailoring 
prudential standards. A number of commenters, however, expressed the 
view that the proposed framework would not have sufficiently aligned 
the Board's prudential standards with the risk profile of a firm. For 
example, some commenters on the domestic proposal argued that banking 
organizations with total consolidated assets of less than $250 billion 
that do not meet a separate indicator of risk should not be subject to 
any enhanced standards. Some commenters on both proposals argued that 
proposed Category II standards were too stringent given the risks 
indicated by a high level of cross-jurisdictional activity. By 
contrast, other commenters argued that the proposals would weaken the 
safety and soundness of large banking organizations and increase risks 
to U.S. financial stability.
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    \12\ The Board received a number of comments that were not 
specifically responsive to the proposals. In particular, commenters 
recommended specific changes related to the Board's supervisory 
stress test scenarios and stress capital buffer proposal. These 
comments are not within the scope of this rulemaking, and therefore 
are not discussed separately in this Supplementary Information.
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    In response to the foreign bank proposal, commenters generally 
argued that the framework remained too stringent for the risks posed by 
foreign banking organizations. These commenters also argued that the 
risk-based indicators would disproportionately and unfairly result in 
the application of more stringent requirements to foreign banking 
organizations and, as a result, could disrupt the efficient functioning 
of financial markets and have negative effects on the U.S. economy. A 
number of these commenters argued that all risk-based indicators should 
exclude transactions with affiliates. By contrast, other commenters 
criticized the foreign bank proposal for reducing the stringency of 
standards and argued that the proposal understated the financial 
stability risks posed by foreign banking organizations.
    While some commenters argued that the proposed changes went beyond 
the changes mandated by EGRRCPA, other commenters argued that the 
proposals did not fully implement EGRRCPA. In addition, several 
commenters argued that the proposal exceeded the Board's authority 
under section 165 of the Dodd-Frank Act, as amended by EGRRCPA, and 
that enhanced standards should not be included in Category IV standards 
or applied to savings and loan holding companies. Foreign banking 
organization commenters also argued that the proposals did not 
adequately take into consideration the principle of national treatment 
and equality of competitive opportunity, or the extent to which a 
foreign banking organization is subject on a consolidated basis to home 
country standards that are comparable to those that are applied to the 
firm in the United States. As discussed in this SUPPLEMENTARY 
INFORMATION, the final rule largely adopts the proposals, with certain 
adjustments in response to comments.

IV. Overview of Final Rule

    The final rule establishes four categories to apply enhanced 
standards based on indicators designed to measure the risk profile of a 
banking organization.\13\ The prudential standards are applicable to 
U.S. bank holding companies, certain savings and loan holding 
companies, and foreign banking organizations. For U.S. banking 
organizations and savings and loan holding companies that are not 
substantially engaged in insurance underwriting or commercial 
activities (covered savings and loan holding companies), these risk-
based indicators are measured at the level of the top-tier holding 
company. For foreign banking organizations, these risk-based indicators 
are generally measured at the level of such firms' combined U.S. 
operations, except for supervisory and company-run stress testing 
requirements and certain single-counterparty credit limits, which are 
based on the risk profile of such firms' U.S. intermediate holding 
companies. In addition, as discussed in the interagency capital and 
liquidity final rule, regulatory capital and LCR requirements also are 
based on the risk profile of such firms' U.S. intermediate holding 
company.
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    \13\ The final rule also increases the threshold for general 
application of enhanced prudential standards from $50 billion to 
$100 billion in total consolidated assets.

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[[Page 59035]]

    Under the final rule, and unchanged from the domestic proposal, the 
most stringent prudential standards apply to U.S. GSIBs under Category 
I, as these banking organizations have the potential to pose the 
greatest risks to U.S. financial stability. Category I includes 
standards that reflect agreements reached by the Basel Committee on 
Banking Supervision (BCBS).\14\ The existing post-financial crisis 
framework for U.S. GSIBs has resulted in significant gains in 
resiliency and risk management. The final rule accordingly maintains 
the most stringent standards for these firms. For example, U.S. GSIBs 
are subject to the GSIB capital surcharge and enhanced supplementary 
leverage ratio standards under the agencies' regulatory capital rule. 
U.S. GSIBs are also subject to the most stringent stress testing 
requirements, including annual company-run and supervisory stress 
testing requirements, as well as the most stringent liquidity 
standards, including liquidity risk management, stress testing and 
buffer requirements, as well as single-counterparty credit limits. U.S. 
GSIBs also will remain subject to the most comprehensive reporting 
requirements, including the FR Y-14 (capital assessments and stress 
testing) and daily FR 2052a (complex institution liquidity monitoring 
report) reporting requirements.
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    \14\ International standards reflect agreements reached by the 
BCBS as implemented in the United States through notice and comment 
rulemaking.
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    The second set of standards, Category II standards, apply to U.S. 
banking organizations and foreign banking organizations that have $700 
billion or more in total assets,\15\ or $75 billion or more in cross-
jurisdictional activity, and that do not meet the criteria for Category 
I. As a result, these standards apply to banking organizations that are 
very large or have significant international activity. In addition to 
being subject to current enhanced risk-management requirements, banking 
organizations subject to Category II standards are subject to annual 
supervisory stress testing and annual company-run stress testing 
requirements. These banking organizations also are subject to the FR Y-
14 and daily FR 2052a reporting requirements and the most stringent 
liquidity risk management, stress testing, and buffer requirements. 
Category II standards also include single-counterparty credit limits.
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    \15\ Category I-IV standards apply to U.S. banking organizations 
with $100 billion or more in total consolidated assets and foreign 
banking organizations with $100 billion or more in combined U.S 
assets. As discussed above, the risk-based indicators are measured 
at the level of the top-tier holding company for U.S. banking 
organizations and at the level of combined U.S. operations or U.S. 
intermediate holding company for foreign banking organizations. 
Accordingly, for U.S. banking organizations, total assets means 
total consolidated assets. For foreign banking organizations, total 
assets means combined U.S. assets or total consolidated assets of 
the U.S. intermediate holding company, as applicable. Foreign 
banking organizations with $100 billion or more in total 
consolidated assets but with combined U.S. assets of less than $100 
billion are subject to less stringent standards than required under 
Category I-IV. See section X of this SUPPLEMENTARY INFORMATION.
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    The third set of standards, Category III standards, apply to U.S. 
banking organizations and foreign banking organizations that have $250 
billion or more in total assets, or $75 billion or more in weighted 
short-term wholesale funding, nonbank assets, or off-balance sheet 
exposure, and that do not meet the criteria for Category I or II. In 
addition to being subject to current enhanced risk management 
requirements, a banking organization subject to Category III standards 
is subject to annual supervisory stress testing. However, under 
Category III, a banking organization is required to publicly disclose 
company-run test results every other year, rather than on an annual 
basis. These banking organizations are subject to the existing FR Y-14 
reporting requirements and the most stringent liquidity risk 
management, stress testing, and buffer requirements. Under Category III 
standards, banking organizations are subject to daily or monthly FR 
2052a reporting requirements, depending on their levels of weighted 
short-term wholesale funding. Category III standards also include 
single-counterparty credit limits.
    The fourth category, Category IV standards, apply to U.S. banking 
organizations and foreign banking organizations that have at least $100 
billion in total assets and that do not meet the criteria for Category 
I, II, or III, as applicable. Category IV standards align with the 
scale and complexity of these banking organizations but are less 
stringent than Category I, II, or III standards, which reflects the 
lower risk profile of these banking organizations relative to other 
banking organizations with $100 billion or more in total assets. For 
example, a banking organization subject to Category IV standards is 
subject to supervisory stress testing every other year, and is not 
required to conduct and publicly report the results of a company-run 
stress test. In addition, Category IV standards under the final rule 
continue to include enhanced liquidity standards, including liquidity 
risk management, stress testing and buffer requirements, but the final 
rule reduces the required minimum frequency of liquidity stress tests 
and granularity of certain liquidity risk-management requirements, 
commensurate with these firms' size and risk profile.

    Table I--Scoping Criteria for Categories of Prudential Standards
------------------------------------------------------------------------
                            U.S. banking             Foreign banking
      Category         organizations [dagger]    organizations [Dagger]
------------------------------------------------------------------------
I...................  U.S. GSIBs..............  N/A.
rrrrrrrrrrrrrrrrrrrrr
II..................     $700 billion or more in total assets; or $75
                       billion or more in cross-jurisdictional activity;
                            do not meet the criteria for Category I.
rrrrrrrrrrrrrrrrrrrrr
III.................     $250 billion or more in total assets; or $75
                        billion or more in weighted short-term wholesale
                         funding, nonbank assets, or off-balance sheet
                       exposure; do not meet the criteria for Category I
                                             or II.
rrrrrrrrrrrrrrrrrrrrr
IV..................   $100 billion or more in total assets; do not meet
                            the criteria for Category I, II, or III.
------------------------------------------------------------------------
[dagger] For a U.S. banking organization, the applicable category of
  prudential requirements is measured at the level of the top-tier
  holding company.
[Dagger] For a foreign banking organization, the applicable category of
  prudential requirements is measured at the level of the combined U.S.
  operations or U.S. intermediate holding company of the foreign banking
  organization, depending on the particular standard.

V. Tailoring Framework

    This section describes the framework for determining the 
application of prudential standards under this final rule, including a 
discussion of comments received on the proposed framework. The final 
rule largely establishes the framework set forth in the proposals and 
introduces four

[[Page 59036]]

categories of prudential standards based on certain indicators of risk.

A. Indicators-Based Approach and the Alternative Scoring Methodology

    The proposals would have established four categories of prudential 
standards that would have applied to U.S banking organizations with 
$100 billion or more in total consolidated assets and three categories 
of prudential standards that would have applied to foreign banking 
organizations with $100 billion or more in combined U.S. assets, based 
on the risk profile of their U.S. operations. The proposals generally 
would have relied on five risk-based indicators to determine a banking 
organization's applicable category of standards: Size, cross-
jurisdictional activity, nonbank assets, off-balance sheet exposure, 
and weighted short-term wholesale funding. The proposals also sought 
comment on an alternative approach that would have used a single, 
comprehensive score based on the GSIB identification methodology, which 
is currently used to identify U.S. GSIBs and apply risk-based capital 
surcharges to these banking organizations (scoring methodology).\16\ 
Under the alternative approach, a banking organization's size and score 
from the scoring methodology would have been used to determine which 
category of standards would apply to the banking organization.
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    \16\ For more discussion relating to the scoring methodology, 
see the Board's final rule establishing the GSIB identification 
methodology. See Regulatory Capital Rules: Implementation of Risk-
Based Capital Surcharges for Global Systemically Important Bank 
Holding Companies, 80 FR 49082 (Aug. 14, 2015).
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    Most commenters preferred the proposed indicators-based approach to 
the scoring methodology for determining the category of standards that 
would apply to large banking organizations. These commenters stated 
that the indicators-based approach would be more transparent, less 
complex, and more appropriate for applying categories of standards to 
banking organizations that are not U.S. GSIBs. Some commenters also 
asserted that if the Board used the scoring methodology, the Board 
should use only method 1. These commenters argued that method 2 would 
be inappropriate for determining applicable prudential standards on the 
basis that the denominators to method 2 are fixed, rather than being 
updated annually. Commenters also asserted that method 2 was calibrated 
specifically for U.S. GSIBs and, as a result, should not be used to 
determine prudential standards for other banking organizations.
    The final rule adopts the indicators-based approach for applying 
Category II, III, or IV standards to a banking organization, as this 
approach provides a simple framework that supports the objectives of 
risk sensitivity and transparency. Many of the risk-based indicators 
are used in the agencies' existing regulatory frameworks or are 
reported by banking organizations. By using indicators that exist or 
are reported by most banking organizations subject to the final rule, 
the indicators-based approach limits additional reporting requirements. 
The Board will continue to use the scoring methodology to apply 
Category I standards to a U.S. GSIB and its depository institution 
subsidiaries.\17\
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    \17\ See the interagency capital and liquidity final rule for 
application of Category I liquidity and capital standards to 
depository institution subsidiaries of U.S. GSIBs.
---------------------------------------------------------------------------

B. Dodd-Frank Act Statutory Framework

    The Board received a number of comments discussing the scope of the 
changes required by EGRRCPA and the Board's authority for implementing 
certain parts of the proposal. Some commenters argued that EGRRCPA did 
not require the Board to make any changes to prudential standards 
applied to bank holding companies and foreign banking organizations 
with $100 billion or more in total consolidated assets. Conversely, 
other commenters argued that, in passing EGRRCPA, Congress intended for 
banking organizations with less than $250 billion in total consolidated 
assets to be exempt from most enhanced prudential standards under 
section 165 of the Dodd-Frank Act. These commenters argued that the 
proposal was not consistent with the revised criteria for applying 
enhanced prudential standards to bank holding companies with between 
$100 billion and $250 billion in total consolidated assets provided 
under section 165(a)(2)(C) of the Dodd-Frank Act. Specifically, 
commenters argued that EGRRCPA does not permit the Board to apply 
enhanced prudential standards to a bank holding company with $100 
billion or more in total consolidated assets if the bank holding 
company does not meet a risk-based indicator other than size. Some 
commenters urged the Board to apply enhanced prudential standards on a 
case-by-case basis. Foreign banking organization commenters argued that 
the proposals did not give adequate regard to the principle of national 
treatment and equality of competitive opportunity. These commenters 
also argued that the proposals did not appropriately account for home 
country standards applied to the foreign parent or the capacity of the 
foreign parent to serve as a source of strength during times of stress. 
To provide greater recognition of home country standards and parental 
support, foreign banking organization commenters asserted that 
standards applied to their U.S. operations should be discounted 
relative to the standards applied to U.S. banking organizations.
    Section 401 of EGRRCPA amended section 165 of the Dodd-Frank Act by 
generally raising the minimum asset threshold for application of 
prudential standards under section 165 from $50 billion in total 
consolidated assets to $250 billion in total consolidated assets.\18\ 
However, the Board is required to apply certain enhanced prudential 
standards to bank holding companies with less than $250 billion in 
total consolidated assets. Specifically, the Board must conduct 
periodic supervisory stress tests of bank holding companies with total 
consolidated assets equal to or greater than $100 billion and less than 
$250 billion,\19\ and must require publicly traded bank holding 
companies with $50 billion or more in total consolidated assets to 
establish a risk committee.\20\ In addition, section 165(a)(2)(C) of 
the Dodd-Frank Act authorizes the Board to apply enhanced prudential 
standards to bank holding companies with $100 billion or more, but less 
than $250 billion, in total consolidated assets, provided that the 
Board (1) determines that application of the prudential standard is 
appropriate to prevent or mitigate risks to the financial stability of 
the United States, or to promote the safety and soundness of a bank 
holding company or bank holding companies; and (2) takes into 
consideration a bank holding company's or bank holding companies' 
capital structure, riskiness, complexity, financial activities 
(including financial activities of subsidiaries), size, and any other 
risk-

[[Page 59037]]

related factors that the Board of Governors deems appropriate.\21\ 
Section 165(a)(2)(C) permits the Board to apply any enhanced prudential 
standard or standards to an individual bank holding company and also 
permits the Board to apply enhanced prudential standards to a class of 
bank holding companies. Similarly, in tailoring the application of 
enhanced prudential standards, section 165 provides the Board with 
discretion in differentiating among companies on an individual basis or 
by category.\22\ Finally, in applying section 165 to foreign banking 
organizations, the Dodd-Frank Act directs the Board to give due regard 
to the principle of national treatment and equality of competitive 
opportunity, and to take into account the extent to which the 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.
---------------------------------------------------------------------------

    \18\ A bank holding company designated as a GSIB under the 
Board's GSIB surcharge rule is subject to section 165, regardless of 
its size. See EGRRCPA 401(f). The term bank holding company as used 
in section 165 of the Dodd-Frank Act includes a foreign bank or 
company treated as a bank holding company for purposes of the Bank 
Holding Company Act, pursuant to section 8(a) of the International 
Banking Act of 1978. See 12 U.S.C. 3106(a); 12 U.S.C. 5311(a)(1). 
See also EGRRCPA 401(g) (regarding the Board's authority to 
establish enhanced prudential standards for foreign banking 
organizations with total consolidated assets of $100 billion or 
more).
    \19\ EGRRCPA 401(e). Pursuant to section 165(i)(1), the Board 
must conduct an annual stress test of bank holding companies 
described in section 165(a), and nonbank financial companies 
designated for supervision by the Board. 12 U.S.C. 5365(i)(1).
    \20\ 12 U.S.C. 5365(h)(2)(A).
    \21\ 12 U.S.C. 5365(a)(2)(C). Section 401(a) of EGRRCPA amended 
section 165 of the Dodd-Frank Act to add section 165(a)(2)(C).
    \22\ 12 U.S.C. 5365(a)(2)(A).
---------------------------------------------------------------------------

    The framework for application of enhanced prudential standards 
established in this final rule is consistent with section 165 of the 
Dodd-Frank Act, as amended by EGRRCPA. The framework takes into 
consideration banking organizations' risk profiles by applying 
prudential standards based on a banking organization's size, cross-
jurisdictional activity, nonbank assets, off-balance sheet exposure, 
and weighted short-term wholesale funding. By evaluating the degree of 
each risk-based indicator's presence at various thresholds, the 
framework takes into account concentrations in various types of risk. 
As explained below, the risk-based indicators were selected to measure 
risks to both financial stability and safety and soundness, including a 
bank holding company or bank holding companies' capital structure, 
riskiness, complexity, and financial activities. Size is specifically 
mentioned in section 165(a)(2)(C)(ii). By establishing categories of 
standards that increase in stringency based on risk, the framework 
would ensure that the Board's prudential standards align with the risk 
profile of large banking organizations, supporting financial stability 
and promoting safety and soundness.
    Category IV standards apply if a banking organization reaches an 
asset size threshold ($100 billion or more, as identified in the 
statute) but does not meet the thresholds for the other risk-based 
indicators. Size, as discussed below in section V.C.1 of this 
Supplementary Information, provides a measure of the extent to which 
stress at a banking organization's operations could be disruptive to 
U.S. markets and present significant risks to U.S. financial stability. 
Size also provides a measure of other types of risk, including 
managerial and operational complexity. The presence of one factor and 
absence of other factors suggests that prudential standards should 
apply to this group of banking organizations, but with reduced 
stringency to account for these organizations' reduced risk profiles. 
In addition, as discussed above, the Board must apply periodic 
supervisory stress testing and risk-committee requirements to 
institutions of this size.
    Under the final rule, the standards applied to the U.S. operations 
of foreign banking organizations are consistent with the standards 
applicable to U.S. bank holding companies. The standards also 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. 
Specifically, the final rule would continue the Board's approach of 
tailoring the application of prudential standards to foreign banking 
organizations based on the foreign banking organization's U.S. risk 
profile. For a foreign banking organization with a smaller U.S. 
presence, the final rule would largely defer to the foreign banking 
organization's compliance with home-country capital and liquidity 
standards at the consolidated level, and impose certain risk-management 
requirements that are specific to the U.S. operations of a foreign 
banking organization. For foreign banking organizations with 
significant U.S. operations, the final rule would apply a framework 
that is consistent with the framework applied to U.S. banking 
organizations. By using consistent indicators of risk, the final rule 
facilitates a level playing field between foreign and U.S. banking 
organizations operating in the United States, in furtherance of the 
principle of national treatment and equality of competitive 
opportunity. Differences in the measurement of risk-based indicators 
and in the application of standards between foreign banking 
organizations and U.S. banking organizations takes into account 
structural differences in operation and organization of foreign banking 
organizations, as well as the standards to which the foreign banking 
organization on a consolidated basis may be subject. For example, the 
cross-jurisdictional activity indicator excludes liabilities of the 
combined U.S. operations, or U.S. intermediate holding company, to non-
U.S. affiliates, which recognizes the benefit of the foreign banking 
organization providing support to its U.S. operations.
    Commenters also raised questions over the Board's legal authority 
to apply prudential standards to covered savings and loan holding 
companies. These comments are addressed in Section VIII of this 
Supplementary Information.

C. Choice of Risk-Based Indicators

    To determine the applicability of the Category II, III, or IV 
standards, the proposals considered a banking organization's level of 
five risk-based indicators: Size, cross-jurisdictional activity, 
weighted short-term wholesale funding, nonbank assets, and off-balance 
sheet exposure.
    The Board received a number of comments on the choice of risk-based 
indicators and suggested modifications to the calculation of the 
indicators. Several commenters expressed the general view that the 
proposed risk-based indicators were poor measures of risk. A number of 
these commenters also asserted that the Board did not provide 
sufficient justification to support the proposed risk-based indicators, 
and requested that the Board provide additional explanation regarding 
its selection. Commenters also asserted that the framework should take 
into consideration additional risk-mitigating characteristics when 
measuring the proposed risk-based indicators. Several other commenters 
argued that the proposals are too complex and at odds with the stated 
objective of simplicity and burden reduction.
    By considering the relative presence or absence of each risk-based 
indicator, the proposals would have provided a basis for assessing a 
banking organization's financial stability and safety and soundness 
risks. The risk-based indicators generally track measures already used 
in the Board's existing regulatory framework and that are already 
publicly reported by affected banking organizations.\23\ Together with 
fixed, uniform thresholds, use of the

[[Page 59038]]

indicators supports the Board's objectives of transparency and 
efficiency, while providing for a framework that enhances the risk-
sensitivity of the Board's enhanced prudential standards in a manner 
that continues to allow for comparability across banking organizations. 
Risk-mitigating factors, such as a banking organization's high-quality 
liquid assets and the presence of collateral to secure an exposure, are 
incorporated into the enhanced standards to which the banking 
organization is subject.
---------------------------------------------------------------------------

    \23\ Bank holding companies, covered savings and loan holding 
companies, and U.S. intermediate holding companies subject to this 
final rule already report the information required to determine 
size, weighted short-term wholesale funding, and off-balance sheet 
exposure on the Banking Organization Systemic Risk Report (FR Y-15). 
Such bank holding companies and covered savings and loan holding 
companies also currently report the information needed to calculate 
cross-jurisdictional activity on the FR Y-15. Nonbank assets are 
reported on the FR Y-9 LP. This information is publicly available.
---------------------------------------------------------------------------

    One commenter asserted that an analysis of the proposed risk-based 
indicators based on a measure of the expected capital shortfall of a 
banking organization in the event of a steep equity market decline 
(SRISK) \24\ demonstrated that only the cross-jurisdictional activity 
and weighted short-term wholesale funding indicators were positively 
correlated with SRISK while the other indicators were not important 
drivers of a banking organization's SRISK measures. Because SRISK is 
conditioned on a steep decline in equity markets, it does not capture 
the probability of a financial crisis or an idiosyncratic failure of a 
large banking organization. In addition, SRISK does not directly 
capture other important aspects of systemic risk, such as a banking 
organization's interconnectedness with other financial market 
participants. For these reasons, SRISK alone is not a sufficient means 
of determining the risk-based indicators used in the tailoring 
framework.
---------------------------------------------------------------------------

    \24\ For the definition and measurement of SRISK, see Acharya, 
V., Engle, R. and Richardson, M., 2012. Capital shortfall: A new 
approach to ranking and regulating systemic risks. American Economic 
Review, 102(3), pp.59-64, and see Brownlees, Christian, and Robert 
F. Engle (2017). ``SRISK: A conditional capital shortfall measure of 
systemic risk.'' The Review of Financial Studies 30.1 (2016): 48-79.
---------------------------------------------------------------------------

    Accordingly and as discussed below, the Board is adopting the risk-
based indicators as proposed.
1. Size
    The proposals would have considered size in tailoring the 
application of enhanced standards to a domestic banking organization or 
the U.S. operations of a foreign banking organization.
    Some commenters argued that the proposals placed too much reliance 
on size for determining the prudential standards applicable to large 
banking organizations. These commenters generally criticized the size 
indicator as not sufficiently risk sensitive and a poor measure of 
systemic and safety and soundness risk, and suggested using risk-
weighted assets, as determined under the regulatory capital rule, 
rather than total consolidated assets or combined U.S. assets, as 
applicable. Several commenters argued that the proposals did not 
adequately explain the relationship between size and safety and 
soundness risk, particularly risks associated with operational or 
control gaps.
    Other commenters, however, supported the use of size as a measure 
of financial stability and safety and soundness risk. These commenters 
asserted that size serves as an indicator of credit provision that 
could be disrupted in times of stress, as well as the difficulties 
associated with the resolution of a large banking organization. These 
commenters also recommended placing additional emphasis on size for 
purposes of tailoring prudential standards, and expressed the view that 
the size indicator is less susceptible to manipulation through 
temporary adjustments at the end of a reporting period as compared to 
the other risk-based indicators.
    Section 165 of the Dodd-Frank Act, as amended by EGRRCPA, 
establishes thresholds based on total consolidated assets.\25\ Size is 
also among the factors that the Board must take into consideration in 
differentiating among banking organizations under section 165.\26\ A 
banking organization's size provides a measure of the extent to which 
stress at its operations could be disruptive to U.S. markets and 
present significant risks to U.S. financial stability. A larger banking 
organization has a greater number of customers and counterparties that 
may be exposed to a risk of loss or suffer a disruption in the 
provision of services if the banking organization were to experience 
distress. In addition, size is an indicator of the extent to which 
asset fire sales by a banking organization could transmit distress to 
other market participants, given that a larger banking organization has 
more counterparties and more assets to sell. The failure of a large 
banking organization in the United States also may give rise to 
challenges that complicate the resolution process due to the size and 
diversity of its customer base and the number of counterparties that 
have exposure to the banking organization.
---------------------------------------------------------------------------

    \25\ See generally 12 U.S.C. 5635 and EGRRCPA section 401.
    \26\ EGRRCPA Sec.  401(a)(1)(B)(i) (codified at 12 U.S.C. 
5365(a)(2)(A)). The Board has also previously used size as a simple 
measure of a banking organization's potential systemic impact and 
risk, and have differentiated the stringency of capital and 
liquidity requirements based on total consolidated asset size. For 
example, prior to the adoption of this final rule, advanced 
approaches capital requirements, the supplementary leverage ratio, 
and the LCR requirement generally applied to banking organizations 
with total consolidated assets of $250 billion or more or total 
consolidated on-balance sheet foreign exposure of $10 billion or 
more.
---------------------------------------------------------------------------

    The complexities associated with size also can give rise to 
operational and control gaps that are a source of safety and soundness 
risk and could result in financial losses to a banking organization and 
adversely affect its customers. A larger banking organization operates 
on a larger scale, has a broader geographic scope, and generally will 
have more complex internal operations and business lines relative to a 
smaller banking organization. Growth of a banking organization, whether 
organic or through an acquisition, can require more robust risk 
management and development of enhanced systems or controls; for 
example, when managing the integration and maintenance of information 
technology platforms.
    Size also can be a proxy for other measures of complexity, such as 
the amount of trading and available-for-sale securities, over-the-
counter derivatives, and Level 3 assets.\27\ Using Call Report data 
from the first quarter of 2005 to the first quarter of 2018, the 
correlation between a bank's total trading assets (a proxy of 
complexity) and its total assets (a proxy of size) is over 90 
percent.\28\ As was seen in the financial crisis, a more complex 
institution can be more opaque to the markets and may have difficulty 
managing its own risks, warranting stricter standards for both capital 
and liquidity.
---------------------------------------------------------------------------

    \27\ The FR Y-15 and the GSIB surcharge methodology include 
three indicators of complexity that are used to determine a banking 
organization's systemic importance for purposes of the GSIB 
surcharge rule: Notional amount of OTC derivatives, Level 3 assets, 
and trading and AFS securities. In the second quarter of 2019, the 
average complexity score of a U.S. GSIB was 104.7, the average 
complexity score of a banking organization with assets of greater 
than $250 billion that is not a U.S. GSIB was 12.0, the average 
complexity score of a banking organization with assets of more than 
$100 billion but less than $250 billion was 3.5, and the average 
complexity score of a banking organization with assets of $50 
billion but less than $100 billion was 0.4.
    \28\ See Amy G. Lorenc, and Jeffery Y. Zhang (2018) ``The 
Differential Impact of Bank Size on Systemic Risk,'' Finance and 
Economics Discussion Series 2018-066. Washington: Board of Governors 
of the Federal Reserve System, available at: https://doi.org/10.17016/FEDS.2018.066.
---------------------------------------------------------------------------

    Further, notwithstanding commenters' assertions that risk-weighted 
assets more appropriately capture risk, an approach that relies on 
risk-weighted assets as an indication of size would not align with the 
full scope of risks intended to be measured by the size indicator. 
Risk-weighted assets

[[Page 59039]]

serve as an indication of credit risk and are not designed to capture 
the risks associated with managerial and operational complexity or the 
potential for distress at a large banking organization to cause 
widespread market disruptions.
    Some commenters argued that the Board staff analysis cited in the 
proposals does not demonstrate that size is a useful indicator for 
determining the systemic importance of a banking organization.\29\ 
Specifically, one commenter asserted that the Board staff analysis (1) 
uses a flawed measure of bank stress and (2) does not use robust 
standard errors or sufficiently control for additional macroeconomic 
factors that may contribute to a decline in economic activity. The 
Board staff paper employs the natural logarithm of deposits at failed 
banks as a proxy of bank stress. This choice was informed by Bernanke's 
1983 article, which uses the level (namely, thousands of dollars) of 
deposits at failed banks to proxy bank stress.\30\ The staff paper 
makes modifications to this stress proxy in order to account for the 
evolution of the banking sector over time. In contrast to Bernanke's 
study of a three-year period during the Great Depression, Board staff's 
analysis spans almost six decades. Expressing bank stress in levels 
(namely, trillions of dollars) would not account for the structural 
changes that have occurred in the banking sector and therefore would 
place a disproportionately greater weight on the bank failures that 
occurred during the 2008-2009 financial crisis. In addition to the 
analysis conducted by Board staff, other research has found evidence of 
a link between size and systemic risk.\31\
---------------------------------------------------------------------------

    \29\ As described in the proposals, relative to a smaller 
banking organization, the failure of a large banking organization is 
more likely to have a destabilizing effect on the economy, even if 
the two banking organizations are engaged in similar business lines. 
Board staff estimated that stress at a single large banking 
organization with an assumed $100 billion in deposits would result 
in approximately a 107 percent decline in quarterly real U.S. GDP 
growth, whereas stress among five smaller banking organizations--
each with an assumed $20 billion in deposits--would collectively 
result in roughly a 22 percent decline in quarterly real U.S. GDP 
growth. Both scenarios assume $100 billion in total deposits, but 
the negative impact is significantly greater when the larger banking 
organization fails. Id.
    \30\ Bernanke, Ben S. 1983. ``Nonmonetary Effects of the 
Financial Crisis in the Propagation of the Great Depression.'' The 
American Economic Review Vol. 73, No. 3, pp. 257-276.
    \31\ See Bremus, Buck, Russ and Schnitzer, Big Banks and 
Macroeconomic Outcomes: Theory and Cross-Country Evidence of 
Granularity, Journal of Money, Credit and Banking (July 2018). 
Allen, Bali, and Tang construct a measure of systemic risk (CATFIN) 
and demonstrate that the CATFIN of both large and small banking 
organizations can forecast macroeconomic declines, and found that 
the CATFIN of large banks can successfully forecast lower economic 
activity sooner than that of small banks. See, Allen, Bali, and 
Tang, Does Systemic Risk in the Financial Sector Predict Future 
Economic Downturns?, Review of Financial Studies, Vol. 25, Issue 10 
(2012). Adrian and Brunnermeier constructed a measurement of 
systemic risk, designated CoVar, and show that firms with higher 
leverage, more maturity mismatch, and larger size are associated 
with larger systemic risk contributions. Specifically, the authors 
find that if a bank is 10 percent larger than another bank, then the 
size coefficient predicts that the larger bank's CoVaR per unit of 
capital is 27 basis points higher than the smaller bank's CoVaR. 
See, Adrian & Brunnermeir, CoVar, American Economic Review Journal, 
Vol. 106 No. 7 (July 2016)
    In the same vein, research conducted by the Bank for 
International Settlements suggests that the ratio of one 
institution's systemic importance to a smaller institution's 
systemic importance is larger than the ratio of the respective 
sizes. See Tarashev, Borio and Tsatsaronis, Attributing systemic 
risk to individual institutions, BIS Working Paper No. 308 (2010). 
Relatedly, D[aacute]vila and Walther (2017) show that large banks 
take on more leverage relative to small banks in times of stress and 
government bailouts. See D[aacute]vila & Walther, Does Size Matter? 
Bailouts with Large and Small Banks, NBER Working Paper No. 24132 
(2017).
---------------------------------------------------------------------------

    For the reasons discussed above, the Board is adopting the proposed 
measure of size for foreign and domestic banking organizations without 
change. Size is a simple and transparent measure of systemic importance 
and safety and soundness risk that can be readily understood and 
measured by banking organizations and market participants.
2. Cross-Jurisdictional Activity
    The proposals would have included a measure of cross-jurisdictional 
activity as a risk-based indicator to determine the application of 
Category II standards. For U.S. banking organizations, the domestic 
proposal defined cross-jurisdictional activity as the sum of cross-
jurisdictional claims and liabilities. In recognition of the structural 
differences between foreign and domestic banking organizations, the 
foreign bank proposal would have adjusted the measurement of cross-
jurisdictional activity for foreign banking organizations to exclude 
inter-affiliate liabilities and certain collateralized inter-affiliate 
claims.\32\ Specifically, claims on affiliates \33\ would be reduced by 
the value of any financial collateral in a manner consistent with the 
Board's capital rule,\34\ 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).\35\ The foreign bank proposal sought comment on 
alternative adjustments to the cross-jurisdictional activity indicator 
for foreign banking organizations, and on other modifications to the 
components of the indicator.
---------------------------------------------------------------------------

    \32\ Specifically, the proposal would have excluded from the 
cross-jurisdictional activity indicator all inter-affiliate claims 
of a foreign banking organization secured by financial collateral, 
in accordance with the capital rule. Financial collateral is defined 
under the capital rule to mean collateral, (1) in the form of (i) 
cash on deposit with the banking organization (including cash held 
for the banking organization by a third-party custodian or trustee), 
(ii) gold bullion, (iii) long-term debt securities that are not 
resecuritization exposures and that are investment grade, (v) short-
term debt instruments that are not resecuritization exposures and 
that are investment grade, (v) equity securities that are publicly 
traded; (vi) convertible bonds that are publicly traded, or (vii) 
money market fund shares and other mutual fund shares if a price for 
the shares is publicly quoted daily; and (2) in which the banking 
organization has a perfected, first-priority security interest or, 
outside of the United States, the legal equivalent thereof (with the 
exception of cash on deposit and notwithstanding the prior security 
interest of any custodial agent). See 12 CFR 217.2.
    \33\ For the combined U.S. operations, the measure of cross-
jurisdictional activity would exclude all claims between the foreign 
banking organization's U.S. domiciled affiliates, branches, and 
agencies to the extent such items are not already eliminated in 
consolidation. For the U.S. intermediate holding company, the 
measure of cross-jurisdictional activity would eliminate through 
consolidation all intercompany claims within the U.S. intermediate 
holding company.
    \34\ See 12 CFR 217.37.
    \35\ See the definition of repo-style transaction at 12 CFR 
217.2.
---------------------------------------------------------------------------

    Some commenters urged the Board to adopt the cross-jurisdictional 
activity indicator as proposed. By contrast, a number of commenters 
expressed concern regarding this aspect of the proposals. Several 
commenters opposed the inclusion of cross-jurisdictional liabilities in 
the cross-jurisdictional activity indicator. Some commenters argued 
that cross-jurisdictional liabilities are not a meaningful indicator of 
systemic risk as measured by SRISK.\36\ Other commenters asserted that 
cross-jurisdictional liabilities can reflect sound risk management 
practices on the basis that cross-jurisdictional liabilities can 
indicate a diversity of funding sources and may be used to fund assets 
in the same foreign jurisdiction as the liabilities. These commenters 
suggested modifying the indicator to exclude the amount of any central 
bank deposits, other high-quality liquid assets (HQLA), or assets that 
receive a zero percent risk weight under the capital rule if those 
assets are held in the same jurisdiction as a cross-jurisdictional 
liability.
---------------------------------------------------------------------------

    \36\ See, supra note 25.
---------------------------------------------------------------------------

    A number of commenters suggested revisions to the cross-
jurisdictional activity indicator that would exclude specific types of 
claims or liabilities. For example, some commenters asserted that the 
measure of cross-jurisdictional

[[Page 59040]]

activity should exclude any claim secured by HQLA or highly liquid 
assets \37\ based on the nature of the collateral. Another commenter 
suggested excluding operating payables arising in the normal course of 
business, such as merchant payables. Other commenters suggested that 
the indicator exclude exposures to U.S. entities or projects that have 
a foreign guarantee or foreign insurer, unless the U.S. direct 
counterparty does not meet an appropriate measure of creditworthiness. 
Some commenters stated that investments in co-issued collateralized 
loan obligations should be excluded from the measure of cross-
jurisdictional activity.
---------------------------------------------------------------------------

    \37\ See 12 CFR part 252.35(b)(3)(i) and 252.157(c)(7)(i).
---------------------------------------------------------------------------

    Commenters also suggested specific modifications to exclude 
exposures to certain types of counterparties. For example, several 
commenters suggested excluding exposures to sovereign, supranational, 
international, or regional organizations. Commenters asserted that 
these exposures do not present the same interconnectivity concerns as 
exposures with other types of counterparties and that claims on these 
types of entities present little or no credit risk. Another commenter 
suggested excluding transactions between a U.S. intermediate holding 
company and any affiliated U.S. branches of its parent foreign banking 
organization on the basis that the foreign bank proposal could 
disadvantage foreign banking organizations relative to U.S. banking 
organizations that eliminate such inter-affiliate transactions in 
consolidation. Similarly, one commenter suggested excluding 
transactions between a U.S. intermediate holding company and any U.S. 
branch of a foreign banking organization, whether affiliated or not, on 
the basis that such exposures are geographically domestic. Another 
commenter argued that exposures denominated in a foreign banking 
organization's home currency should be excluded. By contrast, one 
commenter argued that cross-jurisdictional activity should be revised 
to include derivatives, arguing that derivatives can be used as a 
substitute for other cross-jurisdictional transactions and, as a 
result, could be used to avoid the cross-jurisdictional activity 
threshold.
    A number of commenters provided other suggestions for modifying the 
cross-jurisdictional activity indicator. In particular, some commenters 
recommended that the cross-jurisdictional activity indicator permit 
netting of claims and liabilities with a counterparty, with only the 
net claim or liability counting towards cross-jurisdictional activity. 
Several commenters suggested that the Board should consider excluding 
assets or transactions that satisfy another regulatory requirement. For 
example, these commenters argued that the Board should consider 
excluding transactions resulting in the purchase of or receipt of HQLA.
    Other commenters suggested modifications to the criteria for 
determining when an exposure is considered cross-border. Specifically, 
commenters requested modifications to the calculation of cross-
jurisdictional activity for claims supported by multiple guarantors or 
a combination of guarantors and collateral, for example, by not 
attributing the claim to the jurisdiction of the entity holding the 
claim, or collateral that bears the highest rating for reporting on an 
ultimate-risk basis. Commenters also requested that the Board presume 
that an exposure created through negotiations with agents or asset 
managers would generally create an exposure based in the jurisdiction 
of the location of the agent or manager for their undisclosed 
principal.
    Foreign banking organization commenters generally supported the 
approach taken in the foreign bank proposal with respect to the 
treatment of inter-affiliate cross-jurisdictional liabilities, but 
stated that such an approach would not adequately address the 
differences between domestic and foreign banking organizations. These 
commenters urged the Board to eliminate the cross-jurisdictional 
activity indicator for foreign banking organizations or, alternatively, 
to eliminate all inter-affiliate transactions from measurement of the 
indicator.
    Significant cross-border activity can indicate heightened 
interconnectivity and operational complexity. Cross-jurisdictional 
activity can add operational complexity in normal times and complicate 
the ability of a banking organization to undergo an orderly resolution 
in times of stress, generating both safety and soundness and financial 
stability risks. 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. Banking organizations with significant cross-
jurisdictional activity may require more sophisticated risk management 
to appropriately address the complexity of those operations and the 
diversity of risks across all of the jurisdictions in which the banking 
organization provides financial services. For example, banking 
organizations with significant cross-border activities may require more 
sophisticated risk management related to raising funds in foreign 
financial markets, accessing international payment and settlement 
systems, and obtaining contingent sources of liquidity. In addition, 
the application of consistent prudential standards to banking 
organizations with significant size or cross-jurisdictional activity 
helps to promote competitive equity in the United States as well as 
abroad.
    Measuring cross-jurisdictional activity taking into account both 
assets and liabilities--instead of just assets--provides 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.\38\ While both borrowing and lending outside the United States 
may reflect prudent risk management, cross-jurisdictional activity of 
$75 billion or more indicates a level of organizational complexity that 
warrants more stringent prudential standards. With respect to 
commenters' suggestion to exclude central bank deposits, HQLA, or 
assets that receive a zero percent risk weight in the same jurisdiction 
as a cross-jurisdictional liability, such an exclusion would assume 
that all local liabilities are used to fund local claims. However, 
because foreign affiliates rely on local funding to different extents, 
such an exclusion could understate risk.\39\
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    \38\ The 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.
    \39\ Based on data collected from the Country Exposure Report 
(FFIEC 009), some affiliates of U.S. banking organizations relied 
extensively (75 percent) on local funding, while others collected 
almost no local funding. In particular, approximately 40 percent of 
bank-affiliate locations had no local lending. See Nicola Cetorelli 
& Linda Goldberg, ``Liquidity Management of U.S. Global Banks: 
Internal Capital Markets In the Great Recession'' (Fed. Reserve Bank 
of N.Y. Staff Report No. 511, 2012), available at http://www.newyorkfed.org/research/staff_reports/sr511.pdf.
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    The cross-jurisdictional activity indicator and threshold is 
intended to identify banking organizations with significant cross-
border activities. Significant cross-border activities indicate a 
complexity of operations, even if some of those activities are low 
risk. Excluding additional types of claims or liabilities would reduce 
the transparency and simplicity of the

[[Page 59041]]

tailoring framework. In addition, excluding certain types of assets 
based on the credit risk presented by the counterparty would be 
inconsistent with the purpose of the indicator as a measure of 
operational complexity and risk. The measure of cross-jurisdictional 
activity in the final rule therefore does not exclude specific types of 
claims or liabilities, or claims and liabilities with specific types of 
counterparties, other than the proposed treatment of inter-affiliate 
liabilities and certain inter-affiliate claims.
    The proposals requested comment on possible additional changes to 
the components of the cross-jurisdictional activity indicator to 
potentially provide more consistent treatment across repurchase 
agreements and other securities financing transactions and with respect 
to the recognition of collateral across types of transactions. 
Commenters were generally supportive of these additional changes. The 
proposals also requested comment on the most appropriate way in which 
the proposed cross-jurisdictional activity indicator could account for 
the risk of transactions with a delayed settlement date. Several 
commenters argued that the indicator should exclude trade-date 
receivables or permit the use settlement-date accounting in calculating 
the cross-jurisdictional activity indicator. Commenters also supported 
measuring securities lending agreements and repurchase agreements on an 
ultimate-risk basis, rather than allocating these exposures based on 
the residence of the counterparty.
    The final rule adopts the cross-jurisdictional activity indicator 
as proposed. Under the final rule, cross-jurisdictional activity is 
measured based on the instructions to the FR Y-15 and, by reference, to 
the FFIEC 009.\40\ The Board is considering whether additional 
technical modifications and refinements to the cross-jurisdictional 
indicator would be appropriate, including with respect to the treatment 
of derivatives, and would seek comment on any changes to the indicator 
through a separate notice. Specifically, cross-jurisdictional claims 
are measured according to the instructions to the FFEIC 009. The 
instructions to the FFIEC 009 currently do not permit risk transfer for 
repurchase agreements and securities financing transactions and the 
Board is not altering the measurement of repurchase agreements and 
securities financing transactions under this final rule. This approach 
maintains consistency between the FR Y-15 and FFIEC 009. In addition, 
the cross-jurisdictional indicator maintains the use of trade-date 
accounting for purposes of the final rule. The preference for trade-
date accounting is consistent with other reporting forms (e.g., 
Consolidated Financial Statements for Holding Companies (FR Y-9C)) and 
with generally accepted accounting principles. With respect to netting, 
the instructions to the FFIEC 009 permit netting in limited 
circumstances. Allowing banking organizations to net all claims and 
liabilities with a counterparty could significantly understate an 
organization's level of international activity, even if such netting 
might be appropriate from the perspective of managing risk.
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    \40\ Specifically, cross-jurisdictional claims are measured on 
an ultimate-risk basis according to the instructions to the FFIEC 
009. The instructions to the FFIEC 009 currently do not permit risk 
transfer for repurchase agreements and securities financing 
transactions. Foreign banking organizations must include in cross-
jurisdictional claims only the net exposure (i.e., net of collateral 
value subject to haircuts) of all secured transactions with 
affiliates to the extent that these claims are collateralized by 
financial collateral or excluded in consolidation (see supra note 
35).
---------------------------------------------------------------------------

    As noted above, the risk-based indicators generally track measures 
already used in the Board's existing regulatory framework and rely on 
information that banking organizations covered by the final rule 
already publicly report.\41\ The Board believes that the measure of 
cross-jurisdictional activity as proposed (including the current 
reported measurements of repurchase agreements and securities financing 
transactions, trade date accounting items, and netting) along with the 
associated $75 billion threshold, appropriately captures the risks that 
warrant the application of Category II standards. The Board may 
consider future changes regarding the measurement of cross-
jurisdictional activity indicator, and in doing so, would consider the 
comments described above and the impact of any future changes on the 
$75 billion threshold, and would draw from supervisory experience 
following the implementation of the final rule. Any such changes would 
be considered in the context of a separate rulemaking process.
---------------------------------------------------------------------------

    \41\ See Form FR Y-15. This information is publicly available.
---------------------------------------------------------------------------

3. Nonbank Assets
    The proposals would have considered the level of nonbank assets in 
determining the applicable category of standards for foreign and 
domestic banking organizations. The amount of a banking organization's 
activities conducted through nonbank subsidiaries provides a measure of 
the organization's business and operational complexity. Specifically, 
banking organizations with significant activities in nonbank 
subsidiaries are more likely to have complex corporate structures and 
funding relationships. In addition, in certain cases nonbank 
subsidiaries are subject to less prudential regulation than regulated 
banking entities.
    Under the proposals, nonbank assets would have been measured as the 
average amount of assets in consolidated nonbank subsidiaries and 
equity investments in unconsolidated nonbank subsidiaries.\42\ The 
proposals would have excluded from this measure assets in a depository 
institution subsidiary, including a national bank, state member bank, 
state nonmember bank, federal savings association, federal savings 
bank, or state savings association subsidiary. The proposals also would 
have excluded assets of subsidiaries of these depository institutions, 
as well as assets held in each Edge or Agreement Corporation that is 
held through a bank subsidiary.\43\
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    \42\ For a foreign banking organization, nonbank assets would 
have been measured as the average amount of assets in consolidated 
U.S. nonbank subsidiaries and equity investments in unconsolidated 
U.S. nonbank subsidiaries.
    \43\ As noted above, the Parent Company Only Financial 
Statements for Large Holding Companies (FR Y-9LP), Schedule PC-B, 
line item 17 is used to determine nonbank assets. For purposes of 
this item, nonbank companies exclude (i) all national banks, state 
member banks, state nonmember insured banks (including insured 
industrial banks), federal savings associations, federal savings 
banks, and thrift institutions (collectively for purposes of this 
item, ``depository institutions'') and (ii) except for an Edge or 
Agreement Corporation designated as ``Nonbanking'' in the box on the 
front page of the Consolidated Report of Condition and Income for 
Edge and Agreement Corporations (FR 2886b), any subsidiary of a 
depository institution (for purposes of this item, ``depository 
institution subsidiary''). The revised FR Y-15 includes a line item 
that would automatically populate this information. See Section XV 
of this Supplementary Information.
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    A number of commenters argued that measuring nonbank assets based 
on the location of the assets in a nonbank subsidiary provides a poor 
measure of risk. Some commenters requested that the Board instead 
consider whether the assets relate to bank-permissible activities. 
Other commenters argued that activities conducted in nonbank 
subsidiaries can present less risk than banking activities. 
Specifically, some commenters argued that the proposed measure of 
nonbank assets was over-inclusive on the basis that many of the assets 
in nonbank subsidiaries would receive a zero percent risk weight under 
the Board's capital rule. In support of this position, commenters noted 
that retail brokerage firms often hold significant amounts of U.S. 
treasury securities.

[[Page 59042]]

    Other commenters argued that the measure of nonbank assets is 
poorly developed and infrequently used and urged the Board to provide 
additional support for the inclusion of the indicator in the proposed 
framework. Specifically, commenters requested that the Board provide 
additional justification for nonbank assets as an indicator of complex 
corporate structures and funding relationships, as well as 
interconnectedness. A number of commenters argued that, to the extent 
the measure was intended to address risk in broker-dealer operations, 
it was unnecessary in light of existing supervision and regulation of 
broker-dealers and application of consolidated capital, stress testing, 
and risk-management requirements to the parent banking organization.
    A number of commenters argued that, if retained, the nonbank assets 
indicator should be more risk-sensitive. Some commenters suggested 
excluding assets related to bank-permissible activities as well as 
certain types of nonbanking activities, such as retail brokerage 
activity. The commenter argued that, at a minimum, the nonbank assets 
indicator should exclude any nonbank subsidiary or asset that would be 
permissible for a bank to own. Other commenters suggested risk-
weighting nonbank assets or deducting certain assets held by nonbank 
subsidiaries, such as on-balance sheet items that are deducted from 
regulatory capital under the capital rule (e.g., deferred tax assets 
and goodwill).
    Both the organizational structure of a banking organization and the 
activities it conducts contribute to its complexity and risk profile. 
Banking organizations with significant investments in nonbank 
subsidiaries are more likely to have complex corporate structures, 
inter-affiliate transactions, and funding relationships.\44\ A banking 
organization's complexity is positively correlated with the impact of 
the organization's failure or distress.\45\
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    \44\ See ``Evolution in Bank Complexity'', Nicola Cetorelli, 
James McAndrews and James Traina, Federal Reserve Bank of New York 
Economic Policy Review (December 2014) (discussing acquisitions of 
nonbanking subsidiaries and cross-industry acquisitions as 
contributing to growth in organization complexity), available at, 
https://www.newyorkfed.org/medialibrary/media/research/epr/2014/1412cet2.pdf.
    \45\ See 80 FR 49082 (August 14, 2015). See also BCBS, ``Global 
systemically important banks: Updated assessment methodology and the 
higher loss absorbency requirement'' (paragraph 25), available at 
http://www.bis.org/publ/bcbs255.htm.
---------------------------------------------------------------------------

    Market participants typically evaluate the financial condition of a 
banking organization on a consolidated basis. Therefore, the distress 
or failure of a nonbank subsidiary could be destabilizing to, and cause 
counterparties and creditors to lose confidence in, the banking 
organization as a whole. In addition, the distress or failure of 
banking organizations with significant nonbank assets has coincided 
with or increased the effects of significant disruptions to the 
stability of the U.S. financial system.\46\
---------------------------------------------------------------------------

    \46\ An example includes the near-failure of Wachovia 
Corporation, a financial holding company with $162 billion in 
nonbank assets as of September 30, 2008.
---------------------------------------------------------------------------

    Nonbank activities also may involve a broader range of risks than 
those associated with activities that are permissible for a depository 
institution to conduct directly and can increase interconnectedness 
with other financial firms, requiring sophisticated risk management and 
governance, including capital planning, stress testing, and liquidity 
risk management. For example, holding companies with significant 
nonbank assets are generally engaged in financial intermediation of a 
different nature (such as complex derivatives activities) than those 
typically conducted through a depository institution. If not adequately 
managed, the risks associated with nonbank activities could present 
significant safety and soundness concerns and increase financial 
stability risks. Nonbank assets also reflect the degree to which a 
banking organization may be engaged in activities through legal 
entities that are not subject to separate capital or liquidity 
requirements or to the direct regulation and supervision applicable to 
a regulated banking entity.
    The nonbank assets indicator in the final rule provides a proxy for 
operational complexity and nonbanking activities without requiring 
banking organizations to track assets, income, or revenue based on 
whether a depository institution has the legal authority to hold such 
assets or conduct the related activities (legal authority). In 
addition, a depository institution's legal authority depends on the 
institution's charter and may be subject to additional interpretation 
over time.\47\ A measure of nonbank assets based on legal authority 
would be costly and complex for banking organizations to implement, as 
they do not currently report this information based on legal authority. 
Defining nonbank assets based on the type of entity that owns them, 
rather than legal authority, reflects the risks associated with 
organizational complexity and nonbanking activities without imposing 
additional reporting burden as a result of implementing the final rule 
or monitoring any future changes to legal authority. In addition, as 
noted above, the nonbank assets indicator is designed, in part, to 
identify activities that a banking organization conducts in 
subsidiaries that may be subject to less prudential regulation, which 
makes relevant whether the asset or activity is located in a bank or 
nonbank subsidiary.
---------------------------------------------------------------------------

    \47\ See, e.g., ``OCC Releases Updated List of Permissible 
Activities for Nat'l Banks & Fed. Sav. Associations,'' OCC NR 17-121 
(Oct. 13, 2017) (``The OCC may permit national banks and federal 
savings associations to conduct additional activities in the 
future''), available at https://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/pub-activities-permissible-for-nat-banks-fed-saving.pdf.
---------------------------------------------------------------------------

    Commenters' suggested modifications to exclude certain types of 
assets or entities, or to risk-weight nonbank assets, would not align 
with the full scope of risks intended to be measured by the indicator, 
including risks associated with operational and managerial complexity. 
As noted in the discussion of size above, risk weights are primarily 
designed to measure credit risk, and can underestimate operational and 
other risks. Further, because nonbank entities are permitted to conduct 
a wide range of complex activities, assets held by those entities, 
including those that receive a zero percent risk weight, may be held in 
connection with complex activities, such as certain prime brokerage or 
other trading activities. Finally, as noted above, the nonbank assets 
measure is a relatively simple and transparent measure of a banking 
organization's nonbank activities, and exclusion of specific assets 
based on risk could undermine the simplicity and transparency of the 
indicator. For these reasons, the Board is finalizing the nonbank 
assets indicator, including the measurement of the indicator, as 
proposed.
4. Off-Balance Sheet Exposure
    The proposals included off-balance sheet exposure as a risk-based 
indicator to complement the measure of size. Under the proposals, off-
balance sheet exposure would have been measured as the difference 
between total exposure, calculated in accordance with the instructions 
to the FR Y-15 or equivalent reporting form, and total assets.\48\ 
Total exposure includes on-balance sheet assets plus certain off-

[[Page 59043]]

balance sheet exposures, including derivative exposures and 
commitments.
---------------------------------------------------------------------------

    \48\ Total exposure would be reported for domestic holding 
companies on the FR Y-15, Schedule A, Line Item 5, and for foreign 
banking organizations' U.S. intermediate holding companies and 
combined U.S. operations on the FR Y-15, Schedule H, Line Item 5. 
Total off-balance sheet exposure would be reported as Line Item M5 
on Schedules A and H.
---------------------------------------------------------------------------

    A number of commenters argued that the proposed measure of off-
balance sheet exposure was not sufficiently risk-sensitive. 
Specifically, these commenters argued that the exposures captured by 
the indicator were generally associated with low-risk activities or 
assets, such as securities lending activities. In addition, the 
commenters argued that the proposed measure could be harmful to 
economic activity by discouraging corporate financing through 
commitments and letters of credit. Commenters accordingly urged the 
Board to modify the proposed approach to measuring the risk of off-
balance sheet exposures, for example, by using the combination of 
credit-conversion factors and risk weights applied under the Board's 
capital rule. Other commenters suggested that the Board exclude certain 
types of exposures from the indicator, such as letters of credit. 
Foreign banking organization commenters also argued that inter-
affiliate transactions should be excluded from the measure, including 
any guarantee related to securities used to fund the foreign parent, 
and guarantees used to facilitate clearing of swaps and futures for 
affiliates that are not clearing members. With respect to guarantees 
used to facilitate clearing, commenters argued that these exposures are 
the result of mandatory clearing requirements and help support the 
central clearing objectives of the Dodd-Frank Act. Commenters expressed 
concern that including these exposures also could result in increased 
concentration of clearing through U.S. GSIBs. For the same reasons, 
commenters argued that potential future exposures associated with 
derivatives cleared by an affiliate also should be excluded from the 
measure of off-balance sheet exposure.
    Off-balance sheet exposure complements the size indicator under the 
tailoring framework by taking into account additional risks that are 
not reflected in a banking organization's measure of on-balance sheet 
assets. This indicator 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 stemming from off-balance 
sheet activities. In addition, off-balance sheet exposure can lead to 
significant future draws on liquidity, particularly in times of stress. 
For example, during stress conditions vulnerabilities at individual 
banking organizations may be exacerbated by calls on commitments and 
the need to post collateral on derivatives exposures. The nature of 
these off-balance sheet risks for banking organizations of significant 
size and complexity can also lead to financial stability risk, as they 
can manifest rapidly and with less transparency and predictability to 
other market participants relative to on-balance sheet exposures.
    Excluding certain off-balance sheet exposures would be inconsistent 
with the purpose of the indicator as 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. Commitments and letters of 
credit, like extensions of credit through loans and other arrangements 
included on a banking organization's balance sheet, help support 
economic activity. Because corporations tend to increase their reliance 
on committed credit lines during periods of stress in the financial 
system, draws on these instruments can exacerbate the effects of stress 
conditions on banking organizations by increasing their on-balance 
sheet credit exposure.\49\ During the 2008-2009 financial crisis, 
reliance on lines of credit was particularly pronounced among smaller 
and non-investment grade corporations, suggesting that an increase in 
these exposures may be associated with decreasing credit quality.\50\
---------------------------------------------------------------------------

    \49\ During the financial crisis, increased reliance on credit 
lines began as early as 2007, and increased after September 2008. 
See Jose M. Berrospide, Ralf R. Meisenzahl, and Briana D. Sullivan, 
``Credit Line Use and Availability in the Financial Crisis: The 
Importance of Hedging,'' available at: https://www.federalreserve.gov/pubs/feds/2012/201227/201227pap.pdf. Some 
have found evidence that an increase in draws on credit lines may 
have been motivated by concerns about the ability of financial 
institutions to provide credit in the future. See Victoria Ivashina 
& David Scharfstein, ``Bank Lending During the Financial Crisis of 
2008,'' 97 J. Fin. Econ. 319-338 (2010). See also, William F. 
Bassett, Simon Gilchrist, Gretchen C. Weinbach, and Egon Zakrajsek, 
``Improving Our Ability to Monitor Bank Lending'' chapter on Risk 
Topography: Systemic Risk and Macro Modeling (2014), Markus 
Brunnermeier and Arvind Krishnamurthy, ed., pp. 149-161, available 
at: http://www.nber.org/chapters/c12554.
    \50\ Id.
---------------------------------------------------------------------------

    Including guarantees to affiliates related to cleared derivative 
transactions in off-balance sheet exposure also is consistent with the 
overall purpose of the indicators. A clearing member that guarantees 
the performance of a clearing member client to a central counterparty 
is exposed to a risk of loss if the clearing member client were to fail 
to perform its obligations under a derivative contract. By including 
these exposures, the indicator identifies a source of 
interconnectedness with other financial market participants. These 
transactions can arise with respect not only to principal trades, but 
also because a client wishes to face a particular part of the 
organization, and thus excluding these guarantees could insufficiently 
measure risk and interconnectedness.\51\
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    \51\ In order to facilitate clearing generally, the capital rule 
more specifically addresses the counterparty credit risk associated 
with transactions that facilitate client clearing, such as a shorter 
margin period of risk, and provides incentives that are intended to 
help promote the central clearing objectives of the Dodd-Frank Act. 
See 12 CFR 217.35.
---------------------------------------------------------------------------

    As described above, the tailoring framework's risk-based indicators 
and uniform category thresholds balance risk-sensitivity with 
simplicity and transparency. Excluding certain types of exposures would 
not align with the full scope of risks intended to be measured by the 
indicator. The final rule, therefore, adopts the off-balance sheet 
exposure indicator as proposed.
5. Weighted Short-Term Wholesale Funding
    The proposed weighted short-term wholesale funding indicator would 
have measured the amount of a banking organization's short-term funding 
obtained generally from wholesale counterparties. Reliance on short-
term, generally uninsured funding from more sophisticated 
counterparties can make a banking organization more vulnerable to 
large-scale funding runs, generating both safety and soundness and 
financial stability risks. The proposals would have calculated this 
indicator as the weighted-average amount of funding obtained from 
wholesale counterparties, certain brokered deposits, and certain sweep 
deposits with a remaining maturity of one year or less, in the same 
manner as currently reported by holding companies on the FR Y-15.\52\
---------------------------------------------------------------------------

    \52\ Average amounts over a 12 month period in each category of 
short-term wholesale funding are weighted based on four residual 
maturity buckets; the asset class of collateral, if any, securing 
the funding; and liquidity characteristics of the counterparty. 
Weightings reflect risk of runs and attendant fire sales. See 12 CFR 
217.406 and 80 FR 49082 (August 14, 2015).
---------------------------------------------------------------------------

    A number of commenters expressed concern regarding the use of the 
weighted short-term wholesale funding indicator in the tailoring 
framework. Several commenters argued that this indicator fails to take 
into account the extent to which the risk of short-term wholesale 
funding has been mitigated through existing regulatory requirements, 
such as the Board's enhanced prudential standards rule and, for foreign 
banking organizations, standardized liquidity requirements applicable 
to foreign banking organizations at the global consolidated level. 
Other commenters argued that the indicator is a poor measure of risk 
more

[[Page 59044]]

broadly because it fails to consider the maturity of assets funded by 
short-term wholesale funding. Commenters argued that focusing on 
liabilities and failing to recognize the types of assets funded by the 
short-term funding would disproportionately affect foreign banking 
organizations' capital market activities and ability to compete in the 
United States.
    The weighted short-term wholesale funding indicator is designed to 
serve as a broad measure of the risks associated with elevated, ongoing 
reliance on funding sources that are typically less stable than funding 
of a longer term or funding such as fully insured retail deposits, 
long-term debt, and equity. For example, a banking organization's 
weighted short-term wholesale funding level serves as an indication of 
the likelihood of funding disruptions in firm-specific or market-wide 
stress conditions. These funding disruptions may give rise to urgent 
liquidity needs and unexpected losses, which warrant heightened 
application of liquidity and regulatory capital requirements. A measure 
of funding dependency that reflects the various types or maturities of 
assets supported by short-term wholesale funding sources, as suggested 
by commenters, would add complexity to the indicator. For example, 
because a banking organization's funding is fungible, monitoring the 
relationship between specific liabilities and assets with various 
maturities is complex and imprecise. The LCR rule and the proposed net 
stable funding ratio (NSFR) rule therefore include methodologies for 
reflecting asset maturity in regulatory requirements that address the 
associated risks.\53\
---------------------------------------------------------------------------

    \53\ For example, the LCR rule includes cash inflows from 
certain maturing assets and the proposed NSFR rule would use the 
maturity profile of a banking organization's assets to determine its 
required stable funding amount.
---------------------------------------------------------------------------

    Commenters suggested revisions to the weighted short-term wholesale 
funding indicator that would align with the treatment of certain assets 
and liabilities under the LCR rule. For example, some commenters 
recommended that the Board more closely align the indicator's 
measurement of weighted short-term wholesale funding with the outflow 
rates applied in the LCR rule, such as by excluding from the indicator 
funding that receives a zero percent outflow in the LCR rule or 
reducing the weights for secured funding to match the LCR rule's 
outflow treatment. Similarly, commenters suggested that the Board 
provide a lower weighting for brokered and sweep deposits from 
affiliates, consistent with the lower outflow rates assigned to these 
deposits in the LCR rule. Specifically, commenters argued that the 
weighted short-term wholesale funding indicator inappropriately applies 
the same 25 percent weight to sweep deposits sourced by both affiliates 
and non-affiliates alike and treats certain non-brokered sweep deposits 
in a manner inconsistent with the LCR rule.
    The Board notes that when it established the weights applied in 
calculating and reporting short-term wholesale funding for purposes of 
the GSIB surcharge rule, the Board took into account the treatment of 
certain liabilities in the LCR rule, including comments received in 
connection with that rulemaking, and fire sale risks in key short-term 
wholesale funding markets. At that time, the Board noted that the LCR 
rule does not fully address the systemic risks of certain types and 
maturities of funding.\54\ The Board continues to believe the current 
scope of the weighted short-term wholesale funding indicator, and the 
weights applied in the indicator, are appropriately calibrated for 
assessing the risk to broader financial stability as a result of a 
banking organization's reliance on short-term wholesale funding. The 
final rule treats brokered deposits as short-term wholesale funding 
because they are generally considered less stable than standard retail 
deposits. In order to preserve the relative simplicity of the short-
term wholesale funding metric, the final rule does not distinguish 
between different types of brokered deposits and sweep deposits. 
Accordingly, all retail deposits identified as brokered deposits and 
brokered sweep deposits under the LCR rule are reported on the FR Y-15 
as retail brokered deposits and sweeps for purpose of the weighted 
short-term wholesale funding indicator.
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    \54\ For example, the LCR rule generally does not address 
maturities beyond 30 calendar days and offsets outflows from certain 
short-term funding transactions with inflows from certain short-term 
claims, which may not fully address the risk of asset fire sales.
---------------------------------------------------------------------------

    Commenters also suggested other specific revisions to the 
calculation of the weighted short-term wholesale funding indicator. 
Some commenters argued that the weighted short-term wholesale funding 
indicator should look to the original maturity of the funding 
relationship--instead of the remaining maturity--and exclude long-term 
debt that is maturing within the next year. Commenters also urged the 
Board to recognize certain offsets to reduce the amount of short-term 
wholesale funding included in the indicator. For example, a number of 
commenters suggested that the amount of short-term wholesale funding 
should be reduced by the amounts of HQLA held by the banking 
organization, cash deposited at the Federal Reserve by the banking 
organization, or any high-quality collateral used for secured funding. 
Commenters argued that this approach would better reflect the banking 
organization's liquidity risk because it would take into account assets 
that could be used to meet cash outflows as well as collateral that 
typically maintains its value and therefore would not contribute to 
asset fire sales. Commenters also argued that the measure of weighted 
short-term wholesale funding should exclude funding that the commenters 
viewed as stable, such as credit lines from Federal Home Loan Banks and 
Federal Reserve Banks, savings and checking accounts of wholesale 
customers, and brokered sweep deposits received from an affiliate.
    The Board believes that the remaining maturity of a funding 
relationship, instead of original maturity as suggested by commenters, 
provides a more accurate measure of the banking organization's ongoing 
exposure to rollover risk. As discussed above, because a banking 
organization's inability to rollover funding may generate safety and 
soundness and financial stability risks, the Board believes that using 
remaining maturity is more appropriate given the purposes of the 
weighted short-term wholesale funding indicator. Further, the weighted 
short-term wholesale funding indicator takes into account the quality 
of collateral used in funding transactions by assigning different 
weights to average amounts of secured funding depending on its 
collateral. These weights reflect the liquidity characteristics of the 
collateral and the extent to which the quality of such assets may 
mitigate fire sale risk. Revising the weighted short-term wholesale 
funding indicator to permit certain assets to offset liabilities 
because the assets may be used to address cash outflows, as suggested 
by commenters, could understate financial stability and safety and 
soundness risks because such an approach assumes those assets are 
available to offset funding needs in stress conditions. Further, the 
indicator measures average short-term funding dependency over the prior 
12 months, and a banking organization's current holdings of liquid 
assets may not address the financial stability and safety and soundness 
risks associated with its ongoing funding structure. Similarly, 
excluding a banking organization's general reliance

[[Page 59045]]

on certain types of short-term funding from the indicator may result in 
an underestimation of a banking organization's potential to contribute 
to systemic risk because such funding may be unavailable for use in a 
time of stress. Thus, the final rule does not exclude short-term 
borrowing from the Federal Home Loan Banks, which may be secured by a 
broad range of collateral, and the final rule treats such short-term 
borrowing the same as borrowing from other wholesale counterparties in 
order to identify risk. More generally, incorporating commenters' 
recommended exclusions and offsets would reduce the transparency of the 
weighted short-term wholesale funding indicator, contrary to the 
Board's intention to provide a simplified measure to identify banking 
organizations with heightened risks. For these reasons, the final rule 
adopts the weighted short-term wholesale funding indicator without 
change.
    Commenters also provided suggestions to reduce or eliminate inter-
affiliate transactions from the measure of weighted short-term 
wholesale funding. Specifically, commenters provided suggestions to 
weight inter-affiliate transactions or net transactions with 
affiliates.
    Including funding from affiliated sources provides an appropriate 
measure of the risks associated with a banking organization's general 
reliance on short-term wholesale funding. Banking organizations that 
generally rely on funding with a shorter contractual maturity from 
financial sector affiliates may present higher risks relative to those 
that generally rely on funding with a longer contractual term from 
outside of the financial sector. While funding relationships with 
affiliates may provide a banking organization with additional 
flexibility in the normal course of business, ongoing reliance on 
contractually short-term funding from affiliates may present risks that 
are similar to funding from nonaffiliated sources.
    For the reasons discussed above, the final rule adopts the weighted 
short-term wholesale funding indicator as proposed.

D. Application of Standards Based on the Proposed Risk-Based Indicators

    The proposed risk-based indicators would have determined the 
application of enhanced standards under Categories II, III, and IV. By 
taking into consideration the relative presence or absence of each 
risk-based indicator, the proposals would have provided a basis for 
assessing a banking organization's financial stability and safety and 
soundness risks for purposes of determining the applicability and 
stringency of these requirements.
    Commenters criticized the methods by which the proposed risk-based 
indicators would determine the category of standards applicable to a 
banking organization. Certain commenters expressed concern that a 
banking organization could become subject to Category II or III 
standards without first being subject to Category IV standards, due to 
the disjunctive use of the size and other risk-based indicators under 
the proposals. One commenter suggested that the Board should instead 
apply a category of standards based on a weighted average of the risk-
based indicators. Another commenter suggested that application of 
Category II standards should be based on other risk factors that they 
asserted are more relevant to the determination of whether a banking 
organization has a risk profile that would warrant Category II 
standards. Several commenters suggested that the application of 
standardized liquidity requirements should be based only on the levels 
of the weighted short-term wholesale funding indicator, and not based 
on the levels of any other risk-based indicator. One commenter 
criticized the proposals for not providing sufficient justification for 
the number of categories.
    Because each indicator serves as a proxy for various types of risk, 
a high level in a single indicator warrants the application of more 
stringent standards to mitigate those risks and support the overall 
purposes of each category. The Board therefore does not believe using a 
weighted average of a banking organization's levels in the risk-based 
indicators, or the methods that would require a banking organization to 
exceed multiple risk-based indicators, is appropriate to determine the 
applicable category of standards. The final rule therefore adopts the 
use of the risk-based indicators, generally as proposed.
    Certain commenters suggested that the Board reduce requirements 
under the foreign bank proposal to account for the application of 
standards at the foreign banking organization parent. The final rule 
takes into account the standards that already apply to the foreign 
banking organization parent. Specifically, the final rule tailors the 
application of enhanced 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 this way, the final rule helps to mitigate the risk such 
banking organizations present to safety and soundness and U.S. 
financial stability, consistent with the overall objectives of the 
tailoring framework. Requiring foreign banking organizations to 
maintain financial resources in the jurisdictions in which they operate 
subsidiaries also reflects existing agreements reached by the BCBS and 
international regulatory practice.

E. Calibration of Thresholds and Indexing

    The proposals would have employed fixed nominal thresholds to 
assign the categories of standards that apply to banking organizations. 
In particular, the proposals included total asset thresholds of $100 
billion, $250 billion, and $700 billion, along with $75 billion 
thresholds for each of the other risk-based indicators. The foreign 
bank proposal also included a $50 billion weighted short-term wholesale 
funding threshold for U.S. and foreign banking organizations subject to 
Category IV standards.
    Some commenters expressed concerns regarding the use of $75 billion 
thresholds for cross-jurisdictional activity, weighted short-term 
wholesale funding, nonbank assets, and off-balance sheet exposure. In 
particular, these commenters stated that the $75 billion thresholds 
were poorly justified and requested additional information as to why 
the Board chose these thresholds. A number of these commenters also 
supported the use of a higher threshold for these indicators. Other 
commenters urged the Board to retain the discretion to adjust the 
thresholds on a case-by-case basis, such as in the case of a temporary 
excess driven by customer transactions or for certain transactions that 
would result in a sudden change in categorization.
    The $75 billion thresholds are based on the degree of concentration 
of a particular risk-based indicator for each banking organization 
relative to total assets. That is, a threshold of $75 billion 
represents at least 30 percent and as much as 75 percent of total 
assets for banking organizations with between $100 billion and $250 
billion in total assets.\55\ Thus, for banking organizations

[[Page 59046]]

that do not meet the size threshold for Category III standards, other 
risks represented by the risk-based indicators would be substantial, 
while banking organizations with $75 billion in cross-jurisdictional 
activity have a substantial international footprint. In addition, 
setting the thresholds at $75 billion ensures that banking 
organizations that account for the vast majority of the total amount of 
each risk-based indicator among banking organizations with $100 billion 
or more in total assets are subject to prudential standards that 
account for the associated risks of these risk-based indicators, which 
facilitates consistent treatment of these risks across banking 
organizations. The use of a single threshold also supports the overall 
simplicity of the framework. Moreover, a framework that permits the 
Board to adjust thresholds on a temporary basis would not support the 
objectives of predictability and transparency.
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    \55\ The $100 billion and $250 billion size thresholds are 
consistent with those set forth in section 165 of the Dodd-Frank 
Act, as amended by section 401 of EGRRCPA. Section 165 of the Dodd-
Frank Act requires the application of enhanced prudential standards 
to bank holding companies and foreign banking organizations with 
$250 billion or more in total consolidated assets. Section 165 
authorizes the Board to apply enhanced prudential standards to such 
banking organizations with assets between $100 billion and $250 
billion, taking into consideration the firm's capital structure, 
riskiness, complexity, financial activities (including those of 
subsidiaries), size, and any other risk-related factors the Board 
deems appropriate. 12 U.S.C. 5365.
---------------------------------------------------------------------------

    One commenter stated that the Board should not use the $700 billion 
size threshold as the basis for applying Category II standards, arguing 
that the Board had not provided sufficient justification for that 
threshold. However, as noted in the proposals, historical examples 
suggest that the distress or failure of a banking organization of this 
size would have systemic impacts. For example, during the financial 
crisis significant losses at Wachovia Corporation, which had $780 
billion in total assets at the time of being acquired in distress, had 
a destabilizing effect on the financial system. The $700 billion size 
threshold under Category II addresses the substantial risks that can 
arise from the activities and potential distress of very large banking 
organizations that are not U.S. GSIBs. Commenters did not request 
additional explanation regarding the $100 billion and $250 billion 
total asset thresholds. As noted above, these size thresholds are 
consistent with those set forth in section 165 of the Dodd-Frank Act, 
as amended by section 401 of EGRRCPA.
    Several commenters requested that the Board index certain of the 
proposed thresholds based on changes in various measures, such as 
growth in domestic banking assets, inflation, gross domestic product 
growth or other measures of economic growth, or share of the indicator 
held by the banking organization in comparison to the amount of the 
indicator held in the financial system. These commenters requested that 
the thresholds be automatically adjusted on an annual basis based on 
changes in the relevant index, by operation of a provision in the rule. 
Other commenters expressed concern that indexing can have pro-cyclical 
effects.
    As commenters noted, the $100 billion and $250 billion size 
thresholds prescribed in the Dodd-Frank Act, as amended by EGRRCPA, are 
fixed by statute.\56\ Indexing the other thresholds would add 
complexity, a degree of uncertainty, and potential discontinuity to the 
framework. The Board acknowledges the thresholds should be reevaluated 
over time to ensure they appropriately reflect growth on a 
macroeconomic and industry-wide basis, as well as to continue to 
support the objectives of this rule. The Board plans to accomplish this 
by periodically reviewing the thresholds and proposing changes through 
the notice and comment process, rather than including an automatic 
adjustment of thresholds based on indexing.
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    \56\ Section 165 of the Dodd-Frank Act does provide the Board 
with discretion to establish a minimum asset threshold above the 
statutory thresholds for some, but not all, enhanced prudential 
standards. However, the Board may only utilize this discretion 
pursuant to a recommendation by the Financial Stability Oversight 
Council in accordance with section 115 of the Dodd-Frank Act. This 
authority is not available for stress testing and risk committee 
requirements. 12 U.S.C. 5365(a)(2)(B).
---------------------------------------------------------------------------

F. The Risk-Based Categories

1. Category I
    Under the proposals, Category I standards would have applied to 
U.S. GSIBs, which are banking organizations that have a U.S. GSIB score 
of 130 or more under the scoring methodology.\57\ Category I standards 
would have included the most stringent standards relative to those 
imposed under the other categories to reflect the heightened risks that 
banking organizations subject to Category I standards pose to U.S. 
financial stability. The requirements applicable to U.S. GSIBs would 
have largely remained unchanged from existing requirements.
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    \57\ As noted above, the foreign bank proposal would not have 
applied Category I standards to the U.S. operations of foreign 
banking organizations because the Board's GSIB surcharge rule would 
not identify a foreign banking organization or a U.S. intermediate 
holding company as a U.S. GSIB. The foreign bank proposal sought 
comment on the advantages and disadvantages of applying standards 
that are more stringent than Category II standards to the U.S. 
operations of foreign banking organizations with a comparable risk 
profile to U.S. GSIBs. Several commenters expressed general 
opposition to such an approach.
---------------------------------------------------------------------------

    The Board did not receive comments regarding the criteria for 
application of Category I standards to U.S. GSIBs. Several commenters 
expressed concern regarding applying more stringent standards than 
Category II standards to foreign banking organizations, even if the 
risk profile of a foreign banking organization's U.S. operations were 
comparable to a U.S. GSIB. The final rule adopts the scoping criteria 
for Category I, and the prudential standards that apply under this 
category, as proposed.\58\ U.S. GSIBs have the potential to pose the 
greatest risks to U.S. financial stability due to their systemic risk 
profile and, accordingly, should be subject to the most stringent 
prudential standards. The treatment for U.S. GSIBs aligns with 
international efforts to address the financial stability risks posed by 
the largest, most interconnected financial institutions. In 2011, the 
BCBS adopted a framework to identify global systemically important 
banking organizations and assess their systemic importance.\59\ This 
framework generally applies to the global consolidated parent 
organization, and does not apply separately to subsidiaries and 
operations in host jurisdictions. Consistent with this approach, the 
U.S. operations of foreign banking organizations are not subject to 
Category I standards under the final rule. The Board will continue to 
monitor the systemic risk profiles of foreign banking organization's 
U.S. operations, and consider whether application of more stringent 
requirements is appropriate to address any increases in their size, 
complexity or overall systemic risk profile.
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    \58\ Under the final rule, a U.S. banking organization that 
meets the criteria for Categories I, II, or III standards is 
required to calculate its method 1 GSIB score annually.
    \59\ See BCBS, ``Global systemically important banks: Assessment 
methodology and the additional loss absorbency requirement'' 
(November 4, 2011).
---------------------------------------------------------------------------

2. Category II
    The proposals would have applied Category II standards to banking 
organizations with $700 billion in total assets or $100 billion or more 
in total assets and $75 billion or more in cross-jurisdictional 
activity. The proposals also sought comment on whether Category II 
standards should apply based on a banking organization's weighted 
short-term wholesale funding, nonbank assets, and off-balance sheet 
exposure, using a higher threshold than the $75 billion threshold that 
would have applied for Category III standards.
    Some commenters argued that cross-jurisdictional activity should be 
an indicator for Category III standards rather than Category II 
standards. Another commenter expressed concern

[[Page 59047]]

with expanding the criteria for Category II standards to include any of 
the other risk-based indicators used for purposes of Category III 
standards. Some commenters also argued that the proposed Category II 
standards were too stringent relative to the risks indicated by a high 
level of cross-jurisdictional activity or very large size. Other 
commenters argued that application of Category II standards to foreign 
banking organizations was unnecessary because these banking 
organizations are already subject to BCBS-based standards on a global, 
consolidated basis by their home-country regulators. Another commenter 
requested that the Board provide greater differentiation between 
Category I and Category II standards.
    As discussed above, banking organizations that engage in 
significant cross-jurisdictional activity present complexities that 
support the application of more stringent standards relative to those 
that would apply under Category III. In addition, application of 
consistent prudential standards across jurisdictions to banking 
organizations with significant size or cross-jurisdictional activity 
helps to promote competitive equity among U.S. banking organizations 
and their foreign peers, while applying standards that appropriately 
reflect the risk profiles of banking organizations that meet the 
thresholds for Category III standards. As noted above, this approach is 
consistent with international regulatory practice.
    Accordingly, and consistent with the proposal, the final rule 
applies Category II standards to banking organizations with $700 
billion in total consolidated assets or cross-jurisdictional activity 
of $75 billion or more.
3. Category III
    Under the proposals, Category III standards would have applied to 
banking organizations that are not subject to Category I or II 
standards and that have total assets of $250 billion or more. They also 
would have applied to banking organizations with $100 billion or more 
in total assets and $75 billion or more in nonbank assets, weighted 
short-term wholesale funding, or off-balance-sheet exposure.
    A number of commenters supported the proposed scoping criteria for 
Category III, as well as the standards that would have applied under 
this category. Several other commenters requested certain changes to 
the specific thresholds and indicators used to determine which banking 
organizations would have been subject to Category III standards, as 
well as the prudential standards that would have applied under this 
category. Comments regarding the prudential standards that would have 
applied under Category III are discussed in section VI.C of this 
Supplementary Information.
    The final rule generally adopts the scoping criteria for Category 
III, and the prudential standards that apply under this Category, as 
proposed.
4. Category IV
    Under the proposals, Category IV standards would have applied to 
banking organizations with $100 billion or more in total assets that do 
not meet the thresholds for any other category. A number of commenters 
argued that no heightened prudential standards should apply to banking 
organizations that meet the criteria for Category IV because such 
banking organizations are not as large or complex as banking 
organizations that would be subject to more stringent categories of 
standards under the proposals. Alternatively, these commenters 
suggested that the threshold for application of Category IV standards 
should be raised from $100 billion to $250 billion in total assets.\60\ 
In contrast, one commenter argued that the Board should not reduce the 
requirements applicable to banking organizations that would be subject 
to Category IV until current requirements have been in effect for a 
full business cycle.
---------------------------------------------------------------------------

    \60\ Commenters also argued that the Board had not sufficiently 
justified the application of enhanced prudential standards to firms 
subject to Category IV standards. These comments are addressed in 
section VI.D. of this Supplementary Information.
---------------------------------------------------------------------------

    The final rule includes Category IV because banking organizations 
subject to this category of standards generally have greater scale and 
operational and managerial complexity relative to smaller banking 
organizations and, as a result, present heightened safety and soundness 
risks. In addition, the failure of one or more banking organizations 
subject to Category IV standards could have a more significant negative 
effect on economic growth and employment relative to the failure or 
distress of smaller banking organizations.\61\ The final rule generally 
adopts the scoping criteria for Category IV, and the prudential 
standards that apply under this Category, as proposed.
---------------------------------------------------------------------------

    \61\ See section V.C.1. of this Supplementary Information.
---------------------------------------------------------------------------

G. Specific Aspects of the Foreign Bank Proposal--Treatment of Inter-
Affiliate Transactions

    Except for cross-jurisdictional activity, which would have excluded 
liabilities to and certain collateralized claims on non-U.S. 
affiliates, the proposed risk-based indicators would have included 
transactions between a foreign banking organization's combined U.S. 
operations and non-U.S. affiliates.\62\ Similarly, and as noted above, 
except for cross-jurisdictional activity, a U.S. intermediate holding 
company would have included transactions with affiliates outside the 
U.S. intermediate holding company when reporting its risk-based 
indicators.
---------------------------------------------------------------------------

    \62\ See supra note 34.
---------------------------------------------------------------------------

    Most commenters on the foreign bank proposal supported the proposed 
exclusion of certain inter-affiliate transactions in the cross-
jurisdictional activity indicator, and argued further that all risk-
based indicators should exclude transactions with affiliates. These 
commenters asserted that including inter-affiliate transactions 
disadvantaged foreign banking organizations relative to U.S. peers and 
argued that the rationale for excluding certain inter-affiliate claims 
from the cross-jurisdictional activity measure applied equally to all 
other risk-based indicators. A number of commenters argued that 
including inter-affiliate transactions would overstate the risks to a 
foreign banking organization's U.S. operations or U.S. intermediate 
holding company because inter-affiliate transactions may be used to 
manage risks of the foreign banking organization's global operations. 
Similarly, some commenters asserted that the inclusion of inter-
affiliate transactions was inconsistent with risks that the risk-based 
indicators are intended to capture. Other commenters argued that any 
risks associated with inter-affiliate transactions were appropriately 
managed through the supervisory process and existing regulatory 
requirements, and expressed concern that including inter-affiliate 
transactions could encourage ring fencing in other jurisdictions. Some 
commenters suggested that, if the Board does not exclude inter-
affiliate transactions entirely, the Board should weight inter-
affiliate transactions at no more than 50 percent. By contrast, one 
commenter argued that inter-affiliate transactions should be included 
in the risk-based indicators, arguing that the purpose of the Board's 
U.S. intermediate holding company framework is that resources located 
outside the organization may not be reliably available during periods 
of financial stress.
    Tailoring standards based on the risk profile of the U.S. 
intermediate holding company or combined U.S. operations of a foreign 
banking organization, as applicable, requires measurement of risk-based 
indicators at a sub-

[[Page 59048]]

consolidated level rather than at the global parent. As a result, 
calculation of the risk-based indicators must distinguish between such 
a banking organization's U.S. operations or U.S. intermediate holding 
company, as applicable, and affiliates outside of the United States, 
including by providing a treatment for inter-affiliate transactions 
that would otherwise be eliminated in consolidation at the global 
parent. Including inter-affiliate transactions in the calculation of 
risk-based indicators would mirror, as closely as possible, the risk 
profile of a U.S. intermediate holding company or combined U.S. 
operations if each were consolidated in the United States.
    Including inter-affiliate transactions in the calculation of risk-
based indicators is consistent with the Board's approach to measuring 
and applying standards at a sub-consolidated level in other contexts. 
For example, existing thresholds and requirements in the Board's 
Regulation YY are based on measures of a foreign banking organization's 
size in the United States that includes inter-affiliate 
transactions.\63\ Similarly, the total consolidated assets of a U.S. 
intermediate holding company or depository institution include 
transactions with affiliates outside of the U.S. intermediate holding 
company.\64\ Capital and liquidity requirements applied to U.S. 
intermediate holding companies and insured depository institutions 
generally do not distinguish between exposures with affiliates and 
third parties. For example, the LCR rule assigns outflow rates to 
funding according to the characteristics of the source of funding, but 
generally does not distinguish between funding provided by an affiliate 
or third party.\65\ Excluding inter-affiliate transactions from off-
balance sheet exposure, size, and weighted short-term wholesale funding 
indicators would be inconsistent with the treatment of these exposures 
under the capital and liquidity rules.
---------------------------------------------------------------------------

    \63\ See 12 CFR 252.2 and 252.150 (definition of ``Average 
combined U.S. assets).''
    \64\ See Call Report instructions, FR Y-9C.
    \65\ For example, the LCR rule differentiates between unsecured 
wholesale funding provided by financial sector entities and by non-
financial sector entities, but does not differentiate between 
financial sector entities that are affiliates and those that are not 
affiliates. 12 CFR 249.32(h). The LCR rule differentiates between 
affiliates and third parties under limited circumstances. See, e.g., 
12 CFR 249.32(g)(7).
---------------------------------------------------------------------------

    In some cases, the exclusion of inter-affiliate transactions would 
not align with the full scope of risks intended to be measured by an 
indicator. Inter-affiliate positions can represent sources of risk--for 
example, claims on the resources of a foreign banking organization's 
U.S. operations.\66\ As another example, short-term wholesale funding 
provided to a U.S. intermediate holding company by its parent foreign 
bank represents funding that the parent could withdraw quickly, which 
could leave fewer assets available for U.S. counterparties of the U.S. 
intermediate holding company.\67\ By including inter-affiliate 
transactions in weighted short-term wholesale funding while excluding 
these positions from cross-jurisdictional liabilities, the framework 
provides a more risk-sensitive measure of funding risk from foreign 
affiliates as it takes into consideration the maturity and other risk 
characteristics of the funding for purposes of the weighted short-term 
wholesale funding measure. Additionally, because long-term affiliate 
funding (such as instruments used to meet total loss absorbing capacity 
requirements) would not be captured in weighted short-term wholesale 
funding, the indicator is designed to avoid discouraging a foreign 
parent from providing support to its U.S. operations.
---------------------------------------------------------------------------

    \66\ Domestic banking organizations are required to establish 
and maintain procedures for monitoring risks associated with funding 
needs across significant legal entities, currencies, and business 
lines. See, e.g., 12 CFR 252.34(h)(2).
    \67\ See e.g., Robert H. Gertner, David S. Scharfstein & Jeremy 
C. Stein, ``Internal Versus External Capital Markets,'' 109 Q.J. 
ECON. 1211 (1994) (discussing allocation of resources within a 
consolidated organization through internal capital markets); Nicola 
Cetorelli & Linda S. Goldberg, ``Global Banks and International 
Shock Transmission: Evidence from the Crisis,'' 59 IMF ECON. REV. 41 
(2011) (discussing the role of internal capital markets as a 
mechanism for transmission of stress in the financial system); 
Nicola Cetorelli & Linda Goldberg, ``Liquidity Management of U.S. 
Global Banks: Internal Capital Markets in the Great Recession'' 
(Fed. Reserve Bank of N. Y. Staff Report No. 511, 2012), available 
at: http://www.newyorkfed.org/research/staff_reports/sr511.pdf 
(finding that foreign affiliates were both recipients and providers 
of funds to the parent between March 2006 and December 2010). See 
also, Ralph de Haas and Iman Van Lelyvelt, ``Internal Capital 
Markets and Lending by Multinational Bank Subsidiaries (2008) 
(discussing substitution effect in lending across several countries 
as a parent bank expand its business in those countries where 
economic conditions improve and decrease its activities where 
economic circumstance worsen), available at: https://www.ebrd.com/downloads/research/economics/workingpapers/wp0105.pdf.
---------------------------------------------------------------------------

    Similarly, with respect to off-balance sheet exposure, an exclusion 
for inter-affiliate transactions would not account for the risks 
associated with any funding commitments provided by the U.S. operations 
of a foreign banking organization to non-U.S. affiliates. Accordingly, 
the Board believes it would be inappropriate to exclude inter-affiliate 
transactions from the measure of off-balance sheet exposure.
    For purposes of the nonbank assets indicator, the proposals would 
have treated inter-affiliate transactions similarly for foreign and 
domestic banking organizations. For foreign banking organizations, the 
proposals would have measured nonbank assets as the sum of assets in 
consolidated U.S. nonbank subsidiaries together with investments in 
unconsolidated U.S. nonbank companies that are controlled by the 
foreign banking organization.\68\ Both foreign and domestic banking 
organizations would have included in nonbank assets inter-affiliate 
transactions between the nonbank company and other parts of the 
organization.\69\
---------------------------------------------------------------------------

    \68\ See FR Y-9LP, Schedule PC-B, line item 17.
    \69\ See FR Y-9 LP Instructions for Preparation of Parent 
Company Only Financial Statements for Large Holding Companies 
(September 2018).
---------------------------------------------------------------------------

    Accordingly, for purposes of the risk-based indicators, the final 
rule adopts the treatment of inter-affiliate transactions as proposed.

H. Determination of Applicable Category of Standards

    Under the proposals, a banking organization would have determined 
its category of standards based on the average levels of each indicator 
at the banking organization, reported over the preceding four calendar 
quarters. If the banking organization had not reported risk-based 
indicator levels for each of the preceding four calendar quarters, the 
category would have been based on the risk-based indicator level for 
the quarter, or average levels over the quarters, that the banking 
organization has reported.
    For a change to a more stringent category (for example, from 
Category IV to Category III), the change would have been based on an 
increase in the average value of its indicators over the prior four 
quarters of a calendar year. In contrast, for a banking organization to 
change to a less stringent category (for example, Category II to 
Category III), the banking organization would have been required to 
report risk-based indicator levels below any applicable threshold for 
the more stringent category in each of the four preceding calendar 
quarters. Changes in a banking organization's requirements that result 
from a change in category generally would have taken effect on the 
first day of the second quarter following the change in the banking 
organization's category.
    The Board received several comments on the process for determining 
the applicable category of standards under the proposal and on the 
amount of time provided to comply with the

[[Page 59049]]

requirements of a new category. In particular, several commenters 
suggested providing banking organizations with at least 18 months to 
comply with a more stringent category of standards. Several commenters 
recommended that the Board retain discretion to address a temporary 
increase in an activity, such as to help a banking organization avoid a 
sudden change in the categorization of applicable standards. These 
commenters suggested that any adjustments of thresholds could consider 
both qualitative information and supervisory judgment. Commenters also 
requested that the Board clarify the calculation of certain indicators; 
for example, by providing references to specific line items in the 
relevant reporting forms. One commenter also suggested that the Board 
revise the reporting forms used to report risk-based indicator levels 
so that they apply to a depository institution that is not part of a 
bank or savings and loan holding company structure.
    The final rule maintains the process for determining the category 
of standards applicable to a banking organization as proposed. To move 
into a category of standards or to determine the category of standards 
that would apply for the first time, a banking organization would rely 
on an average of the previous four quarters or, if the banking 
organization has not reported in each of the prior four quarters, the 
category would be based on the risk-based indicator level for the 
quarter, or average levels over the quarter or quarters, that the 
banking organization has reported. Use of a four-quarter average would 
capture significant changes in a banking organization's risk profile, 
rather than temporary fluctuations, while maintaining incentives for a 
banking organization to reduce its risk profile relative to a longer 
period of measurement.
    To move to a less stringent category of standards, a banking 
organization must report risk-based indicator levels below any 
applicable threshold for the more stringent category in each of the 
four preceding calendar quarters. This approach is consistent with the 
existing applicability and cessation requirements of the Board's 
enhanced prudential standards rule.\70\ In addition, the final rule 
would adopt the transition for compliance with a new category of 
standards as proposed. Specifically, a banking organization that 
changes from one category of applicable standards to another category 
must generally comply with the new requirements no later than on the 
first day of the second quarter following the change in category.
---------------------------------------------------------------------------

    \70\ See, e.g., 12 CFR 252.43.
---------------------------------------------------------------------------

    The final rule does not provide for discretionary adjustments of 
thresholds on a case-by-case basis, because such an approach would 
diminish the transparency and predictability of the framework and could 
reduce incentives for banking organizations to engage in long-term 
management of their risks.\71\
---------------------------------------------------------------------------

    \71\ The Board retains the general authority under its enhanced 
prudential standards, capital, and liquidity rules to increase or 
adjust requirements as necessary on a case-by-case basis. See 12 CFR 
217.1(d); 249.2; 252.3.
---------------------------------------------------------------------------

    Each risk-based indicator will generally be calculated in 
accordance with the instructions to the FR Y-15, FR Y-9LP, Capital and 
Asset Report for Foreign Banking Organizations (FR Y-7Q), or FR Y-9C, 
as applicable. The risk-based indicators must be reported for the 
banking organization on a quarterly basis.\72\ U.S. banking 
organizations currently report the information necessary to determine 
their applicable category of standards based on a four-quarter average. 
In response to concerns raised by commenters, the Board also is 
revising its reporting forms to specify the line items used in 
determining the risk-based indicators. Section XV of this Supplementary 
Information discusses changes to reporting requirements, and identifies 
the specific line items that will be used to calculate risk-based 
indicators.\73\ With respect to the commenters' concern regarding the 
applicability of these reporting forms to depository institutions that 
are not part of a bank or savings and loan holding company structure, 
the Board notes that no such depository institution would be subject to 
the final rule based on first quarter 2019 data. The Board will monitor 
the implementation of the final rule and make any such adjustments to 
reporting forms, as needed, to require such a depository institution to 
report risk-based indicator levels.
---------------------------------------------------------------------------

    \72\ A foreign banking organization must also report risk-based 
indicators as with respect to the organization's combined U.S. 
operations as applicable under the final rule.
    \73\ Although U.S. intermediate holding companies currently 
report the FR Y-15, the revised form would reflect the cross-
jurisdictional activity indicator adopted in the final rule.
---------------------------------------------------------------------------

    Some commenters asserted that banking organizations could adjust 
their exposures to avoid thresholds, including by making temporary 
adjustments to lower risk-based indicator levels reported. The Board 
will continue to monitor risk-based indicator amounts reported and 
information collected through supervisory processes to ensure that the 
risk-based indicators are reflective of a banking organization's 
overall risk profile, and would consider changes to reporting forms, as 
needed. In particular, the Board will monitor weighted short-term 
wholesale funding levels reported at quarter-end, relative to levels 
observed during the reporting period.

VI. Prudential Standards for Large U.S. and Foreign Banking 
Organizations

A. Category I Standards

    U.S. GSIBs are subject to the most stringent prudential standards 
relative to other firms, which reflects and helps to mitigate the 
heightened risks these firms pose to U.S. financial stability.
    The domestic proposal would have required that U.S. GSIBs remain 
subject to the most stringent stress testing requirements, such as an 
annual supervisory stress testing, FR Y-14 reporting requirements, and 
a requirement to conduct company-run stress tests on an annual basis. 
Consistent with changes made by EGRRCPA, the proposal would have 
removed the mid-cycle company-run stress test requirement for all bank 
holding companies, including U.S. GSIBs.\74\ The proposal would have 
maintained the requirement for a U.S. GSIB to conduct an annual 
company-run stress test.
---------------------------------------------------------------------------

    \74\ Section 401 of EGRRCPA amended section 165(i) of the Dodd-
Frank Act to require company-run stress tests to be conducted 
periodically rather than on a semi-annual basis. Certain commenters 
requested that the Board remove the mid-cycle company-run stress 
test requirement for the 2019 stress test cycle. Because the final 
rule is effective after October 5, 2019, which was the due date for 
mid-cycle company-run stress tests, the removal of this requirement 
will take effect for the 2020 stress test cycle.
---------------------------------------------------------------------------

    While many commenters supported a reduction in the frequency of 
company-run stress testing, some commenters expressed the view that 
this aspect of the proposal could weaken a tool that is intended to 
enhance the safety and soundness of banking organizations. These 
commenters argued that the Board should postpone removing the mid-cycle 
company-run stress test until the efficacy of this requirement has been 
evaluated over a full business cycle.
    Relative to the annual company-run stress test, the mid-cycle 
company-run stress test has provided only modest risk management 
benefits and limited incremental information to market participants. To 
provide additional flexibility to respond to changes in the risk 
profile of a banking organization or in times of stress, it is 
important for the Board to have the ability to adjust the frequency of 
the company-run stress test requirement. Accordingly, and in

[[Page 59050]]

response to commenters, the final rule eliminates the mid-cycle stress 
testing requirement for all bank holding companies but provides the 
Board authority to adjust the required frequency at which a banking 
organization, including a U.S. GSIB, must conduct a stress test based 
on its financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy. The final rule 
therefore provides flexibility to the Board to require more frequent 
company-run stress testing as needed, while minimizing the burden 
associated with an ongoing semi-annual requirement.
    Some commenters also requested that the Board eliminate its ability 
to object to a firm's capital plan on the basis of qualitative 
deficiencies (qualitative objection) for all banking organizations.\75\ 
This comment was addressed after the domestic proposal was issued in a 
separate rulemaking. In March 2019, the Board eliminated the 
qualitative objection for most firms, including firms that are subject 
to Category I standards under this final rule.\76\ In recognition of 
the progress that firms have made in their risk management and capital 
planning practices, their significantly strengthened capital positions, 
and changes to the Board's supervisory processes, the Board expressed 
its belief that it is appropriate to transition away from the 
qualitative objection under the capital plan rule. Because the 
qualitative objection has led to improvements in firms' capital 
planning, however, the Board decided to temporarily retain the 
qualitative objection for firms that recently became subject to the 
Federal Reserve's qualitative assessment, including certain U.S. 
intermediate holding companies. In doing so, the capital plan rule 
provides additional time for those firms to improve their capital 
planning practices before the qualitative objection is removed. While 
the qualitative objection no longer applies to certain banking 
organizations, all banking organizations continue to be subject to 
robust supervisory assessments of their capital planning practices.
---------------------------------------------------------------------------

    \75\ The qualitative assessment evaluates the strength of a 
company's capital planning process, including the extent to which 
the analysis underlying a company's capital plan comprehensively 
captures and addresses potential risks stemming from company-wide 
activities, as well as the reasonableness of a company's capital 
plan and the assumptions and analysis underlying the plan.
    \76\ 84 FR 8953 (March 13, 2019). Specifically, a firm that 
participates in four assessments and successfully passes the 
qualitative evaluation in the fourth year is no longer subject to a 
potential qualitative objection.
---------------------------------------------------------------------------

    The proposal also would have required U.S. GSIBs to remain subject 
to the most stringent liquidity standards, including the liquidity risk 
management, monthly internal liquidity stress testing, and liquidity 
buffer requirements under the enhanced prudential standards rule. The 
proposal also would have required U.S. GSIBs to report certain 
liquidity data for each business day under the FR 2052a. The Board did 
not receive comments on the continued application of these enhanced 
liquidity standards to U.S. GSIBs and is finalizing liquidity 
requirements for U.S. GSIBs as proposed.

B. Category II Standards

    The proposals would have required banking organizations subject to 
Category II standards to remain subject to the most stringent stress 
testing requirements, including annual supervisory stress testing, FR 
Y-14 reporting requirements, and a requirement to conduct company-run 
stress tests on an annual basis. As noted above, the failure or 
distress of a U.S. banking organization or the U.S. operations of a 
foreign banking organization that is subject to Category II standards 
could impose significant costs on the U.S. financial system and 
economy, although these banking organizations generally do not present 
the same degree of systemic risk as U.S. GSIBs. Sophisticated stress 
testing helps to address the risks presented by the size and cross-
jurisdictional activity of such banking organizations.\77\
---------------------------------------------------------------------------

    \77\ See section V.C of this Supplementary Information.
---------------------------------------------------------------------------

    The Board did not receive any comments related to capital planning 
and stress testing for firms subject to Category II standards, other 
than those discussed for Category I. The Board is finalizing the 
removal of the mid-cycle stress test for firms subject to Category II 
standards and adjusting the frequency of stress testing requirements, 
as discussed above. The Board is not finalizing changes to the capital 
plan rule to amend the definition of large and noncomplex bank holding 
company at this time, however. The Board intends to consider such 
changes in conjunction with other changes to the capital plan rule as 
part of a future capital plan proposal.
    With respect to liquidity, the proposals would have maintained the 
existing liquidity risk management, monthly internal liquidity stress 
testing, and liquidity buffer requirements under the enhanced 
prudential standards rule for banking organizations that would have 
been subject to Category II standards. The liquidity risk management 
requirements under the Board's enhanced prudential standards rule 
reflect important elements of liquidity risk management in normal and 
stressed conditions, such as cash flow projections and contingency 
funding plan requirements. Similarly, internal liquidity stress testing 
and buffer requirements require a banking organization to project its 
liquidity needs based on its own idiosyncratic risk profile and to hold 
a liquidity buffer sufficient to cover those needs. A banking 
organization subject to Category II standards under the proposals would 
have been required to conduct internal liquidity stress tests on a 
monthly basis. A U.S. banking organization would have conducted such 
stress tests at the top-tier consolidated level, whereas a foreign 
banking organization would have been required to conduct internal 
liquidity stress tests separately for each of its U.S. intermediate 
holding company, if applicable, its collective U.S. branches and 
agencies, and its combined U.S. operations. The proposals would have 
also required a top-tier U.S. depository institution holding company or 
foreign banking organization subject to Category II standards to report 
FR 2052a liquidity data for each business day.
    Category II liquidity standards are appropriate for banking 
organizations of a very large size or with significant cross-
jurisdictional activity. Such banking organizations may have greater 
liquidity risk and face heightened challenges for liquidity risk 
management compared to an organization that is smaller or has less of a 
global reach. In addition, a very large banking organization that 
becomes subject to funding disruptions may need to engage in asset fire 
sales to meet its liquidity needs and has the potential to transmit 
distress to the financial sector on a broader scale because of the 
greater volume of assets it could sell in a short period of time. 
Similarly, a banking organization with significant cross-jurisdictional 
activity may have greater challenges in the monitoring and management 
of its liquidity risk across jurisdictions and may be exposed to a 
greater diversity of liquidity risks as a result of its more global 
operations.
    The Board received comments related to the frequency and submission 
timing of FR 2052a reporting for banking organizations subject to 
Category II standards. These comments are discussed below in section XV 
of this Supplementary Information. Otherwise,

[[Page 59051]]

commenters did not provide views on liquidity requirements applicable 
under Category II. The Board is adopting Category II liquidity 
standards as proposed.

C. Category III Standards

    For banking organizations subject to Category III standards, the 
proposals would have removed the mid-cycle company-run stress testing 
requirement and changed the frequency of the required public disclosure 
for company-run stress test results to every other year rather than 
annually. The proposals would have maintained all other stress testing 
requirements for banking organizations subject to Category III 
standards. These standards would have included the requirements for an 
annual capital plan submission and annual supervisory stress testing. A 
firm subject to Category III standards would also be required to 
conduct an internal stress test, and report the results on the FR Y-
14A, in connection with its annual capital plan submission.
    A number of commenters requested that the Board clarify the 
relationship between the capital plan rule and the stress testing rules 
and minimize the imposition of any additional requirements or 
processes. Specifically, commenters requested that the Board clarify 
expectations for internal stress testing conducted in years during 
which a company-run stress test would not be required. These commenters 
requested that internal stress tests be aligned with the analysis 
required under the capital plan rule by, for example, relying on the 
capital action assumptions in the Board's stress testing rules. In 
addition, some of these commenters suggested that the Board reduce 
burden by limiting the number of scenarios required. Alternatively, 
some commenters requested that the Board reduce the frequency of the 
stress testing cycle--including capital plan submissions--to every 
other year for banking organizations subject to Category III standards.
    The final rule retains the frequency of supervisory stress testing 
and FR Y-14 reporting requirements as proposed. These requirements help 
to ensure that a banking organization subject to Category III standards 
maintains sufficient capital to absorb unexpected losses and continue 
to serve as a financial intermediary under stress. Additionally, all 
large banking organizations should maintain a sound capital planning 
process on an ongoing basis, including in years during which a company-
run stress test is not required.\78\ As noted in the proposals, the 
Board will consider any other changes to the capital plan rule as part 
of a separate capital plan proposal. Reporting requirements are 
discussed in more detail in section XV of this Supplementary 
Information.
---------------------------------------------------------------------------

    \78\ See SR letters 15-18 and 15-19.
---------------------------------------------------------------------------

    Other commenters requested that the Board retain the requirement 
for banking organizations to publicly disclose the results of their 
stress tests on an annual basis. The Board will continue to publish its 
annual supervisory stress test results for firms subject to Category 
III standards and thus the reduced frequency to every other year of 
firm's required public disclosure should only modestly limit the amount 
of information that is publicly available. Accordingly, the final rule 
adopts the stress testing disclosure requirements for banking 
organizations subject to Category III standards without change.
    The proposals would have applied the existing liquidity risk 
management, monthly internal liquidity stress testing, and liquidity 
buffer requirements under the enhanced prudential standards rule to 
banking organizations subject to Category III standards. Additionally, 
the proposals would have required a top-tier U.S. depository 
institution holding company or foreign banking organization subject to 
Category III standards to report daily or monthly FR 2052a liquidity 
data, depending on the weighted short-term wholesale funding level of 
the domestic holding company or the foreign banking organization's 
combined U.S. operations. Specifically, to provide greater insight into 
banking organizations with heightened liquidity risk, the Board 
proposed that a top-tier U.S. holding company with $75 billion or more 
in weighted short-term wholesale funding, or a foreign banking 
organization with U.S. operations having at least that amount of 
weighted short-term wholesale funding, be required to submit FR 2052a 
data for each business day.
    The Board did not receive comments on the application of liquidity 
stress testing and buffer requirements to banking organizations subject 
to Category III standards. With respect to liquidity risk management 
requirements, some commenters requested that the rule permit a banking 
organization's board of directors to delegate certain oversight and 
approval functions to a risk committee with primary responsibility for 
overseeing liquidity risks, including approval of liquidity policies 
and review of quarterly risk reports. These commenters also requested 
elimination of the requirement for a banking organization's board or 
risk committee to review or approve certain operational documents, such 
as cash flow projection methodologies and liquidity risk procedures, 
arguing that these responsibilities are more appropriate for senior 
management than the board or a committee of the board.
    The Board has long taken the view that the board of directors 
should have responsibility for oversight of liquidity risk management 
because the directors have ultimate responsibility for the strategic 
direction of the banking organization, and thus its liquidity profile. 
Certain risk management responsibilities, however, are assigned to 
senior management. As such, the final rule maintains the requirement 
for the board of directors to approve and periodically review the 
liquidity risk management strategies and policies and review quarterly 
risk reports. In addition, the final rule continues to state that the 
liquidity risk management requirements for certain operational 
documents such as cash flow projection methodologies require submission 
to the risk committee, rather than the board of directors, for 
approval.\79\ The final rule adopts Category III liquidity risk-
management standards as proposed, including monthly liquidity stress 
testing and liquidity buffer maintenance requirements.
---------------------------------------------------------------------------

    \79\ See 12 CFR 252.34(e)(3).
---------------------------------------------------------------------------

    Additionally, as discussed in section XV of this Supplementary 
Information, the Board received certain comments related to the 
frequency and timeliness of FR 2052a reporting for banking 
organizations subject to Category III standards. As discussed in that 
section, the Board is finalizing FR 2052a reporting requirements for 
banking organizations subject to Category III standards generally as 
proposed, with minor changes to submission timing.

D. Category IV Standards

    The proposal would have applied revised stress testing requirements 
to banking organizations subject to Category IV standards to align with 
the risk profile of these firms. Specifically, the proposal would have 
revised the frequency of supervisory stress testing to every other year 
and eliminated the requirement for firms subject to Category IV 
standards to conduct and publicly disclose the results of a company-run 
stress test. Firms subject to Category IV standards also would be 
subject to FR Y-14 reporting requirements. Relative to current 
requirements under the enhanced

[[Page 59052]]

prudential standards rule, the proposed Category IV standards would 
have maintained core elements of existing standards but tailored these 
requirements to reflect these banking organizations' lower risk profile 
and lesser degree of complexity relative to other large banking 
organizations.
    Many commenters supported the reduced frequency of supervisory 
stress tests as a form of burden reduction. However, some commenters 
opposed this change and expressed concern that it would allow banking 
organizations subject to Category IV standards to take on additional 
risk during off-cycle years, and limit the public and market's ability 
to assess systemic risk. Other commenters also argued that stress 
testing requirements are not justified for banking organizations 
subject to Category IV standards in view of the significant costs and 
burden associated with such requirements. Some commenters requested 
that the Board provide additional information on the impact of reducing 
the frequency of supervisory stress testing for banking organizations 
subject to Category IV standards.
    Supervisory stress testing on a two-year cycle is consistent with 
section 401(e) of EGRRCPA, and takes into account the risk profile of 
these banking organizations relative to those that are larger and more 
complex. Maintaining FR Y-14 reporting requirements for firms subject 
to Category IV standards will provide the Board with the data it needs 
to conduct supervisory stress testing and inform ongoing supervision of 
these firms. The Federal Reserve will continue to supervise banking 
organizations subject to Category IV standards on an ongoing basis, 
including evaluation of the capital adequacy and capital planning 
processes during off-cycle years. In addition, the final rule provides 
the Board with authority to adjust the frequency of stress testing 
requirements based on the risk profile of a banking organization or 
other factors. Accordingly, the final rule adopts the revisions to the 
frequency of supervisory stress testing requirements for firms subject 
to Category IV standards as proposed. Reporting requirements are 
discussed in more detail in section XV below.
    Similar to the comments discussed above, several commenters 
requested that the Board clarify the relationship between the capital 
plan rule and the stress testing rules for banking organizations 
subject to Category IV standards. In particular, commenters requested 
that the Board clarify what information would be required in a capital 
plan and related reporting forms submitted by a banking organization 
subject to Category IV standards, given that these banking 
organizations would not be subject to company-run stress testing 
requirements. Other commenters requested that any forward-looking 
analysis required for banking organizations subject to Category IV 
standards be limited and not require hypothetical stress scenarios. The 
Board plans to propose changes to the capital plan rule as part of a 
separate proposal, including providing firms subject to Category IV 
standards additional flexibility to develop their annual capital plans.
    Under the proposals, Category IV standards would have included 
liquidity risk management, stress testing, and buffer requirements. 
Banking organizations subject to Category IV standards also would have 
been required to report FR 2052a liquidity data on a monthly basis. 
While the proposals would have retained core liquidity requirements 
under Category IV standards, certain liquidity risk management and 
liquidity stress testing requirements would have been further tailored 
to more appropriately reflect the risk profiles of banking 
organizations subject to this category of standards.
    As a class, banking organizations that would have been subject to 
Category IV standards tend to have more stable funding profiles, as 
measured by their generally lower level of weighted short-term 
wholesale funding, and lesser degrees of liquidity risk and operational 
complexity associated with size, cross-jurisdictional activity, nonbank 
assets, and off-balance sheet exposure. Accordingly, the proposals 
would have reduced the frequency of required internal liquidity stress 
testing to at least quarterly, rather than monthly. The proposals would 
not have changed other aspects of the liquidity buffer requirements for 
banking organizations subject to Category IV standards.
    The proposals would have modified certain liquidity risk-management 
requirements under the enhanced prudential standards rule for banking 
organizations subject to Category IV standards. First, the proposals 
would have required such banking organizations to calculate collateral 
positions on a monthly basis, rather than a weekly basis. Second, the 
proposals would have further tailored the requirement under the 
enhanced prudential standards rule for certain bank holding companies 
to establish risk limits to monitor sources of liquidity risk.\80\ 
Third, Category IV standards would have specified fewer required 
elements of monitoring intraday liquidity risk exposures.\81\ Such 
changes would have reflected the generally more stable funding profiles 
and lower degrees of intraday risk and operational complexity of these 
banking organizations relative to those that are larger and more 
complex. Under the proposals, banking organizations subject to Category 
IV standards also would have been required to report FR 2052a liquidity 
data on a monthly basis.
---------------------------------------------------------------------------

    \80\ 12 CFR 252.34(g).
    \81\ See 12 CFR 252.34(h)(3).
---------------------------------------------------------------------------

    Some commenters objected to the liquidity risk-management standards 
proposed for banking organizations subject to Category IV standards, on 
the basis that any reduction in such requirements could increase safety 
and soundness and financial stability risks. Other commenters supported 
this aspect of the proposals, and asserted that it would distinguish 
more effectively between banking organizations in this category and 
those that are larger and more complex.
    Banking organizations subject to Category IV standards generally 
are less prone to funding disruptions, even under stress conditions. 
Monthly FR 2052a information, which is discussed in more detail in 
section XV below, together with information obtained through the 
supervisory process, allows the Board to monitor the liquidity risk 
profiles of these banking organizations. Accordingly, the final rule 
adopts the proposed Category IV liquidity standards without change.

VII. Single-Counterparty Credit Limits

    In 2018, the Board adopted a final rule to apply single-
counterparty credit limits to large U.S. and foreign banking 
organizations (single-counterparty credit limits rule). The single-
counterparty credit limits rule limits the aggregate net credit 
exposure of a U.S. GSIB and any bank holding company with total 
consolidated assets of $250 billion or more to a single counterparty. 
The credit exposure limits are tailored to the size and systemic 
footprint of the firm. Single-counterparty credit limit requirements 
also apply to a foreign banking organization with $250 billion or more 
in total consolidated assets with respect to its combined U.S. 
operations, and separately to any subsidiary U.S. intermediate holding 
company of such a firm.\82\ A foreign banking organization may comply 
with single-counterparty credit limits applicable to its combined U.S. 
operations by certifying that it

[[Page 59053]]

meets, on a consolidated basis, standards established by its home 
country supervisor that are consistent with the BCBS large exposure 
standard.\83\
---------------------------------------------------------------------------

    \82\ 12 CFR 252.170(a).
    \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.
---------------------------------------------------------------------------

    The domestic proposal would have modified the thresholds for 
application of the single-counterparty credit limit rule to apply 
single-counterparty credit limits to all U.S. bank holding companies 
that would be subject to Category II or Category III standards. This 
change would have aligned the thresholds for application of single-
counterparty credit limits requirements with the proposed thresholds 
for other prudential standards. Similarly, the foreign bank proposal 
would have revised the single-counterparty credit limit requirements to 
align with the proposed thresholds for other enhanced prudential 
standards applied to the U.S. operations of foreign banking 
organizations. Under the proposal, single-counterparty credit limits 
would have applied to foreign banking organizations subject to Category 
II or Category III standards or to a foreign banking organization with 
$250 billion or more in total consolidated assets. The proposal would 
have preserved the ability of a foreign banking organization 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 have applied single-
counterparty credit limits separately to a U.S. intermediate holding 
company subsidiary of a foreign banking organization subject to 
Category II or Category III standards, based on the risk profile of the 
foreign banking organization's combined U.S. operations. Under the 
proposal, the requirements previously applicable to U.S. intermediate 
holding companies with $250 billion or more in assets would have 
applied to all U.S. intermediate holding companies subject to single-
counterparty credit limits--specifically, the aggregate net credit 
exposure limit of 25 percent of tier 1 capital, the treatment regarding 
exposures to special purpose vehicles (SPVs) and the application of the 
economic interdependence and control relationship tests, as well as the 
required frequency of compliance. The proposal also would have 
eliminated the distinction under the single-counterparty credit limits 
rule for ``major'' U.S. intermediate holding companies, and subjected 
all U.S. intermediate holding companies subject to the single-
counterparty credit limits rule to the same aggregate net credit 
exposure limit. The proposal would not have applied single-counterparty 
credit limits to U.S. intermediate holding companies under Category IV.
    Many commenters supported the proposed exclusion of U.S. 
intermediate holding company subsidiaries of foreign banking 
organizations subject to Category IV standards from single-counterparty 
credit limits.\84\ Some commenters asserted that single-counterparty 
credit limits for a U.S. intermediate holding company should be 
determined based on the risk profile of the U.S. intermediate holding 
company rather than on the risk profile of the combined U.S. operations 
of its parent foreign banking organization. While some commenters 
supported the proposal's expansion of single-counterparty credit limit 
requirements for U.S. intermediate holding companies with less than 
$250 billion in assets under Categories II and III, others argued that 
this approach was unnecessary. Some commenters also requested an 
extended compliance period for the treatment of exposures to SPVs and 
application of the economic interdependence and control test. The 
commenters also argued that the Board should give the single-
counterparty credit limits rule the opportunity to take effect before 
considering further changes.
---------------------------------------------------------------------------

    \84\ Some commenters' suggested modifications to the single-
counterparty credit limit rule that are beyond the scope of changes 
in this rulemaking. Therefore, these changes are not discussed 
separately in this Supplementary Information.
---------------------------------------------------------------------------

    Single-counterparty credit limits support safety and soundness and 
are designed to reduce transmission of distress, particularly for 
larger, riskier, and interconnected banking organizations. The risks 
indicated by size, cross-jurisdictional activity, off-balance sheet 
exposure, and weighted short-term wholesale funding and that result in 
the application of Category II and Category III standards evidence 
vulnerability to safety and soundness and financial stability risks, 
which may be exacerbated if a banking organization has outsized credit 
exposure to a single counterparty. Therefore, the final rule adopts the 
single-counterparty credit limits proposed for U.S. banking 
organizations without change. The Board is, however, revising the 
proposed single-counterparty credit limit requirements for U.S. 
intermediate holding companies so that the application of such 
requirements are based on the risk profile of the U.S. intermediate 
holding company rather than on the risk profile of the combined U.S. 
operations of its parent foreign banking organization. This revision 
would improve the focus and efficiency of single-counterparty credit 
limits relative to the proposal, because single-counterparty credit 
limits that apply to a U.S. intermediate holding company will be based 
on the U.S. intermediate holding company's own risk profile. As a 
result, only U.S. intermediate holding companies subject to Category II 
or III standards are separately subject to the single-counterparty 
credit limits rule. These U.S. intermediate holding companies are 
subject to a single net aggregate credit exposure limit of 25 percent 
of tier 1 capital. In addition, these firms are subject to the 
treatment for exposures to SPVs, the economic interdependence and 
control tests, and the daily compliance requirement that was previously 
only applicable to U.S. intermediate holding companies with $250 
billion or more in assets. The final rule would provide U.S. 
intermediate holding companies with less than $250 billion in assets 
that are subject to Category II or III standards an additional 
transition time, until January 1, 2021, to come into compliance with 
more stringent requirements.

VIII. Covered Savings and Loan Holding Companies

    The proposal would have subjected covered savings and loan holding 
companies to supervisory and company-run stress testing requirements; 
risk-management and risk-committee requirements; liquidity risk 
management, stress testing, and buffer requirements; and single-
counterparty credit limits, pursuant to section 10(g) of the Home 
Owners' Loan Act (HOLA).\85\ These requirements would have been applied 
to covered savings and loan holding companies in the same manner as a 
similarly situated bank holding company.\86\ As described in the 
reporting section, section XV, the proposal would have expanded the 
scope of applicability of the FR Y-14 reporting requirements to apply 
to covered savings and loan holding companies with total consolidated 
assets of $100 billion or more. The proposal also noted that the Board 
planned to seek comment on the application of capital planning 
requirements to covered savings and

[[Page 59054]]

loan holding companies that would be consistent with the capital 
planning requirements for large bank holding companies as part of a 
separate proposal.
---------------------------------------------------------------------------

    \85\ 12 U.S.C. 1467a(g).
    \86\ A covered savings and loan holding company would not be 
subject to Category I standards as the definition of ``global 
systemically important BHC'' under the GSIB surcharge rule does not 
include savings and loan holding companies. See 12 CFR 217.2.
---------------------------------------------------------------------------

    Some commenters argued that the Board lacks the authority to apply 
prudential standards to savings and loan holding companies that are not 
designated by the Financial Stability Oversight Council (FSOC) as 
systemically important nonbank financial companies under section 113 of 
the Dodd-Frank Act.\87\ These commenters argued that the Board may only 
apply the proposed prudential standards to covered savings and loan 
holding companies that have been designated by the FSOC for supervision 
by the Board and not based on the general grant of authority in section 
10(g) of the HOLA.\88\ Commenters argued that application of prudential 
standards to covered savings and loan holding companies pursuant to 
section 10(g) of HOLA implied that these prudential standards could be 
applied to banking organizations regardless of size, an inference that 
commenters asserted would be contrary to the congressional intent of 
the Dodd-Frank Act and EGRRCPA.
---------------------------------------------------------------------------

    \87\ 12 U.S.C. 5323.
    \88\ Specifically, commenters argued that relying on the general 
authority of section 10(g) of HOLA to apply prudential standards to 
covered savings and loan holding companies would be inconsistent 
with a canon of statutory construction that specific statutory 
language ordinarily prevail over conflicting general language.
---------------------------------------------------------------------------

    Section 10(g) of HOLA authorizes the Board to issue such 
regulations and orders, including regulations relating to capital 
requirements, as the Board deems necessary or appropriate to administer 
and carry out the purposes of section 10 of HOLA. As the primary 
federal regulator and supervisor of savings and loan holding companies, 
one of the Board's objectives is to ensure that savings and loan 
holding companies operate in a safe-and-sound manner and in compliance 
with applicable law. Like bank holding companies, savings and loan 
holding companies must serve as a source of strength to their 
subsidiary savings associations and may not conduct operations in an 
unsafe and unsound manner.
    Section 165 of the Dodd-Frank Act directs the Board to establish 
specific enhanced prudential standards for large bank holding companies 
and companies designated by FSOC in order to prevent or mitigate risks 
to the financial stability of the United States.\89\ Section 165 does 
not prohibit the application of standards to savings and loan holding 
companies and bank holding companies pursuant to other statutory 
authorities.\90\
---------------------------------------------------------------------------

    \89\ 12 U.S.C. 5365(a)(1).
    \90\ See EGRRCPA 401(b).
---------------------------------------------------------------------------

    One commenter supported the proposal's application of prudential 
standards to covered savings and loan holding companies, asserting that 
covered savings and loan holding companies have similar risk profiles 
as bank holding companies and therefore should not be treated 
differently under the Board's regulatory framework. Another commenter 
asserted that certain of the risk-based indicators were not reflective 
of risks to safety and soundness for savings and loan holding companies 
and should be modified. Similarly, this commenter also argued that 
covered savings and loan holding companies were less risky and less 
complex than bank holding companies of the same size and should be 
subject to streamlined capital planning requirements and supervisory 
expectations. The commenter also opposed the application of single-
counterparty credit limits to covered savings and loan holding 
companies on the basis that the application of these standards would be 
inconsistent with the qualified thrift lender test, described below. 
This commenter argued that, if applied, the limits should be modified 
to exclude mortgage-backed securities of U.S. government-sponsored 
enterprises.
    Large covered savings and loan holding companies engage in many of 
the same activities and face similar risks as large bank holding 
companies. By definition, covered savings and loan holding companies 
are substantially engaged in banking and financial activities, 
including deposit taking, lending, and broker-dealer activities.\91\ 
Large covered savings and loan holding companies engage in credit card 
and margin lending and certain complex nonbanking activities that pose 
higher levels of risk. Large covered savings and loan holding companies 
can also rely on high levels of short-term wholesale funding, which may 
require sophisticated capital, liquidity, and risk management 
processes. Similar to large bank holding companies, large covered 
savings and loan holding companies also conduct business across a large 
geographic footprint, which in times of stress could present certain 
operational risks and complexities. As discussed above in section V, 
the risk-based indicators identify risks to safety and soundness in 
addition to risks to financial stability. The category framework would 
align requirements with the risk profile of a banking organization, 
including by identifying risks that warrant more sophisticated capital 
planning, more frequent company-run stress testing, and greater 
supervisory oversight through supervisory stress testing, to further 
the safety and soundness of these banking organizations. By 
strengthening the risk-management, capital, and liquidity requirements 
commensurate with these risks, the final rule would improve the 
resiliency and promote the safe and sound operations of covered savings 
and loan holding companies. Accordingly, the Board is adopting the 
application of prudential standards to covered savings and loan holding 
companies as proposed.
---------------------------------------------------------------------------

    \91\ A covered savings and loan holding company must have less 
than 25 percent of its total consolidated assets in insurance 
underwriting subsidiaries (other than assets associated with 
insurance underwriting for credit), must not have a top-tier holding 
company that is an insurance underwriting company, and must derive a 
majority of its assets or revenues from activities that are 
financial in nature under section 4(k) of the Bank Holding Company 
Act. 12 CFR 217.2.
---------------------------------------------------------------------------

    These standards include supervisory stress testing and, for 
Categories II and III, company-run stress testing requirements.\92\ 
Stress testing requirements provide a means to better understand the 
financial condition of the banking organization and risks within the 
banking organization that may pose a threat to safety and soundness. To 
implement the supervisory stress testing requirements, the Board is 
requiring covered savings and loan holding companies to report the FR 
Y-14 reports in the same manner as a bank holding company.\93\ The 
final rule does not establish capital planning requirements for covered 
savings and loan holding companies. The Board intends to propose to 
apply those requirements to covered savings and loan holding companies 
as part of a separate proposal that would be issued for public notice 
and comment.
---------------------------------------------------------------------------

    \92\ Company-run stress test requirements are discussed further 
in section XIII. of this SUPPLEMENTARY INFORMATION.
    \93\ Covered savings and loan holding companies with total 
consolidated assets of $100 or more are required to report the FR Y-
14M and all schedules of the FR Y-14Q except for Schedules C--
Regulatory Capital Instruments and Schedule D--Regulatory Capital 
Transitions. These firms also are required to report the FR Y-14A 
Schedule E--Operational Risk. Covered savings and loan holding 
companies subject to Category II or III standards are required to 
submit the FR Y-14A Schedule A--Summary and Schedule F--Business 
Plan Changes in connection with the company-run stress test 
requirement.
---------------------------------------------------------------------------

    The final rule also would apply liquidity risk management, stress 
testing and buffer requirements to covered savings and loan holding 
companies. Specifically, a covered savings and loan holding company is 
required to conduct internal stress tests at least monthly (or

[[Page 59055]]

quarterly, for a firm that is subject to Category IV standards) to 
measure its potential liquidity needs across overnight, 30-day, 90-day, 
and 1-year planning horizons during times of instability in the 
financial markets. In addition, the covered savings and loan holding 
company is required to hold highly liquid assets sufficient to meet the 
projected 30-day net stress cash-flow need under internal stress 
scenarios. A covered savings and loan holding company is also required 
to meet specified corporate governance requirements around liquidity 
risk management, to produce cash flow projections over various time 
horizons, to establish internal limits on certain liquidity metrics, 
and to maintain a contingency funding plan that identifies potential 
sources of liquidity strain and alternative sources of funding when 
usual sources of liquidity are unavailable. These liquidity risk 
management, liquidity stress testing, and buffer requirements help to 
ensure that covered savings and loan holding companies have effective 
governance and risk-management processes to determine the amount of 
liquidity to cover risks and exposures, and sufficient liquidity to 
support their activities through a range of conditions.
    The final rule applies single-counterparty credit limits to covered 
savings and loan holding companies that are subject to Category II or 
III standards as proposed. Application of single-counterparty credit 
limits to covered savings and loan holding companies would reduce the 
likelihood that distress at another firm would be transmitted to the 
savings and loan holding company.
    The single-counterparty credit limits exempt transactions with 
government-sponsored entities (GSEs), such as the Federal National 
Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage 
Corp. (Freddie Mac), from limits on credit exposure, so long as the GSE 
remains under U.S. government conservatorship.\94\ As commenters 
observed, if the GSEs exit conservatorship, the single-counterparty 
credit limits would limit a banking organization from holding mortgage-
backed securities of U.S. GSEs (Agency MBS) in excess of 25 percent of 
tier 1 capital.\95\ The qualified thrift lender test (QTL test) 
requires a savings association to either be a domestic building 
association or have qualified thrift investments exceeding 65 percent 
of its portfolio assets.\96\ The QTL test permits Agency MBS to be used 
to satisfy the QTL test without limit.\97\ While the GSEs are under 
U.S. government conservatorship, the single-counterparty credit limits 
would not affect the ability of a banking organization, including a 
savings association, to hold Agency MBS.
---------------------------------------------------------------------------

    \94\ The Board's single-counterparty credit limits exclude any 
direct claim on, and the portion of a claim that is directly and 
fully guaranteed as to principal and interest by, the Federal 
National Mortgage Association and the Federal Home Loan Mortgage 
Corporation, only while operating under the conservatorship or 
receivership of the Federal Housing Finance Agency. 12 CFR 252.77. 
Agency MBS also are considered eligible collateral while the GSEs 
remain in conservatorship. 12 CFR 252.71.
    \95\ 12 CFR 252.177(a)(1); 12 CFR 238.150.
    \96\ 12 U.S.C. 1467a(m)(3)(C).
    \97\ 12 U.S.C. 1467a(m)(4)(C)(ii)(III).
---------------------------------------------------------------------------

    Fannie Mae and Freddie Mac have been operating under the 
conservatorship of the Federal Housing Finance Agency since 2008 and, 
concurrent with being placed in conservatorship, received capital 
support from the United States Department of the Treasury.\98\ The 
timing and terms of Fannie Mae and Freddie Mac exiting conservatorship 
are uncertain. In addition, other aspects of the Board's regulatory 
framework could be affected by a change to the conservatorship status 
of Fannie Mae or Freddie Mac. The Board will continue to monitor and 
take into consideration any future changes to the conservatorship 
status of the GSEs, including the extent and type of support received 
by the GSEs. As appropriate, the Board will consider changes to the 
application of single-counterparty credit limits to covered savings and 
loan holding companies and other banking organizations, as well as to 
other aspects of the Board's regulatory framework.
---------------------------------------------------------------------------

    \98\ See 79 FR 77602 (December 24, 2014).
---------------------------------------------------------------------------

    Finally, one commenter urged the Board to provide covered savings 
and loan holding companies extended transition periods to come into 
compliance with the new requirements, if adopted. The final rule would 
provide covered savings and loan holding companies a transition period 
to come into compliance with the new prudential standards. 
Specifically, a covered savings and loan holding company will be 
required to comply with risk-management and risk-committee requirements 
as well as the liquidity risk-management, stress testing, and buffer 
requirements on the first day of the fifth quarter following the 
effective date of the final rule. A covered savings and loan holding 
company will be required to comply with single-counterparty credit 
limits and stress testing requirements on the first day of the ninth 
quarter following the effective date of the final rule. Transition 
periods for reporting requirements are discussed in section XV of this 
SUPPLEMENTARY INFORMATION.

IX. Risk Management and Risk Committee Requirements

    Section 165(h) of the Dodd-Frank Act requires certain publicly 
traded bank holding companies to establish a risk committee that is 
``responsible for the oversight of the enterprise-wide risk management 
practices'' and meets other statutory requirements.\99\ EGRRCPA raised 
the threshold for mandatory application of the risk-committee 
requirement from publicly traded bank holding companies with $10 
billion or more in total consolidated assets to publicly traded bank 
holding companies with $50 billion or more in total consolidated 
assets. However, 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 
would be necessary or appropriate to promote sound risk-management 
practices.
---------------------------------------------------------------------------

    \99\ 12 U.S.C. 5363(h).
---------------------------------------------------------------------------

    The proposal would have raised the threshold for application of 
risk-committee requirements consistent with the changes made by 
EGRRCPA. Under the proposal, a publicly traded or privately held U.S. 
bank holding company with total consolidated assets of $50 billion or 
more would have been required to maintain a risk committee. The 
proposal would have applied the same risk-committee requirements to 
covered savings and loan holding companies with $50 billion or more in 
total consolidated assets as would have applied to a U.S. bank holding 
company of the same size.
    Under the enhanced prudential standards rule, as adopted, all 
foreign banking organizations with total consolidated assets of $50 
billion or more, and publicly traded foreign banking organizations with 
$10 billion or more in total consolidated assets, were required to 
maintain a risk committee that met specified requirements. These 
requirements varied based on a foreign banking organization's total 
consolidated assets and combined U.S. assets. Publicly traded 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, were required to 
annually certify to the Board that they maintain a qualifying committee 
that oversees the risk management practices

[[Page 59056]]

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 
were subject to more detailed risk-committee and risk-management 
requirements, including the requirement to appoint a U.S. chief risk 
officer.
    Consistent with EGRRCPA, the proposal would have raised the total 
consolidated asset threshold for application of the risk-committee 
requirements to foreign banking organizations but would not have 
changed the substance of the risk-committee requirements for these 
firms.
    One commenter argued for additional flexibility in meeting certain 
requirements for certain foreign banking organizations that do not have 
a U.S. intermediate holding company. Specifically, the commenter 
requested that the Board modify the U.S. chief risk officer requirement 
so that foreign banking organizations without a U.S. intermediate 
holding company could be allowed to identify a senior officer to serve 
as the point of contact responsible for the U.S. risk management 
structure.
    The Board is finalizing the risk-committee requirements as 
proposed. Sound enterprise-wide risk management supports safe and sound 
operations of banking organizations and reduces the likelihood of their 
material distress or failure, and thus also promotes financial 
stability. The final rule applies risk-committee requirements to a 
publicly traded or privately held bank holding company or covered 
savings and loan holding company with total consolidated assets of $50 
billion or more. These standards enhance safety and soundness and help 
to ensure independent risk management, which is appropriate for firms 
of this size, including both privately held as well as publicly traded 
banking organizations. Applying the same minimum standards to covered 
savings and loan holding companies accordingly furthers their safety 
and soundness by addressing concerns that apply equally across large 
depository institution holding companies.
    Taking into consideration varying structures of their U.S. 
operations, the proposed risk-management requirements are important to 
ensure safety and soundness of the U.S. operations of a foreign banking 
organization as well. Under the final rule, foreign banking 
organizations with $50 billion or more 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, are 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 are required to comply with the more detailed risk-committee and 
risk-management requirements under the enhanced prudential standards 
rule, which include the chief risk officer requirement. The final rule 
eliminates the risk-committee requirements that apply to foreign 
banking organizations with less than $50 billion in total consolidated 
assets. For banking organizations with less than $50 billion in total 
consolidated assets, the Board proposes to review the risk-management 
practices of such firms through existing supervisory processes and 
expects that all firms establish risk-management processes and 
procedures commensurate with their risks.

X. Enhanced Prudential Standards for Foreign Banking Organizations With 
a Smaller U.S. Presence

    The Board's regulatory framework tailors the application of 
enhanced prudential standards to foreign banking organizations based on 
the size and complexity of the organization's U.S. operations. In 
particular, subparts L and M of the enhanced prudential standards rule, 
as adopted, established company-run stress testing and risk-management 
and risk-committee requirements for foreign banking organizations with 
at least $10 billion but less than $50 billion in total consolidated 
assets, the latter of which is described above. Additionally, subpart 
N, as adopted, established risk-based and leverage capital, risk-
management and risk-committee, liquidity risk management, and capital 
stress testing requirements for foreign banking organizations with at 
least $50 billion in total consolidated assets but less than $50 
billion in combined U.S. assets.\100\ These provisions largely required 
the foreign banking organization to comply with home-country capital 
and liquidity standards at the consolidated level, and imposed certain 
risk-management requirements that are specific to the U.S. operations 
of a foreign banking organization.
---------------------------------------------------------------------------

    \100\ 79 FR 17240 (March 27, 2014).
---------------------------------------------------------------------------

    The proposal would have maintained this approach for foreign 
banking organizations with a limited U.S. presence; however, it would 
have also implemented targeted changes to reduce the stringency of 
certain requirements applicable to these firms. It also would have 
maintained 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, III, or IV standards.

A. Enhanced Prudential Standards for Foreign Banking Organizations With 
Less Than $50 Billion in Total Consolidated Assets

    The proposal would have eliminated 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 have 
eliminated 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.\101\ 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.\102\
---------------------------------------------------------------------------

    \101\ Subpart L, as adopted, also applied to foreign savings and 
loan holding companies with more than $10 billion in total 
consolidated assets. See 12 CFR 252.120 et seq.
    \102\ For foreign savings and loan holding companies, the 
proposal would have applied company-run stress testing requirements 
to foreign savings and loan holding companies with more than $250 
billion in total consolidated assets. These requirements would have 
been the same as those that were established under 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 final rule, company-run stress test requirements for 
foreign savings and loan holding companies would be in the new 
subpart R of Regulation LL.
---------------------------------------------------------------------------

    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. Commenters were 
generally supportive of the Board's proposed changes to raise the 
thresholds for application of standards consistent with EGRRCPA. 
Accordingly, the Board is finalizing

[[Page 59057]]

changes to the thresholds for application of the company-run stress 
testing, risk-committee and risk-management requirements as proposed.

B. 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

    Subpart N of the enhanced prudential standards rule, as adopted, 
established risk-based and leverage capital, liquidity risk management, 
and capital stress testing requirements for foreign banking 
organizations with $50 billion or more in total consolidated assets but 
less than $50 billion in combined U.S. assets. These standards largely 
required compliance with home-country standards.
    Under the proposed rule, the requirements under subpart N would 
have continued 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 changes to the frequency of stress testing 
for smaller and less complex domestic holding companies, the proposal 
would have required foreign banking organizations with total 
consolidated assets of less than $250 billion that do not meet the 
criteria for application of Category II, III, or IV standards to be 
subject to a home-country supervisory stress test on a biennial basis, 
rather than annually.
    As discussed above, risk-committee requirements in subpart N would 
have been 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 have been 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 have been 
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 previously applied to foreign banking organizations 
with $100 billion or more in combined U.S. assets.
    The Board did not propose to revise the $50 billion U.S. non-branch 
asset threshold for the U.S. intermediate holding company formation 
requirement. Because a foreign banking organization with less than $100 
billion in combined U.S. assets may have or could be required to form a 
U.S. intermediate holding company, the proposal would have established 
an intermediate holding company requirement for these foreign banking 
organizations in subpart N (subpart N intermediate holding company). 
Under the proposal, a subpart N intermediate holding company would not 
have been subject to Category II, III, or IV capital standards, but 
would have remained 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.\103\ Similarly, a 
subpart N intermediate holding company would have been required to 
comply with risk-management and risk-committee requirements. As under 
the current rule, under the proposal the risk committee of the U.S. 
intermediate holding company would have also been able to serve as the 
U.S. risk committee for the foreign banking organization's combined 
U.S. operations.
---------------------------------------------------------------------------

    \103\ 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.
---------------------------------------------------------------------------

    Some commenters objected to the U.S. intermediate holding company 
requirement entirely. These commenters also argued that, if the 
requirement is retained, the threshold should be increased to $100 
billion or more, arguing that a $100 billion threshold would be more 
consistent with section 401 of EGRRCPA and principle of national 
treatment and competitive equality.
    A number of commenters argued that the U.S. intermediate holding 
company requirement and the standards applied to U.S. intermediate 
holding companies discouraged growth through subsidiaries rather than 
branches (non-branch assets). Instead, commenters argued that growth in 
non-branch assets should be encouraged on the basis that it improved a 
foreign banking organization's liquidity risk profile in the United 
States. These commenters argued that disincentives to form an U.S. 
intermediate holding company were particularly pronounced if the 
standards that are applied to the U.S. intermediate holding company are 
calibrated based on the risk profile of the foreign banking 
organization's combined U.S. operations. Some commenters supported the 
proposed application of fewer enhanced prudential standards to subpart 
N intermediate holding companies. Other commenters argued that a 
subpart N intermediate holding company should be subject to risk 
management standards only.
    The Board did not propose to amend the threshold for formation of 
the U.S. intermediate holding company requirement. The U.S. 
intermediate holding company requirement has resulted in substantial 
gains in the resilience and safety and soundness of foreign banking 
organizations' U.S. operations. EGRRCPA raised the thresholds for 
application of section 165 of the Dodd-Frank Act, but did not affect 
the $50 billion threshold for application of the U.S. intermediate 
holding company requirement.\104\
---------------------------------------------------------------------------

    \104\ See also EGRRCPA 401(g) (discussing the Board's authority 
to apply enhanced prudential standards to foreign banking 
organizations with more than $100 billion in total consolidated 
assets.
---------------------------------------------------------------------------

    The final rule would adopt the subpart N intermediate holding 
company requirements as proposed. By applying risk management and 
standardized capital requirements to subpart N intermediate holding 
companies, the enhanced prudential standards rule would treat a subpart 
N intermediate holding company similarly to a domestic banking 
organization of the same size. As some commenters observed, a subpart N 
intermediate holding company would be subject to fewer and less 
stringent requirements than a U.S. intermediate holding company of a 
foreign banking organization subject to subpart O of the Board's 
enhanced prudential standards rule (subpart O intermediate holding 
company). Specifically, a subpart N intermediate holding company is not 
subject to liquidity risk management, liquidity stress testing and 
buffer requirements. In addition, as discussed above, the application 
of capital, liquidity and single-counterparty credit limits to a 
subpart O intermediate holding company would be based on the risk 
profile of the subpart O intermediate holding company. By establishing 
two tiers of U.S. intermediate holding company and tailoring the 
standards applicable to each type of U.S. intermediate holding company, 
this approach would significantly reduce cliff-effects in the standards 
applied to U.S. intermediate holding companies and reduce

[[Page 59058]]

disincentives to growth in branch assets relative to non-branch assets.

XI. Technical Changes to the Regulatory Framework for Foreign Banking 
Organizations and Domestic Banking Organizations

    The proposal would have made 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, the proposal would have added 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 organization,'' ``Category III foreign banking organization,'' 
or ``Category IV foreign banking organization,'' respectively. 
Similarly, the proposal would have added defined terms for ``Category 
II U.S. intermediate holding company,'' ``Category III U.S. 
intermediate holding company,'' and ``Category IV U.S. intermediate 
holding company.'' The addition of these terms would facilitate the 
requirements for application of enhanced prudential standards under the 
category framework. The final rule uses the Board's GSIB surcharge 
methodology to identify a U.S. GSIB and refers to these banking 
organizations as global systemically important bank holding companies, 
consistent with the term used elsewhere in the Board's regulations. The 
final rule adopts these changes as proposed, consistent with the 
adoption of the category framework in this final rule.
    In addition, the final rule further streamlines the Board's 
enhanced prudential standards rule by locating certain definitions 
common to all subparts into a common definitions section.\105\ In 
addition, the proposal would have made revisions to streamline the 
process for forming a U.S. intermediate holding company and for 
requesting an alternative organizational structure. The Board did not 
receive any comments on these aspects of the proposal and is adopting 
these changes as proposed.
---------------------------------------------------------------------------

    \105\ See 12 CFR 252.2.
---------------------------------------------------------------------------

    Specifically, the final rule eliminates the requirement to submit 
an implementation plan for formation of a U.S. intermediate holding 
company. 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 have been 
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.
    In addition, the Board is making conforming amendments to the 
process for requesting an alternative organizational structure for a 
U.S. intermediate holding company, as well as clarifying 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 final rule shortens the time period for action 
by the Board from 180 days to 90 days. This process applies to both 
subpart N and subpart O intermediate holding companies.
    As discussed above in sections VI and VII of this Supplementary 
Information, capital, liquidity and single-counterparty credit limits 
would apply to a U.S. intermediate holding company based on its risk 
profile. Subpart O of the enhanced prudential standards rule 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 all such U.S. intermediate holding companies. 
The final rule retains this aggregation requirement, but amends the 
requirement to consider the risk-based indicators discussed above.
    In addition, the final rule provides a reservation of authority to 
permit a foreign banking organization to comply with the requirements 
of the enhanced prudential standards rule 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 whether the 
foreign banking organization is owned or controlled by a foreign 
government; (2) whether the action would be consistent with the 
purposes of the enhanced prudential standards rule; and (3) any other 
factors that the Board determines are relevant. For example, if a 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 the enhanced prudential standards rule 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 the enhanced prudential standards rule. The reservation of 
authority is intended to provide additional flexibility to address 
certain foreign banking organization structures the Board has 
encountered following the initial implementation of the rule, as well 
as to provide clarity and reduce burden for these institutions.
    Finally, the proposal would have eliminated transition and initial 
applicability provisions that were relevant only for purposes of the 
initial adoption and implementation of the enhanced prudential 
standards rule. For example, the proposal would have removed paragraph 
(a)(2) of Sec.  252.14 of part 252, which provides the required timing 
of the stress tests for each stress test cycle prior to October 1, 
2014. The Board did not receive comments on these aspects of the 
proposals and is adopting them without change.

XII. Changes to Liquidity Buffer Requirements

    Banking organizations subject to the Board's enhanced prudential 
standards rule are required to maintain liquidity buffers composed of 
unencumbered highly liquid assets sufficient to cover projected net 
stressed cash-flow needs determined under firm-conducted stress 
scenarios over specified planning horizons.\106\ At the time of the 
proposals, the rule stated that cash and securities issued or 
guaranteed by the U.S. government or a U.S. government-sponsored 
enterprise are highly liquid assets.\107\ In addition, the rule 
required

[[Page 59059]]

banking organizations to demonstrate to the satisfaction of the Board 
that any other asset meets specific liquidity criteria in order to use 
it to meet the rule's liquidity buffer requirements.\108\
---------------------------------------------------------------------------

    \106\ A bank holding company subject to the enhanced prudential 
standards rule must maintain a liquidity buffer sufficient to meet 
its projected net stressed cash-flow needs over a 30-day planning 
horizon. Similarly, a foreign banking organization subject to the 
enhanced prudential standards rule must maintain a liquidity buffer 
for a U.S. intermediate holding company, if any, sufficient to meet 
its projected net stressed cash-flow needs over a 30-day planning 
horizon. Separately, such a foreign banking organization must 
maintain a liquidity buffer for its collective U.S. branches and 
agencies sufficient to meet their net stressed cash-flow need over 
the first 14 days of a stress test with a 30-day planning horizon. 
See 12 CFR 252.35(b)(1) and 252.157(c)(2)-(3).
    \107\ 12 CFR 252.35(b)(3)(i)(A)-(B) and 12 CFR 
252.157(c)(7)(i)(A)-(B). The foreign bank proposal requested comment 
on whether it would be appropriate to limit ``cash'' in the enhanced 
prudential standards rule to Reserve Bank balances and foreign 
withdrawable reserves. The Board received a comment recommending 
that the Board not limit ``cash'' for purposes of the definition of 
highly liquid asset. The Board is not revising the term ``cash'' as 
part of this final rule.
    \108\ 12 CFR 252.35(b)(3)(i)(C) and 12 CFR 252.157(c)(7)(i)(C).
---------------------------------------------------------------------------

    The criteria for highly liquid assets set forth in the enhanced 
prudential standards rule are substantially similar to the qualifying 
criteria for HQLA under the LCR rule, which requires banking 
organizations covered by that rule to maintain an amount of HQLA 
sufficient to meet net stressed outflows over a 30-day period of 
stress.\109\ Under the LCR rule, HQLA includes asset classes that are 
expected to be easily and immediately convertible into cash with little 
or no expected loss of value during a period of stress. Certain of the 
asset classes are also subject to additional, asset-specific 
requirements. In the preamble to the enhanced prudential standards 
rule, which was adopted prior to finalization of the LCR rule, the 
Board indicated that assets that would qualify as HQLA under the then-
proposed LCR rule would be liquid under most scenarios, but a banking 
organization would still be required to demonstrate to the Board that 
the asset meets the criteria for highly liquid assets set forth in the 
enhanced prudential standards rule.
---------------------------------------------------------------------------

    \109\ 12 CFR part 249.
---------------------------------------------------------------------------

    The foreign bank proposal sought comment on whether to more closely 
align the assets that qualify as highly liquid assets in the enhanced 
prudential standards rule with HQLA under the LCR rule. Specifically, 
the foreign bank proposal asked 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. The foreign bank proposal also 
sought comment on whether the Board should incorporate other HQLA 
requirements in the enhanced prudential standards rule for highly 
liquid assets, such as the LCR rule's Level 2A and Level 2B liquid 
asset haircuts, the 40 percent composition limit on the total amount of 
Level 2 liquid assets, as well as the operational requirements set 
forth in 12 CFR 249.22.
    Commenters generally supported aligning the definition of highly 
liquid assets with HQLA. However, commenters did not support including 
in the enhanced prudential standards rule the haircuts and composition 
limits under the LCR rule. These commenters argued that firms should 
instead continue to evaluate all market and credit risk characteristics 
of assets eligible for inclusion as highly liquid assets, and apply 
market and credit risk haircuts consistent with the design of their 
internal liquidity stress test scenarios. Commenters also did not 
support adding the operational requirements for eligible HQLA under the 
LCR rule to the requirements for highly liquid assets under the 
enhanced prudential standards rule, arguing that firms should be able 
to apply independent judgement in assessing operational or other risks 
in the context of highly liquid assets.
    Due to the similarity in asset qualification requirements under the 
two rules, the Board is amending the definition of highly liquid assets 
under the enhanced prudential standards rule to include all assets that 
would qualify as HQLA under LCR rule. The asset must satisfy all the 
qualifying criteria for HQLA, including, where appropriate, that the 
asset is liquid and readily marketable as defined in the LCR rule and 
meets the additional asset-specific criteria under the LCR rule.\110\ 
In addition, the Board is amending the definition of highly liquid 
assets to include requirements that the banking organization subject to 
the rule demonstrate each asset is under the control of the management 
function that is charged with managing liquidity risk (liquidity 
management function) and demonstrate the capability to monetize the 
highly liquid assets. For banking organizations that are subject to the 
LCR rule, the liquidity management function that controls the highly 
liquid assets is intended to be the same function that controls 
eligible HQLA. For a foreign banking organization, the appropriate 
management function is the one that is charged with managing liquidity 
risk for its combined U.S. operations.
---------------------------------------------------------------------------

    \110\ See 12 CFR 249.20.
---------------------------------------------------------------------------

    The Board is retaining, without change, the provision that permits 
other assets to qualify as highly liquid assets if the banking 
organization demonstrates to the satisfaction of the Board that these 
assets meet the criteria for highly liquid assets (Section C 
assets).\111\ The Board is clarifying that the banking organization 
cannot include Section C assets in its buffer until it has received 
approval from the Board.
---------------------------------------------------------------------------

    \111\ See 12 CFR 252.35(d)(b)(i)(C) and 12 CFR 
252.157(c)(7)(i)(C). The requirements for a Section C asset include 
that the bank holding company or foreign banking organization 
demonstrate to the satisfaction of the Board that the asset: (1) Has 
low credit risk and low market risk; (2) is traded in an active 
secondary two-way market that has committed market makers and 
independent bona fide offers to buy and sell so that a price 
reasonably related to the last sales price or current bona fide 
competitive bid and offer quotations can be determined within one 
day and settled at that price within a reasonable time period 
conforming with trade custom; and (3) is a type of asset that 
investors historically have purchased in periods of financial market 
distress during which market liquidity has been impaired.
---------------------------------------------------------------------------

    As a result of the expansion of the definition of highly liquid 
assets to include HQLA, the Board expects other assets will qualify as 
highly liquid assets only in narrow circumstances. However, the Board 
is retaining this provision to provide a banking organization the 
opportunity to determine and demonstrate to the Board that other assets 
meet the criteria for highly liquid assets.\112\ For example, it may be 
possible for a banking organization to demonstrate that an asset that 
is eligible as HQLA under another jurisdiction's LCR rule meets the 
requirements for Section C assets. The Board is not changing the 
definition of highly liquid assets or other asset requirements under 
the rule to include the haircuts or quantitative limits that exist in 
the LCR rule. The Board believes that the requirements in the enhanced 
prudential standards rule that banking organizations discount the fair 
market value of the asset to reflect any credit risk and market price 
volatility of the asset serve to address similar concerns as the LCR 
rule's haircuts while permitting a banking organization to perform its 
own assessment of potential stress. In addition, the enhanced 
prudential standard rule's diversification requirement that a liquidity 
buffer not contain significant concentrations of highly liquid assets 
by issuer, business sector, region, or other factor related to the 
banking organization's risk address similar risks as the LCR rule's 
quantitative limits to the composition of the HQLA amount, and permit a 
banking organization to consider its idiosyncratic risk profile and 
market conditions. Consistent with the LCR rule's composition limits on 
Level 2 and Level 2B liquid assets, the Board believes overreliance on 
Level 2 liquid assets that are generally not immediately convertible to 
cash and subject to greater price volatility, present safety and 
soundness concerns and increase the risks a banking organization would 
not be able to meet its obligations during a period of stress. The 
Board is clarifying that the diversification requirements in the 
enhanced prudential standards rule are

[[Page 59060]]

intended to prevent such overreliance.\113\
---------------------------------------------------------------------------

    \112\ Id.
    \113\ See 12 CFR 238.124(b)(3)(v) (covered savings and loan 
holding companies), 12 CFR 252.35(b)(3)(v) and 12 CFR 
252.157(c)(7)(v). As discussed in Section VIII of this Supplementary 
Information, this final rule adopts the same liquidity risk 
management, stress testing and buffer requirements for covered 
savings and loan holding companies.
---------------------------------------------------------------------------

    Although commenters requested that the definition of highly liquid 
assets or other asset requirements not include the operational 
requirements for eligible HQLA prescribed in the LCR rule, the Board 
believes demonstrating the liquidity buffer is under the control of the 
liquidity management function and demonstrating the capability to 
monetize the liquidity buffer are fundamental risk management processes 
that ensure the liquidity buffer is available during times of stress. 
Specifically, these requirements are intended to ensure a banking 
organization can monetize highly liquid assets during the relevant 
stress scenario and have the proceeds available to the liquidity 
management function without conflicting with another business or risk 
management strategy, sending a negative signal to market participants, 
or adversely affecting its reputation or franchise. However, to address 
commenters' concern that banking organizations be allowed to apply 
independent judgement in assessing operational and other risks in the 
context of highly liquid assets, the Board is not incorporating the LCR 
rule's more prescriptive requirements for demonstrating the operational 
capability to control and monetize assets. The Board believes it is 
appropriate to allow for a greater range of risk management practices 
to demonstrate control or monetization capabilities for a firm's highly 
liquid asset buffer, consistent with the goal that the internal 
liquidity stress test be tailored to a firm's risk profile, size, and 
complexity. The Board is clarifying, however, that a banking 
organization's approach to demonstrating control and monetization 
capabilities under the LCR rule would also meet the requirements of the 
amended definition.

XIII. Changes to Company-Run Stress Testing Requirements for State 
Member Banks, Removal of the Adverse Scenario, and Other Technical 
Changes Proposed in January 2019

    In January 2019, the Board requested comment on a proposed rule 
that would amend the Board's stress testing rules, consistent with 
section 401 of EGRRCPA (stress testing proposal).\114\ Prior to the 
passage of EGRRCPA, section 165(i) of the Dodd-Frank Act \115\ required 
each state member bank with total consolidated assets of more than $10 
billion to conduct annual stress tests. In addition, section 165 
required the Board to issue regulations that establish methodologies 
for conducting stress tests, which were required to include at least 
three different stress-testing scenarios: ``baseline,'' ``adverse,'' 
and ``severely adverse.'' \116\
---------------------------------------------------------------------------

    \114\ 84 FR 4002 (February 14, 2019).
    \115\ Public Law 111-203, 124 Stat. 1376 (2010).
    \116\ 12 U.S.C. 5365(i)(2)(C).
---------------------------------------------------------------------------

    Section 401 of EGRRCPA amended certain aspects of the stress 
testing requirements applicable to state member banks under section 
165(i) of the Dodd-Frank Act.\117\ Specifically, 18 months after the 
date of enactment, section 401 of EGRRCPA raises the minimum asset 
threshold for application of the stress testing requirement from more 
than $10 billion to more than $250 billion in total consolidated 
assets; revises the requirement for state member banks to conduct 
stress tests ``annually,'' and instead requires them to conduct stress 
tests ``periodically.'' In addition, EGRRCPA amended section 165(i) to 
no longer require the Board's supervisory stress test and firms' 
company-run stress tests to include an ``adverse'' scenario, thus 
reducing the number of required stress test scenarios from three to 
two.
---------------------------------------------------------------------------

    \117\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
---------------------------------------------------------------------------

    The stress testing proposal would have raised the minimum asset 
threshold for state member banks to conduct stress tests from more than 
$10 billion to more than $250 billion, and revised the frequency with 
which state member banks with assets greater than $250 billion would 
have been required to conduct stress tests. In addition, the stress 
testing proposal would have removed the adverse scenario from the list 
of required scenarios in the Board's stress testing rules and the 
Board's Policy Statement on the Scenario Design Framework for Stress 
Testing. As discussed below, the Board received two comments on the 
stress testing proposal and is adopting the proposal without change.
    In preparing the stress testing proposal and this aspect of the 
final rule, the Board coordinated closely with the FDIC and the OCC to 
help to ensure that the company-run stress testing requirements are 
consistent and comparable across depository institutions and depository 
institution holding companies, and to address any burden that may be 
associated with having multiple entities within one organizational 
structure complying with different stress testing requirements.

A. Minimum Asset Threshold for State Member Banks

    As described above, section 401 of EGRRCPA amends section 165 of 
the Dodd-Frank Act by raising the minimum asset threshold for state 
member banks required to conduct company-run stress tests from more 
than $10 billion to more than $250 billion. Consistent with EGRRCPA, 
the proposal would have raised this threshold such that only state 
member banks with total consolidated assets greater than $250 billion 
would be required to conduct stress tests. The Board did not receive 
comments on this aspect of the proposal and is finalizing it without 
change.

B. Frequency of Stress Testing for State Member Banks

    Section 401 of EGRRCPA revised the requirement under section 165 of 
the Dodd-Frank Act for state member banks to conduct stress tests, 
changing the required frequency from ``annual'' to ``periodic.'' Under 
the stress testing proposal, state member banks with total consolidated 
assets of more than $250 billion generally would have no longer been 
required to conduct stress tests annually; rather, they would be 
required to conduct stress tests once every other year. As an exception 
to the two-year cycle, state member banks that are subsidiaries of 
banking organizations subject to Category I or Category II standards 
would have been required to conduct a stress test on an annual basis. 
The proposed frequency was intended to provide the Board and the state 
member bank with information necessary to satisfy the purposes of 
stress testing, including: Assisting in an overall assessment of the 
state member bank's capital adequacy, identifying downside risks and 
the potential impact of adverse conditions on the state member bank's 
capital adequacy, and determining whether additional analytical 
techniques and exercises are appropriate for the state member bank to 
employ in identifying, measuring, and monitoring risks to the soundness 
of the state member bank.
    One commenter asserted that the Board should not reduce the 
frequency of stress testing for any covered banks. Based on the Board's 
experience overseeing and reviewing the results of company-run stress 
testing since 2012, the Board believes that a two-year stress testing 
cycle generally would be appropriate for certain state member banks. 
Specifically, the state member banks that would be subject to a two-

[[Page 59061]]

year stress testing cycle under the proposal would not be the 
subsidiaries of larger, more complex firms, which can present greater 
risk and therefore merit closer monitoring. State member banks that are 
subsidiaries of larger, more complex firms would continue to be 
required to conduct stress tests on an annual basis. Accordingly, the 
final rule retains the frequency of company-run stress test 
requirements for state member banks set forth in the stress testing 
proposal without change. In addition, and as discussed above, the final 
rule provides the Board with the authority to adjust the required 
frequency for a holding company or state member bank subject to the 
Board's stress testing rules based on the company's financial 
condition, size, complexity, risk profile, scope of operations, 
activities, or risks to the U.S. economy. The final rule therefore 
provides flexibility to the Board to require more frequent company-run 
stress testing at the state member bank or holding company level, which 
would take into account the risk profile of the subsidiary state member 
bank, as needed.
    Under the stress testing proposal, all state member banks that 
would conduct stress tests every other year would have been required to 
conduct stress tests in the same even numbered year (i.e., the 
reporting years for these state member banks would be synchronized). By 
requiring these state member banks to conduct their stress tests in the 
same year, the proposal would continue to allow the Board to make 
comparisons across state member banks for supervisory purposes and 
assess macroeconomic trends and risks to the banking industry. The 
Board did not receive comments on this aspect of the stress testing 
proposal and is adopting it without change.
    Under the stress testing proposal, a state member bank that was 
subject to a two-year stress test cycle would have become subject to an 
annual stress test if, for example, the parent bank holding company of 
the bank becomes a firm subject to Category I or II standards. The 
proposal would not have established a transition period in these cases. 
Accordingly, a state member bank that becomes subject to an annual 
stress test requirement would have been required to begin stress 
testing on an annual basis as of the next year. The Board did not 
receive comments on this aspect of the proposal and is adopting it 
without change.

C. Removal of ``Adverse'' Scenario

    As adopted, the Board's stress testing requirements--which are 
applicable to state member banks, savings and loan holding companies, 
bank holding companies, U.S. intermediate holding companies of foreign 
banking organizations, and any nonbank financial company supervised by 
the Board--required the inclusion of an ``adverse'' scenario in the 
stress test. Section 401 of EGRRCPA amends section 165(i) of the Dodd-
Frank Act to no longer require the Board to include an ``adverse'' 
scenario in the company-run stress test or its supervisory stress 
tests, reducing the number of required stress test scenarios from three 
to two. The stress testing proposal would have removed the ``adverse'' 
scenario from the list of required scenarios in the Board's stress 
testing rules. In addition, the proposal would have made conforming 
changes to the Board's Policy Statement on the Scenario Design 
Framework for Stress Testing to reflect the removal of the adverse 
scenario.
    The ``baseline'' scenario represents a set of conditions that 
affect the U.S. economy or the financial condition of the banking 
organization, and that reflect the consensus views of the economic and 
financial outlook, and the ``severely adverse'' scenario is a more 
severe set of conditions and the most stringent of the scenarios. 
Because the ``baseline'' and ``severely adverse'' scenarios are 
designed to cover a full range of expected and stressful conditions, 
the ``adverse'' scenario has provided limited incremental information 
to the Board and market participants. Accordingly, the stress testing 
proposal would have maintained the requirement for a banking 
organization to conduct company-run stress tests under both a 
``baseline'' and ``severely adverse'' scenario. In addition, the 
proposal would have redefined the ``severely adverse'' scenario to mean 
a set of conditions that affect the U.S. economy or the financial 
condition of a banking organization that overall are significantly more 
severe than those associated with the baseline scenario and may include 
trading or other additional components.
    One commenter requested that the Board immediately eliminate 
certain stress testing requirements that would no longer be in effect 
upon finalization of the proposal or that are not appropriate for any 
firm of any size. Specifically, the commenter asserted that the Board 
should immediately eliminate the ``adverse'' scenario from the 
scenarios required for purposes of the Board's 2019 stress test cycle. 
Because the final rule is effective after the October 5, 2019, due date 
for mid-cycle company-run stress tests, and there is no additional 
requirement that necessitates use of the ``adverse'' scenarios for the 
2019 stress test cycle, the removal of this requirement will take 
effect for the 2020 stress test cycle.

D. Review by Board of Directors

    The enhanced prudential standards rule, as adopted, required the 
board of directors of a banking organization to ``review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the company may 
warrant, but no less than annually.'' \118\ The domestic proposal would 
have established similar requirements for covered savings and loan 
holding companies. The stress testing proposal would have revised the 
frequency of these requirements for banking organizations from 
``annual'' to ``no less than each year a stress test is conducted'' in 
order to make review by the board of directors consistent with the 
supervised firm's stress testing cycle. The Board did not receive 
comments on this aspect of the proposal and is adopting it without 
change.
---------------------------------------------------------------------------

    \118\ See 77 FR 62396 (October 12, 2012); 77 FR 62378 (October 
12, 2012).
---------------------------------------------------------------------------

E. Scope of Applicability for Savings and Loan Holding Companies

    The stress testing proposal would have revised the company-run 
stress testing requirements for covered savings and loan holding 
companies included in the domestic proposal. As part of the domestic 
proposal, the Board generally proposed to apply prudential standards to 
certain covered savings and loan holding companies using the standards 
for determining prudential standards for large bank holding companies. 
Section 165(i)(2) of the Dodd-Frank Act, as amended by EGRRCPA, 
requires all financial companies that have total consolidated assets of 
more than $250 billion to conduct periodic stress tests. Consistent 
with EGRRCPA, the Board proposed to revise the scope of applicability 
of the company-run stress testing requirements included in the domestic 
proposal to include all savings and loan holding companies that meet 
the criteria for Category II or Category III standards. The proposal 
also would have amended the proposed company-run stress test 
requirements to maintain the existing transition provision that 
provides that a savings and loan holding company would not be required 
to conduct its first stress test until after it is subject to minimum 
capital requirements. The Board did not receive comments on this aspect 
of the proposal and adopting it generally as proposed. The final rule 
applies company-run

[[Page 59062]]

stress testing requirements to covered savings and loan holding 
companies subject to Category II or III standards, consistent with the 
requirements that apply to similarly-situated bank holding companies. 
In addition, the final rule applies company-run stress test 
requirements to all other savings and loan holding companies with total 
consolidated assets of $250 billion or more, consistent with the Dodd-
Frank Act, as amended by EGRRCPA. A savings and loan holding company is 
required to comply with company-run stress testing requirements after 
it is subject to minimum regulatory capital requirements. Covered 
savings and loan holding companies are subject to minimum regulatory 
capital requirements through the Board's capital rule.\119\
---------------------------------------------------------------------------

    \119\ 12 CFR 217.
---------------------------------------------------------------------------

XIV. Changes to Dodd-Frank Definitions

    The proposal would have made changes to the Board's implementation 
of certain definitions in the Dodd-Frank Act. Specifically, the Dodd-
Frank Act directed the Board to define the terms ``significant bank 
holding company'' and ``significant nonbank financial company,'' terms 
that are used in the credit exposure reports provision in section 
165(d)(2).\120\ The terms ``significant nonbank financial company'' and 
``significant bank holding company'' are also used in section 113 of 
the Dodd-Frank Act, which specifies that FSOC must consider the extent 
and nature of a nonbank company's transactions and relationships with 
other ``significant nonbank financial companies'' and ``significant 
bank holding companies,'' among other factors, in determining whether 
to designate a nonbank financial company for supervision by the 
Board.\121\ The Board previously defined ``significant bank holding 
company'' and ``significant nonbank financial company'' using $50 
billion minimum asset thresholds to conform with section 165.\122\ In 
light of EGRRCPA's amendments, the Board proposed to amend these 
definitions to include minimum asset thresholds of $100 billion, and 
make other conforming edits in the Board's regulation on definitions in 
Title I of the Dodd-Frank Act.\123\ The Board did not receive any 
comments on this aspect of the proposal and is finalizing it as 
proposed.
---------------------------------------------------------------------------

    \120\ 12 U.S.C. 5311(a)(7); 5365(d)(2). EGRRCPA changed credit 
exposure reports from a mandatory to discretionary prudential 
standard under section 165.
    \121\ See 12 U.S.C. 5323.
    \122\ 12 CFR 242.4.
    \123\ 12 CFR part 242.
---------------------------------------------------------------------------

XV. Reporting Requirements

    In the proposals, the Board proposed changes to the FR Y-14, FR Y-
15, FR 2052a, FR Y-9C, FR Y-9LP, FR Y-7, and FR Y-7Q report forms. The 
Board received comments on changes to the FR Y-14, FR Y-15, and FR 
2052a, which are discussed below. The Board did not receive comments on 
its proposed changes to the FR Y-9C, FR Y-9LP, FR Y-7 and FR Y-7Q, and 
is finalizing those changes as proposed.
    Some commenters requested that the Board clearly identify in the 
preamble to the final rule the specific line items and forms that would 
be used to determine a banking organization's size and other risk-based 
indicators. Table II below indicates the line items that measure risk-
based indicators under the final rule:

                                 Table II--Line Items for Risk-Based Indicators
----------------------------------------------------------------------------------------------------------------
                                                                     Reporting unit
                                      --------------------------------------------------------------------------
                                                                   U.S. intermediate
                                                                  holding companies of        Combined U.S.
                                        U.S. holding companies      foreign banking       operations of foreign
                                                                     organizations        banking organizations
----------------------------------------------------------------------------------------------------------------
Size.................................  FR Y-15, Schedule A,     FR Y-15, Schedule H,     FR Y-15, Schedule H,
                                        Line Item M4.            Line Item M4, Column A.  Line Item M4, Column
                                                                                          B.
Cross-jurisdictional activity........  FR Y-15, Schedule E,     FR Y-15, Schedule L,     FR Y-15, Schedule L,
                                        Line Item 5.             Line Item 4, Column A.   Line Item 4, Column B.
Nonbank assets.......................  FR Y-15, Schedule A,     FR Y-15, Schedule H,     FR Y-15, Schedule H,
                                        Line Item M6.            Line Item M6, Column A.  Line Item M6, Column
                                                                                          B.
Short-term wholesale funding.........  FR Y-15, Schedule G,     FR Y-15, Schedule N,     FR Y-15, Schedule N,
                                        Line Item 6.             Line Item 6, Column A.   Line Item 6, Column B.
Off-balance sheet exposure...........  FR Y-15, Schedule A,     FR Y-15, Schedule H,     FR Y-15, Schedule H,
                                        Line Item M5.            Line Item M5, Column A.  Line Item M5, Column
                                                                                          B.
----------------------------------------------------------------------------------------------------------------

    The proposal would have added two line items to Schedule A and 
Schedule H of the FR Y-15 to clarify the calculation of risk-based 
indicators: Line Item M4 would calculate total assets and Line Item M5 
would calculate total off-balance sheet exposure. The Board did not 
receive specific comments on these line items and is adopting them as 
proposed.\124\ To further clarify the line items for calculating risk-
based indicators, the Board has added Line Item 5, Cross-jurisdictional 
activity, to Schedule E of the FR Y-15. The Board has also added Line 
Item M6, Total non-bank assets, on Schedule A and Schedule H of the FR 
Y-15.
---------------------------------------------------------------------------

    \124\ Comments regarding the composition of the risk-based 
indicators are discussed in section V of this Supplementary 
Information.
---------------------------------------------------------------------------

    The Board received a number of general comments on compliance 
periods. Various commenters requested that the Board provide banking 
organizations subject to new or heightened reporting requirements under 
the proposals with extended compliance periods for such requirements. 
The Board is providing a phase-in time for banking organizations to 
prepare for new reporting requirements, as applicable. The compliance 
and transition periods for each form are discussed below.
    The Board also received comments that were outside the scope of the 
proposals, such as suggested changes to forms that the Board did not 
propose to modify through these proposals. Some commenters requested 
tailoring of the proposed FR 2590, which relates to compliance with the 
single-counterparty credit limits rule. Proposed changes to the 
proposed FR 2590 will be addressed in a separate Board action. 
Commenters also requested a change to the FFIEC forms. The agencies are 
reviewing interagency forms and intend to propose changes to them to 
conform to EGRRCPA and this final rule.

[[Page 59063]]

A. FR Y-14

    Consistent with EGRRCPA's changes and the Board's July 2018 
statement relating to EGRRCPA,\125\ the proposals would have revised 
the FR Y-14 series of reports (FR Y-14A, Y-14Q, and Y-14M) so that 
domestic bank holding companies and U.S. intermediate holding companies 
with less than $100 billion in total consolidated assets would no 
longer be required to submit the forms. Under the proposals, domestic 
bank holding companies and U.S. intermediate holding companies with 
$100 billion or more in total consolidated assets would continue to 
submit the FR Y-14 reports.
---------------------------------------------------------------------------

    \125\ 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 also would have required all covered savings and loan 
holding companies with $100 billion or more in total consolidated 
assets to complete elements of the FR Y-14 series of reports that are 
used in conducting supervisory stress tests: (1) The FR Y-14M; (2) all 
schedules of the FR Y-14-Q except for Schedule C--Regulatory Capital 
Instruments and Schedule D--Regulatory Capital Transitions; and (3) 
Schedule E--Operational Risk of the FR Y-14A. The proposal would have 
required covered savings and loan holding companies subject to Category 
II or III standards to report the Form FR Y-14A Schedule A--Summary and 
Schedule F--Business Plan Changes with respect to company run stress 
testing.
    Commenters argued that the Board should adjust various FR Y-14 
reporting requirements for banking organizations subject to the 
proposals. Commenters generally requested that the FR Y-14 be amended 
to provide reductions in burden for banking organizations, particularly 
those subject to Category III or IV standards. Some commenters asked 
the Board to revise the FR Y- 14M and Y-14A for banking organizations 
subject to Category IV standards, by reducing the frequency of the Y-
14M from monthly to quarterly and altering or eliminating certain Y-14A 
schedules and worksheets. These commenters also asked the Board to 
review the relevance of information requested on the Y-14Q for banking 
organizations subject to Category IV standards. Other commenters 
suggested that certain Y-14A sub-schedules should not be required for 
banking organizations subject to Category III standards. Some 
commenters requested that the Board simplify the Y-14A Summary schedule 
for all banking organizations.
    The final rule adopts the changes to the FR Y-14 largely as 
proposed. The final rule maintains the existing FR Y-14 substantive 
reporting requirements 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 bank holding companies, covered 
savings and loan holding companies, and U.S. intermediate holding 
companies. However, as discussed in the proposals, the Board intends to 
provide greater flexibility to banking organizations subject to 
Category IV standards in developing their annual capital plans and 
consider further changes to the FR Y-14 forms as part of a separate 
proposal. The Board has also revised the FR Y-14 instructions to remove 
references to the adverse scenario, consistent with the changes in this 
final rule.
    The final rule does not finalize certain definitional changes to 
the FR Y-14 series of reports, however. The proposal would have made 
changes to the definitions of ``large and complex'' and ``large and 
noncomplex'' bank holding company to align with proposed changes in 
section 225.8(d)(9). The Board is not finalizing these changes as part 
of this final rule, and instead intends to consider these changes in 
conjunction with other changes to the capital plan rule as part of a 
separate capital plan proposal.
    Commenters also requested that the Board provide an initial 
transition period for covered savings and loan holding companies to 
submit their first FR Y-14 reports. The final rule provides covered 
savings and loan holding companies with an extended amount of time to 
file their first reports. Table III details the submission date 
requirements for covered savings and loan holding companies with $100 
billion or more in total consolidated assets that will be submitting FR 
Y-14 reports under the final rule for the first time:

  Table III--First Submission Dates of FR Y-14 for Covered Savings and
                         Loan Holding Companies
------------------------------------------------------------------------
                                      First as-of     First submission
               Form                      date               dates
------------------------------------------------------------------------
FR Y-14A..........................      12/31/2021  April 5, 2022.
FR Y-14Q..........................       6/30/2020  90 days after
                                                     quarter end for
                                                     first two quarterly
                                                     submissions; 65
                                                     days after quarter
                                                     end for the third
                                                     and fourth
                                                     quarterly
                                                     submissions.
FR Y-14M..........................       6/30/2020  For the first three
                                                     monthly
                                                     submissions, 90
                                                     days after the
                                                     month-end as-of
                                                     date.
------------------------------------------------------------------------

B. FR Y-15

    The proposals would have modified the reporting panel and 
substantive requirements of the FR Y-15. First, the domestic proposal 
would have no longer required U.S. bank holding companies and covered 
savings and loan holding companies with $50 billion or more, but less 
than $100 billion, in total consolidated assets to file the FR Y-15. 
The foreign bank proposal would have further revised the reporting 
panels and scope of the FR Y-15. Currently, U.S. intermediate holding 
companies with $50 billion or more in total consolidated assets report 
the FR Y-15. Under the foreign bank proposal, foreign banking 
organizations with $100 billion or more in combined U.S. assets, rather 
than U.S. intermediate holding companies, would have been required to 
submit the FR Y-15 with respect to their combined U.S. operations. 
Specifically, the proposal would have required a foreign banking 
organization to report information described in the FR Y-15 separately 
for its (i) U.S. branch and agency network, if any; (ii) U.S. 
intermediate holding company, if any; and (iii) combined U.S. 
operations.
    Some commenters supported the changes to the FR Y-15's scope and 
reporting panel in the proposals. Commenters noted that the Board does 
not currently compile systemic risk data on foreign banking 
organizations that includes information on branch networks. These 
commenters argued that incorporating combined U.S. operations into the 
FR Y-15 would provide more complete information on a foreign banking 
organization's

[[Page 59064]]

financial profile, and that such a revision was overdue. However, other 
commenters opposed the changes. These commenters argued that the 
proposed reporting based on the combined U.S. operations was 
unjustified, and would require significant modifications to foreign 
banking organizations' existing reporting systems at a substantial 
cost. Some commenters also argued that the proposed FR Y-15 changes 
would disproportionately burden foreign banking organizations compared 
to domestic banking organizations, and therefore were inconsistent with 
the principle of national treatment.
    To address these concerns, commenters suggested alternatives to the 
proposal. Some commenters stated that the FR Y-15 should not include 
any reporting on a combined U.S. operations basis. In particular, 
commenters argued that the Board should implement a tailoring framework 
that does not measure risk-based indicators across a foreign banking 
organization's combined U.S. operations, and eliminate FR Y-15 
reporting on a combined U.S. operations basis. Other commenters 
suggested that a foreign banking organization should only be required 
to report information on its combined U.S. operations that is necessary 
for calculating the risk-based indicators. Commenters also recommended 
that the Board allow banking organizations to file a modified FR Y-15 
with an option to prepare top-line items and not require more nuanced 
risk-based indicator calculations with respect to a particular 
indicator if a banking organization is well below the threshold for the 
risk-based indicator based on the top-line item. Another commenter also 
requested removal of the requirement to calculate risk-weighted assets 
at the combined U.S. operations level.
    As commenters acknowledged, the proposal would have required 
foreign banking organizations to calculate size, cross-jurisdictional 
activity, nonbank assets, off-balance sheet exposure, and weighted 
short-term wholesale funding for their combined U.S. operations in 
order to determine the category of standards that would apply to a 
foreign banking organization at the level of its combined U.S. 
operations.\126\ Most of these indicators are already reported by U.S. 
bank holding companies, covered savings and loan holding companies, and 
U.S. intermediate holding companies. Requiring a foreign banking 
organization to report this information for its combined U.S. 
operations supports tailoring prudential standards based on the risk-
profile of foreign banking organization's U.S. operations. This 
approach also establishes a central location for information on the 
risk-based indicators to help support the transparency of the 
framework.
---------------------------------------------------------------------------

    \126\ Standards that apply to the combined U.S. operations of a 
foreign banking organization include liquidity stress tests, risk 
management, and buffer requirements under the enhanced prudential 
standards rule; resolution planning requirements; and the reporting 
frequency of the FR 2052a.
---------------------------------------------------------------------------

    The purpose and use of the FR Y-15 is broader than compliance with 
the tailoring framework, however. The FR Y-15 requests granular data on 
an institution's funding, structure, and activities that is consistent 
and comparable among institutions, and is often unavailable from other 
sources. The Board uses this information to monitor the systemic risk 
profile of banking organizations, as well as for other purposes.\127\ 
Information on the combined U.S. operations of foreign banking 
organizations from the FR Y-15 will enhance the Board's ability to 
monitor and supervise the U.S. footprint of large foreign banking 
organizations and compare the risk profiles of large banking 
organizations. Having this data reported on the FR Y-15 also ensures 
that information on the combined U.S. operations of foreign banking 
organizations is available to the public, and thus can be used by the 
market to evaluate the systemic importance of domestic banking 
organizations and the U.S. operations of foreign banking organizations.
---------------------------------------------------------------------------

    \127\ For example, the FR Y-15 is used to facilitate the 
implementation of GSIB capital surcharges, identify other 
institutions which may present significant systemic risk, and 
analyze the systemic risk implications of proposed mergers and 
acquisitions.
---------------------------------------------------------------------------

    Accordingly, the final rule requires foreign banking organizations 
to report the FR Y-15 at the U.S. intermediate holding company and 
combined U.S. operations levels largely as proposed. The FR Y-15 as 
finalized is consistent with the principle of national treatment 
because it requires similarly-situated domestic holding companies and 
foreign banking organizations to report similar data on their U.S. 
footprint, taking into account the unique structures of foreign banking 
organizations. In response to comments, and because the Board is not 
applying categories of standards to the U.S. operations of foreign 
banking organizations based only on the risk profile of their U.S. 
branch and agency networks, the Board will not require foreign banking 
organizations to provide standalone data on their U.S. branches and 
agencies on the FR Y-15. Accordingly, the Board is modifying the 
proposal by eliminating the U.S. branch and agency column on the FR Y-
15, and instead will only require foreign banking organizations to 
complete the FR Y-15 in two columns for purposes of the final rule: 
Column A, U.S. intermediate holding companies, if any; and Column B, 
combined U.S. operations. Foreign banking organizations also will not 
be required to calculate average risk-weighted assets for their 
combined U.S. operations in Column B on Schedule N, line item 7. 
Because branches and agencies are not subject to capital requirements, 
this information would provide limited supervisory benefit and could be 
burdensome to compile and calculate.
    Commenters requested a number of specific line item changes and 
instruction clarifications for completing the FR Y-15. These commenters 
requested more clarity in the General Instructions on the rule of 
consolidation for foreign banking organizations and foreign affiliate 
netting. The final form includes revised language in the General 
Instructions and certain schedules that is intended to further clarify 
and address questions regarding consolidation rules and netting. The 
Board also intends to continue to review the FR Y-15 instructions in 
light of the changes in this final rule and, if necessary, further 
refine the form and instructions to provide additional clarity on how 
to report line items for the combined U.S. operations of foreign 
banking organizations. Commenters requested that the Board permit 
foreign banking organizations to report size as a spot, rather than 
average measure, on proposed Schedule H of the FR Y-15 unless the 
foreign banking organization's U.S. intermediate holding company is 
subject to the supplementary leverage ratio. Averages provide a more 
reliable and risk-sensitive estimate of the banking organization's size 
over the period, and as such, the Board is finalizing the calculation 
of total exposure on Schedule H as proposed.
    Commenters raised a number of issues and questions regarding 
proposed Schedule L--FBO Cross-Jurisdictional Activity Indicators. For 
purposes of reporting cross-jurisdictional activity, the proposal would 
have required a foreign banking organization to report assets and 
liabilities of the combined U.S. operations, 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

[[Page 59065]]

change, the proposal would have amended the FR Y-15 by adding new line 
items to proposed Schedule L and changed the accompanying FR Y-15 
instructions. Comments related to the substance of the cross-
jurisdictional indicator are discussed in section V. The Board is 
finalizing Schedule L substantively as proposed, with some technical 
edits to language to provide further clarity on how to report line 
items for a foreign banking organization's combined U.S. operations.
    One commenter recommended expanding line item 4 on Schedule E--
Cross-Jurisdictional Activity Indicators to separately identify 
deposits; trading liabilities; borrowings (including short-term 
borrowings, long-term debt, federal funds purchased, and repurchase 
agreements); accounts payable; and other liabilities. The commenter 
argued that such additional specificity would provide the Board and the 
public with additional insight into the nature of an institution's 
cross-jurisdictional liabilities without increasing reporting burden. 
The Board finds that line item 4 is reported with sufficient 
granularity to understand the risk profile of the banking organizations 
and is adopting it as proposed.
    Commenters expressed concern about the amount of time required to 
establish systems necessary to collect information from combined U.S. 
operations of a foreign banking organization as well as with the 
accuracy and integrity of the data collected. Commenters also requested 
at minimum, a 12-month phase-in period to accommodate the expanded 
scope of the FR Y-15 reporting requirements, and that the first two 
quarterly FR Y-15 filings be prepared on a ``best efforts'' basis. To 
allow firms to develop reporting and data systems, the final rule 
provides a phase-in period to meet the expanded reporting requirements 
in the FR Y-15. Under the phase-in period, banking organizations will 
be required to report the first combined U.S. operations data on the FR 
Y-15 with an as-of date of June 30, 2020, and submit the data to the 
Board no later than August 19, 2020.
    Under the foreign bank proposal, Schedule N--FBO Short-Term 
Wholesale Funding Indicator of the FR Y-15 would have required foreign 
banking organizations that report the FR 2052a daily to report the 
average weighted short-term wholesale funding values using daily data, 
and all other foreign banking organizations to report average values 
using monthly data. Some commenters requested that weighted short-term 
wholesale funding in Schedule N be reported using monthly data for all 
foreign banking organizations. An average of day-end data points is a 
more accurate representation of a banking organization's ongoing 
reliance on wholesale funding. Accordingly, for foreign banking 
organizations that have sufficient liquidity risks that would require 
FR 2052a daily reporting, the final rule requires these banking 
organizations to report Schedule N on the FR Y-15 using daily data. For 
firms not subject to FR 2052a daily reporting, the Board is finalizing 
the rule for calculating weighted short-term wholesale funding as 
proposed.
    The Board continues to evaluate whether the benefits of a more 
frequent average would be justified for these firms, particularly for 
firms that report the LCR on a daily basis, and may propose adjustments 
to the calculation frequency. Furthermore, the Board intends to monitor 
a firm's weighted short-term wholesale funding position at month-end 
relative to its position throughout the month through the supervisory 
process, and continues to have the authority to apply additional 
prudential standards based on the risk profile of a firm, including its 
liquidity risk profile.\128\
---------------------------------------------------------------------------

    \128\ See 12 CFR 217.1(d); 12 CFR 249.2(a); 12 CFR 252.3(a).
---------------------------------------------------------------------------

C. FR 2052a

    The proposals would have modified the current reporting frequency 
and granularity of the FR 2052a to align with the proposed tailoring 
framework. Specifically, the proposals would have required U.S. bank 
holding companies and covered savings and loan holding companies, each 
with $100 billion or more in total consolidated assets, or foreign 
banking organizations with combined U.S. assets of $100 billion or 
more, to report FR 2052a data each business day if they were (i) 
subject to Category I or II standards, as applicable, or (ii) subject 
to Category III standards and had $75 billion or more in weighted 
short-term wholesale funding (for foreign banking organizations, this 
would be measured at the level of the combined U.S. operations). All 
other domestic holding companies and foreign banking organizations 
would have been required to report the FR 2052a on a monthly basis. 
These changes would have increased the frequency of reporting for 
domestic banking organizations subject to Category II standards with 
less than $700 billion in total consolidated assets, and domestic 
banking organizations subject to Category III standards with $75 
billion or more in weighted short-term wholesale funding; both groups 
of banking organizations currently report the FR 2052a monthly. 
Similarly, the frequency of reporting would have changed for some 
foreign banking organizations. The proposals also would have simplified 
the FR 2052a reporting thresholds by eliminating the current criteria 
used to identify daily filers of the FR 2052a--for domestic holding 
companies, those firms with $700 billion or more in total assets or $10 
trillion or more in assets under custody, and for foreign banking 
organizations, those firms included in the Large Institution 
Supervision Coordinating Committee portfolio--and replacing these 
criteria with the category framework.
    A number of commenters requested that the Board reduce or eliminate 
proposed FR 2052a reporting requirements. Commenters requested that the 
Board modify the proposed FR 2052a reporting frequencies so that 
banking organizations subject to Category II and Category III standards 
would be subject to monthly or quarterly, rather than daily, reporting. 
Similarly, commenters argued that the Board should not expand the scope 
of daily FR 2052a reporting beyond its current reach, and that no 
banking organization should be subject to more frequent FR 2052a 
reporting under the proposals. Some commenters suggested that the 
requirement to report FR 2052a data each business day should not be 
based on the $75 billion weighted short-term wholesale funding 
threshold, but instead on a higher short-term wholesale funding 
threshold, such as $100 billion or $125 billion. Commenters on the 
foreign proposal noted that certain foreign banking organizations would 
move from monthly to daily FR 2052a reporting under the proposal and 
argued that this was unjustified, as well as inconsistent with the 
principle of national treatment.
    The Board is finalizing the FR 2052a generally as proposed, with 
certain modifications as discussed below. Daily FR 2052a reporting is 
appropriate for institutions subject to Category II standards or 
Category III standards with $75 billion or more in weighted short-term 
wholesale funding. The Board uses liquidity data provided through FR 
2052a reporting to monitor and assess the liquidity risks and 
resiliency of large banking organizations on an ongoing basis. The 
frequency and timeliness with which data is provided to supervisors 
should be commensurate with the scale and dynamic nature of a banking 
organization's liquidity risk. Liquidity stresses can materialize 
rapidly for banking organizations of all

[[Page 59066]]

sizes, but banking organizations with significant size and cross-
jurisdictional activity in the United States may be more likely to face 
stress suddenly due to the scale of their funding and their operational 
complexity. Moreover, greater reliance on short-term wholesale funding 
may indicate heightened rollover risk and greater volatility in the 
funding profile of a banking organization or its U.S. operations. 
Banking organizations subject to Category II standards or Category III 
standards with $75 billion or more in weighted short-term wholesale 
funding have liquidity risk profiles that present higher risk to both 
financial stability and safety and soundness. Therefore, supervisory 
monitoring through daily FR 2052a reporting is critical to ensure these 
banking organizations are maintaining appropriate levels of liquidity 
and supervisors have a detailed understanding of their funding sources. 
The Board is thus finalizing the FR 2052a criteria and reporting 
frequency as proposed for banking organizations subject to Category II 
or III standards.
    Some commenters on the domestic proposal argued that banking 
organizations that engage in activities that present lower liquidity 
risk, such as custodial activities, should not be required to submit 
the FR 2052a daily. Liquidity stresses may arise from a broad range of 
sources and markets, and can be impactful for banking organizations 
that have a range of business models. Accordingly, the Board is not 
providing different FR 2052a reporting requirements for institutions 
that engage in custodial activities.
    A number of commenters argued that banking organizations subject to 
Category IV standards should be subject to quarterly reporting to align 
with the institutions' liquidity stress testing requirements. Other 
commenters requested that the Board eliminate FR 2052a reporting for 
banking organizations subject to Category IV standards, or instead 
require these institutions to report on an alternative form, such as 
the previously-used FR 2052b. If banking organizations subject to 
Category IV standards report the FR 2052a but are not subject to an LCR 
requirement under the final rule, commenters requested that the Board 
clarify and confirm that FR 2052a reporting will not implicitly bind 
these firms to the LCR rule.
    The Board uses FR 2052a information to analyze systemic and 
idiosyncratic liquidity risk and to inform supervisory processes. As a 
class, banking organizations that are subject to Category IV standards 
tend to have more stable funding profiles, as measured by their 
generally lower level of weighted short-term wholesale funding, and 
lesser degrees of liquidity risk and operational complexity associated 
with size, cross-jurisdictional activity, nonbank assets, and off-
balance sheet exposure compared to institutions subject to Categories 
I, II, or III standards. For this reason, the Board previously tailored 
data elements in the FR 2052a report based on the risk profiles for 
firms, and currently requires most banking organizations that would be 
subject to Category IV standards under the final rule to report the FR 
2052a monthly rather than daily. The size of institutions subject to 
Category IV standards indicates that such institutions still present 
heightened liquidity risk relative to smaller banking organizations, 
however, and should continue to provide the information on the FR 2052a 
to ensure sufficient supervisory monitoring.
    Similarly, because of their potential liquidity risks, banking 
organizations that would be subject to Category IV standards would 
still be required to develop comprehensive liquidity stress tests and 
short term daily cash flow projections under the enhanced prudential 
standards rule. The FR 2052b, which was discontinued in 2017, did not 
capture cash flow projections but collected information covering broad 
funding classifications by product, outstanding balance, and purpose, 
each segmented by maturity date. FR 2052a reporting aligns with the 
cash flows projection expectations and is substantially similar to the 
management information system a banking organization is required to 
develop to meet liquidity stress test requirements. The FR 2052a thus 
is a more comprehensive reporting form that is more appropriate for 
firms subject to the tailoring framework.
    Accordingly, the Board is finalizing the FR 2052a largely as 
proposed, and requiring institutions subject to Category IV standards 
to report the form on a monthly basis. As discussed above, the purpose 
of FR 2052a reporting is broader than compliance with the LCR rule. In 
particular, the FR 2052a report collects data elements that enable the 
Federal Reserve to assess the cash flow profile of reporting firms. As 
a result, the Board notes that FR 2052a reporting will not be used to 
implicitly bind firms to an LCR rule.
    Some commenters requested that banking organizations that would 
have been subject to monthly FR 2052a reporting be required to submit 
the form ten days after the as-of date (T+10) rather than two days 
after the as-of date (T+2). Under the proposals, top-tier U.S. 
depository institution holding companies and foreign banking 
organizations subject to either (1) Category III standards with less 
than $75 billion in weighted short-term wholesale funding or (2) 
Category IV standards with $50 billion or more in weighted short-term 
wholesale funding would have filed the FR 2052a monthly on a T+2 basis; 
all other monthly filers would have filed on a T+10 basis. Some 
commenters noted that, based on estimated categories included in the 
proposal, more foreign banking organizations would be required to file 
on a T+2 basis when compared to domestic banking organizations. Under 
the interagency capital and liquidity final rule, all banking 
organizations subject to Category III standards continue to be required 
to compute the LCR each business day. For banking organizations subject 
to Category III standards that file the FR 2052a monthly, a T+2 
submission is not expected to create significant additional burden and 
the final rule will continue to require submission on a T+2 basis for 
these firms. However, for all banking organizations subject to Category 
IV standards that are subject to FR 2052a reporting on a monthly basis, 
the Board will require these firms to submit data on a T+10 basis, 
regardless of their level of weighted short-term wholesale funding. 
Based on the lower liquidity risk profile of Category IV banking 
organizations, the benefits of T+2 reporting for these firms would not 
outweigh the burden for these institutions.
    Commenters requested clarification that foreign banking 
organizations may use the FR 2052a to calculate both the LCR and 
proposed NSFR. Appendix VI within the FR 2052a instructions was 
developed to assist reporting firms subject to the LCR rule in mapping 
the provisions of the LCR rule to the unique data identifiers reported 
on FR 2052a. This mapping document is neither part of the LCR rule nor 
a component of the FR 2052a report, and therefore may be used at firms' 
discretion. Finally, the FR 2052a includes a number of additional 
technical edits to the form and appendices to conform to the 
substantive changes in this final rule.

D. Summary of Reporting Effective Dates

    The following chart summarizes when banking organizations will be 
required to first determine their category under this final rule, as 
well as when amended reporting forms and new reporting requirements 
will take effect. As

[[Page 59067]]

reflected on the chart, U.S. bank holding companies, covered U.S. 
savings and loan holding companies, and U.S. intermediate holding 
companies should determine the category of standards that apply to them 
on the effective date of this final rule, using data from the FR Y-15 
and FR Y-9LP reports as-of the quarter end dates for the previous four 
quarters. Foreign banking organizations will not be required to comply 
with the amended Schedule L of the FR Y-15 with respect to their U.S. 
intermediate holding companies until as-of June 30, 2020. Until that 
time, U.S. intermediate holding companies should determine their 
category under the tailoring framework consistent with the cross-
jurisdictional activity schedule on the FR Y-15 that previously applied 
to U.S. intermediate holding companies provided that, when a foreign 
banking organization reports on the amended Schedule L with respect to 
its U.S. intermediate holding company, the U.S. intermediate holding 
company's measure of cross-jurisdictional activity will be based on the 
amount reported on the amended Schedule L and will not be averaged with 
amounts of cross-jurisdictional activity previously reported by the 
U.S. intermediate holding company.
    In contrast, foreign banking organizations will not be required to 
determine the category of standards applied to their combined U.S. 
operations until the submission date of the FR Y-15 following the June 
30, 2020 as-of date. Accordingly, a foreign banking organization would 
be required to comply with the category of standards applied to its 
combined U.S. operations beginning on October 1, 2020. This delay is to 
account for foreign banking organizations filing the FR Y-15 on behalf 
of their combined U.S. operations for the first time as-of June 30, 
2020.
---------------------------------------------------------------------------

    \129\ A bank holding company should determine its initial 
category based on averages using the bank holding company's four 
most recent FR Y-15 and FR Y-9LP filings.
    \130\ A covered savings and loan holding company should 
determine its initial category based on averages using the covered 
savings and loan holding company's four most recent FR Y-15 and FR 
Y-9LP filings.
    \131\ A U.S. intermediate holding company should determine its 
initial category based on averages using the U.S. intermediate 
holding company's four most recent FR Y-15 and FR Y-9LP filings. 
When a foreign banking organization reports on the amended Schedule 
L with respect to its U.S. intermediate holding company, the U.S. 
intermediate holding company's measure of cross-jurisdictional 
activity will be based on the amount reported on the amended 
Schedule L and will not be averaged with amounts of cross-
jurisdictional activity previously reported by the U.S. intermediate 
holding company.
    \132\ As-of this date, top-tier foreign banking organizations 
will report the FR Y-15 on behalf of their U.S. intermediate holding 
company and combined U.S. operations.
    \133\ Until this date, a foreign banking organization should 
report the FR 2052a with the frequency and as-of date (Day T) as the 
foreign banking organization was required to report on September 1, 
2019.
    \134\ Top-tier foreign banking organizations currently, and will 
continue to, report the FR Y-7Q.
    \135\ Top-tier foreign banking organizations currently, and will 
continue to, report the FR Y-7. The FR Y-7 is due annually at the 
end of a foreign banking organization's fiscal year.

                Table IV--Timeline for Initial Categorizations and Reporting Under the Final Rule
----------------------------------------------------------------------------------------------------------------
                                                                  Reporting unit
                                 -------------------------------------------------------------------------------
                                                                                                 Combined U.S.
                                  U.S.  bank holding     Covered U.S.      U.S. intermediate     operations of
                                       companies       savings and loan    holding companies   foreign  banking
                                                      holding  companies                         organizations
----------------------------------------------------------------------------------------------------------------
Date for first categorization     Effective date of   Effective date of   Effective date of   Submission date of
 under 12 CFR 252.5 or 12 CFR      final rule\129\.    final rule\130\.    final rule\131\.    FR Y-15 as-of
 238.10.                                                                                       June 30, 2020.
                                                                         ---------------------------------------
First as-of date for amended FR   June 30, 2020.....  June 30, 2020.....            June 30, 2020.\132\
 Y-15.
                                                                         ---------------------------------------
First as-of date for amended FR   June 30, 2020.....  June 30, 2020.....           October 1, 2020.\133\
 2052a.
                                                                         ---------------------------------------
First as-of date for amended FR   Next report after   December 31, 2021.  Next report after   N/A.
 Y-14A.                            effective date of                       effective date of
                                   final rule.                             final rule.
First as-of date for amended FR   Next report after   June 30, 2020.....  Next report after   N/A.
 Y-14Q.                            effective date of                       effective date of
                                   final rule.                             final rule.
First as-of date for amended FR   Next report after   June 30, 2020.....  Next report after   N/A.
 Y-14M.                            effective date of                       effective date of
                                   final rule.                             final rule.
First as-of date for amended FR   Next report after   Next report after   Next report after   N/A.
 Y-9C.                             effective date of   effective date of   effective date of
                                   final rule.         final rule.         final rule.
First as-of date for amended FR   Next report after   Next report after   Next report after   N/A.
 Y-9LP.                            effective date of   effective date of   effective date of
                                   final rule.         final rule.         final rule.
                                                                         ---------------------------------------
First as-of date for amended FR   N/A...............  N/A...............    Next report after effective date of
 Y-7Q.                                                                                final rule.\134\
                                                                         ---------------------------------------
First as-of date for amended FR   N/A...............  N/A...............    Next report after effective date of
 Y-7.                                                                           final rule (fiscal year-end
                                                                                        2020).\135\
----------------------------------------------------------------------------------------------------------------

XVI. Impact Assessment

    In general, U.S. banking organizations with less than $100 billion 
in total consolidated assets and U.S. intermediate holding companies 
with less than $100 billion in total consolidated assets would have 
significantly reduced compliance costs, as under the final rule these 
firms are no longer subject to the enhanced prudential standards rule 
or the capital plan rule, and are no longer required to file FR Y-14, 
FR Y-15, or FR 2052a reports.\136\ While these banking organizations 
are no longer subject to internal liquidity stress testing and buffer 
requirements, these firms currently hold highly liquid assets well in 
excess of their current liquidity buffer requirements.
---------------------------------------------------------------------------

    \136\ However, bank holding companies have not been complying 
with these requirements since July 6, 2018, when the Board issued a 
statement noting that it would no longer enforce these regulations 
or reporting requirements with respect to these firms. 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/files/bcreg20180706b1.pdf.

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[[Page 59068]]

    For U.S. banking organizations with $100 billion or more in total 
consolidated assets and foreign banking organizations with $100 billion 
or more in combined U.S. assets, the Board expects the adjustments to 
the enhanced prudential standards under this final rule to reduce 
aggregate compliance costs with minimal effects on the safety and 
soundness of these firms and U.S. financial stability. With respect to 
reporting, foreign banking organizations will experience an increase in 
compliance costs as a result of having to report the information 
required under Form FR Y-15 at the level of their combined U.S. 
operations, and certain 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 an increase in compliance costs 
due to the increase in reporting frequency of the FR 2052a to daily. 
The interagency capital and liquidity final rule provides additional 
impact information.

A. Liquidity

    The changes to liquidity requirements are expected to reduce 
compliance costs for banking organizations subject to Category IV 
standards by reducing the required frequency of internal liquidity 
stress tests from monthly to quarterly, and tailoring the liquidity 
risk management requirements to the risk profiles of these firms. The 
Board does not expect these changes to materially affect the liquidity 
buffer levels held by these banking organizations or their exposure to 
liquidity risk.

B. Stress Testing

    First, while the Board expects the changes to stress testing 
requirements to have no material impact on the capital levels of U.S. 
banking organizations and U.S. intermediate holding companies with $100 
billion or more in total consolidated assets, the final rule will 
reduce compliance costs for those firms subject to Category III or IV 
capital standards. These firms were previously required to conduct 
company-run stress tests on a semi-annual basis. For U.S. banking 
organizations and U.S. intermediate holding companies subject to 
Category III standards, the final rule reduces this frequency to every 
other year. For U.S. banking organizations and U.S. intermediate 
holding companies subject to Category IV standards, the final rule 
removes the company-run stress test requirement altogether.\137\ In 
addition, under the final rule, the Board will conduct supervisory 
stress tests of U.S. banking organizations and U.S. intermediate 
holding companies subject to Category IV standards on a two-year, 
rather than annual, cycle.
---------------------------------------------------------------------------

    \137\ Although the final rule would not modify the requirement 
for a U.S. banking organization or intermediate holding company 
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.
---------------------------------------------------------------------------

C. Single-Counterparty Credit Limits

    The changes to the single-counterparty credit limits framework 
under the final rule are not expected to increase risks to safety and 
soundness or U.S. financial stability. The final rule removes U.S. 
intermediate holding companies subject to Category IV standards from 
the applicability of single-counterparty credit limits. While these 
firms 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 final rule removes 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 final rule will 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, by extending the applicability of certain provisions under 
the single-counterparty credit limits framework to these firms. 
Specifically, as of January 1, 2021, U.S. intermediate holding 
companies with less than $250 billion in total consolidated assets that 
subject to Category II or Category III standards will be subject to a 
net credit exposure limit equal to 25 percent of tier 1 capital, the 
treatment for investments in and exposures to certain special purpose 
entities and the economic interdependence and control relationship 
tests for purposes of aggregating exposures to connected 
counterparties.

D. Covered Savings and Loan Holding Companies

    For covered savings and loan holding companies, the final rule 
increases compliance costs while reducing risks to the safety and 
soundness of these firms. The Board expects the new requirements for 
covered savings and loan holding companies to meaningfully improve the 
risk management capabilities of these firms and their resiliency to 
stress, which furthers their safety and soundness.
    A covered savings and loan holding company that is subject to 
Category II or III standards is required to conduct company-run stress 
tests, which would be a new requirement. In connection with the 
application of supervisory and company-run capital stress testing 
requirements, covered savings and loan holding companies with total 
consolidated assets of $100 billion or more must report the FR Y-14 
reports. In addition, the final rule requires a covered savings and 
loan holding company with total consolidated assets of $100 billion or 
more to conduct internal liquidity stress testing and maintain a 
liquidity buffer. While covered savings and loan holding companies will 
incur costs for conducting internal liquidity stress testing, this 
requirement will serve to improve the capability of these firms to 
understand, manage, and plan for liquidity risk exposures across a 
range of conditions. Depending on its liquidity buffer requirement, a 
covered savings and loan holding company may need to increase the 
amount of liquid assets it holds or otherwise adjust its risk profile 
to reduce estimated net stressed cash-flow needs. Because covered 
savings and loan holding companies are already subject to the LCR rule, 
which also requires a firm to maintain a minimum amount of liquid 
assets to meet net outflows under a stress scenario, covered savings 
and loan holding companies generally will need to hold only an 
incremental amount--if any--above the levels already required to comply 
with the LCR rule.

XVII. Administrative Law Matters

A. Paperwork Reduction Act Analysis

    Certain provisions of the final 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

[[Page 59069]]

reviewed the final rule under the authority delegated to the Board by 
OMB. The Board did not receive any specific comments on the PRA.
    The final rule contains reporting requirements subject to the PRA. 
To implement these requirements, the Board is revising 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) Systemic Risk Report (FR Y-15; OMB No. 7100-0352).
    The final rule also contains reporting and recordkeeping 
requirements subject to the PRA. To implement these requirements, the 
Board is revising the 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). Foreign banking organizations do not yet 
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.
Adopted 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.
    Effective Date: June 30, 2020 (October 1, 2020 for foreign banking 
organizations with U.S. assets).
    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.
    Estimated number of respondents: Monthly: 26; Daily: 16.
    Estimated average hours per response: Monthly: 120; Daily: 220.
    Estimated annual burden hours: 917,440.
    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 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 the Home Owners' Loan Act (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 
final rule, the Board is modifying the current FR 2052a reporting 
frequency. The Board revised the FR 2052a (1) so that BHCs and SLHCs 
with less than $100 billion in total consolidated assets would no 
longer have to report, (2) BHCs or SLHCs subject to Category II 
standards ($700 billion or more in total consolidated assets or $75 
billion or more in cross jurisdictional activity) would have to report 
FR 2052a daily, and (3) BHCs or SLHCs subject to Category III standards 
with $75 billion or more in weighted short-term wholesale funding would 
have to report FR 2052a daily, rather than monthly. 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 final 
rule 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) are subject to 
Category III standards and 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 the 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 26, but the number of daily filers would increase from 12 to 
16. The Board estimates that revisions to the FR 2052a would increase 
the estimated annual burden by 205,600 hours. The final 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.
    Effective Date: For the amended FR Y-7, the next report after 
effective date of final rule (fiscal year-end 2020).
    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)),

[[Page 59070]]

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: 4,044; FR Y-7: 256; FR Y-
10: 4,232; FR Y-10E: 4,232.
    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: 22,242; FR Y-7: 1,152; FR Y-
10: 43,233; FR Y-10E: 2,116.
    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 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 (D.C. 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 revised 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 the final 
rules and other regulatory changes that are consistent with the Board's 
July 2018 statement concerning EGRRCPA. The Board estimates that 
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 revisions to the FR Y-7 would decrease 
the estimated annual burden by 384 hours. The final 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.
    Effective Date: For the amended FR Y-7Q, the next report after 
effective date of final rule.
    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.

[[Page 59071]]

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 final rule would amend the FR Y-7Q to align 
with revisions to the enhanced prudential standards rule. Previously, 
top-tier foreign banking organizations with $50 billion or more in 
total consolidated assets were required to report Part 1B--Capital and 
Asset Information for Top-tier Foreign Banking Organizations with 
Consolidated Assets of $50 billion or more. The final rule would now 
require top-tier foreign banking organizations 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 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 for 
quarterly filers. The Board estimates that revisions to the FR Y-7Q 
would decrease the estimated annual burden by 390 hours. The final 
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.
    Effective Date: For amended FR Y-9C and FR Y-9LP, next report after 
effective date of final rule.
    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): 344; FR Y-9C (advanced approached holding 
companies): 19; FR Y-9LP: 434; FR Y-9SP: 3,960; FR Y-9ES: 83; 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): 63,764; FR Y-9C (advanced approached holding 
companies): 3,617; FR Y-9LP: 9,149; FR Y-9SP: 42,768; FR Y-9ES: 42; 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 pre-inspection 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

[[Page 59072]]

supervision of financial institutions (5 U.S.C. 552(b)(8)).
    Current Actions: To implement the reporting requirements of the 
final rule, the Board is amending the FR Y-9C to clarify requirements 
for holding companies subject to Category III capital standards. The 
final rule amends 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 FR Y-9LP is revised to require covered savings and loan 
holding companies with total consolidated assets of $100 billion or 
more to report total nonbank assets on Schedule PC-B, in order to 
determine whether the firm would be subject to Category III standards. 
The Board estimates that revisions to the FR Y-9C would increase the 
non AA HCs respondent count by 11 and decrease the AA HCs respondent 
count by 11. The Board estimates that revisions to the FR Y-9 would 
decrease the estimated annual burden by 55 hours. The final 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.
    Effective Date: For U.S. bank holding companies and U.S. 
intermediate holding companies, the next reports (FR Y-14A, Q, and M) 
after the effective date of final rule. For U.S. covered savings and 
loan holding companies June 30, 2020 (FR Y-14Q and FR Y-14M), and 
December 31, 2021 (FR Y-14A).
    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: 38.
    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. 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, 67,412; Macro 
Scenario, 2,232; Operational Risk, 684; Regulatory Capital Instruments, 
756; Business Plan Changes, 608; and Adjusted Capital Plan Submission, 
500. FR Y-14Q: Retail, 2,280; Securities, 1,976; Pre-Provision Net 
Revenue (PPNR), 108,072; Wholesale, 22,952; Trading, 92,448; Regulatory 
Capital Transitions, 3,212; Regulatory Capital Instruments, 7,776; 
Operational risk, 7,600; Mortgage Servicing Rights (MSR) Valuation, 
1,564; Supplemental, 608; Retail Fair Value Option/Held for Sale 
(Retail FVO/HFS), 1,620; Counterparty, 24,672; and Balances, 2,432. FR 
Y-14M: 1st Lien Mortgage, 222,912; Home Equity, 185,760; and Credit 
Card, 98,304. FR Y-14: Implementation, 14,400 and On-going Automation 
Revisions, 18,240. 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

[[Page 59073]]

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 
final rule, the Board revised the FR Y-14 so that (1) BHCs with less 
than $100 billion in total consolidated assets would no longer have to 
report and (2) covered SLHCs with $100 billion or more in total 
consolidated assets are included in the reporting panel for certain FR 
Y-14 schedules. The Board revised 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 has also made 
certain revisions to the FR Y-14 forms to eliminate references to the 
adverse scenario, consistent with other changes in this final rule. The 
Board estimates that revisions to the FR Y-14 would increase the 
reporting panel by 2 respondents. The Board estimates that revisions to 
the FR Y-14 would increase the estimated annual burden by 64,016 hours. 
The final reporting forms and instructions are available on the Board's 
public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (6) Report title: Systemic Risk Report.
    Agency form number: FR Y-15.
    OMB control number: 7100-0352.
    Effective Date: June 30, 2020.
    Frequency: Quarterly.
    Affected Public: Businesses or other for-profit.
    Respondents: U.S. bank holding companies (BHCs) and covered savings 
and loan holding companies (SLHCs) with $100 billion or more in total 
consolidated assets, foreign banking organizations with $100 billion or 
more in combined U.S. 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: 43.
    Estimated average hours per response: 403.
    Estimated annual burden hours: 69,316.
    General description of report: The FR Y-15 quarterly report 
collects systemic risk data from U.S. bank holding companies (BHCs), 
and covered savings and loan holding companies (SLHCs) with total 
consolidated assets of $100 billion or more, 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, and foreign banking organizations with $100 billion or more in 
combined U.S. assets. The Board uses the FR Y-15 data to monitor, on an 
ongoing basis, the systemic risk profile of subject institutions. 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 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 Schedules G and N 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: Consistent with the final rule, the FR Y-15 has 
been amended to require U.S. bank holding companies and U.S. covered 
savings and loan holding companies with $100 billion or more in total 
consolidated assets to file the form, as well as foreign banking 
organizations with $100 billion or more in combined U.S. assets. These 
foreign banking organizations will file all schedules of the FR Y-15 on 
behalf of their U.S. intermediate holding companies (Column A) and 
combined U.S. operations (Column B). The final form includes others 
edits described further in the SUPPLEMENTARY INFORMATION sections.
    The Board estimates that the changes to the FR Y-15 would increase 
the respondent count by 6 respondents. The Board also estimates that 
the revisions to the FR Y-15 would increase the estimated average hours 
per response by 2 hours and would increase the estimated annual burden 
by 9,968 hours. The final reporting forms and instructions are 
available on the Board's public website at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (7) Report title: Reporting and Recordkeeping Requirements 
Associated with Regulation Y (Capital Plans).
    Agency form number: FR Y-13.
    OMB control number: 7100-0342.
    Effective Date: Effective date of final rule.
    Frequency: Annually.
    Affected Public: Businesses or other for-profit.
    Respondents: BHCs and IHCs.
    Estimated number of respondents: 34.
    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)), 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)), 303,280 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

[[Page 59074]]

under certain circumstances before making a capital distribution.
    Current Actions: The final rule raises the threshold for 
application of Sec.  225.8 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. This change would 
reduce the panels for various provisions in Sec.  225.8. The Board 
estimates that the revisions to the FR Y-13 would decrease the 
estimated annual burden by 28,115 hours.
    (8) Report title: Reporting and Disclosure Requirements Associated 
with Regulation LL.
    Agency Form Number: FR LL.
    OMB control number: 7100-NEW.
    Effective Date: Effective date of final rule.
    Frequency: Biennial.
    Affected Public: Businesses or other for-profit.
    Respondents: Savings and loan holding companies.
    Estimated number of respondents: 1.\138\
---------------------------------------------------------------------------

    \138\ 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: Reporting section 
238.162b1ii, 80; Disclosure section 238.146 (initial setup), 150; 
Disclosure section 238.146, 60.
    Estimated annual burden hours: Reporting section 238.162b1ii, 40; 
Disclosure section 238.146 (initial setup), 75; Disclosure section 
238.146, 30.
    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.
    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.
    Current Actions: The Board is moving the requirement for foreign 
savings and loan holding companies currently in Sec.  
252.122(b)(1)(iii) of Regulation YY into Sec.  238.162(b)(1)(ii) of 
Regulation LL. In doing so, the Board is amending the frequency of the 
reporting requirement in proposed Sec.  238.162(b)(1)(ii) from annual 
to at least biennial. The Board is also raising 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.
    (9) Report title: Reporting, Recordkeeping, and Disclosure 
Requirements Associated with Regulation YY (Enhanced Prudential 
Standards).
    Agency Form Number: FR YY.
    OMB Control Number: 7100-0350.
    Effective Date: Effective date of final rule.
    Frequency: Annual, semiannual, quarterly.
    Affected Public: Businesses or other for-profit.
    Respondents: State member banks, U.S. bank 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.
    Estimated number of respondents: 23 U.S. bank holding companies 
with total consolidated assets of $100 billion or more, 4 U.S. bank 
holding companies with total consolidated assets of $50 billion or more 
but less than $100 billion, 1 state member bank with total consolidated 
assets over $250 billion, 11 U.S. intermediate holding companies with 
$100 billion or more in total assets, 23 foreign banking organizations 
with total consolidated assets of more than $50 billion but less than 
$100 billion; 23 foreign banking organizations with total consolidated 
assets of $100 billion or more but combined U.S. operations of at least 
$50 billion but less than $100 billion; 17 foreign banking 
organizations with total consolidated assets of $100 billion or more 
and combined U.S. operations of $100 billion or more.
    Current estimated annual burden: 41,619 hours.
    Proposed revisions estimated annual burden: (13,868) hours.
    Total estimated annual burden: 27,751 hours.
    General description of report: 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 in this SUPPLEMENTARY INFORMATION, 
the Board is amending reporting, recordkeeping and disclosure 
requirements in Regulation YY to generally raise the thresholds for 
application of these requirements to state member banks, U.S. bank 
holding companies, U.S. intermediate holding companies, and foreign 
banking organizations, consistent with EGRRCPA's changes to section 165 
of the Dodd-Frank.

B. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a final rulemaking, an agency prepare and make 
available for public comment a final regulatory flexibility analysis 
describing the impact of the proposed rule on small entities.\139\ 
However, a final regulatory flexibility analysis is not required if the 
agency certifies that the final rule will 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 or equal to $600 million in total assets.\140\ 
For the reasons described below and under section 605(b) of the RFA, 
the Board certifies that the final rule will not have a significant 
economic impact on a substantial number of small entities. As of June 
30, 2019, there were 2,976 bank holding companies, 133 savings and loan 
holding companies, and 537 state member banks that would fit the SBA's 
current definition of ``small entity'' for purposes of the RFA.
---------------------------------------------------------------------------

    \139\ 5 U.S.C. 601 et seq.
    \140\ See 13 CFR 121.201. Effective August 19, 2019, the Small 
Business Administration revised the size standards for banking 
organizations to $600 million in assets from $550 million in assets. 
See 84 FR 34261 (July 18, 2019). Consistent with the General 
Principles of Affiliation in 13 CFR 121.103, the Board counts the 
assets of all domestic and foreign affiliates when determining if 
the Board should classify a Board-supervised institution as a small 
entity.

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

[[Page 59075]]

    The Board is finalizing amendments to Regulations Q,\141\ Y,\142\ 
LL,\143\ PP,\144\ and YY \145\ that would affect the regulatory 
requirements that apply to state member banks, U.S. bank holding 
companies, U.S. covered savings and loan holding companies, U.S. 
intermediate holding companies, foreign banking organizations, and 
foreign savings and loan holding companies with $10 billion or more in 
total consolidated assets. These changes are consistent with EGRRCPA, 
which amended section 165 of the Dodd-Frank Act. The reasons and 
justification for the final rule are described above in more detail in 
this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------

    \141\ 12 CFR part 217.
    \142\ 12 CFR part 225.
    \143\ 12 CFR part 238.
    \144\ 12 CFR part 242.
    \145\ 12 CFR part 252.
---------------------------------------------------------------------------

    The assets of institutions subject to this final rule substantially 
exceed the $600 million asset threshold under which a banking 
organization is considered a ``small entity'' under SBA regulations. 
Because the final rule is not likely to apply to any depository 
institution or company with assets of $600 million or less, it is not 
expected to apply to any small entity for purposes of the RFA. The 
Board does not believe that the final rule duplicates, overlaps, or 
conflicts with any other Federal rules. In light of the foregoing, the 
Board certifies that the final rule will not have a significant 
economic impact on a substantial number of small entities supervised.

C. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\146\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions (IDIs), each Federal banking agency 
must consider, consistent with principle of safety and soundness and 
the public interest, any administrative burdens that such regulations 
would place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations. In addition, section 302(b) of RCDRIA 
requires new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on IDIs 
generally to 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.\147\
---------------------------------------------------------------------------

    \146\ 12 U.S.C. 4802(a).
    \147\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    The final rule imposes no additional reporting, disclosure, or 
other requirements on insured depository institutions, including small 
depository institutions, nor on the customers of depository 
institutions. The final rule would raise the minimum asset threshold 
for state member banks that would be required to conduct a stress test 
from $10 billion to $250 billion, would revise the frequency with which 
state member banks with assets greater than $250 billion would be 
required to conduct stress tests, and would reduce the number of 
required stress test scenarios from three to two. The requirement to 
conduct, report, and publish a company-run stress testing is a 
previously existing requirement imposed by section 165 of the Dodd-
Frank Act. Accordingly, the RCDRIA does not apply to the final rule.

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 242

    Administrative practice and procedure, Holding companies, Nonbank 
financial companies.

12 CFR Part 252

    Administrative practice and procedure, Banks, Banking, Capital 
planning, Federal Reserve System, 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 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. In Sec.  217.400:
0
a. Revise paragraphs (b)(1), (b)(2 introductory text, and (b)(2)(i); 
and
0
b. Remove 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) Effective date of calculation and surcharge requirements. (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 by December 31 of 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; and
* * * * *

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, revise paragraphs (b)(1)(i), (b)(2) and (3), and (c) 
to read as follows:

[[Page 59076]]

Sec.  225.8   Capital planning.

* * * * *
    (b) * * *
    (1) * * *
    (i) Any top-tier bank holding company domiciled in the United 
States with average total consolidated assets of $100 billion or more 
($100 billion asset threshold);
* * * * *
    (2) Average total consolidated assets. For purposes of this 
section, average total consolidated assets means the average of the 
total consolidated assets as reported by a bank holding company on its 
Consolidated Financial Statements for Holding Companies (FR Y-9C) for 
the four most recent consecutive quarters. If the bank holding company 
has not filed the FR Y-9C for each of the four most recent consecutive 
quarters, average total consolidated assets means the average of the 
company's total consolidated assets, as reported on the company's FR Y-
9C, for the most recent quarter or consecutive quarters, as applicable. 
Average total consolidated assets are measured on the as-of date of the 
most recent FR Y-9C used in the calculation of the average.
    (3) Ongoing applicability. A bank holding company (including any 
successor bank holding company) that is subject to any requirement in 
this section shall remain subject to such requirements 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.
* * * * *
    (c) 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) or (2) of this section to comply with any or all of the 
requirements in paragraph (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.
* * * * *

PART 238--SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)

0
5. The authority citation for part 238 is revised to read as follows:

    Authority:  5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 
1464, 1467, 1467a, 1468, 5365; 1813, 1817, 1829e, 1831i, 1972, 15 
U.S.C. 78 l.

Subpart A--General Provisions

0
6. In Sec.  238.2, add paragraphs (v) through (ss) to read as follows:


Sec.  238.2   Definitions.

* * * * *
    (v) Applicable accounting standards means GAAP, 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.
    (w) 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 cross-jurisdictional activity for the most recent 
calendar quarter or average of the most recent calendar quarters, as 
applicable.
    (x) 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 off-balance sheet exposure for the most recent calendar quarter or 
average of the most recent quarters, as applicable.
    (y) 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 total consolidated 
assets for the most recent calendar quarter or average of the most 
recent calendar quarters, as applicable.
    (z) Average total nonbank assets means the average of total nonbank 
assets for the four most recent calendar quarters or, if the banking 
organization has not reported total nonbank assets for each of the four 
most recent calendar quarters, the total nonbank assets for the most 
recent calendar quarter or average of the most recent calendar 
quarters, as applicable.
    (aa) 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 weighted short-term wholesale 
funding for the most recent quarter or average of the most recent 
calendar quarters, as applicable.
    (bb) Banking organization. Banking organization means a covered 
savings and loan holding company that is:
    (1) Incorporated in or organized under the laws of the United 
States or any State; and
    (2) Not a consolidated subsidiary of a covered savings and loan 
holding company that is incorporated in or organized under the laws of 
the United States or any State.
    (cc) Category II savings and loan holding company means a covered 
savings and loan holding company identified as a Category II banking 
organization pursuant to Sec.  238.10.
    (dd) Category III savings and loan holding company means a covered 
savings and loan holding company identified as a Category III banking 
organization pursuant to Sec.  238.10.
    (ee) Category IV savings and loan holding company means a covered 
savings and loan holding company identified as a Category IV banking 
organization pursuant to Sec.  238.10.
    (ff) Covered savings and loan holding company means a savings and 
loan holding company other than:
    (1) A top-tier savings and loan holding company that is:
    (i) A grandfathered unitary savings and loan holding company as 
defined in section 10(c)(9)(C) of the Home Owners' Loan Act (12 U.S.C. 
1461 et seq.); and
    (ii) As of June 30 of the previous calendar year, derived 50 
percent or more of its total consolidated assets or 50 percent of its 
total revenues on an enterprise-wide basis (as calculated under GAAP) 
from activities that are not financial in nature under section 4(k) of 
the Bank Holding Company Act (12 U.S.C. 1843(k));
    (2) A top-tier depository institution holding company that is an 
insurance underwriting company; or
    (3)(i) A top-tier depository institution holding company that, as 
of June 30 of

[[Page 59077]]

the previous calendar year, held 25 percent or more of its total 
consolidated assets in subsidiaries that are insurance underwriting 
companies (other than assets associated with insurance for credit 
risk); and
    (ii) For purposes of paragraph (ff)(3)(i) of this section, the 
company must calculate its total consolidated assets in accordance with 
GAAP, or if the company does not calculate its total consolidated 
assets under GAAP for any regulatory purpose (including compliance with 
applicable securities laws), the company may estimate its total 
consolidated assets, subject to review and adjustment by the Board of 
Governors of the Federal Reserve System.
    (gg) Cross-jurisdictional activity. The cross-jurisdictional 
activity of a banking organization is equal to the cross-jurisdictional 
activity of the banking organization as reported on the FR Y-15.
    (hh) Foreign banking organization has the same meaning as in Sec.  
211.21(o) of this chapter.
    (ii) FR Y-9C means the Consolidated Financial Statements for 
Holding Companies reporting form.
    (jj) FR Y-9LP means the Parent Company Only Financial Statements of 
Large Holding Companies.
    (kk) FR Y-15 means the Systemic Risk Report.
    (ll) GAAP means generally accepted accounting principles as used in 
the United States.
    (mm) Off-balance sheet exposure. The off-balance sheet exposure of 
a banking organization is equal to:
    (1) The total exposure of the banking organization, as reported by 
the banking organization on the FR Y-15; minus
    (2) The total consolidated assets of the banking organization for 
the same calendar quarter.
    (nn) 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.
    (oo) Total consolidated assets. Total consolidated assets of a 
banking organization are equal to its total consolidated assets 
calculated based on the average of the balances as of the close of 
business for each day for the calendar quarter or an average of the 
balances as of the close of business on each Wednesday during the 
calendar quarter, as reported on the FR Y-9C.
    (pp) Total nonbank assets. Total nonbank assets of a banking 
organization is equal to the total nonbank assets of such banking 
organization, as reported on the FR Y-9LP.
    (qq) 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.
    (rr) 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.
    (ss) Weighted short-term wholesale funding is equal to the weighted 
short-term wholesale funding of a banking organization, as reported on 
the FR Y-15.

0
 7. Add Sec.  238.10 to subpart A to read as follows:


Sec.  238.10   Categorization of banking organizations.

    (a) General. A banking organization with average total consolidated 
assets of $100 billion or more must determine its category among the 
three categories described in paragraphs (b) through (d) of this 
section at least quarterly.
    (b) Category II. (1) A banking organization is a Category II 
banking organization if the banking organization has:
    (i) $700 billion or more in average total consolidated assets; or
    (ii)(A) $75 billion or more in average cross-jurisdictional 
activity; and
    (B) $100 billion or more in average total consolidated assets.
    (2) After meeting the criteria in paragraph (b)(1) of this section, 
a banking organization continues to be a Category II banking 
organization until the banking organization has:
    (i)(A) Less than $700 billion in total consolidated 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; or
    (ii) Less than $100 billion in total consolidated assets for each 
of the four most recent calendar quarters.
    (c) Category III. (1) A banking organization is a Category III 
banking organization if the banking organization:
    (i) Has:
    (A) $250 billion or more in average total consolidated assets; or
    (B) $100 billion or more in average total consolidated assets and 
at least:
    (1) $75 billion in average total nonbank assets;
    (2) $75 billion in average weighted short-term wholesale funding; 
or
    (3) $75 billion in average off-balance sheet exposure; and
    (ii) Is not a Category II banking organization.
    (2) After meeting the criteria in paragraph (c)(1) of this section, 
a banking organization continues to be a Category III banking 
organization until the banking organization:
    (i) Has:
    (A) Less than $250 billion in total consolidated 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 less than $100 billion in total consolidated assets for 
each of the four most recent calendar quarters; or
    (iii) Meets the criteria in paragraph (b)(1) of this section to be 
a Category II banking organization.
    (d) Category IV. (1) A banking organization with average total 
consolidated assets of $100 billion or more is a Category IV banking 
organization if the banking organization:
    (i) Is not a Category II banking organization; and
    (ii) Is not a Category III banking organization.
    (2) After meeting the criteria in paragraph (d)(1) of this section, 
a banking organization continues to be a Category IV banking 
organization until the banking organization:
    (i) Has less than $100 billion in total consolidated assets for 
each of the four most recent calendar quarters;
    (ii) Meets the criteria in paragraph (b)(1) of this section to be a 
Category II banking organization; or
    (iii) Meets the criteria in paragraph (c)(1) of this section to be 
a Category III banking organization.

0
8. Add subpart M, consisting of Sec. Sec.  238.118 and 238.119, to read 
as follows:

Subpart M--Risk Committee Requirement for Covered Savings and Loan 
Holding Companies With Total Consolidated Assets of $50 Billion or 
More and Less Than $100 Billion


Sec. 238.118   Applicability.

    (a) General applicability. A covered savings and loan bank holding 
company 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

[[Page 59078]]

average total consolidated assets equal or exceed $50 billion.
    (b) Cessation of requirements. A covered savings and loan holding 
company will remain subject to the requirements of this subpart until 
the earlier of the date on which:
    (1) Its total consolidated assets are below $50 billion for each of 
four consecutive calendar quarters; and
    (2) It becomes subject to the requirements of subpart N of this 
part.


Sec.  238.119   Risk committee requirement for covered savings and loan 
holding companies with total consolidated assets of $50 billion or 
more.

    (a) Risk committee--(1) General. A covered savings and loan holding 
company subject to this subpart must maintain a risk committee that 
approves and periodically reviews the risk-management policies of the 
covered savings and loan holding company's global operations and 
oversees the operation of the company's global risk-management 
framework.
    (2) Risk-management framework. The covered savings and loan holding 
company's global risk-management framework must be commensurate with 
its structure, risk profile, complexity, activities, and size and must 
include:
    (i) Policies and procedures establishing risk-management 
governance, risk-management procedures, and risk-control infrastructure 
for its global operations; and
    (ii) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (A) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, and 
ensuring effective and timely implementation of actions to address 
emerging risks and risk-management deficiencies for its global 
operations;
    (B) Processes and systems for establishing managerial and employee 
responsibility for risk management;
    (C) Processes and systems for ensuring the independence of the 
risk-management function; and
    (D) Processes and systems to integrate risk management and 
associated controls with management goals and its compensation 
structure for its global operations.
    (3) Corporate governance requirements. The risk committee must:
    (i) Have a formal, written charter that is approved by the covered 
savings and loan holding company's board of directors;
    (ii) Be an independent committee of the board of directors that 
has, as its sole and exclusive function, responsibility for the risk-
management policies of the covered savings and loan holding company's 
global operations and oversight of the operation of the company's 
global risk-management framework;
    (iii) Report directly to the covered savings and loan holding 
company's board of directors;
    (iv) Receive and review regular reports on a not less than a 
quarterly basis from the covered savings and loan holding company's 
chief risk officer provided pursuant to paragraph (b)(3)(ii) of this 
section; and
    (v) Meet at least quarterly, or more frequently as needed, and 
fully document and maintain records of its proceedings, including risk-
management decisions.
    (4) Minimum member requirements. The risk committee must:
    (i) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (ii) Be chaired by a director who:
    (A) Is not an officer or employee of the covered savings and loan 
holding company and has not been an officer or employee of the covered 
savings and loan holding company during the previous three years;
    (B) Is not a member of the immediate family, as defined in Sec.  
238.31(b)(3), of a person who is, or has been within the last three 
years, an executive officer of the covered savings and loan holding 
company, as defined in Sec.  215.2(e)(1) of this chapter; and
    (C)(1) Is an independent director under Item 407 of the Securities 
and Exchange Commission's Regulation S-K (17 CFR 229.407(a)), if the 
covered savings and loan holding company has an outstanding class of 
securities traded on an 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) (national 
securities exchange); or
    (2) Would qualify as an independent director under the listing 
standards of a national securities exchange, as demonstrated to the 
satisfaction of the Board, if the covered savings and loan holding 
company does not have an outstanding class of securities traded on a 
national securities exchange.
    (b) Chief risk officer--(1) General. A covered savings and loan 
holding company subject to this subpart must appoint a chief risk 
officer with experience in identifying, assessing, and managing risk 
exposures of large, complex financial firms.
    (2) Responsibilities. (i) The chief risk officer is responsible for 
overseeing:
    (A) The establishment of risk limits on an enterprise-wide basis 
and the monitoring of compliance with such limits;
    (B) The implementation of and ongoing compliance with the policies 
and procedures set forth in paragraph (a)(2)(i) of this section and the 
development and implementation of the processes and systems set forth 
in paragraph (a)(2)(ii) of this section; and
    (C) The management of risks and risk controls within the parameters 
of the company's risk control framework, and monitoring and testing of 
the company's risk controls.
    (ii) The chief risk officer is responsible for reporting risk-
management deficiencies and emerging risks to the risk committee and 
resolving risk-management deficiencies in a timely manner.
    (3) Corporate governance requirements. (i) The covered savings and 
loan holding company must ensure that the compensation and other 
incentives provided to the chief risk officer are consistent with 
providing an objective assessment of the risks taken by the company; 
and
    (ii) The chief risk officer must report directly to both the risk 
committee and chief executive officer of the company.

0
9. Add subpart N to read as follows:

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

Sec.
238.120 Scope.
238.121 Applicability.
238.122 Risk-management and risk committee requirements.
238.123 Liquidity risk-management requirements.


Sec.  238.120   Scope.

    This subpart applies to covered savings and loan holding companies 
with average total consolidated assets of $100 billion or more.


Sec.  238.121   Applicability.

    (a) Applicability--(1) Initial applicability. A covered savings and 
loan holding company must comply with the risk-management and risk-
committee requirements set forth in Sec.  238.122 and the liquidity 
risk-management and liquidity stress test requirements set forth in 
Sec. Sec.  238.123 and 238.124 no later than the first day of the fifth 
quarter following the date on

[[Page 59079]]

which its average total consolidated assets equal or exceed $100 
billion.
    (2) Changes in requirements following a change in category. A 
covered savings and loan holding company with average total 
consolidated assets of $100 billion or more that changes from one 
category of covered savings and loan holding company described in Sec.  
238.10(b) through (d) to another such category must comply with the 
requirements applicable to the new category no later than on the first 
day of the second calendar quarter following the change in the covered 
savings and loan holding company's category.
    (b) Cessation of requirements. A covered savings and loan holding 
company is subject to the risk-management and risk committee 
requirements set forth in Sec.  238.122 and the liquidity risk-
management and liquidity stress test requirements set forth in 
Sec. Sec.  238.123 and 238.124 until its total consolidated assets are 
below $100 billion for each of four consecutive calendar quarters.


Sec.  238.122   Risk-management and risk committee requirements.

    (a) Risk committee--(1) General. A covered savings and loan holding 
subject to this subpart must maintain a risk committee that approves 
and periodically reviews the risk-management policies of the covered 
savings and loan holding company's global operations and oversees the 
operation of the covered savings and loan holding company's global 
risk-management framework. The risk committee's responsibilities 
include liquidity risk-management as set forth in Sec.  238.123(b).
    (2) Risk-management framework. The covered savings and loan holding 
company's global risk-management framework must be commensurate with 
its structure, risk profile, complexity, activities, and size and must 
include:
    (i) Policies and procedures establishing risk-management 
governance, risk-management procedures, and risk-control infrastructure 
for its global operations; and
    (ii) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (A) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, and 
ensuring effective and timely implementation of actions to address 
emerging risks and risk-management deficiencies for its global 
operations;
    (B) Processes and systems for establishing managerial and employee 
responsibility for risk management;
    (C) Processes and systems for ensuring the independence of the 
risk-management function; and
    (D) Processes and systems to integrate risk management and 
associated controls with management goals and its compensation 
structure for its global operations.
    (3) Corporate governance requirements. The risk committee must:
    (i) Have a formal, written charter that is approved by the covered 
savings and loan holding company's board of directors;
    (ii) Be an independent committee of the board of directors that 
has, as its sole and exclusive function, responsibility for the risk-
management policies of the covered savings and loan holding company's 
global operations and oversight of the operation of the covered savings 
and loan holding company's global risk-management framework;
    (iii) Report directly to the covered savings and loan holding 
company's board of directors;
    (iv) Receive and review regular reports on not less than a 
quarterly basis from the covered savings and loan holding company's 
chief risk officer provided pursuant to paragraph (b)(3)(ii) of this 
section; and
    (v) Meet at least quarterly, or more frequently as needed, and 
fully document and maintain records of its proceedings, including risk-
management decisions.
    (4) Minimum member requirements. The risk committee must:
    (i) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (ii) Be chaired by a director who:
    (A) Is not an officer or employee of the covered savings and loan 
holding company and has not been an officer or employee of the covered 
savings and loan holding company during the previous three years;
    (B) Is not a member of the immediate family, as defined in Sec.  
238.31(b)(3), of a person who is, or has been within the last three 
years, an executive officer of the covered savings and loan holding 
company, as defined in Sec.  215.2(e)(1) of this chapter; and
    (C)(1) Is an independent director under Item 407 of the Securities 
and Exchange Commission's Regulation S-K (17 CFR 229.407(a)), if the 
covered savings and loan holding company has an outstanding class of 
securities traded on an 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) (national 
securities exchange); or
    (2) Would qualify as an independent director under the listing 
standards of a national securities exchange, as demonstrated to the 
satisfaction of the Board, if the covered savings and loan holding 
company does not have an outstanding class of securities traded on a 
national securities exchange.
    (b) Chief risk officer--(1) General. A covered savings and loan 
holding company subject to this subpart must appoint a chief risk 
officer with experience in identifying, assessing, and managing risk 
exposures of large, complex financial firms.
    (2) Responsibilities. (i) The chief risk officer is responsible for 
overseeing:
    (A) The establishment of risk limits on an enterprise-wide basis 
and the monitoring of compliance with such limits;
    (B) The implementation of and ongoing compliance with the policies 
and procedures set forth in paragraph (a)(2)(i) of this section and the 
development and implementation of the processes and systems set forth 
in paragraph (a)(2)(ii) of this section; and
    (C) The management of risks and risk controls within the parameters 
of the company's risk control framework, and monitoring and testing of 
the company's risk controls.
    (ii) The chief risk officer is responsible for reporting risk-
management deficiencies and emerging risks to the risk committee and 
resolving risk-management deficiencies in a timely manner.
    (3) Corporate governance requirements. (i) The covered savings and 
loan holding company must ensure that the compensation and other 
incentives provided to the chief risk officer are consistent with 
providing an objective assessment of the risks taken by the covered 
savings and loan holding company; and
    (ii) The chief risk officer must report directly to both the risk 
committee and chief executive officer of the company.


Sec.  238.123   Liquidity risk-management requirements.

    (a) Responsibilities of the board of directors--(1) Liquidity risk 
tolerance. The board of directors of a covered savings and loan holding 
company subject to this subpart must:
    (i) Approve the acceptable level of liquidity risk that the covered 
savings and loan holding company may assume in connection with its 
operating strategies (liquidity risk tolerance) at least annually, 
taking into account the

[[Page 59080]]

covered savings and loan holding company's capital structure, risk 
profile, complexity, activities, and size; and
    (ii) Receive and review at least semi-annually information provided 
by senior management to determine whether the covered savings and loan 
holding company is operating in accordance with its established 
liquidity risk tolerance.
    (2) Liquidity risk-management strategies, policies, and procedures. 
The board of directors must approve and periodically review the 
liquidity risk-management strategies, policies, and procedures 
established by senior management pursuant to paragraph (c)(1) of this 
section.
    (b) Responsibilities of the risk committee. The risk committee (or 
a designated subcommittee of such committee composed of members of the 
board of directors) must approve the contingency funding plan described 
in paragraph (f) of this section at least annually, and must approve 
any material revisions to the plan prior to the implementation of such 
revisions.
    (c) Responsibilities of senior management--(1) Liquidity risk. (i) 
Senior management of a covered savings and loan holding company subject 
to this subpart must establish and implement strategies, policies, and 
procedures designed to effectively manage the risk that the covered 
savings and loan holding company's financial condition or safety and 
soundness would be adversely affected by its inability or the market's 
perception of its inability to meet its cash and collateral obligations 
(liquidity risk). The board of directors must approve the strategies, 
policies, and procedures pursuant to paragraph (a)(2) of this section.
    (ii) Senior management must oversee the development and 
implementation of liquidity risk measurement and reporting systems, 
including those required by this section and Sec.  238.124.
    (iii) Senior management must determine at least quarterly whether 
the covered savings and loan holding company is operating in accordance 
with such policies and procedures and whether the covered savings and 
loan holding company is in compliance with this section and Sec.  
238.124 (or more often, if changes in market conditions or the 
liquidity position, risk profile, or financial condition warrant), and 
establish procedures regarding the preparation of such information.
    (2) Liquidity risk tolerance. Senior management must report to the 
board of directors or the risk committee regarding the covered savings 
and loan holding company's liquidity risk profile and liquidity risk 
tolerance at least quarterly (or more often, if changes in market 
conditions or the liquidity position, risk profile, or financial 
condition of the company warrant).
    (3) Business lines or products. (i) Senior management must approve 
new products and business lines and evaluate the liquidity costs, 
benefits, and risks of each new business line and each new product that 
could have a significant effect on the company's liquidity risk 
profile. The approval is required before the company implements the 
business line or offers the product. In determining whether to approve 
the new business line or product, senior management must consider 
whether the liquidity risk of the new business line or product (under 
both current and stressed conditions) is within the company's 
established liquidity risk tolerance.
    (ii) Senior management must review at least annually significant 
business lines and products to determine whether any line or product 
creates or has created any unanticipated liquidity risk, and to 
determine whether the liquidity risk of each strategy or product is 
within the company's established liquidity risk tolerance.
    (4) Cash-flow projections. Senior management must review the cash-
flow projections produced under paragraph (e) 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 covered 
savings and loan holding company warrant) to ensure that the liquidity 
risk is within the established liquidity risk tolerance.
    (5) Liquidity risk limits. Senior management must establish 
liquidity risk limits as set forth in paragraph (g) of this section and 
review the company'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 company warrant).
    (6) Liquidity stress testing. Senior management must:
    (i) Approve the liquidity stress testing practices, methodologies, 
and assumptions required in Sec.  238.124(a) at least quarterly, and 
whenever the covered savings and loan holding company materially 
revises its liquidity stress testing practices, methodologies or 
assumptions;
    (ii) Review the liquidity stress testing results produced under 
Sec.  238.124(a) at least quarterly;
    (iii) Review the independent review of the liquidity stress tests 
under Sec.  238.123(d) periodically; and
    (iv) Approve the size and composition of the liquidity buffer 
established under Sec.  238.124(b) at least quarterly.
    (d) Independent review function. (1) A covered savings and loan 
holding company subject to this subpart must establish and maintain a 
review function that is independent of management functions that 
execute funding to evaluate its liquidity risk management.
    (2) The independent review function must:
    (i) Regularly, but no less frequently than annually, review and 
evaluate the adequacy and effectiveness of the company's liquidity risk 
management processes, including its liquidity stress test processes and 
assumptions;
    (ii) Assess whether the company's liquidity risk-management 
function complies with applicable laws and regulations, and sound 
business practices; and
    (iii) Report material liquidity risk management issues to the board 
of directors or the risk committee in writing for corrective action, to 
the extent permitted by applicable law.
    (e) Cash-flow projections. (1) A covered savings and loan holding 
company subject to this subpart must produce comprehensive cash-flow 
projections that project cash flows arising from assets, liabilities, 
and off-balance sheet exposures over, at a minimum, short- and long-
term time horizons. The covered savings and loan holding company must 
update short-term cash-flow projections daily and must update longer-
term cash-flow projections at least monthly.
    (2) The covered savings and loan holding company must establish a 
methodology for making cash-flow projections that results in 
projections that:
    (i) Include cash flows arising from contractual maturities, 
intercompany transactions, new business, funding renewals, customer 
options, and other potential events that may impact liquidity;
    (ii) Include reasonable assumptions regarding the future behavior 
of assets, liabilities, and off-balance sheet exposures;
    (iii) Identify and quantify discrete and cumulative cash flow 
mismatches over these time periods; and
    (iv) Include sufficient detail to reflect the capital structure, 
risk profile, complexity, currency exposure, activities, and size of 
the covered savings and loan holding company and include analyses by 
business line, currency, or legal entity as appropriate.
    (3) The covered savings and loan holding company must adequately

[[Page 59081]]

document its methodology for making cash flow projections and the 
included assumptions and submit such documentation to the risk 
committee.
    (f) Contingency funding plan--(1) General. A covered savings and 
loan holding company subject to this subpart must establish and 
maintain a contingency funding plan that sets out the company's 
strategies for addressing liquidity needs during liquidity stress 
events. The contingency funding plan must be commensurate with the 
company's capital structure, risk profile, complexity, activities, 
size, and established liquidity risk tolerance. The company must update 
the contingency funding plan at least annually, and when changes to 
market and idiosyncratic conditions warrant.
    (2) Components of the contingency funding plan--(i) Quantitative 
assessment. The contingency funding plan must:
    (A) Identify liquidity stress events that could have a significant 
impact on the covered savings and loan holding company's liquidity;
    (B) Assess the level and nature of the impact on the covered 
savings and loan holding company's liquidity that may occur during 
identified liquidity stress events;
    (C) Identify the circumstances in which the covered savings and 
loan holding company would implement its action plan described in 
paragraph (f)(2)(ii)(A) of this section, which circumstances must 
include failure to meet any minimum liquidity requirement imposed by 
the Board;
    (D) Assess available funding sources and needs during the 
identified liquidity stress events;
    (E) Identify alternative funding sources that may be used during 
the identified liquidity stress events; and
    (F) Incorporate information generated by the liquidity stress 
testing required under Sec.  238.124(a).
    (ii) Liquidity event management process. The contingency funding 
plan must include an event management process that sets out the covered 
savings and loan holding company's procedures for managing liquidity 
during identified liquidity stress events. The liquidity event 
management process must:
    (A) Include an action plan that clearly describes the strategies 
the company will use to respond to liquidity shortfalls for identified 
liquidity stress events, including the methods that the company will 
use to access alternative funding sources;
    (B) Identify a liquidity stress event management team that would 
execute the action plan described in paragraph (f)(2)(ii)(A) of this 
section;
    (C) Specify the process, responsibilities, and triggers for 
invoking the contingency funding plan, describe the decision-making 
process during the identified liquidity stress events, and describe the 
process for executing contingency measures identified in the action 
plan; and
    (D) Provide a mechanism that ensures effective reporting and 
communication within the covered savings and loan holding company and 
with outside parties, including the Board and other relevant 
supervisors, counterparties, and other stakeholders.
    (iii) Monitoring. The contingency funding plan must include 
procedures for monitoring emerging liquidity stress events. The 
procedures must identify early warning indicators that are tailored to 
the company's capital structure, risk profile, complexity, activities, 
and size.
    (iv) Testing. The covered savings and loan holding company must 
periodically test:
    (A) The components of the contingency funding plan to assess the 
plan's reliability during liquidity stress events;
    (B) The operational elements of the contingency funding plan, 
including operational simulations to test communications, coordination, 
and decision-making by relevant management; and
    (C) The methods the covered savings and loan holding company will 
use to access alternative funding sources to determine whether these 
funding sources will be readily available when needed.
    (g) Liquidity risk limits--(1) General. A covered savings and loan 
holding company subject to this subpart must monitor sources of 
liquidity risk and establish limits on liquidity risk that are 
consistent with the company's established liquidity risk tolerance and 
that reflect the company's capital structure, risk profile, complexity, 
activities, and size.
    (2) Liquidity risk limits established by a Category II savings and 
loan holding company, or Category III savings and loan holding company. 
If the covered savings and loan holding company is a Category II 
savings and loan holding company or Category III savings and loan 
holding company, liquidity risk limits established under paragraph 
(g)(1) of this section by must include limits on:
    (i) Concentrations in sources of funding by instrument type, single 
counterparty, counterparty type, secured and unsecured funding, and as 
applicable, other forms of liquidity risk;
    (ii) The amount of liabilities that mature within various time 
horizons; and
    (iii) Off-balance sheet exposures and other exposures that could 
create funding needs during liquidity stress events.
    (h) Collateral, legal entity, and intraday liquidity risk 
monitoring. A covered savings and loan holding company subject to this 
subpart must establish and maintain procedures for monitoring liquidity 
risk as set forth in this paragraph.
    (1) Collateral. The covered savings and loan holding company 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 it or its affiliates are counterparties. 
These policies and procedures must provide that the covered savings and 
loan holding company:
    (i) Calculates all of its collateral positions according to the 
frequency specified in paragraphs (h)(1)(i)(A) and (B) of this section 
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 covered savings and loan holding company is not a 
Category IV savings and loan holding company, on at least a weekly 
basis;
    (B) If the covered savings and loan holding company is a Category 
IV savings and loan holding company, on at least a monthly basis;
    (ii) Monitors the levels of unencumbered assets available to be 
pledged by legal entity, jurisdiction, and currency exposure;
    (iii) Monitors shifts in the covered savings and loan holding 
company's funding patterns, such as shifts between intraday, overnight, 
and term pledging of collateral; and
    (iv) Tracks operational and timing requirements associated with 
accessing collateral at its physical location (for example, the 
custodian or securities settlement system that holds the collateral).
    (2) Legal entities, currencies and business lines. The covered 
savings and loan holding company must establish and maintain procedures 
for monitoring and controlling liquidity risk exposures and funding 
needs within and across significant legal entities, currencies, and 
business lines, taking into account legal and regulatory restrictions 
on the transfer of liquidity between legal entities.

[[Page 59082]]

    (3) Intraday exposures. The covered savings and loan holding 
company must establish and maintain procedures for monitoring intraday 
liquidity risk exposures that are consistent with the covered savings 
and loan holding company's capital structure, risk profile, complexity, 
activities, and size. If the covered savings and loan holding company 
is a Category II savings and loan holding company or a Category III 
savings and loan holding company, these procedures must address how the 
management of the covered savings and loan holding company will:
    (i) Monitor and measure expected daily gross liquidity inflows and 
outflows;
    (ii) Manage and transfer collateral to obtain intraday credit;
    (iii) Identify and prioritize time-specific obligations so that the 
covered savings and loan holding company can meet these obligations as 
expected and settle less critical obligations as soon as possible;
    (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 covered savings and loan 
holding company's overall liquidity needs.


Sec.  238.124   Liquidity stress testing and buffer requirements.

    (a) Liquidity stress testing requirement--(1) General. A covered 
savings and loan holding company subject to this subpart must conduct 
stress tests to assess the potential impact of the liquidity stress 
scenarios set forth in paragraph (a)(3) of this section on its cash 
flows, liquidity position, profitability, and solvency, taking into 
account its current liquidity condition, risks, exposures, strategies, 
and activities.
    (i) The covered savings and loan holding company must take into 
consideration its balance sheet exposures, off-balance sheet exposures, 
size, risk profile, complexity, business lines, organizational 
structure, and other characteristics of the covered savings and loan 
holding company that affect its liquidity risk profile in conducting 
its stress test.
    (ii) In conducting a liquidity stress test using the scenarios 
described in paragraphs (a)(3)(i) and (ii) of this section, the covered 
savings and loan holding company must address the potential direct 
adverse impact of associated market disruptions on the covered savings 
and loan holding company and incorporate the potential actions of other 
market participants experiencing liquidity stresses under the market 
disruptions that would adversely affect the covered savings and loan 
holding company.
    (2) Frequency. The covered savings and loan holding company must 
perform the liquidity stress tests required under paragraph (a)(1) of 
this section according to the frequency specified in paragraph 
(a)(2)(i) or (ii) of this section or as directed by the Board:
    (i) If the covered savings and loan holding company is not a 
Category IV savings and loan holding company, at least monthly; or
    (ii) If the covered savings and loan holding company is a Category 
IV savings and loan holding company, at least quarterly.
    (3) Stress scenarios. (i) Each stress test conducted under 
paragraph (a)(1) of this section must include, at a minimum:
    (A) A scenario reflecting adverse market conditions;
    (B) A scenario reflecting an idiosyncratic stress event for the 
covered savings and loan holding company; and
    (C) A scenario reflecting combined market and idiosyncratic 
stresses.
    (ii) The covered savings and loan holding company must incorporate 
additional liquidity stress scenarios into its liquidity stress test, 
as appropriate, based on its financial condition, size, complexity, 
risk profile, scope of operations, or activities. The Board may require 
the covered savings and loan holding company to vary the underlying 
assumptions and stress scenarios.
    (4) Planning horizon. Each stress test conducted under paragraph 
(a)(1) of this section must include an overnight planning horizon, a 
30-day planning horizon, a 90-day planning horizon, a one-year planning 
horizon, and any other planning horizons that are relevant to the 
covered savings and loan holding company's liquidity risk profile. For 
purposes of this section, a ``planning horizon'' is the period over 
which the relevant stressed projections extend. The covered savings and 
loan holding company must use the results of the stress test over the 
30-day planning horizon to calculate the size of the liquidity buffer 
under paragraph (b) of this section.
    (5) Requirements for assets used as cash-flow sources in a stress 
test. (i) To the extent an asset is used as a cash flow source to 
offset projected funding needs during the planning horizon in a 
liquidity stress test, the fair market value of the asset must be 
discounted to reflect any credit risk and market volatility of the 
asset.
    (ii) Assets used as cash-flow sources during a planning horizon 
must be diversified by collateral, counterparty, borrowing capacity, 
and other factors associated with the liquidity risk of the assets.
    (iii) A line of credit does not qualify as a cash flow source for 
purposes of a stress test with a planning horizon of 30 days or less. A 
line of credit may qualify as a cash flow source for purposes of a 
stress test with a planning horizon that exceeds 30 days.
    (6) Tailoring. Stress testing must be tailored to, and provide 
sufficient detail to reflect, a covered savings and loan holding 
company's capital structure, risk profile, complexity, activities, and 
size.
    (7) Governance--(i) Policies and procedures. A covered savings and 
loan holding company subject to this subpart 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. A covered savings and loan holding 
subject to this subpart 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 covered savings and loan holding company's capital 
structure, risk profile, complexity, activities, size, business lines, 
legal entity or jurisdiction, and other relevant factors. The 
assumptions must be approved by the chief risk officer and be subject 
to the independent review under Sec.  238.123(d).
    (iii) Management information systems. The covered savings and loan 
holding company must maintain management information systems and data 
processes sufficient to enable it to effectively and reliably collect, 
sort, and aggregate data and other information related to liquidity 
stress testing.
    (8) Notice and response. If the Board determines that a covered 
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 covered 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

[[Page 59083]]

this paragraph, the covered 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 that 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.
    (b) Liquidity buffer requirement. (1) A covered savings and loan 
holding company subject to this subpart must maintain a liquidity 
buffer that is sufficient to meet the projected net stressed cash-flow 
need over the 30-day planning horizon of a liquidity stress test 
conducted in accordance with paragraph (a) of this section under each 
scenario set forth in paragraph (a)(3)(i) through (ii) of this section.
    (2) Net stressed cash-flow need. The net stressed cash-flow need 
for a covered savings and loan holding company is the difference 
between the amount of its cash-flow need and the amount of its cash 
flow sources over the 30-day planning horizon.
    (3) Asset requirements. The liquidity buffer must consist of highly 
liquid assets that are unencumbered, as defined in paragraph (b)(3)(ii) 
of this section:
    (i) Highly liquid asset. A highly liquid asset includes:
    (A) Cash;
    (B) Assets that meet the criteria for high quality liquid assets as 
defined in 12 CFR 249.20; or
    (C) Any other asset that the covered savings and loan holding 
company demonstrates to the satisfaction of the Board:
    (1) Has low credit risk and low market risk;
    (2) Is traded in an active secondary two-way market that has 
committed market makers and independent bona fide offers to buy and 
sell so that a price reasonably related to the last sales price or 
current bona fide competitive bid and offer quotations can be 
determined within one day and settled at that price within a reasonable 
time period conforming with trade custom; and
    (3) Is a type of asset that investors historically have purchased 
in periods of financial market distress during which market liquidity 
has been impaired.
    (ii) Unencumbered. An asset is unencumbered if it:
    (A) Is free of legal, regulatory, contractual, or other 
restrictions on the ability of such company promptly to liquidate, sell 
or transfer the asset; and
    (B) Is either:
    (1) Not pledged or used to secure or provide credit enhancement to 
any transaction; or
    (2) Pledged to a central bank or a U.S. government-sponsored 
enterprise, to the extent potential credit secured by the asset is not 
currently extended by such central bank or U.S. government-sponsored 
enterprise or any of its consolidated subsidiaries.
    (iii) Calculating the amount of a highly liquid asset. In 
calculating the amount of a highly liquid asset included in the 
liquidity buffer, the covered savings and loan holding company must 
discount the fair market value of the asset to reflect any credit risk 
and market price volatility of the asset.
    (iv) Operational requirements. With respect to the liquidity 
buffer, the bank holding company must:
    (A) Establish and implement policies and procedures that require 
highly liquid assets comprising the liquidity buffer to be under the 
control of the management function in the covered savings and loan 
holding company that is charged with managing liquidity risk; and
    (B) Demonstrate the capability to monetize a highly liquid asset 
under each scenario required under Sec.  238.124(a)(3).
    (v) Diversification. The liquidity buffer must not contain 
significant concentrations of highly liquid assets by issuer, business 
sector, region, or other factor related to the covered savings and loan 
holding company's risk, except with respect to cash and securities 
issued or guaranteed by the United States, a U.S. government agency, or 
a U.S. government-sponsored enterprise.

0
10. Add subpart O to read as follows:

Subpart O--Supervisory Stress Test Requirements for Covered Savings 
and Loan Holding Companies

Sec.
238.130 Definitions.
238.131 Applicability.
238.132 Analysis conducted by the Board.
238.133 Data and information required to be submitted in support of 
the Board's analyses.
238.134 Review of the Board's analysis; publication of summary 
results.
238.135 Corporate use of stress test results.


Sec.  238.130   Definitions.

    For purposes of this subpart, the following definitions apply:
    Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that 
reflect the consensus views of the economic and financial outlook.
    Covered company means a covered savings and loan holding company 
(other than a foreign banking organization) subject to this subpart.
    Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Provision for credit losses means:
    (1) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the covered company on the FR Y-9C in 
the current stress test cycle; and,
    (2) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the covered company 
on the FR Y-9C in the current stress test cycle.
    Regulatory capital ratio means a capital ratio for which the Board 
has established minimum requirements for the covered savings and loan 
holding company by regulation or order, including, as applicable, the 
company's regulatory capital ratios calculated under 12 CFR part 217 
and the deductions required under 12 CFR 248.12; except that the 
company shall not use the advanced approaches to calculate its 
regulatory capital ratios.
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a covered company that the Board 
determines are appropriate for use in the supervisory stress tests, 
including, but not limited to, baseline and severely adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered company and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
    Stress test cycle means the period beginning on January 1 of a 
calendar year and ending on December 31 of that year.
    Subsidiary has the same meaning as in Sec.  225.2(o) of this 
chapter.


Sec.  238.131   Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this

[[Page 59084]]

section, this subpart applies to any covered savings and loan holding 
company with average total consolidated assets of $100 billion or more.
    (2) Ongoing applicability. A covered savings and loan 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, effective on the 
as-of date of the fourth consecutive FR Y-9C.
    (b) Transitional arrangements. (1) A covered savings and loan 
holding company that becomes a covered company on or before September 
30 of a calendar year must comply with the requirements of this subpart 
beginning on January 1 of the second calendar year after the covered 
savings and loan holding company becomes a covered company, unless that 
time is extended by the Board in writing.
    (2) A covered savings and loan holding company that becomes a 
covered company after September 30 of a calendar year must comply with 
the requirements of this subpart beginning on January 1 of the third 
calendar year after the covered savings and loan holding company 
becomes a covered company, unless that time is extended by the Board in 
writing.


Sec.  238.132   Analysis conducted by the Board.

    (a) In general. (1) The Board will conduct an analysis of each 
covered company's capital, on a total consolidated basis, taking into 
account all relevant exposures and activities of that covered company, 
to evaluate the ability of the covered company to absorb losses in 
specified economic and financial conditions.
    (2) The analysis will include an assessment of the projected 
losses, net income, and pro forma capital levels and regulatory capital 
ratios and other capital ratios for the covered company and use such 
analytical techniques that the Board determines are appropriate to 
identify, measure, and monitor risks of the covered company.
    (3) In conducting the analyses, the Board will coordinate with the 
appropriate primary financial regulatory agencies and the Federal 
Insurance Office, as appropriate.
    (b) Economic and financial scenarios related to the Board's 
analysis. The Board will conduct its analysis using a minimum of two 
different scenarios, including a baseline scenario and a severely 
adverse scenario. The Board will notify covered companies of the 
scenarios that the Board will apply to conduct the analysis for each 
stress test cycle to which the covered company is subject by no later 
than February 15 of that year, except with respect to trading or any 
other components of the scenarios and any additional scenarios that the 
Board will apply to conduct the analysis, which will be communicated by 
no later than March 1 of that year.
    (c) Frequency of analysis conducted by the Board--(1) General. 
Except as provided in paragraph (c)(2) of this section, the Board will 
conduct its analysis of a covered company according to the frequency in 
Table 1 to Sec.  238.132(c)(1).

                     Table 1 to Sec.   238.132(c)(1)
------------------------------------------------------------------------
                                         Then the Board will conduct its
      If the covered company is a                    analysis
------------------------------------------------------------------------
Category II savings and loan holding     Annually.
 company.
Category III savings and loan holding    Annually.
 company.
Category IV savings and loan holding     Biennially, occurring in each
 company.                                 year ending in an even number.
------------------------------------------------------------------------

    (2) Change in frequency. The Board may conduct a stress test of a 
covered company on a more or less frequent basis than would be required 
under paragraph (c)(1) of this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
    (3) Notice and response--(i) Notification of change in frequency. 
If the Board determines to change the frequency of the stress test 
under paragraph (c)(2), the Board will notify the company in writing 
and provide a discussion of the basis for its determination.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under paragraph (c)(2) of 
this section, a covered company may request in writing that the Board 
reconsider the requirement to conduct a stress test on a more or less 
frequent basis than would be required under paragraph (c)(1) of this 
section. A covered company's request for reconsideration must include 
an explanation as to why the request for reconsideration should be 
granted. The Board will respond in writing within 14 calendar days of 
receipt of the company's request.


Sec.  238.133   Data and information required to be submitted in 
support of the Board's analyses.

    (a) Regular submissions. Each covered company must submit to the 
Board such data, on a consolidated basis, that the Board determines is 
necessary in order for the Board to derive the relevant pro forma 
estimates of the covered company over the planning horizon under the 
scenarios described in Sec.  238.132(b).
    (b) Additional submissions required by the Board. The Board may 
require a covered company to submit any other information on a 
consolidated basis that the Board deems necessary in order to:
    (1) Ensure that the Board has sufficient information to conduct its 
analysis under this subpart; and
    (2) Project a company's pre-provision net revenue, losses, 
provision for credit losses, and net income; and pro forma capital 
levels, regulatory capital ratios, and any other capital ratio 
specified by the Board under the scenarios described in Sec.  
238.132(b).
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this 
subpart and related materials shall be determined in accordance with 
the Freedom of Information Act (5 U.S.C. 552(b)) and the Board's Rules 
Regarding Availability of Information (12 CFR part 261).


Sec.  238.134   Review of the Board's analysis; publication of summary 
results.

    (a) Review of results. Based on the results of the analysis 
conducted under this subpart, the Board will conduct an evaluation to 
determine whether the covered company has the capital, on a total 
consolidated basis, necessary to absorb losses and continue its 
operation by maintaining ready access to funding, meeting its 
obligations to creditors and other counterparties, and continuing to 
serve as a credit intermediary under baseline and severely adverse 
scenarios, and any additional scenarios.
    (b) Publication of results by the Board. (1) The Board will 
publicly disclose a summary of the results of the Board's analyses of a 
covered company by June 30 of the calendar year in which the

[[Page 59085]]

stress test was conducted pursuant to Sec.  238.132.
    (2) The Board will notify companies of the date on which it expects 
to publicly disclose a summary of the Board's analyses pursuant to 
paragraph (b)(1) of this section at least 14 calendar days prior to the 
expected disclosure date.


Sec.  238.135   Corporate use of stress test results.

    The board of directors and senior management of each covered 
company must consider the results of the analysis conducted by the 
Board under this subpart, as appropriate:
    (a) As part of the covered company's capital plan and capital 
planning process, including when making changes to the covered 
company's capital structure (including the level and composition of 
capital); and
    (b) When assessing the covered company's exposures, concentrations, 
and risk positions.

0
11. Add subpart P to read as follows:

Subpart P--Company-Run Stress Test Requirements for Savings and 
Loan Holding Companies

Sec.
238.140 Authority and purpose.
238.141 Definitions.
238.142 Applicability.
238.143 Stress test.
238.144 Methodologies and practices.
238.145 Reports of stress test results.
238.146 Disclosure of stress test results.


Sec.  238.140   Authority and purpose.

    (a) Authority. 12 U.S.C. 1467; 1467a, 1818, 5361, 5365.
    (b) Purpose. This subpart establishes the requirement for a covered 
company to conduct stress tests. This subpart also establishes 
definitions of stress test and related terms, methodologies for 
conducting stress tests, and reporting and disclosure requirements.


Sec.  238.141   Definitions.

    For purposes of this subpart, the following definitions apply:
    Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that 
reflect the consensus views of the economic and financial outlook.
    Capital action means any issuance or redemption of a debt or equity 
capital instrument, any capital distribution, and any similar action 
that the Federal Reserve determines could impact a savings and loan 
holding company's consolidated capital.
    Covered company means:
    (1) A Category II savings and loan holding company;
    (2) A Category III savings and loan holding company; or
    (3) A savings and loan holding company with average total 
consolidated assets of greater than $250 billion.
    Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Provision for credit losses means:
    (1) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the covered company on the FR Y-9C in 
the current stress test cycle; and
    (2) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the covered company 
on the FR Y-9C in the current stress test cycle.
    Regulatory capital ratio means a capital ratio for which the Board 
has established minimum requirements for the savings and loan holding 
company by regulation or order, including, as applicable, the company's 
regulatory capital ratios calculated under 12 CFR part 217 and the 
deductions required under 12 CFR 248.12; except that the company shall 
not use the advanced approaches to calculate its regulatory capital 
ratios.
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a covered company that the Board 
determines are appropriate for use in the company-run stress tests, 
including, but not limited to, baseline and severely adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered company and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
    Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a 
covered company over the planning horizon, taking into account its 
current condition, risks, exposures, strategies, and activities.
    Stress test cycle means the period beginning on January 1 of a 
calendar year and ending on December 31 of that year.


Sec.  238.142   Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this section, this subpart applies to any covered company, which 
includes:
    (i) Any Category II savings and loan holding company;
    (ii) Any Category III savings and loan holding company; and
    (iii) Any savings and loan holding company with average total 
consolidated assets of greater than $250 billion.
    (2) Ongoing applicability. A savings and loan 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 savings and loan holding company:
    (i) Is not a Category II savings and loan holding company;
    (ii) Is not a Category III savings and loan holding company; and
    (iii) Has $250 billion or less in total consolidated assets in each 
of four consecutive calendar quarters.
    (b) Transitional arrangements. (1) A savings and loan holding 
company that is subject to minimum capital requirements and that 
becomes a covered company on or before September 30 of a calendar year 
must comply with the requirements of this subpart beginning on January 
1 of the second calendar year after the savings and loan holding 
company becomes a covered company, unless that time is extended by the 
Board in writing.
    (2) A savings and loan holding company that is subject to minimum 
capital requirements and that becomes a covered company after September 
30 of a calendar year must comply with the requirements of this subpart 
beginning on January 1 of the third calendar year after the savings and 
loan holding company becomes a covered company, unless that time is 
extended by the Board in writing.


Sec.  238.143   Stress test.

    (a) Stress test requirement--(1) In general. A covered company must 
conduct a stress test as required under this subpart.
    (2) Frequency. (i) General. Except as provided in paragraph 
(a)(2)(ii) of this section, a covered company must conduct a stress 
test according to the frequency in Table 1 of Sec.  238.143(a)(2)(i).

[[Page 59086]]



                   Table 1 of Sec.   238.143(a)(2)(i)
------------------------------------------------------------------------
                                           Then the stress test must be
      If the covered company is a                   conducted
------------------------------------------------------------------------
Category II savings and loan holding     Annually, by April 5 of each
 company.                                 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.
Category III savings and loan holding    Biennially, by April 5 of each
 company.                                 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.
Savings and loan holding company that    Periodically, as determined by
 is not:.                                 rule or order.
    (A) A Category II savings and loan
     holding company; or
    (B) A Category III savings and loan
     holding company.
------------------------------------------------------------------------

    (ii) Change in frequency. The Board may require a covered company 
to conduct a stress test on a more or less frequent basis than would be 
required under paragraphs (a)(2)(i) of this section based on the 
company's financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy.
    (3) Notice and response--(i) Notification of change in frequency. 
If the Board requires a covered company to change the frequency of the 
stress test under paragraph (a)(2)(ii) of this section, the Board will 
notify the company in writing and provide a discussion of the basis for 
its determination.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph (a)(3), 
a covered company may request in writing that the Board reconsider the 
requirement to conduct a stress test on a more or less frequent basis 
than would be required under paragraph (a)(2)(i) of this section. A 
covered company's request for reconsideration must include an 
explanation as to why the request for reconsideration should be 
granted. The Board will respond in writing within 14 calendar days of 
receipt of the company's request.
    (b) Scenarios provided by the Board--(1) In general. In conducting 
a stress test under this section, a covered company must, at a minimum, 
use the scenarios provided by the Board. Except as provided in 
paragraphs (b)(2) and (3) of this section, the Board will provide a 
description of the scenarios to each covered company no later than 
February 15 of the calendar year in which the stress test is performed 
pursuant to this section.
    (2) Additional components. (i) The Board may require a covered 
company with significant trading activity, as determined by the Board 
and specified in the Capital Assessments and Stress Testing report (FR 
Y-14), to include a trading and counterparty component in its severely 
adverse scenario in the stress test required by this section. The data 
used in this component must be as-of a date selected by the Board 
between October 1 of the previous calendar year and March 1 of the 
calendar year in which the stress test is performed pursuant to this 
section, and the Board will communicate the as-of date and a 
description of the component to the company no later than March 1 of 
the calendar year in which the stress test is performed pursuant to 
this section.
    (ii) The Board may require a covered company to include one or more 
additional components in its severely adverse scenario in the stress 
test required by this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
    (3) Additional scenarios. The Board may require a covered company 
to use one or more additional scenarios in the stress test required by 
this section based on the company's financial condition, size, 
complexity, risk profile, scope of operations, or activities, or risks 
to the U.S. economy.
    (4) Notice and response--(i) Notification of additional component. 
If the Board requires a covered company to include one or more 
additional components in its severely adverse scenario under paragraph 
(b)(2) of this section or to use one or more additional scenarios under 
paragraph (b)(3) of this section, the Board will notify the company in 
writing and include a discussion of the basis for its determination. 
The Board will provide such notification no later than December 31 of 
the preceding calendar year. The notification will include a general 
description of the additional component(s) or additional scenario(s) 
and the basis for requiring the company to include the additional 
component(s) or additional scenario(s).
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph, the 
covered company may request in writing that the Board reconsider the 
requirement that the company include the additional component(s) or 
additional scenario(s), including an explanation as to why the request 
for reconsideration should be granted. The Board will respond in 
writing within 14 calendar days of receipt of the company's request.
    (iii) Description of component. The Board will provide the covered 
company with a description of any additional component(s) or additional 
scenario(s) by March 1 of the calendar year in which the stress test is 
performed pursuant to this section.


Sec.  238.144   Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
Sec.  238.143, for each quarter of the planning horizon, a covered 
company must estimate the following for each scenario required to be 
used:
    (1) Losses, pre-provision net revenue, provision for credit losses, 
and net income; and
    (2) The potential impact on pro forma regulatory capital levels and 
pro forma capital ratios (including regulatory capital ratios and any 
other capital ratios specified by the Board), incorporating the effects 
of any capital actions over the planning horizon and maintenance of an 
allowance for credit losses appropriate for credit exposures throughout 
the planning horizon.
    (b) Assumptions regarding capital actions. In conducting a stress 
test under Sec.  238.143, a covered company is required to make the 
following assumptions regarding its capital actions over the planning 
horizon:
    (1) For the first quarter of the planning horizon, the covered 
company must take into account its actual capital actions as of the end 
of that quarter; and
    (2) For each of the second through ninth quarters of the planning 
horizon, the covered company must include in the projections of 
capital:
    (i) Common stock dividends equal to the quarterly average dollar 
amount of common stock dividends that the company paid in the previous 
year (that is, the first quarter of the planning horizon and the 
preceding three

[[Page 59087]]

calendar quarters) plus common stock dividends attributable to 
issuances related to expensed employee compensation or in connection 
with a planned merger or acquisition to the extent that the merger or 
acquisition is reflected in the covered company's pro forma balance 
sheet estimates;
    (ii) Payments on any other instrument that is eligible for 
inclusion in the numerator of a regulatory capital ratio equal to the 
stated dividend, interest, or principal due on such instrument during 
the quarter;
    (iii) An assumption of no redemption or repurchase of any capital 
instrument that is eligible for inclusion in the numerator of a 
regulatory capital ratio; and
    (iv) An assumption of no issuances of common stock or preferred 
stock, except for issuances related to expensed employee compensation 
or in connection with a planned merger or acquisition to the extent 
that the merger or acquisition is reflected in the covered company's 
pro forma balance sheet estimates.
    (c) Controls and oversight of stress testing processes--(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.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a covered company must review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the covered 
company may warrant, but no less than each year a stress test is 
conducted. The board of directors and senior management of the covered 
company must receive a summary of the results of any stress test 
conducted under this subpart.
    (3) Role of stress testing results. The board of directors and 
senior management of each covered company must consider the results of 
the analysis it conducts under this subpart, as appropriate:
    (i) As part of the covered company's capital plan and capital 
planning process, including when making changes to the covered 
company's capital structure (including the level and composition of 
capital); and
    (ii) When assessing the covered company's exposures, 
concentrations, and risk positions.


Sec.  238.145   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.  238.143 
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.  238.143, unless that time is 
extended by the Board in writing.
    (b) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this 
subpart and related materials shall be determined in accordance with 
applicable exemptions under the Freedom of Information Act (5 U.S.C. 
552(b)) and the Board's Rules Regarding Availability of Information (12 
CFR part 261).


Sec.  238.146  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.  238.143 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.  238.134, unless 
that time is extended by the Board in writing.
    (2) Disclosure method. The summary required under this section may 
be disclosed on the website of a covered company, or in any other forum 
that is reasonably accessible to the public.
    (b) Summary of results. The summary results must, at a minimum, 
contain the following information regarding the severely adverse 
scenario:
    (1) A description of the types of risks included in the stress 
test;
    (2) A general description of the methodologies used in the stress 
test, including those employed to estimate losses, revenues, provision 
for credit losses, and changes in capital positions over the planning 
horizon;
    (3) Estimates of--
    (i) Pre-provision net revenue and other revenue;
    (ii) Provision for credit losses, realized losses or gains on 
available-for-sale and held-to-maturity securities, trading and 
counterparty losses, and other losses or gains;
    (iii) Net income before taxes;
    (iv) Loan losses (dollar amount and as a percentage of average 
portfolio balance) in the aggregate and by subportfolio, including: 
Domestic closed-end first-lien mortgages; domestic junior lien 
mortgages and home equity lines of credit; commercial and industrial 
loans; commercial real estate loans; credit card exposures; other 
consumer loans; and all other loans; and
    (v) Pro forma regulatory capital ratios and any other capital 
ratios specified by the Board; and
    (4) An explanation of the most significant causes for the changes 
in regulatory capital ratios; and
    (5) With respect to any depository institution subsidiary that is 
subject to stress testing requirements pursuant to 12 U.S.C. 
5365(i)(2), 12 CFR part 46 (OCC), or 12 CFR part 325, subpart C (FDIC), 
changes over the planning horizon in regulatory capital ratios and any 
other capital ratios specified by the Board and an explanation of the 
most significant causes for the changes in regulatory capital ratios.
    (c) Content of results. (1) The following disclosures required 
under paragraph (b) of this section must be on a cumulative basis over 
the planning horizon:
    (i) Pre-provision net revenue and other revenue;
    (ii) Provision for credit losses, realized losses or gains on 
available-for-sale and held-to-maturity securities, trading and 
counterparty losses, and other losses or gains;
    (iii) Net income before taxes; and
    (iv) Loan losses in the aggregate and by subportfolio.
    (2) The disclosure of pro forma regulatory capital ratios and any 
other capital ratios specified by the Board that is required under 
paragraph (b) of this section must include the beginning value, ending 
value, and minimum value of each ratio over the planning horizon.

0
12. Add subpart Q to read as follows:

Subpart Q--Single Counterparty Credit Limits for Covered Savings 
and Loan Holding Companies

Sec.
238.150 Applicability and general provisions.
238.151 Definitions.
238.152 Credit exposure limits.
238.153 Gross credit exposure.
238.154 Net credit exposure.
238.155 Investments in and exposures to securitization vehicles, 
investment funds, and other special purpose vehicles that are not 
subsidiaries of the covered company.
238.156 Aggregation of exposures to more than one counterparty due 
to economic interdependence or control relationships.
238.157 Exemptions.
238.158 Compliance.

[[Page 59088]]

Sec.  238.150   Applicability and general provisions.

    (a) In general. This subpart establishes single counterparty credit 
limits for a covered company. For purposes of this subpart, covered 
company means:
    (i) A Category II savings and loan holding company; or
    (ii) A Category III savings and loan holding company.
    (b) Credit exposure limits. (1) Section 238.152 establishes credit 
exposure limits for a covered company.
    (2) A covered company 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) A covered company that 
becomes subject to this subpart must comply with the requirements of 
this subpart beginning on the first day of the ninth calendar quarter 
after it becomes a covered company, unless that time is accelerated or 
extended by the Board in writing.
    (d) Cessation of requirements. Any company that becomes a covered 
company will remain subject to the requirements of this subpart unless 
and until it is not a Category II savings and loan holding company or a 
Category III savings and loan holding company.


Sec.  238.151   Definitions.

    Unless defined in this section, terms that are set forth in Sec.  
238.2 and used in this subpart have the definitions assigned in Sec.  
238.2. For purposes of this subpart:
    (a) Adjusted market value means:
    (1) With respect to the value of cash, securities, or other 
eligible collateral transferred by the covered company to a 
counterparty, the sum of:
    (i) The market value of the cash, securities, or other eligible 
collateral; and
    (ii) The product of the market value of the securities or other 
eligible collateral multiplied by the applicable collateral haircut in 
Table 1 to Sec.  217.132 of this chapter; and
    (2) With respect to cash, securities, or other eligible collateral 
received by the covered company from a counterparty:
    (i) The market value of the cash, securities, or other eligible 
collateral; minus
    (ii) The market value of the securities or other eligible 
collateral multiplied by the applicable collateral haircut in Table 1 
to Sec.  217.132 of this chapter.
    (3) Prior to calculating the adjusted market value pursuant to 
paragraphs (a)(1) and (2) of this section, with regard to a transaction 
that meets the definition of ``repo-style transaction'' in Sec.  217.2 
of this chapter, the covered company would first multiply the 
applicable collateral haircuts in Table 1 to Sec.  217.132 of this 
chapter by the square root of 1/2.
    (b) Affiliate means, with respect to a company:
    (1) Any subsidiary of the company and any other company that is 
consolidated with the company under applicable accounting standards; or
    (2) For a company that is not subject to principles or standards 
referenced in paragraph (b)(1) of this section, any subsidiary of the 
company and any other company that would be consolidated with the 
company, if consolidation would have occurred if such principles or 
standards had applied.
    (c) Aggregate net credit exposure means the sum of all net credit 
exposures of a covered company and all of its subsidiaries to a single 
counterparty as calculated under this subpart.
    (d) Bank-eligible investments means investment securities that a 
national bank is permitted to purchase, sell, deal in, underwrite, and 
hold under 12 U.S.C. 24 (Seventh) and 12 CFR part 1.
    (e) Counterparty means, with respect to a credit transaction:
    (1) With respect to a natural person, the natural person, and, if 
the credit exposure of the covered company to such natural person 
exceeds 5 percent of the covered company's tier 1 capital, the natural 
person and members of the person's immediate family collectively;
    (2) With respect to any company that is not a subsidiary of the 
covered company, the company and its affiliates collectively;
    (3) With respect to a State, the State and all of its agencies, 
instrumentalities, and political subdivisions (including any 
municipalities) collectively;
    (4) With respect to a foreign sovereign entity that is not assigned 
a zero percent risk weight under the standardized approach in 12 CFR 
part 217, subpart D, the foreign sovereign entity and all of its 
agencies and instrumentalities (but not including any political 
subdivision) collectively; and
    (5) With respect to a political subdivision of a foreign sovereign 
entity such as a state, province, or municipality, any political 
subdivision of the foreign sovereign entity and all of such political 
subdivision's agencies and instrumentalities, collectively.\1\
---------------------------------------------------------------------------

    \1\ In addition, under Sec.  238.156, under certain 
circumstances, a covered company is required to aggregate its net 
credit exposure to one or more counterparties for all purposes under 
this subpart.
---------------------------------------------------------------------------

    (f) Covered company is defined in Sec.  238.150(a)
    (g) Credit derivative has the same meaning as in Sec.  217.2 of 
this chapter.
    (h) Credit transaction means, with respect to a counterparty:
    (1) Any extension of credit to the counterparty, including loans, 
deposits, and lines of credit, but excluding uncommitted lines of 
credit;
    (2) Any repurchase agreement or reverse repurchase agreement with 
the counterparty;
    (3) Any securities lending or securities borrowing transaction with 
the counterparty;
    (4) Any guarantee, acceptance, or letter of credit (including any 
endorsement, confirmed letter of credit, or standby letter of credit) 
issued on behalf of the counterparty;
    (5) Any purchase of securities issued by or other investment in the 
counterparty;
    (6) Any credit exposure to the counterparty in connection with a 
derivative transaction between the covered company and the 
counterparty;
    (7) Any credit exposure to the counterparty in connection with a 
credit derivative or equity derivative between the covered company and 
a third party, the reference asset of which is an obligation or equity 
security of, or equity investment in, the counterparty; and
    (8) Any transaction that is the functional equivalent of the above, 
and any other similar transaction that the Board, by regulation or 
order, determines to be a credit transaction for purposes of this 
subpart.
    (i) Depository institution has the same meaning as in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (j) Derivative transaction means any transaction that is a 
contract, agreement, swap, warrant, note, or option that is based, in 
whole or in part, on the value of, any interest in, or any quantitative 
measure or the occurrence of any event relating to, one or more 
commodities, securities, currencies, interest or other rates, indices, 
or other assets.
    (k) Eligible collateral means collateral in which, notwithstanding 
the prior security interest of any custodial agent, the covered company 
has a perfected, first priority security interest (or the legal 
equivalent thereof, if outside of the United States), with the 
exception of cash on deposit, and is in the form of:
    (1) Cash on deposit with the covered company or a subsidiary of the 
covered company (including cash in foreign currency or U.S. dollars 
held for the covered company by a custodian or trustee, whether inside 
or outside of the United States);

[[Page 59089]]

    (2) Debt securities (other than mortgage- or asset-backed 
securities and resecuritization securities, unless those securities are 
issued by a U.S. government-sponsored enterprise) that are bank-
eligible investments and that are investment grade, except for any debt 
securities issued by the covered company or any subsidiary of the 
covered company;
    (3) Equity securities that are publicly traded, except for any 
equity securities issued by the covered company or any subsidiary of 
the covered company;
    (4) Convertible bonds that are publicly traded, except for any 
convertible bonds issued by the covered company or any subsidiary of 
the covered company; or
    (5) Gold bullion.
    (l) Eligible credit derivative means a single-name credit 
derivative or a standard, non-tranched index credit derivative, 
provided that:
    (1) The contract meets the requirements of an eligible guarantee 
and has been confirmed by the protection purchaser and the protection 
provider;
    (2) Any assignment of the contract has been confirmed by all 
relevant parties;
    (3) If the credit derivative is a credit default swap, the contract 
includes the following credit events:
    (i) Failure to pay any amount due under the terms of the reference 
exposure, subject to any applicable minimal payment threshold that is 
consistent with standard market practice and with a grace period that 
is closely in line with the grace period of the reference exposure; and
    (ii) Receivership, insolvency, liquidation, conservatorship, or 
inability of the reference exposure issuer to pay its debts, or its 
failure or admission in writing of its inability generally to pay its 
debts as they become due, and similar events;
    (4) The terms and conditions dictating the manner in which the 
contract is to be settled are incorporated into the contract;
    (5) If the contract allows for cash settlement, the contract 
incorporates a robust valuation process to estimate loss reliably and 
specifies a reasonable period for obtaining post-credit event 
valuations of the reference exposure;
    (6) If the contract requires the protection purchaser to transfer 
an exposure to the protection provider at settlement, the terms of at 
least one of the exposures that is permitted to be transferred under 
the contract provide that any required consent to transfer may not be 
unreasonably withheld; and
    (7) If the credit derivative is a credit default swap, the contract 
clearly identifies the parties responsible for determining whether a 
credit event has occurred, specifies that this determination is not the 
sole responsibility of the protection provider, and gives the 
protection purchaser the right to notify the protection provider of the 
occurrence of a credit event.
    (m) Eligible equity derivative means an equity derivative, provided 
that:
    (1) The derivative contract has been confirmed by all relevant 
parties;
    (2) Any assignment of the derivative contract has been confirmed by 
all relevant parties; and
    (3) The terms and conditions dictating the manner in which the 
derivative contract is to be settled are incorporated into the 
contract.
    (n) Eligible guarantee has the same meaning as in Sec.  217.2 of 
this chapter.
    (o) Eligible guarantor has the same meaning as in Sec.  217.2 of 
this chapter.
    (p) Equity derivative has the same meaning as ``equity derivative 
contract'' in Sec.  217.2 of this chapter.
    (q) Exempt counterparty means an entity that is identified as 
exempt from the requirements of this subpart under Sec.  238.157, or 
that is otherwise excluded from this subpart, including any sovereign 
entity assigned a zero percent risk weight under the standardized 
approach in 12 CFR part 217, subpart D.
    (r) Financial entity means:
    (1)(i) A bank holding company or an affiliate thereof; a savings 
and loan holding company; a U.S. intermediate holding company 
established or designated pursuant to 12 CFR 252.153; or a nonbank 
financial company supervised by the Board;
    (ii) A depository institution as defined in section 3(c) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)); an organization that 
is organized under the laws of a foreign country and that engages 
directly in the business of banking outside the United States; a 
federal credit union or state credit union as defined in section 2 of 
the Federal Credit Union Act (12 U.S.C. 1752(1) and (6)); a national 
association, state member bank, or state nonmember bank that is not a 
depository institution; an institution that functions solely in a trust 
or fiduciary capacity as described in section 2(c)(2)(D) of the Bank 
Holding Company Act (12 U.S.C. 1841(c)(2)(D)); an industrial loan 
company, an industrial bank, or other similar institution described in 
section 2(c)(2)(H) of the Bank Holding Company Act (12 U.S.C. 
1841(c)(2)(H));
    (iii) An entity that is state-licensed or registered as:
    (A) A credit or lending entity, including a finance company; money 
lender; installment lender; consumer lender or lending company; 
mortgage lender, broker, or bank; motor vehicle title pledge lender; 
payday or deferred deposit lender; premium finance company; commercial 
finance or lending company; or commercial mortgage company; except 
entities registered or licensed solely on account of financing the 
entity's direct sales of goods or services to customers;
    (B) A money services business, including a check casher; money 
transmitter; currency dealer or exchange; or money order or traveler's 
check issuer;
    (iv) Any person registered with the Commodity Futures Trading 
Commission as a swap dealer or major swap participant pursuant to the 
Commodity Exchange Act of 1936 (7 U.S.C. 1 et seq.), or an entity that 
is registered with the U.S. Securities and Exchange Commission as a 
security-based swap dealer or a major security-based swap participant 
pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.);
    (v) A securities holding company as defined in section 618 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
1850a); a broker or dealer as defined in sections 3(a)(4) and 3(a)(5) 
of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)-(5)); an 
investment adviser as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an investment company 
registered with the U.S. Securities and Exchange Commission under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.); or a company 
that has elected to be regulated as a business development company 
pursuant to section 54(a) of the Investment Company Act of 1940 (15 
U.S.C. 80a-53(a));
    (vi) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an entity that would be an 
investment company under section 3 of the Investment Company Act of 
1940 (15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is 
deemed not to be an investment company under section 3 of the 
Investment Company Act of 1940 pursuant to Investment Company Act Rule 
3a-7 (17 CFR 270.3a-7) of the U.S. Securities and Exchange Commission;
    (vii) A commodity pool, a commodity pool operator, or a commodity 
trading advisor as defined, respectively, in sections 1a(10), 1a(11), 
and 1a(12) of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(10), 
1a(11), and 1a(12)); a floor broker, a floor trader, or introducing

[[Page 59090]]

broker as defined, respectively, in sections 1a(22), 1a(23) and 1a(31) 
of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(22), 1a(23), and 
1a(31)); or a futures commission merchant as defined in section 1a(28) 
of the Commodity Exchange Act of 1936 (7 U.S.C. 1a(28));
    (viii) An employee benefit plan as defined in paragraphs (3) and 
(32) of section 3 of the Employee Retirement Income and Security Act of 
1974 (29 U.S.C. 1002);
    (ix) An entity that is organized as an insurance company, primarily 
engaged in writing insurance or reinsuring risks underwritten by 
insurance companies, or is subject to supervision as such by a State 
insurance regulator or foreign insurance regulator;
    (x) Any designated financial market utility, as defined in section 
803 of the Dodd-Frank Wall Street Reform and Consumer Protection Act 
(12 U.S.C. 5462); and
    (xi) An entity that would be a financial entity described in 
paragraphs (r)(1)(i) through (x) of this section, if it were organized 
under the laws of the United States or any State thereof; and
    (2) Provided that, for purposes of this subpart, ``financial 
entity'' does not include any counterparty that is a foreign sovereign 
entity or multilateral development bank.
    (s) Foreign sovereign entity means a sovereign entity other than 
the United States government and the entity's agencies, departments, 
ministries, and central bank collectively.
    (t) Gross credit exposure means, with respect to any credit 
transaction, the credit exposure of the covered company before 
adjusting, pursuant to Sec.  238.154, for the effect of any eligible 
collateral, eligible guarantee, eligible credit derivative, eligible 
equity derivative, other eligible hedge, and any unused portion of 
certain extensions of credit.
    (u) Immediate family means the spouse of an individual, the 
individual's minor children, and any of the individual's children 
(including adults) residing in the individual's home.
    (v) Intraday credit exposure means credit exposure of a covered 
company to a counterparty that by its terms is to be repaid, sold, or 
terminated by the end of its business day in the United States.
    (w) Investment grade has the same meaning as in Sec.  217.2 of this 
chapter.
    (x) Multilateral development bank has the same meaning as in Sec.  
217.2 of this chapter.
    (y) Net credit exposure means, with respect to any credit 
transaction, the gross credit exposure of a covered company and all of 
its subsidiaries calculated under Sec.  238.153, as adjusted in 
accordance with Sec.  238.154.
    (z) Qualifying central counterparty has the same meaning as in 
Sec.  217.2 of this chapter.
    (aa) Qualifying master netting agreement has the same meaning as in 
Sec.  217.2 of this chapter.
    (bb) Securities financing transaction means any repurchase 
agreement, reverse repurchase agreement, securities borrowing 
transaction, or securities lending transaction.
    (cc) Short sale means any sale of a security which the seller does 
not own or any sale which is consummated by the delivery of a security 
borrowed by, or for the account of, the seller.
    (dd) Sovereign entity means a central national government 
(including the U.S. government) or an agency, department, ministry, or 
central bank, but not including any political subdivision such as a 
state, province, or municipality.
    (ee) Subsidiary. A company is a subsidiary of another company if:
    (1) The company is consolidated by the other company under 
applicable accounting standards; or
    (2) For a company that is not subject to principles or standards 
referenced in paragraph (ee)(1) of this section, consolidation would 
have occurred if such principles or standards had applied.
    (ff) Tier 1 capital means common equity tier 1 capital and 
additional tier 1 capital, as defined in 12 CFR part 217 and as 
reported by the covered savings and loan holding company on the most 
recent FR Y-9C report on a consolidated basis.
    (gg) Total consolidated assets. A company's total consolidated 
assets are determined based on:
    (1) The average of the company's total consolidated assets in the 
four most recent consecutive quarters as reported quarterly on the FR 
Y-9C; or
    (2) If the company has not filed an FR Y-9C for each of the four 
most recent consecutive quarters, the average of the company's total 
consolidated assets, as reported on the company's FR Y-9C, for the most 
recent quarter or consecutive quarters, as applicable.


Sec.  238.152  Credit exposure limits.

    General limit on aggregate net credit exposure. No covered company 
may have an aggregate net credit exposure to any counterparty that 
exceeds 25 percent of the tier 1 capital of the covered company.


Sec.  238.153  Gross credit exposure.

    (a) Calculation of gross credit exposure. The amount of gross 
credit exposure of a covered company to a counterparty with respect to 
a credit transaction is, in the case of:
    (1) A deposit of the covered company held by the counterparty, loan 
by a covered company to the counterparty, and lease in which the 
covered company is the lessor and the counterparty is the lessee, equal 
to the amount owed by the counterparty to the covered company under the 
transaction.
    (2) A debt security or debt investment held by the covered company 
that is issued by the counterparty, equal to:
    (i) The market value of the securities, for trading and available-
for-sale securities; and
    (ii) The amortized purchase price of the securities or investments, 
for securities or investments held to maturity.
    (3) An equity security held by the covered company that is issued 
by the counterparty, equity investment in a counterparty, and other 
direct investments in a counterparty, equal to the market value.
    (4) A securities financing transaction must be valued using any of 
the methods that the covered company is authorized to use under 12 CFR 
part 217, subparts D and E to value such transactions:
    (i)(A) As calculated for each transaction, in the case of a 
securities financing transaction between the covered company and the 
counterparty that is not subject to a bilateral netting agreement or 
does not meet the definition of ``repo-style transaction'' in Sec.  
217.2 of this chapter; or
    (B) As calculated for a netting set, in the case of a securities 
financing transaction between the covered company and the counterparty 
that is subject to a bilateral netting agreement with that counterparty 
and meets the definition of ``repo-style transaction'' in Sec.  217.2 
of this chapter;
    (ii) For purposes of paragraph (a)(4)(i) of this section, the 
covered company must:
    (A) Assign a value of zero to any security received from the 
counterparty that does not meet the definition of ``eligible 
collateral'' in Sec.  238.151; and
    (B) Include the value of securities that are eligible collateral 
received by the covered company from the counterparty (including any 
exempt counterparty), calculated in accordance with paragraphs 
(a)(4)(i) through (iv) of this section, when calculating its gross 
credit exposure to the issuer of those securities;
    (iii) Notwithstanding paragraphs (a)(4)(i) and (ii) of this section 
and with respect to each credit transaction, a covered company's gross 
credit exposure to a collateral issuer under this paragraph (a)(4) is 
limited to the covered company's gross credit

[[Page 59091]]

exposure to the counterparty on the credit transaction; and
    (iv) In cases where the covered company receives eligible 
collateral from a counterparty in addition to the cash or securities 
received from that counterparty, the counterparty may reduce its gross 
credit exposure to that counterparty in accordance with Sec.  
238.154(b).
    (5) A committed credit line extended by a covered company to a 
counterparty, equal to the face amount of the committed credit line.
    (6) A guarantee or letter of credit issued by a covered company on 
behalf of a counterparty, equal to the maximum potential loss to the 
covered company on the transaction.
    (7) A derivative transaction must be valued using any of the 
methods that the covered company is authorized to use under 12 CFR part 
217, subparts D and E to value such transactions:
    (i)(A) As calculated for each transaction, in the case of a 
derivative transaction between the covered company and the 
counterparty, including an equity derivative but excluding a credit 
derivative described in paragraph (a)(8) of this section, that is not 
subject to a qualifying master netting agreement; or
    (B) As calculated for a netting set, in the case of a derivative 
transaction between the covered company and the counterparty, including 
an equity derivative but excluding a credit derivative described in 
paragraph (a)(8) of this section, that is subject to a qualifying 
master netting agreement.
    (ii) In cases where a covered company is required to recognize an 
exposure to an eligible guarantor pursuant to Sec.  238.154(d), the 
covered company must exclude the relevant derivative transaction when 
calculating its gross exposure to the original counterparty under this 
section.
    (8) A credit derivative between the covered company and a third 
party where the covered company is the protection provider and the 
reference asset is an obligation or debt security of the counterparty, 
equal to the maximum potential loss to the covered company on the 
transaction.
    (b) Investments in and exposures to securitization vehicles, 
investment funds, and other special purpose vehicles that are not 
subsidiaries. Notwithstanding paragraph (a) of this section, a covered 
company must calculate pursuant to Sec.  238.155 its gross credit 
exposure due to any investment in the debt or equity of, and any credit 
derivative or equity derivative between the covered company and a third 
party where the covered company 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 a subsidiary of the covered 
company.
    (c) Attribution rule. Notwithstanding any other requirement in this 
subpart, a covered company must treat any transaction with any natural 
person or entity as a credit transaction with another party, to the 
extent that the proceeds of the transaction are used for the benefit 
of, or transferred to, the other party.


Sec.  238.154  Net credit exposure.

    (a) In general. For purposes of this subpart, a covered company 
must calculate its net credit exposure to a counterparty by adjusting 
its gross credit exposure to that counterparty in accordance with the 
rules set forth in this section.
    (b) Eligible collateral. (1) In computing its net credit exposure 
to a counterparty for any credit transaction other than a securities 
financing transaction, a covered company must reduce its gross credit 
exposure on the transaction by the adjusted market value of any 
eligible collateral.
    (2) A covered company that reduces its gross credit exposure to a 
counterparty as required under paragraph (b)(1) of this section must 
include the adjusted market value of the eligible collateral, when 
calculating its gross credit exposure to the collateral issuer.
    (3) Notwithstanding paragraph (b)(2) of this section, a covered 
company's gross credit exposure to a collateral issuer under this 
paragraph (b) is limited to:
    (i) Its gross credit exposure to the counterparty on the credit 
transaction, or
    (ii) In the case of an exempt counterparty, the gross credit 
exposure that would have been attributable to that exempt counterparty 
on the credit transaction if valued in accordance with Sec.  
238.153(a).
    (c) Eligible guarantees. (1) In calculating net credit exposure to 
a counterparty for any credit transaction, a covered company must 
reduce its gross credit exposure to the counterparty by the amount of 
any eligible guarantee from an eligible guarantor that covers the 
transaction.
    (2) A covered company that reduces its gross credit exposure to a 
counterparty as required under paragraph (c)(1) of this section must 
include the amount of eligible guarantees when calculating its gross 
credit exposure to the eligible guarantor.
    (3) Notwithstanding paragraph (c)(2) of this section, a covered 
company's gross credit exposure to an eligible guarantor with respect 
to an eligible guarantee under this paragraph (c) is limited to:
    (i) Its gross credit exposure to the counterparty on the credit 
transaction prior to recognition of the eligible guarantee, or
    (ii) In the case of an exempt counterparty, the gross credit 
exposure that would have been attributable to that exempt counterparty 
on the credit transaction prior to recognition of the eligible 
guarantee if valued in accordance with Sec.  238.153(a).
    (d) Eligible credit and equity derivatives. (1) In calculating net 
credit exposure to a counterparty for a credit transaction under this 
section, a covered company must reduce its gross credit exposure to the 
counterparty by:
    (i) In the case of any eligible credit derivative from an eligible 
guarantor, the notional amount of the eligible credit derivative; or
    (ii) In the case of any eligible equity derivative from an eligible 
guarantor, the gross credit exposure amount to the counterparty 
(calculated in accordance with Sec.  238.153(a)(7)).
    (2)(i) A covered company that reduces its gross credit exposure to 
a counterparty as provided under paragraph (d)(1) of this section must 
include, when calculating its net credit exposure to the eligible 
guarantor, including in instances where the underlying credit 
transaction would not be subject to the credit limits of Sec.  238.152 
(for example, due to an exempt counterparty), either
    (A) In the case of any eligible credit derivative from an eligible 
guarantor, the notional amount of the eligible credit derivative; or
    (B) In the case of any eligible equity derivative from an eligible 
guarantor, the gross credit exposure amount to the counterparty 
(calculated in accordance with Sec.  238.153(a)(7)).
    (ii) Notwithstanding paragraph (d)(2)(i) of this section, in cases 
where the eligible credit derivative or eligible equity derivative is 
used to hedge covered positions that are subject to the Board's market 
risk rule (12 CFR part 217, subpart F) and the counterparty on the 
hedged transaction is not a financial entity, the amount of credit 
exposure that a company must recognize to the eligible guarantor is the 
amount that would be calculated pursuant to Sec.  238.153(a).
    (3) Notwithstanding paragraph (d)(2) of this section, a covered 
company's

[[Page 59092]]

gross credit exposure to an eligible guarantor with respect to an 
eligible credit derivative or an eligible equity derivative this 
paragraph (d) is limited to:
    (i) Its gross credit exposure to the counterparty on the credit 
transaction prior to recognition of the eligible credit derivative or 
the eligible equity derivative, or
    (ii) In the case of an exempt counterparty, the gross credit 
exposure that would have been attributable to that exempt counterparty 
on the credit transaction prior to recognition of the eligible credit 
derivative or the eligible equity derivative if valued in accordance 
with Sec.  238.153(a).
    (e) Other eligible hedges. In calculating net credit exposure to a 
counterparty for a credit transaction under this section, a covered 
company may reduce its gross credit exposure to the counterparty by the 
face amount of a short sale of the counterparty's debt security or 
equity security, provided that:
    (1) The instrument in which the covered company has a short 
position is junior to, or pari passu with, the instrument in which the 
covered company has the long position; and
    (2) The instrument in which the covered company has a short 
position and the instrument in which the covered company has the long 
position are either both treated as trading or available-for-sale 
exposures or both treated as held-to-maturity exposures.
    (f) Unused portion of certain extensions of credit. (1) In 
computing its net credit exposure to a counterparty for a committed 
credit line or revolving credit facility under this section, a covered 
company may reduce its gross credit exposure by the amount of the 
unused portion of the credit extension to the extent that the covered 
company does not have any legal obligation to advance additional funds 
under the extension of credit and the used portion of the credit 
extension has been fully secured by eligible collateral.
    (2) To the extent that the used portion of a credit extension has 
been secured by eligible collateral, the covered company may reduce its 
gross credit exposure by the adjusted market value of any eligible 
collateral received from the counterparty, even if the used portion has 
not been fully secured by eligible collateral.
    (3) To qualify for the reduction in net credit exposure under this 
paragraph, the credit contract must specify that any used portion of 
the credit extension must be fully secured by the adjusted market value 
of any eligible collateral.
    (g) Credit transactions involving exempt counterparties. (1) A 
covered company's credit transactions with an exempt counterparty are 
not subject to the requirements of this subpart, including but not 
limited to Sec.  238.152.
    (2) Notwithstanding paragraph (g)(1) of this section, in cases 
where a covered company has a credit transaction with an exempt 
counterparty and the covered company has obtained eligible collateral 
from that exempt counterparty or an eligible guarantee or eligible 
credit or equity derivative from an eligible guarantor, the covered 
company must include (for purposes of this subpart) such exposure to 
the issuer of such eligible collateral or the eligible guarantor, as 
calculated in accordance with the rules set forth in this section, when 
calculating its gross credit exposure to that issuer of eligible 
collateral or eligible guarantor.
    (h) Currency mismatch adjustments. For purposes of calculating its 
net credit exposure to a counterparty under this section, a covered 
company must apply, as applicable:
    (1) When reducing its gross credit exposure to a counterparty 
resulting from any credit transaction due to any eligible collateral 
and calculating its gross credit exposure to an issuer of eligible 
collateral, pursuant to paragraph (b) of this section, the currency 
mismatch adjustment approach of Sec.  217.37(c)(3)(ii) of this chapter; 
and
    (2) When reducing its gross credit exposure to a counterparty 
resulting from any credit transaction due to any eligible guarantee, 
eligible equity derivative, or eligible credit derivative from an 
eligible guarantor and calculating its gross credit exposure to an 
eligible guarantor, pursuant to paragraphs (c) and (d) of this section, 
the currency mismatch adjustment approach of Sec.  217.36(f) of this 
chapter.
    (i) Maturity mismatch adjustments. For purposes of calculating its 
net credit exposure to a counterparty under this section, a covered 
company must apply, as applicable, the maturity mismatch adjustment 
approach of Sec.  217.36(d) of this chapter:
    (1) When reducing its gross credit exposure to a counterparty 
resulting from any credit transaction due to any eligible collateral or 
any eligible guarantees, eligible equity derivatives, or eligible 
credit derivatives from an eligible guarantor, pursuant to paragraphs 
(b) through (d) of this section, and
    (2) In calculating its gross credit exposure to an issuer of 
eligible collateral, pursuant to paragraph (b) of this section, or to 
an eligible guarantor, pursuant to paragraphs (c) and (d) of this 
section; provided that
    (3) The eligible collateral, eligible guarantee, eligible equity 
derivative, or eligible credit derivative subject to paragraph (i)(1) 
of this section:
    (i) Has a shorter maturity than the credit transaction;
    (ii) Has an original maturity equal to or greater than one year;
    (iii) Has a residual maturity of not less than three months; and
    (iv) The adjustment approach is otherwise applicable.


Sec.  238.155  Investments in and exposures to securitization vehicles, 
investment funds, and other special purpose vehicles that are not 
subsidiaries of the covered company.

    (a) In general. (1) For purposes of this section, the following 
definitions apply:
    (i) SPV means a securitization vehicle, investment fund, or other 
special purpose vehicle that is not a subsidiary of the covered 
company.
    (ii) SPV exposure means an investment in the debt or equity of an 
SPV, or a credit derivative or equity derivative between the covered 
company and a third party where the covered company is the protection 
provider and the reference asset is an obligation or equity security 
of, or equity investment in, an SPV.
    (2)(i) A covered company must determine whether the amount of its 
gross credit exposure to an issuer of assets in an SPV, due to an SPV 
exposure, is equal to or greater than 0.25 percent of the covered 
company's tier 1 capital using one of the following two methods:
    (A) The sum of all of the issuer's assets (with each asset valued 
in accordance with Sec.  238.153(a)) in the SPV; or
    (B) The application of the look-through approach described in 
paragraph (b) of this section.
    (ii) With respect to the determination required under paragraph 
(a)(2)(i) of this section, a covered company must use the same method 
to calculate gross credit exposure to each issuer of assets in a 
particular SPV.
    (iii) In making a determination under paragraph (a)(2)(i) of this 
section, the covered company must consider only the credit exposure to 
the issuer arising from the covered company's SPV exposure.
    (iv) For purposes of this paragraph (a)(2), a covered company that 
is unable to identify each issuer of assets in an SPV must attribute to 
a single unknown counterparty the amount of its gross credit exposure 
to all unidentified issuers and calculate such gross credit exposure 
using one method in either

[[Page 59093]]

paragraph (a)(2)(i)(A) or (a)(2)(i)(B) of this section.
    (3)(i) If a covered company determines pursuant to paragraph (a)(2) 
of this section that the amount of its gross credit exposure to an 
issuer of assets in an SPV is less than 0.25 percent of the covered 
company's tier 1 capital, the amount of the covered company's gross 
credit exposure to that issuer may be attributed to either that issuer 
of assets or the SPV:
    (A) If attributed to the issuer of assets, the issuer of assets 
must be identified as a counterparty, and the gross credit exposure 
calculated under paragraph (a)(2)(i)(A) of this section to that issuer 
of assets must be aggregated with any other gross credit exposures 
(valued in accordance with Sec.  238.153) to that same counterparty; 
and
    (B) If attributed to the SPV, the covered company's gross credit 
exposure is equal to the covered company's SPV exposure, valued in 
accordance with Sec.  238.153(a).
    (ii) If a covered company determines pursuant to paragraph (a)(2) 
of this section that the amount of its gross credit exposure to an 
issuer of assets in an SPV is equal to or greater than 0.25 percent of 
the covered company's tier 1 capital or the covered company is unable 
to determine that the amount of the gross credit exposure is less than 
0.25 percent of the covered company's tier 1 capital:
    (A) The covered company must calculate the amount of its gross 
credit exposure to the issuer of assets in the SPV using the look-
through approach in paragraph (b) of this section;
    (B) The issuer of assets in the SPV must be identified as a 
counterparty, and the gross credit exposure calculated in accordance 
with paragraph (b) of this section must be aggregated with any other 
gross credit exposures (valued in accordance with Sec.  238.153) to 
that same counterparty; and
    (C) When applying the look-through approach in paragraph (b) of 
this section, a covered company that is unable to identify each issuer 
of assets in an SPV must attribute to a single unknown counterparty the 
amount of its gross credit exposure, calculated in accordance with 
paragraph (b) of this section, to all unidentified issuers.
    (iii) For purposes of this section, a covered company must 
aggregate all gross credit exposures to unknown counterparties for all 
SPVs as if the exposures related to a single unknown counterparty; this 
single unknown counterparty is subject to the limits of Sec.  238.152 
as if it were a single counterparty.
    (b) Look-through approach. A covered company that is required to 
calculate the amount of its gross credit exposure with respect to an 
issuer of assets in accordance with this paragraph (b) must calculate 
the amount as follows:
    (1) Where all investors in the SPV rank pari passu, the amount of 
the gross credit exposure to the issuer of assets is equal to the 
covered company's pro rata share of the SPV multiplied by the value of 
the underlying asset in the SPV, valued in accordance with Sec.  
238.153(a); and
    (2) Where all investors in the SPV do not rank pari passu, the 
amount of the gross credit exposure to the issuer of assets is equal 
to:
    (i) The pro rata share of the covered company's investment in the 
tranche of the SPV; multiplied by
    (ii) The lesser of:
    (A) The market value of the tranche in which the covered company 
has invested, except in the case of a debt security that is held to 
maturity, in which case the tranche must be valued at the amortized 
purchase price of the securities; and
    (B) The value of each underlying asset attributed to the issuer in 
the SPV, each as calculated pursuant to Sec.  238.153(a).
    (c) Exposures to third parties. (1) Notwithstanding any other 
requirement in this section, a covered company must recognize, for 
purposes of this subpart, a gross credit exposure to each third party 
that has a contractual obligation to provide credit or liquidity 
support to an SPV whose failure or material financial distress would 
cause a loss in the value of the covered company's SPV exposure.
    (2) The amount of any gross credit exposure that is required to be 
recognized to a third party under paragraph (c)(1) of this section is 
equal to the covered company's SPV exposure, up to the maximum 
contractual obligation of that third party to the SPV, valued in 
accordance with Sec.  238.153(a). (This gross credit exposure is in 
addition to the covered company's gross credit exposure to the SPV or 
the issuers of assets of the SPV, calculated in accordance with 
paragraphs (a) and (b) of this section.)
    (3) A covered company must aggregate the gross credit exposure to a 
third party recognized in accordance with paragraphs (c)(1) and (2) of 
this section with its other gross credit exposures to that third party 
(that are unrelated to the SPV) for purposes of compliance with the 
limits of Sec.  238.152.


Sec.  238.156  Aggregation of exposures to more than one counterparty 
due to economic interdependence or control relationships.

    (a) In general. (1) If a covered company has an aggregate net 
credit exposure to any counterparty that exceeds 5 percent of its tier 
1 capital, the covered company 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 company 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.
    (2) If, pursuant to an assessment required under paragraph (a)(1) 
of this section, the covered company determines that one or more of the 
factors of paragraph (b)(2) or (c)(1) of this section are met with 
respect to one or more counterparties, or the Board determines pursuant 
to paragraph (d) of this section that one or more other counterparties 
of a covered company are economically interdependent or that one or 
more other counterparties of a covered company are connected by a 
control relationship, the covered company must aggregate its net credit 
exposure to the counterparties for all purposes under this subpart, 
including, but not limited to, Sec.  238.152.
    (3) In connection with any request pursuant to paragraph (b)(3) or 
(c)(2) of this section, the Board may require the covered company to 
provide additional information.
    (b) Aggregation of exposures to more than one counterparty due to 
economic interdependence. (1) For purposes of this paragraph, two 
counterparties are economically interdependent if the failure, default, 
insolvency, or material financial distress of one counterparty would 
cause the failure, default, insolvency, or material financial distress 
of the other counterparty, taking into account the factors in paragraph 
(b)(2) of this section.
    (2) A covered company must assess whether the financial distress of 
one counterparty (counterparty A) would prevent the ability of the 
other counterparty (counterparty B) to fully and timely repay 
counterparty B's liabilities and whether the insolvency or default of 
counterparty A is likely to be associated with the insolvency or 
default of counterparty B and, therefore, these counterparties are 
economically interdependent, by evaluating the following:
    (i) Whether 50 percent or more of one counterparty's gross revenue 
is derived

[[Page 59094]]

from, or gross expenditures are directed to, transactions with the 
other counterparty;
    (ii) Whether counterparty A has fully or partly guaranteed the 
credit exposure of counterparty B, or is liable by other means, in an 
amount that is 50 percent or more of the covered company's net credit 
exposure to counterparty A;
    (iii) Whether 25 percent or more of one counterparty's production 
or output is sold to the other counterparty, which cannot easily be 
replaced by other customers;
    (iv) Whether the expected source of funds to repay the loans of 
both counterparties is the same and neither counterparty has another 
independent source of income from which the loans may be serviced and 
fully repaid; \1\ and
---------------------------------------------------------------------------

    \1\ An employer will not be treated as a source of repayment 
under this paragraph because of wages and salaries paid to an 
employee.
---------------------------------------------------------------------------

    (v) Whether two or more counterparties rely on the same source for 
the majority of their funding and, in the event of the common 
provider's default, an alternative provider cannot be found.
    (3)(i) Notwithstanding paragraph (b)(2) of this section, if a 
covered company determines that one or more of the factors in paragraph 
(b)(2) is met, the covered company may request in writing a 
determination from the Board that those counterparties are not 
economically interdependent and that the covered company is not 
required to aggregate those counterparties.
    (ii) Upon a request by a covered company pursuant to paragraph 
(b)(3) of this section, the Board may grant temporary relief to the 
covered company and not require the covered company to aggregate one 
counterparty with another counterparty provided that the counterparty 
could promptly modify its business relationships, such as by reducing 
its reliance on the other counterparty, to address any economic 
interdependence concerns, and provided that such relief is in the 
public interest and is consistent with the purpose of this subpart.
    (c) Aggregation of exposures to more than one counterparty due to 
certain control relationships. (1) For purposes of this subpart, one 
counterparty (counterparty A) is deemed to control the other 
counterparty (counterparty B) if:
    (i) Counterparty A owns, controls, or holds with the power to vote 
25 percent or more of any class of voting securities of counterparty B; 
or
    (ii) Counterparty A controls in any manner the election of a 
majority of the directors, trustees, or general partners (or 
individuals exercising similar functions) of counterparty B.
    (2)(i) Notwithstanding paragraph (c)(1) of this section, if a 
covered company determines that one or more of the factors in paragraph 
(c)(1) is met, the covered company may request in writing a 
determination from the Board that counterparty A does not control 
counterparty B and that the covered company is not required to 
aggregate those counterparties.
    (ii) Upon a request by a covered company pursuant to paragraph 
(c)(2) of this section, the Board may grant temporary relief to the 
covered company and not require the covered company to aggregate 
counterparty A with counterparty B provided that, taking into account 
the specific facts and circumstances, such indicia of control does not 
result in the entities being connected by control relationships for 
purposes of this subpart, and provided that such relief is in the 
public interest and is consistent with the purpose of this subpart.
    (d) Board determinations for aggregation of counterparties due to 
economic interdependence or control relationships. The Board may 
determine, after notice to the covered company and opportunity for 
hearing, that one or more counterparties of a covered company are:
    (1) Economically interdependent for purposes of this subpart, 
considering the factors in paragraph (b)(2) of this section, as well as 
any other indicia of economic interdependence that the Board determines 
in its discretion to be relevant; or
    (2) Connected by control relationships for purposes of this 
subpart, considering the factors in paragraph (c)(1) of this section 
and whether counterparty A:
    (i) Controls the power to vote 25 percent or more of any class of 
voting securities of Counterparty B pursuant to a voting agreement;
    (ii) Has significant influence on the appointment or dismissal of 
counterparty B's administrative, management, or governing body, or the 
fact that a majority of members of such body have been appointed solely 
as a result of the exercise of counterparty A's voting rights; or
    (iii) Has the power to exercise a controlling influence over the 
management or policies of counterparty B.
    (e) Board determinations for aggregation of counterparties to 
prevent evasion. Notwithstanding paragraphs (b) and (c) of this 
section, a covered company must aggregate its exposures to a 
counterparty with the covered company's exposures to another 
counterparty if the Board determines in writing after notice and 
opportunity for hearing, that the exposures to the two counterparties 
must be aggregated to prevent evasions of the purposes of this subpart, 
including, but not limited to Sec.  238.156.


Sec.  238.157  Exemptions.

    (a) Exempted exposure categories. The following categories of 
credit transactions are exempt from the limits on credit exposure under 
this subpart:
    (1) Any direct claim on, and the portion of a claim that is 
directly and fully guaranteed as to principal and interest by, the 
Federal National Mortgage Association and the Federal Home Loan 
Mortgage Corporation, only while operating under the conservatorship or 
receivership of the Federal Housing Finance Agency, and any additional 
obligation issued by a U.S. government-sponsored entity as determined 
by the Board;
    (2) Intraday credit exposure to a counterparty;
    (3) Any trade exposure to a qualifying central counterparty related 
to the covered company's clearing activity, including potential future 
exposure arising from transactions cleared by the qualifying central 
counterparty and pre-funded default fund contributions;
    (4) Any credit transaction with the Bank for International 
Settlements, the International Monetary Fund, the International Bank 
for Reconstruction and Development, the International Finance 
Corporation, the International Development Association, the 
Multilateral Investment Guarantee Agency, or the International Centre 
for Settlement of Investment Disputes;
    (5) Any credit transaction with the European Commission or the 
European Central Bank; and
    (6) Any transaction that the Board exempts if the Board finds that 
such exemption is in the public interest and is consistent with the 
purpose of this subpart.
    (b) Exemption for Federal Home Loan Banks. For purposes of this 
subpart, a covered company does not include any Federal Home Loan Bank.
    (c) Additional exemptions by the Board. The Board may, by 
regulation or order, exempt transactions, in whole or in part, from the 
definition of the term ``credit exposure,'' if the Board finds that the 
exemption is in the public interest.


Sec.  238.158  Compliance.

    (a) Scope of compliance. (1) Using all available data, including 
any data required to be maintained or reported to the Federal Reserve 
under this subpart,

[[Page 59095]]

a covered company must comply with the requirements of this subpart on 
a daily basis at the end of each business day.
    (2) A covered company must report its compliance to the Federal 
Reserve as of the end of the quarter, unless the Board determines and 
notifies that company in writing that more frequent reporting is 
required.
    (3) In reporting its compliance, a covered company must calculate 
and include in its gross credit exposure to an issuer of eligible 
collateral or eligible guarantor the amounts of eligible collateral, 
eligible guarantees, eligible equity derivatives, and eligible credit 
derivatives that were provided to the covered company in connection 
with credit transactions with exempt counterparties, valued in 
accordance with and as required by Sec.  238.154(b) through (d) and 
Sec.  238.154 (g).
    (b) Qualifying master netting agreement. With respect to any 
qualifying master netting agreement, a covered company must establish 
and maintain procedures that meet or exceed the requirements of Sec.  
217.3(d) of this chapter to monitor possible changes in relevant law 
and to ensure that the agreement continues to satisfy these 
requirements.
    (c) Noncompliance. (1) Except as otherwise provided in this 
section, if a covered company is not in compliance with this subpart 
with respect to a counterparty solely due to the circumstances listed 
in paragraphs (c)(2)(i) through (v) of this section, the covered 
company will not be subject to enforcement actions for a period of 90 
days (or, with prior notice to the company, such shorter or longer 
period determined by the Board, in its sole discretion, to be 
appropriate to preserve the safety and soundness of the covered 
company), if the covered company uses reasonable efforts to return to 
compliance with this subpart during this period. The covered company 
may not engage in any additional credit transactions with such a 
counterparty in contravention of this rule during the period of 
noncompliance, except as provided in paragraph (c)(2) of this section.
    (2) A covered company 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 company. In acting on a request for an 
exemption, the Board will consider the following:
    (i) A decrease in the covered company's capital stock and surplus;
    (ii) The merger of the covered company with another covered 
company;
    (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 company'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.
    (d) Other measures. The Board may impose supervisory oversight and 
additional reporting measures that it determines are appropriate to 
monitor compliance with this subpart. Covered companies must furnish, 
in the manner and form prescribed by the Board, such information to 
monitor compliance with this subpart and the limits therein as the 
Board may require.

0
 13. 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.  [thinsp]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 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.  [thinsp]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 average total 
consolidated assets exceed $250 billion.
    (2) 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.  [thinsp]238.162  Capital stress testing requirements.

    (a) In general. (1) A foreign savings and loan holding company 
subject to this subpart 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

[[Page 59096]]

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 242--DEFINITIONS RELATING TO TITLE I OF THE DODD-FRANK ACT 
(REGULATION PP)

0
14. The authority citation for part 242 continues to read as follows:

    Authority: 12 U.S.C. 5311.


0
15. In Sec.  242.1, paragraph (b)(2)(ii)(B) is revised to read as 
follows:


Sec.  242.1  Authority and purpose

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (B) A bank holding company or foreign bank subject to the Bank 
Holding Company Act (BHC Act) (12 U.S.C. 1841 et seq.) that is a bank 
holding company described in section 165(a) of the Dodd-Frank Act (12 
U.S.C. 5365(a)).

0
16. Section 242.4 is revised to read as follows:


Sec.  242.4  Significant nonbank financial companies and significant 
bank holding companies

    For purposes of Title I of the Dodd-Frank Act, the following 
definitions shall apply:
    (a) Significant nonbank financial company. A ``significant nonbank 
financial company'' means--
    (1) Any nonbank financial company supervised by the Board; and
    (2) Any other nonbank financial company that had $100 billion or 
more in total consolidated assets (as determined in accordance with 
applicable accounting standards) as of the end of its most recently 
completed fiscal year.
    (b) Significant bank holding company. A ``significant bank holding 
company'' means any bank holding company or company that is, or is 
treated in the United States as, a bank holding company, that had $100 
billion or more in total consolidated assets as of the end of the most 
recently completed calendar year, as reported on either the Federal 
Reserve's FR Y-9C (Consolidated Financial Statement for Holding 
Companies), or any successor form thereto, or the Federal Reserve's 
Form FR Y-7Q (Capital and Asset Report for Foreign Banking 
Organizations), or any successor form thereto.

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

0
17. The authority citation for part 252 is revised to read as follows:

    Authority: 12 U.S.C. 321-338a, 481-486, 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
18. Revise Sec.  252.1 to read as follows:


Sec.  252.1  Authority and purpose.

    (a) Authority. This part is issued by the Board of Governors of the 
Federal Reserve System (the Board) under sections 162, 165, 167, and 
168 of Title I of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the Dodd-Frank Act) (Pub. L. 111-203, 124 Stat. 1376, 
1423-1432, 12 U.S.C. 5362, 5365, 5367, and 5368); section 9 of the 
Federal Reserve Act (12 U.S.C. 321-338a); section 5(b) of the Bank 
Holding Company Act (12 U.S.C. 1844(b)); sections 8 and 39 of the 
Federal Deposit Insurance Act (12 U.S.C. 1818(b) and 1831p-1); the 
International Banking Act (12 U.S.C. 3101et seq.); the Foreign Bank 
Supervision Enhancement Act (12 U.S.C. 3101 note); and 12 U.S.C. 3904, 
3906-3909, and 4808.
    (b) Purpose. This part implements certain provisions of section 165 
of the Dodd-Frank Act (12 U.S.C. 5365), which require the Board to 
establish enhanced prudential standards for certain bank holding 
companies, foreign banking organizations, nonbank financial companies 
supervised by the Board, and certain other companies.

0
19. 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 12 CFR 225.2(a).
    Applicable accounting standards means GAAP, 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 combined U.S. assets for the most 
recent calendar quarter or average of the most recent calendar 
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 cross-
jurisdictional activity for the most recent calendar quarter or average 
of the most recent calendar 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 or combined U.S. assets, as applicable, for each of 
the four most recent calendar quarters, the off-balance sheet exposure 
for the most recent calendar quarter or average of the most recent 
calendar 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 total consolidated 
assets for the most recent calendar quarter or average of the most 
recent calendar quarters, as applicable.
    Average total nonbank assets means the average of total nonbank 
assets for 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 total nonbank 
assets for the most recent calendar quarter or average of the most 
recent calendar quarters, as applicable.
    Average U.S. non-branch assets means the average of U.S. non-branch 
assets for the four most recent calendar quarters or, if the banking 
organization has not reported the total consolidated assets of its top-
tier U.S. subsidiaries for each of the four most recent calendar 
quarters, the U.S. non-branch assets for the most recent calendar 
quarter or average of the most recent calendar 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

[[Page 59097]]

most recent calendar quarters, the weighted short-term wholesale 
funding for the most recent calendar quarter or average of the most 
recent calendar 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 12 CFR 225.2(c).
    Banking organization means:
    (1) A bank holding company that is a U.S. bank holding company;
    (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-15 or FR Y-7Q.
    Combined U.S. operations means:
    (1) The U.S. branches and agencies of the foreign banking 
organization; 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 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. The cross-jurisdictional activity of 
a banking organization is equal to the cross-jurisdictional activity of 
the 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 12 CFR 
211.21(o), 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.  
252.147(b)(4) or Sec.  252.153(b)(4) of this part.
    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.

[[Page 59098]]

    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 the 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.
    State member bank has the same meaning as in 12 CFR 208.2(g).
    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 calculated 
based on the average of the balances as of the close of business for 
each day for the calendar quarter or an average of the balances as of 
the close of business on each Wednesday during the calendar quarter, 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.
    (3) Total consolidated assets of a state member bank is equal to 
the total consolidated assets as reported by a state member bank on its 
Consolidated Report of Condition and Income (Call Report).
    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 total nonbank assets of any U.S. intermediate 
holding company, if any, as reported on the FR Y-9LP; plus
    (ii) The assets of the foreign banking organization's nonbank U.S. 
subsidiaries excluding the U.S. intermediate holding company, if any; 
plus
    (iii) 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; minus
    (iv) The assets of 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. bank holding company means a bank holding company that is:
    (1) Incorporated in or organized under the laws of the United 
States or any State; and
    (2) Not a consolidated subsidiary of a bank holding company that is 
incorporated in or organized under the laws of the United States or any 
State.
    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 a top-tier U.S. company 
that is required to be established pursuant to Sec.  252.147 or Sec.  
252.153.
    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) as reported on the FR Y-7Q. In 
calculating U.S. non-branch assets, a foreign banking organization must 
reduce its U.S. non-branch assets 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.
    U.S. subsidiary means any subsidiary that is incorporated in or 
organized under the laws of the United States or any State, 
commonwealth, territory, or possession of the United States, the 
Commonwealth of Puerto Rico, the Commonwealth of the North Mariana 
Islands, American Samoa, Guam, or the United States Virgin Islands.
    Weighted short-term wholesale funding is equal to the weighted 
short-term wholesale funding of a banking organization, as reported on 
the FR Y-15.

0
19. In Sec.  252.3, add paragraph (c) to read as follows:


Sec.  252.3  Reservation of authority.

* * * * *
    (c) Reservation of authority for certain foreign banking 
organizations. The Board may permit a foreign banking organization to 
comply with the requirements of this part through a subsidiary. In 
making this determination, the Board shall consider:
    (1) The ownership structure of the foreign banking organization, 
including

[[Page 59099]]

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
20. Section 252.5 is added 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 average total consolidated 
assets of $100 billion or more and average combined U.S. 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.
    (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) $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) 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; 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 or more 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
21. Revise the heading of subpart B to read as follows:

[[Page 59100]]

Subpart B--Company-Run Stress Test Requirements for State Member 
Banks With Total Consolidated Assets Over $250 Billion

0
22. Section 252.11 is revised to read as follows:


Sec.  252.11  Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1818, 1831p-1, 3906-3909, 5365.
    (b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires state member banks 
with total consolidated assets of greater than $250 billion to conduct 
stress tests. This subpart also establishes definitions of stress tests 
and related terms, methodologies for conducting stress tests, and 
reporting and disclosure requirements.

0
23. Section 252.12 is revised to read as follows:


Sec.  252.12  Definitions.

    For purposes of this subpart, the following definitions apply:
    Advanced approaches means the regulatory capital requirements at 12 
CFR 217, subpart E, as applicable, and any successor regulation.
    Asset threshold means average total consolidated assets of greater 
than $250 billion.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a state member bank, and that 
reflect the consensus views of the economic and financial outlook.
    Capital action has the same meaning as in 12 CFR 225.8(d)).
    Covered company subsidiary means a state member bank that is a 
subsidiary of a covered company as defined in subpart F of this part.
    Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Provision for credit losses means:
    (1) With respect to a state member bank that has adopted the 
current expected credit losses methodology under GAAP, the provision 
for credit losses, as would be reported by the state member bank on the 
Call Report in the current stress test cycle; and
    (2) With respect to a state member bank that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the state member bank 
on the Call Report in the current stress test cycle.
    Regulatory capital ratio means a capital ratio for which the Board 
has established minimum requirements for the state member bank by 
regulation or order, including, as applicable, the state member bank's 
regulatory capital ratios calculated under 12 CFR part 217 and the 
deductions required under 12 CFR 248.12; except that the state member 
bank shall not use the advanced approaches to calculate its regulatory 
capital ratios.
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a state member bank that the Board 
determines are appropriate for use in the company-run stress tests, 
including, but not limited to baseline and severely adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a state member bank and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
    Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a state 
member bank over the planning horizon, taking into account the current 
condition, risks, exposures, strategies, and activities.
    Stress test cycle means the period beginning on January 1 of a 
calendar year and ending on December 31 of that year.
    Subsidiary has the same meaning as in 12 CFR 225.2(o).

0
24. Section 252.13 is revised to read as follows:


Sec.  252.13  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this section, this subpart applies to any state member bank with 
average total consolidated assets of greater than $250 billion.
    (2) Ongoing applicability. A state member bank (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 $250 billion for each of four 
consecutive quarters, effective on the as-of date of the fourth 
consecutive Call Report.
    (b) Transition period. (1) A state member bank that exceeds the 
asset threshold for the first time on or before September 30 of a 
calendar year must comply with the requirements of this subpart 
beginning on January 1 of the second calendar year after the state 
member bank becomes subject to this subpart, unless that time is 
extended by the Board in writing.
    (2) A state member bank that exceeds the asset threshold for the 
first time after September 30 of a calendar year must comply with the 
requirements of this subpart beginning on January 1 of the third year 
after the state member bank becomes subject to this subpart, unless 
that time is extended by the Board in writing.

0
25. Section 252.14 is revised to read as follows:


Sec.  252.14  Stress test.

    (a) In general. (1) A state member bank must conduct a stress test 
as required under this subpart.
    (2) Frequency--(i) General. Except as provided in paragraph 
(a)(2)(ii) of this section, a state member bank must conduct a stress 
test according to the frequency in table 1 to Sec.  252.14(a)(2)(i).

                    Table 1 to Sec.   252.14(a)(2)(i)
------------------------------------------------------------------------
                                           Then the stress test must be
     If the state member bank is a                  conducted
------------------------------------------------------------------------
Subsidiary of a global systemically      Annually, by April 5 of each
 important BHC.                           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.
Subsidiary of a Category II bank         Annually, by April 5 of each
 holding company.                         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.
Subsidiary of a Category II U.S.         Annually, by April 5 of each
 intermediate holding company.            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.

[[Page 59101]]

 
Not a subsidiary of a:.................  Biennially, by April 5 of each
(A) Global systemically important BHC;.   calendar year ending in an
(B) Category II bank holding company;     even number, based on data as
 or.                                      of December 31 of the
(C) Category II U.S. intermediate         preceding calendar year,
 holding company..                        unless the time or the as-of
                                          date is extended by the Board
                                          in writing.
------------------------------------------------------------------------

    (ii) Change in frequency. The Board may require a state member bank 
to conduct a stress test on a more or less frequent basis than would be 
required under paragraph (a)(2)(i) of this section based on the 
company's financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy.
    (3) Notice and response--(i) Notification of change in frequency. 
If the Board requires a state member bank to change the frequency of 
the stress test under paragraph (a)(2)(ii) of this section, the Board 
will notify the state member bank in writing and provide a discussion 
of the basis for its determination.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under paragraph (a)(3)(i) of 
this section, a state member bank may request in writing that the Board 
reconsider the requirement to conduct a stress test on a more or less 
frequent basis than would be required under paragraph (a)(2)(i) of this 
section. A state member bank's request for reconsideration must include 
an explanation as to why the request for reconsideration should be 
granted. The Board will respond in writing within 14 calendar days of 
receipt of the company's request.
    (b) Scenarios provided by the Board--(1) In general. In conducting 
a stress test under this section, a state member bank must, at a 
minimum, use the scenarios provided by the Board. Except as provided in 
paragraphs (b)(2) and (3) of this section, the Board will provide a 
description of the scenarios no later than February 15 of each calendar 
year.
    (2) Additional components. (i) The Board may require a state member 
bank with significant trading activity, as determined by the Board and 
specified in the Capital Assessments and Stress Testing report (FR Y-
14), to include a trading and counterparty component in its severely 
adverse scenario in the stress test required by this section. The Board 
may also require a state member bank that is subject to 12 CFR part 
217, subpart F or that is a subsidiary of a bank holding company that 
is subject to section Sec.  252.54(b)(2)(i) to include a trading and 
counterparty component in the state member bank's severely adverse 
scenario in the stress test required by this section. The data used in 
this component must be as of a date between October 1 of the previous 
calendar year and March 1 of the calendar year in which the stress test 
is performed, and the Board will communicate the as-of date and a 
description of the component to the company no later than March 1 of 
that calendar year.
    (ii) The Board may require a state member bank to include one or 
more additional components in its severely adverse scenario in the 
stress test required by this section based on the state member bank's 
financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy.
    (3) Additional scenarios. The Board may require a state member bank 
to include one or more additional scenarios in the stress test required 
by this section based on the state member bank's financial condition, 
size, complexity, risk profile, scope of operations, or activities, or 
risks to the U.S. economy.
    (4) Notice and response--(i) Notification of additional component 
or scenario. If the Board requires a state member bank to include one 
or more additional components in its severely adverse scenario under 
paragraph (b)(2) of this section or to use one or more additional 
scenarios under paragraph (b)(3) of this section, the Board will notify 
the company in writing by December 31 and include a discussion of the 
basis for its determination.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under paragraph (b)(4)(i) of 
this section, the state member bank may request in writing that the 
Board reconsider the requirement that the company include the 
additional component(s) or additional scenario(s), including an 
explanation as to why the request for reconsideration should be 
granted. The Board will respond in writing within 14 calendar days of 
receipt of the company's request.
    (iii) Description of component. The Board will provide the state 
member bank with a description of any additional component(s) or 
additional scenario(s) by March 1.

0
26. In Sec.  252.15, paragraphs (a) introductory text and (b) are 
revised and paragraph (c) is removed.
    The revisions read as follows:


Sec.  252.15   Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
Sec.  252.14, for each quarter of the planning horizon, a state member 
bank must estimate the following for each scenario required to be used:
* * * * *
    (b) Controls and oversight of stress testing processes--(1) In 
general. The senior management of a state member bank 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 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.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a state member bank must review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the company may 
warrant, but no less than each year that a stress test is conducted. 
The board of directors and senior management of the state member bank 
must receive a summary of the results of the stress test conducted 
under this section.
    (3) Role of stress testing results. The board of directors and 
senior management of a state member bank must consider the results of 
the stress test in the normal course of business, including but not 
limited to, the state member bank's capital planning, assessment of 
capital adequacy, and risk management practices.

0
27. In Sec.  252.16, paragraphs (a) and (b) are revised to read as 
follows:

[[Page 59102]]

Sec.  252.16   Reports of stress test results.

    (a) Reports to the Board of stress test results--(1) General. A 
state member bank must report the results of the stress test to the 
Board in the manner and form prescribed by the Board, in accordance 
with paragraphs (a)(2) of this section.
    (2) Timing. For each stress test cycle in which a stress test is 
conducted:
    (i) A state member bank that is a covered company subsidiary must 
report the results of the stress test to the Board by April 5, unless 
that time is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
must report the results of the stress test to the Board by July 31, 
unless that time is extended by the Board in writing.
    (b) Contents of reports. The report required under paragraph (a) of 
this section must include the following information for the baseline 
scenario, severely adverse scenario, and any other scenario required 
under Sec.  252.14(b)(3):
* * * * *

0
28. In Sec.  252.17, paragraphs (a) and (b) are revised to read as 
follows:


Sec.  252.17   Disclosure of stress test results.

    (a) Public disclosure of results--(1) General. A state member bank 
must publicly disclose a summary of the results of the stress test 
required under this subpart.
    (2) Timing. For each stress test cycle in which a stress test is 
conducted:
    (i) A state member bank that is a covered company subsidiary must 
publicly disclose a summary of the results of the stress test within 15 
calendar days after the Board discloses the results of its supervisory 
stress test of the covered company pursuant to Sec.  252.46(b), unless 
that time is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
must publicly disclose a summary of the results of the stress test in 
the period beginning on October 15 and ending on October 31, unless 
that time is extended by the Board in writing.
    (3) Disclosure method. The summary required under this section may 
be disclosed on the website of a state member bank, or in any other 
forum that is reasonably accessible to the public.
    (b) Summary of results--(1) State member banks that are 
subsidiaries of bank holding companies. A state member bank that is a 
subsidiary of a bank holding company satisfies the public disclosure 
requirements under this subpart if the bank holding company publicly 
discloses summary results of its stress test pursuant to this section 
or Sec.  252.58, unless the Board determines that the disclosures at 
the holding company level do not adequately capture the potential 
impact of the scenarios on the capital of the state member bank and 
requires the state member bank to make public disclosures.
    (2) State member banks that are not subsidiaries of bank holding 
companies. A state member bank that is not a subsidiary of a bank 
holding company or that is required to make disclosures under paragraph 
(b)(1) of this section must publicly disclose, at a minimum, the 
following information regarding the severely adverse scenario:
    (i) A description of the types of risks being included in the 
stress test;
    (ii) A summary description of the methodologies used in the stress 
test;
    (iii) Estimates of--
    (A) Aggregate losses;
    (B) Pre-provision net revenue
    (C) Provision for credit losses;
    (D) Net income; and
    (E) Pro forma regulatory capital ratios and any other capital 
ratios specified by the Board; and
    (iv) An explanation of the most significant causes for the changes 
in regulatory capital ratios.
* * * * *

0
29. The heading of subpart C is revised to read as follows:

Subpart C--Risk Committee Requirement for Bank Holding Companies 
With Total Consolidated Assets of $50 Billion or More and Less Than 
$100 Billion

0
30. Section 252.21 is revised to read as follows:


Sec.  252.21   Applicability.

    (a) General applicability. A bank holding company 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 
average total consolidated assets equal or exceed $50 billion.
    (b) Cessation of requirements. A bank holding company will remain 
subject to the requirements of this subpart until the earlier of the 
date on which:
    (1) Its total consolidated assets are below $50 billion for each of 
four consecutive calendar quarters; and
    (2) It becomes subject to the requirements of subpart D of this 
part.

0
31. Section 252.22 is revised to read as follows:


Sec.  252.22   Risk committee requirement for bank holding companies 
with total consolidated assets of $50 billion or more.

    (a) Risk committee--(1) General. A bank holding company subject to 
this subpart must maintain a risk committee that approves and 
periodically reviews the risk-management policies of the bank holding 
company's global operations and oversees the operation of the bank 
holding company's global risk-management framework.
    (2) Risk-management framework. The bank holding company's global 
risk-management framework must be commensurate with its structure, risk 
profile, complexity, activities, and size, and must include:
    (i) Policies and procedures establishing risk-management 
governance, risk-management procedures, and risk-control infrastructure 
for its global operations; and
    (ii) Processes and systems for implementing and monitoring 
compliance with such policies and procedures, including:
    (A) Processes and systems for identifying and reporting risks and 
risk-management deficiencies, including regarding emerging risks, and 
ensuring effective and timely implementation of actions to address 
emerging risks and risk-management deficiencies for its global 
operations;
    (B) Processes and systems for establishing managerial and employee 
responsibility for risk management;
    (C) Processes and systems for ensuring the independence of the 
risk-management function; and
    (D) Processes and systems to integrate risk management and 
associated controls with management goals and its compensation 
structure for its global operations.
    (3) Corporate governance requirements. The risk committee must:
    (i) Have a formal, written charter that is approved by the bank 
holding company's board of directors;
    (ii) Be an independent committee of the board of directors that 
has, as its sole and exclusive function, responsibility for the risk-
management policies of the bank holding company's global operations and 
oversight of the operation of the bank holding company's global risk-
management framework;
    (iii) Report directly to the bank holding company's board of 
directors;
    (iv) Receive and review regular reports on a not less than a 
quarterly basis from the bank holding company's chief risk officer 
provided pursuant to paragraph (b)(3)(ii) of this section; and
    (v) Meet at least quarterly, or more frequently as needed, and 
fully document and maintain records of its proceedings, including risk-
management decisions.

[[Page 59103]]

    (4) Minimum member requirements. The risk committee must:
    (i) Include at least one member having experience in identifying, 
assessing, and managing risk exposures of large, complex financial 
firms; and
    (ii) Be chaired by a director who:
    (A) Is not an officer or employee of the bank holding company and 
has not been an officer or employee of the bank holding company during 
the previous three years;
    (B) Is not a member of the immediate family, as defined in 12 CFR 
225.41(b)(3), of a person who is, or has been within the last three 
years, an executive officer of the bank holding company, as defined in 
12 CFR 215.2(e)(1); and
    (C)(1) Is an independent director under Item 407 of the Securities 
and Exchange Commission's Regulation S-K (17 CFR 229.407(a)), if the 
bank holding company has an outstanding class of securities traded on 
an 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) (national securities exchange); or
    (2) Would qualify as an independent director under the listing 
standards of a national securities exchange, as demonstrated to the 
satisfaction of the Board, if the bank holding company does not have an 
outstanding class of securities traded on a national securities 
exchange.
    (b) Chief risk officer--(1) General. A bank holding company subject 
to this subpart must appoint a chief risk officer with experience in 
identifying, assessing, and managing risk exposures of large, complex 
financial firms.
    (2) Responsibilities. (i) The chief risk officer is responsible for 
overseeing:
    (A) The establishment of risk limits on an enterprise-wide basis 
and the monitoring of compliance with such limits;
    (B) The implementation of and ongoing compliance with the policies 
and procedures set forth in paragraph (a)(2)(i) of this section and the 
development and implementation of the processes and systems set forth 
in paragraph (a)(2)(ii) of this section; and
    (C) The management of risks and risk controls within the parameters 
of the company's risk-control framework, and monitoring and testing of 
the company's risk controls.
    (ii) The chief risk officer is responsible for reporting risk-
management deficiencies and emerging risks to the risk committee and 
resolving risk-management deficiencies in a timely manner.
    (3) Corporate governance requirements. (i) The bank holding company 
must ensure that the compensation and other incentives provided to the 
chief risk officer are consistent with providing an objective 
assessment of the risks taken by the bank holding company; and
    (ii) The chief risk officer must report directly to both the risk 
committee and chief executive officer of the company.

0
32. 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
33. Section 252.30 is revised to read as follows:


Sec.  252.30   Scope.

    This subpart applies to bank holding companies with average total 
consolidated assets of $100 billion or more.

0
34. Section 252.31 is revised to read as follows:


Sec.  252.31   Applicability.

    (a) Applicability--(1) Initial applicability. Subject to paragraph 
(c) of this section, a bank holding company must comply with the risk-
management and risk-committee requirements set forth in Sec.  252.33 
and the liquidity risk-management and liquidity stress test 
requirements set forth in Sec. Sec.  252.34 and 252.35 no later than 
the first day of the fifth quarter following the date on which its 
average total consolidated assets equal or exceed $100 billion.
    (2) Changes in requirements following a change in category. A bank 
holding company with average total consolidated assets of $100 billion 
or more that changes from one category of banking organization 
described in Sec.  252.5(b) through (e) to another of such categories 
must comply with the requirements applicable to the new category no 
later than on the first day of the second quarter following the change 
in the bank holding company's category.
    (b) Cessation of requirements. Except as provided in paragraph (c) 
of this section, a bank holding company is subject to the risk-
management and risk committee requirements set forth in Sec.  252.33 
and the liquidity risk-management and liquidity stress test 
requirements set forth in Sec. Sec.  252.34 and 252.35 until its total 
consolidated assets are below $100 billion for each of four consecutive 
calendar quarters.
    (c) Applicability for bank holding companies that are subsidiaries 
of foreign banking organizations. If a bank holding company that has 
average total consolidated assets of $100 billion or more is controlled 
by a foreign banking organization, the U.S. intermediate holding 
company established or designated by the foreign banking organization 
must comply with the risk-management and risk committee requirements 
set forth in Sec.  252.153(e)(3) and the liquidity risk-management and 
liquidity stress test requirements set forth in Sec.  252.153(e)(4).

0
 35. Section 252.32 is revised to read as follows:


Sec.  252.32   Risk-based and leverage capital and stress test 
requirements.

    A bank holding company subject to this subpart must comply with, 
and hold capital commensurate with the requirements of, any regulations 
adopted by the Board relating to capital planning and stress tests, in 
accordance with the applicability provisions set forth therein.

0
36. In Sec.  252.33, paragraphs (a)(1) and (b)(1) are revised to read 
as follows:


Sec.  252.33   Risk-management and risk committee requirements.

    (a) Risk committee--(1) General. A bank holding company subject to 
this subpart must maintain a risk committee that approves and 
periodically reviews the risk-management policies of the bank holding 
company's global operations and oversees the operation of the bank 
holding company's global risk-management framework. The risk 
committee's responsibilities include liquidity risk-management as set 
forth in Sec.  252.34(b).
* * * * *
    (b) Chief risk officer--(1) General. A bank holding company subject 
to this subpart must appoint a chief risk officer with experience in 
identifying, assessing, and managing risk exposures of large, complex 
financial firms.
* * * * *

0
37. In Sec.  252.34, paragraphs (a)(1) introductory text, (c)(1)(i), 
(d), (e)(1), (f)(1), (f)(2)(i), (g), and (h) are revised to read as 
follows:


Sec.  252.34   Liquidity risk-management requirements.

    (a) * * *
    (1) Liquidity risk tolerance. The board of directors of a bank 
holding company that is subject to this subpart must:
* * * * *
    (c) * * *
    (1) * * *
    (i) Senior management of a bank holding company subject to this 
subpart must establish and implement

[[Page 59104]]

strategies, policies, and procedures designed to effectively manage the 
risk that the bank holding company's financial condition or safety and 
soundness would be adversely affected by its inability or the market's 
perception of its inability to meet its cash and collateral obligations 
(liquidity risk). The board of directors must approve the strategies, 
policies, and procedures pursuant to paragraph (a)(2) of this section.
* * * * *
    (d) Independent review function. (1) A bank holding company subject 
to this subpart must establish and maintain a review function that is 
independent of management functions that execute funding to evaluate 
its liquidity risk management.
    (2) The independent review function must:
    (i) Regularly, but no less frequently than annually, review and 
evaluate the adequacy and effectiveness of the company's liquidity 
risk-management processes, including its liquidity stress test 
processes and assumptions;
    (ii) Assess whether the company's liquidity risk-management 
function complies with applicable laws and regulations, and sound 
business practices; and
    (iii) Report material liquidity risk-management issues to the board 
of directors or the risk committee in writing for corrective action, to 
the extent permitted by applicable law.
    (e) * * *
    (1) A bank holding company subject to this subpart must produce 
comprehensive cash-flow projections that project cash flows arising 
from assets, liabilities, and off-balance sheet exposures over, at a 
minimum, short- and long-term time horizons. The bank holding company 
must update short-term cash-flow projections daily and must update 
longer-term cash-flow projections at least monthly.
* * * * *
    (f) * * *
    (1) General. A bank holding company subject to this subpart must 
establish and maintain a contingency funding plan that sets out the 
company's strategies for addressing liquidity needs during liquidity 
stress events. The contingency funding plan must be commensurate with 
the company's capital structure, risk profile, complexity, activities, 
size, and established liquidity risk tolerance. The company must update 
the contingency funding plan at least annually, and when changes to 
market and idiosyncratic conditions warrant.
    (2) * * *
    (i) Quantitative assessment. The contingency funding plan must:
    (A) Identify liquidity stress events that could have a significant 
impact on the bank holding company's liquidity;
    (B) Assess the level and nature of the impact on the bank holding 
company's liquidity that may occur during identified liquidity stress 
events;
    (C) Identify the circumstances in which the bank holding company 
would implement its action plan described in paragraph (f)(2)(ii)(A) of 
this section, which circumstances must include failure to meet any 
minimum liquidity requirement imposed by the Board;
    (D) Assess available funding sources and needs during the 
identified liquidity stress events;
    (E) Identify alternative funding sources that may be used during 
the identified liquidity stress events; and
    (F) Incorporate information generated by the liquidity stress 
testing required under Sec.  252.35(a).
* * * * *
    (g) Liquidity risk limits--(1) General. A bank holding company must 
monitor sources of liquidity risk and establish limits on liquidity 
risk that are consistent with the company's established liquidity risk 
tolerance and that reflect the company's capital structure, risk 
profile, complexity, activities, and size.
    (2) Liquidity risk limits established by a global systemically 
important BHC, Category II bank holding company, or Category III bank 
holding company. If the bank holding company is a global systemically 
important BHC, Category II bank holding company, or Category III bank 
holding company, liquidity risk limits established under paragraph 
(g)(1) of this section must include limits on:
    (i) Concentrations in sources of funding by instrument type, single 
counterparty, counterparty type, secured and unsecured funding, and as 
applicable, other forms of liquidity risk;
    (ii) The amount of liabilities that mature within various time 
horizons; and
    (iii) Off-balance sheet exposures and other exposures that could 
create funding needs during liquidity stress events.
    (h) Collateral, legal entity, and intraday liquidity risk 
monitoring. A bank holding company subject to this subpart must 
establish and maintain procedures for monitoring liquidity risk as set 
forth in this paragraph.
    (1) Collateral. The bank holding company 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 it or its affiliates are counterparties. These 
policies and procedures must provide that the bank holding company:
    (i) Calculates all of its collateral positions according to the 
frequency specified in paragraph (h)(1)(i)(A) or (B) of this section, 
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 bank holding company is not a Category IV bank holding 
company, on at least a weekly basis; or
    (B) If the bank holding company is a Category IV bank holding 
company, on at least a monthly basis;
    (ii) Monitors the levels of unencumbered assets available to be 
pledged by legal entity, jurisdiction, and currency exposure;
    (iii) Monitors shifts in the bank holding company's funding 
patterns, such as shifts between intraday, overnight, and term pledging 
of collateral; and
    (iv) Tracks operational and timing requirements associated with 
accessing collateral at its physical location (for example, the 
custodian or securities settlement system that holds the collateral).
    (2) Legal entities, currencies, and business lines. The bank 
holding company must establish and maintain procedures for monitoring 
and controlling liquidity risk exposures and funding needs within and 
across significant legal entities, currencies, and business lines, 
taking into account legal and regulatory restrictions on the transfer 
of liquidity between legal entities.
    (3) Intraday exposures. The bank holding company must establish and 
maintain procedures for monitoring intraday liquidity risk exposures 
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 BHC, 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:
    (i) Monitor and measure expected daily gross liquidity inflows and 
outflows;
    (ii) Manage and transfer collateral to obtain intraday credit;
    (iii) 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;

[[Page 59105]]

    (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 bank holding company's 
overall liquidity needs.

0
38. In Sec.  252.35:
0
a. Paragraphs (a)(1) introductory text, (a)(2), and (a)(7)(i) and (ii) 
are revised;
0
b. Paragraph (a)(8) is added; and
0
c. Paragraphs (b)(1) and (3) are revised.
    The revisions and addition read as follows:


Sec.  252.35   Liquidity stress testing and buffer requirements.

    (a) * * *
    (1) General. A bank holding company subject to this subpart must 
conduct stress tests to assess the potential impact of the liquidity 
stress scenarios set forth in paragraph (a)(3) of this section on its 
cash flows, liquidity position, profitability, and solvency, taking 
into account its current liquidity condition, risks, exposures, 
strategies, and activities.
* * * * *
    (2) Frequency. The bank holding company must perform the liquidity 
stress tests required under paragraph (a)(1) of this section according 
to the frequency specified in paragraph (a)(2)(i) or (ii), or as 
directed by the Board:
    (i) If the bank holding company is not a Category IV bank holding 
company, at least monthly; or
    (ii) If the bank holding company is a Category IV bank holding 
company, at least quarterly.
* * * * *
    (7) * * *
    (i) Policies and procedures. A bank holding company subject to this 
subpart 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. A bank holding company subject to this 
subpart 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 bank holding 
company's capital structure, risk profile, complexity, activities, 
size, business lines, legal entity or jurisdiction, and other relevant 
factors. The assumptions must be approved by the chief risk officer and 
be subject to the independent review under Sec.  252.34(d) of this 
subpart.
* * * * *
    (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.
    (b) Liquidity buffer requirement. (1) A bank holding company 
subject to this subpart must maintain a liquidity buffer that is 
sufficient to meet the projected net stressed cash-flow need over the 
30-day planning horizon of a liquidity stress test conducted in 
accordance with paragraph (a) of this section under each scenario set 
forth in paragraph (a)(3)(i) through (iii) of this section.
* * * * *
    (3) Asset requirements. The liquidity buffer must consist of highly 
liquid assets that are unencumbered, as defined in paragraph (b)(3)(ii) 
of this section:
    (i) Highly liquid asset. A highly liquid asset includes:
    (A) Cash;
    (B) Assets that meet the criteria for high quality liquid assets as 
defined in 12 CFR 249.20; or
    (C) Any other asset that the bank holding company demonstrates to 
the satisfaction of the Board:
    (1) Has low credit risk and low market risk;
    (2) Is traded in an active secondary two-way market that has 
committed market makers and independent bona fide offers to buy and 
sell so that a price reasonably related to the last sales price or 
current bona fide competitive bid and offer quotations can be 
determined within one day and settled at that price within a reasonable 
time period conforming with trade custom; and
    (3) Is a type of asset that investors historically have purchased 
in periods of financial market distress during which market liquidity 
has been impaired.
    (ii) Unencumbered. An asset is unencumbered if it:
    (A) Is free of legal, regulatory, contractual, or other 
restrictions on the ability of such company promptly to liquidate, sell 
or transfer the asset; and
    (B) Is either:
    (1) Not pledged or used to secure or provide credit enhancement to 
any transaction; or
    (2) Pledged to a central bank or a U.S. government-sponsored 
enterprise, to the extent potential credit secured by the asset is not 
currently extended by such central bank or U.S. government-sponsored 
enterprise or any of its consolidated subsidiaries.
    (iii) Calculating the amount of a highly liquid asset. In 
calculating the amount of a highly liquid asset included in the 
liquidity buffer, the bank holding company must discount the fair 
market value of the asset to reflect any credit risk and market price 
volatility of the asset.
    (iv) Operational requirements. With respect to the liquidity 
buffer, the bank holding company must:
    (A) Establish and implement policies and procedures that require 
highly liquid assets comprising the liquidity buffer to be under the 
control of the management function in the bank holding company that is 
charged with managing liquidity risk; and
    (B) Demonstrate the capability to monetize a highly liquid asset 
under each scenario required under Sec.  252.35(a)(3).
    (v) Diversification. The liquidity buffer must not contain 
significant concentrations of highly liquid assets by issuer, business 
sector, region, or other factor related to the bank holding company's 
risk, except with respect to cash and securities issued or guaranteed 
by the United States, a U.S. government agency, or a U.S. government-
sponsored enterprise.

0
39. The heading of subpart E is revised to read as follows:

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
40. Section 252.41 is revised to read as follows


Sec.  252.41   Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1818, 1831p-1, 1844(b), 1844(c), 
5361,

[[Page 59106]]

5365, 5366, sec. 401(e), Pub. L. 115-174, 132 Stat. 1296.
    (b) Purpose. This subpart implements section 165 of the Dodd-Frank 
Act (12 U.S.C. 5365) and section 401(e) of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act, which requires the 
Board to conduct annual analyses of nonbank financial companies 
supervised by the Board and bank holding companies with $100 billion or 
more in total consolidated assets to evaluate whether such companies 
have the capital, on a total consolidated basis, necessary to absorb 
losses as a result of adverse economic conditions.

0
41. Section 252.42 is revised to read as follows:


Sec.  252.42   Definitions

    For purposes of this subpart E, the following definitions apply:
    Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable, and any 
successor regulation.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that 
reflect the consensus views of the economic and financial outlook.
    Covered company means:
    (1) A U.S. bank holding company with average total consolidated 
assets of $100 billion or more;
    (2) A U.S. intermediate holding company subject to this section 
pursuant to Sec.  252.153; and
    (3) A nonbank financial company supervised by the Board.
    Foreign banking organization has the same meaning as in 12 CFR 
211.21(o).
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    Provision for credit losses means:
    (1) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the covered company on the FR Y-9C in 
the current stress test cycle; and,
    (2) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the covered company 
on the FR Y-9C in the current stress test cycle.
    Regulatory capital ratio means a capital ratio for which the Board 
has established minimum requirements for the company by regulation or 
order, including, as applicable, the company's regulatory capital 
ratios calculated under 12 CFR part 217 and the deductions required 
under 12 CFR 248.12; except that the company shall not use the advanced 
approaches to calculate its regulatory capital ratios.
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a covered company that the Board 
determines are appropriate for use in the supervisory stress tests, 
including, but not limited to, baseline and severely adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered company and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
    Stress test cycle means the period beginning on January 1 of a 
calendar year and ending on December 31 of that year.
    Subsidiary has the same meaning as in 12 CFR 225.2.

0
42. In Sec.  252.43, paragraph (a) is revised to read as follows:


Sec.  252.43  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this section, this subpart applies to any covered company, which 
includes:
    (i) Any U.S. bank holding company with average total consolidated 
assets of $100 billion or more;
    (ii) Any U.S. intermediate holding company subject to this section 
pursuant to Sec.  252.153; and
    (iii) 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. 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.
* * * * *

0
43. In Sec.  252.44, the section heading and paragraphs (a)(1) and (b) 
are revised and paragraph (c) is added to read as follows:


Sec.  252.44   Analysis conducted by the Board.

    (a) In general. (1) The Board will conduct an analysis of each 
covered company's capital, on a total consolidated basis, taking into 
account all relevant exposures and activities of that covered company, 
to evaluate the ability of the covered company to absorb losses in 
specified economic and financial conditions.
* * * * *
    (b) Economic and financial scenarios related to the Board's 
analysis. The Board will conduct its analysis using a minimum of two 
different scenarios, including a baseline scenario and a severely 
adverse scenario. The Board will notify covered companies of the 
scenarios that the Board will apply to conduct the analysis for each 
stress test cycle to which the covered company is subject by no later 
than February 15 of that year, except with respect to trading or any 
other components of the scenarios and any additional scenarios that the 
Board will apply to conduct the analysis, which will be communicated by 
no later than March 1 of that year.
    (c) Frequency of analysis conducted by the Board--(1) General. 
Except as provided in paragraph (c)(2) of this section, the Board will 
conduct its analysis of a covered company according to the frequency in 
Table 1 to Sec.  252.44(c)(1).

                     Table 1 to Sec.   252.44(c)(1)
------------------------------------------------------------------------
                                         Then the Board will conduct its
      If the covered company is a                    analysis
------------------------------------------------------------------------
Global systemically important BHC......  Annually.
Category II bank holding company.......  Annually.
Category II U.S. intermediate holding    Annually.
 company.
Category III bank holding company......  Annually.
Category III U.S. intermediate holding   Annually.
 company.
Category IV bank holding company.......  Biennially, occurring in each
                                          year ending in an even number.
Category IV U.S. intermediate holding    Biennially, occurring in each
 company.                                 year ending in an even number.

[[Page 59107]]

 
Nonbank financial company supervised by  Annually.
 the Board.
------------------------------------------------------------------------

    (2) Change in frequency. The Board may conduct a stress test of a 
covered company on a more or less frequent basis than would be required 
under paragraph (c)(1) of this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
    (3) Notice and response--(i) Notification of change in frequency. 
If the Board determines to change the frequency of the stress test 
under paragraph (c)(2) of this section, the Board will notify the 
company in writing and provide a discussion of the basis for its 
determination.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under paragraph (c)(3)(i) of 
this section, a covered company may request in writing that the Board 
reconsider the requirement to conduct a stress test on a more or less 
frequent basis than would be required under paragraph (c)(1) of this 
section. A covered company's request for reconsideration must include 
an explanation as to why the request for reconsideration should be 
granted. The Board will respond in writing within 14 calendar days of 
receipt of the company's request.

0
44. The heading of subpart F is revised to read as follows:

Subpart F--Company-Run Stress Test Requirements for Certain U.S. 
Bank Holding Companies and Nonbank Financial Companies Supervised 
by the Board

0
 45. Section 252.51 is revised to read as follows:


Sec.  252.51   Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1818, 1831p-1, 1844(b), 1844(c), 
5361, 5365, 5366.
    (b) Purpose. This subpart establishes the requirement for a covered 
company to conduct stress tests. This subpart also establishes 
definitions of stress test and related terms, methodologies for 
conducting stress tests, and reporting and disclosure requirements.

0
46. Section 252.52 is revised as follows:


Sec.  252.52   Definitions.

    For purposes of this subpart, the following definitions apply:
    Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable, and any 
successor regulation.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that 
reflect the consensus views of the economic and financial outlook.
    Capital action has the same meaning as in 12 CFR 225.8(d).
    Covered company means:
    (1) A global systemically important BHC;
    (2) A Category II bank holding company;
    (3) A Category III bank holding company;
    (4) A Category II U.S. intermediate holding company subject to this 
section pursuant to Sec.  252.153;
    (5) A Category III U.S. intermediate holding company subject to 
this section pursuant to Sec.  252.153; and
    (6) A nonbank financial company supervised by the Board that is 
made subject to this section pursuant to a rule or order of the Board.
    Foreign banking organization has the same meaning as in 12 CFR 
211.21(o).
    Planning horizon means the period of at least nine consecutive 
quarters, beginning on the first day of a stress test cycle over which 
the relevant projections extend.
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Provision for credit losses means:
    (1) With respect to a covered company that has adopted the current 
expected credit losses methodology under GAAP, the provision for credit 
losses, as would be reported by the covered company on the FR Y-9C in 
the current stress test cycle; and
    (2) With respect to a covered company that has not adopted the 
current expected credit losses methodology under GAAP, the provision 
for loan and lease losses as would be reported by the covered company 
on the FR Y-9C in the current stress test cycle.
    Regulatory capital ratio means a capital ratio for which the Board 
has established minimum requirements for the company by regulation or 
order, including, as applicable, the company's regulatory capital 
ratios calculated under 12 CFR part 217 and the deductions required 
under 12 CFR 248.12; except that the company shall not use the advanced 
approaches to calculate its regulatory capital ratios.
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a covered company that the Board 
determines are appropriate for use in the company-run stress tests, 
including, but not limited to, baseline and severely adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered company and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
    Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a 
covered company over the planning horizon, taking into account its 
current condition, risks, exposures, strategies, and activities.
    Stress test cycle means the period beginning on January 1 of a 
calendar year and ending on December 31 of that year.
    Subsidiary has the same meaning as in 12 CFR 225.2.

0
47. Section 252.53 is revised 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) Any 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

[[Page 59108]]

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.
    (b) Transitional arrangements. (1) A company that becomes a covered 
company on or before September 30 of a calendar year must comply with 
the requirements of this subpart beginning on January 1 of the second 
calendar year after the company becomes a covered company, unless that 
time is extended by the Board in writing.
    (2) A company that becomes a covered company after September 30 of 
a calendar year must comply with the requirements of this subpart 
beginning on January 1 of the third calendar year after the company 
becomes a covered company, unless that time is extended by the Board in 
writing.

0
48. In Sec.  252.54 the section heading, paragraphs (a), (b)(2)(i), and 
(b)(4)(ii) and (iii) are revised 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) General. Except as provided in paragraph 
(a)(2)(ii) of this section, a covered company must conduct a stress 
test according to the frequency in Table 1 to Sec.  252.54(a)(2)(i).

                    Table 1 to Sec.   252.54(a)(2)(i)
------------------------------------------------------------------------
                                           Then the stress test must be
      If the covered company is a                   conducted
------------------------------------------------------------------------
Global systemically important BHC......  Annually, 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.
Category II bank holding company.......  Annually, 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.
Category II U.S. intermediate holding    Annually, by April 5 of each
 company.                                 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.
Category III bank holding company......  Biennially, 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.
Category III U.S. intermediate holding   Biennially, by April 5 of each
 company.                                 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.
Nonbank financial company supervised by  Periodically, as determined by
 the Board.                               rule or order.
------------------------------------------------------------------------

    (ii) Change in frequency. The Board may require a covered company 
to conduct a stress test on a more or less frequent basis than would be 
required under paragraph (a)(2)(i) of this section based on the 
company's financial condition, size, complexity, risk profile, scope of 
operations, or activities, or risks to the U.S. economy.
    (3) Notice and response--(i) Notification of change in frequency. 
If the Board requires a covered company to change the frequency of the 
stress test under paragraph (a)(2)(ii) of this section, the Board will 
notify the company in writing and provide a discussion of the basis for 
its determination.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under paragraph (a)(3)(i) of 
this section, a covered company may request in writing that the Board 
reconsider the requirement to conduct a stress test on a more or less 
frequent basis than would be required under paragraph (a)(2)(i) of this 
section. A covered company's request for reconsideration must include 
an explanation as to why the request for reconsideration should be 
granted. The Board will respond in writing within 14 calendar days of 
receipt of the company's request.
    (b) * * *
    (2) * * *
    (i) The Board may require a covered company with significant 
trading activity, as determined by the Board and specified in the 
Capital Assessments and Stress Testing report (FR Y-14), to include a 
trading and counterparty component in its severely adverse scenario in 
the stress test required by this section. The data used in this 
component must be as of a date selected by the Board between October 1 
of the previous calendar year and March 1 of the calendar year in which 
the stress test is performed pursuant to this section, and the Board 
will communicate the as-of date and a description of the component to 
the company no later than March 1 of the calendar year in which the 
stress test is performed pursuant to this section.
    (ii) The Board may require a covered company to include one or more 
additional components in its severely adverse scenario in the stress 
test required by this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
* * * * *
    (4) * * *
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph, the 
covered company may request in writing that the Board reconsider the 
requirement that the company include the additional component(s) or 
additional scenario(s), including an explanation as to why the request 
for reconsideration should be granted. The Board will respond in 
writing within 14 calendar days of receipt of the company's request.
    (iii) Description of component. The Board will provide the covered 
company with a description of any additional component(s) or additional 
scenario(s) by March 1 of the calendar year in which the stress test is 
performed pursuant to this section.


Sec.  252.55   [Removed and Reserved]

0
49. Section 252.55 is removed and reserved.

[[Page 59109]]


0
50. Section 252.56, paragraphs (a) introductory text, (b) introductory 
text, and (c)(1) and (2) are revised 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.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a covered company must review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the covered 
company may warrant, but no less than each year a stress test is 
conducted. The board of directors and senior management of the covered 
company must receive a summary of the results of any stress test 
conducted under this subpart.
* * * * *

0
51. In Sec.  252.57, paragraph (a) is revised 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 conducted pursuant to Sec.  252.54, unless that time is 
extended by the Board in writing.
* * * * *

0
52. In Sec.  252.58, paragraph (a)(1) is revised to read as follows:


Sec.  252.58   Disclosure of stress test results.

    (a) * * *
    (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 H--Single-Counterparty Credit Limits

0
53. In Sec.  252.70, paragraphs (a) and (d)(1) are revised to read as 
follows:


Sec.  252.70   Applicability and general provisions.

    (a) In general. (1) This subpart establishes single counterparty 
credit limits for a covered company.
    (2) For purposes of this subpart:
    (i) Covered company means:
    (A) A global systemically important BHC;
    (B) A Category II bank holding company; and
    (C) A Category III bank holding company;
    (ii) Major covered company means any covered company that is a 
global systemically important BHC.
* * * * *
    (d) * * *
    (1) Any company that becomes a covered company will remain subject 
to the requirements of this subpart unless and until:
    (i) The covered company is not a global systemically important BHC;
    (ii) The covered company is not a Category II bank holding company; 
and
    (iii) The covered company is not a Category III bank holding 
company.
* * * * *

Subpart L--[Removed and Reserved]

0
54. Subpart L, consisting of Sec. Sec.  252.120 through 252.122, is 
removed.

0
55. Revise the heading for subpart M to read as follows.

Subpart M--Risk Committee Requirement for Foreign Banking 
Organizations With Total Consolidated Assets of at Least $50 
Billion but Less Than $100 Billion

0
56. Section 252.131 is revised to read as follows:


Sec.  252.131   Applicability.

    (a) General applicability. A foreign banking organization with 
average 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 average total consolidated assets equal 
or exceed $50 billion.
    (b) 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 total consolidated assets 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
57. In Sec.  252.132, the section heading and paragraphs (a) 
introductory text and (d) are revised 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 subject to this subpart, 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.

0
58. The heading of subpart N is revised as follows:

[[Page 59110]]

Subpart N--Enhanced Prudential Standards for Foreign Banking 
Organizations With Total Consolidated Assets of $100 Billion or 
More and Combined U.S. Assets of Less Than $100 Billion

0
59. Section 252.140 is revised to read as follows:


Sec.  252.140   Scope.

    This subpart applies to foreign banking organizations with average 
total consolidated assets of $100 billion or more, but average combined 
U.S. assets of less than $100 billion.

0
60. Section 252.142 is revised to read as follows:


Sec.  252.142   Applicability.

    (a) General applicability. A foreign banking organization with 
average total consolidated assets of $100 billion or more and average 
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 
average 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 average U.S. non-
branch assets equal or exceed $50 billion.
    (b) Cessation of requirements--(1) Enhanced prudential standards 
applicable to the foreign banking organization. (i) A foreign banking 
organization will remain subject to the requirements set forth in 
Sec. Sec.  252.144 and 252.146 until its total consolidated assets are 
below $100 billion for each of four consecutive calendar quarters, or 
it becomes subject to the requirements of subpart O of this part.
    (ii) A foreign banking organization will remain subject to the 
requirements set forth in Sec. Sec.  252.143 and 252.145 until its 
total consolidated assets are below $250 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
61. In Sec.  252.143, the section heading and paragraphs (a)(1) 
introductory text, (b), and (c) are revised to read as follows:


Sec.  252.143   Risk-based and leverage capital requirements for 
foreign banking organizations with total consolidated assets of $250 
billion or more and combined U.S. assets of less than $100 billion.

    (a) * * *
    (1) A foreign banking organization subject to this subpart and with 
average total consolidated assets of $250 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 subject to this 
subpart and with average total consolidated assets of $250 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, 
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
62. Section 252.144 is revised 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. A foreign banking 
organization with average 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 $50 billion or more 
but less than $100 billion--(1) U.S. risk committee--(i) General. A 
foreign banking organization subject to this this subpart and with 
average combined U.S. assets of $50 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.
    (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

[[Page 59111]]

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 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 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 average combined U.S. assets of $50 billion or more 
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 paragraph (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
63. In Sec.  252.145, the section heading and paragraph (a) are revised 
to read as follows:

[[Page 59112]]

Sec.  252.145   Liquidity risk-management requirements for foreign 
banking organizations with total consolidated assets of $250 billion or 
more and combined U.S. assets of less than $100 billion.

    (a) A foreign banking organization subject to this subpart with 
average total consolidated assets of $250 billion or more 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 
consistent 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
64. In Sec.  252.146, the section heading and paragraphs (b)(1) 
introductory text, (b)(2)(i), and (c)(1)(ii) and (iii) are revised to 
read as follows:


Sec.  252.146   Capital stress testing requirements for foreign banking 
organizations with total consolidated assets of $100 billion or more 
and combined U.S. assets of less than $100 billion.

* * * * *
    (b) * * *
    (1) A foreign banking organization subject to this subpart 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 paragraph (b)(2)(i)(A) or (B) of this section:
    (A) If the foreign banking organization has average total 
consolidated assets of $250 billion or more, on at least an annual 
basis; or
    (B) If the foreign banking organization has average 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 paragraph (c)(1)(ii)(A) or (B) of this section:
    (A) If the foreign banking organization has average total 
consolidated assets of $250 billion or more, on at least an annual 
basis; or
    (B) If the foreign banking organization has average total 
consolidated assets of less than $250 billion, at least biennially; and
    (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
65. Section 252.147 is added 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 and 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 average 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 
average 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; or
    (C) That the U.S. intermediate holding company, if it were subject 
to 12 CFR 217.402, would be identified as a global systemically 
important BHC.

[[Page 59113]]

    (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; not transfer its ownership 
interests in certain subsidiaries to a U.S. intermediate holding 
company; or use an alternative organizational structure to hold its 
combined U.S. operations.
    (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 organization 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 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

[[Page 59114]]

    (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 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 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 be established or designated 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.

0
66. The heading of subpart O is revised to read as follows:

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
67. Section 252.150 is revised to read as follows:


Sec.  252.150   Scope.

    This subpart applies to foreign banking organizations with average 
total consolidated assets of $100 billion or more and average combined 
U.S. assets of $100 billion or more.

0
68. Section 252.152 is revised 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 average 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 average 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 average combined U.S. assets equal or exceed $100 
billion.
    (2) Changes in requirements following a change in category. A 
foreign banking 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) 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 
combined U.S. assets 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
69. In Sec.  252.153:
0
a.Revise the section heading and paragraph (a)(1);
0
b. Add a subject heading to paragraph (a)(2); and
0
c. Revise paragraphs (a)(3) and (c) through (e).
    The revisions and addition read as follows:


Sec.  252.153   U.S. intermediate holding company requirement for 
foreign banking organizations with combined U.S. assets of $100 billion 
or more and U.S. non-branch assets of $50 billion or more.

    (a) * * *
    (1) Formation. A foreign banking organization with average 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. * * *
    (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; not transfer its ownership 
interests in certain subsidiaries to a U.S. intermediate holding 
company; or use an alternative organizational structure to hold its 
combined U.S. operations.
    (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 other 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 will 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 organization that it 
is extending the period for action.
    (4) Conditions. (i) The Board may grant relief under this section 
upon such

[[Page 59115]]

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 Sec.  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 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 
applicable capital adequacy standards beginning on the date that it is 
required to be established or designated 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 paragraph (a)(1)(ii) of this section, 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 on the 
date prescribed in the transition provisions of 12 CFR 225.8.
    (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 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 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 be established or designated 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 be 
established or designated under this subpart.
    (5) Stress test requirements. (i)(A) A U.S. intermediate holding 
company 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;

[[Page 59116]]

    (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 the U.S. intermediate holding company becomes subject to 
regulatory capital requirements; or
    (2) The transition period provided under subpart E.
    (ii)(A) A Category II U.S. intermediate holding company or 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 Category II U.S. intermediate holding company or Category III 
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 the U.S. intermediate holding company becomes subject to 
regulatory capital requirements; or
    (2) The transition period provided under subpart F.

0
 70. In Sec.  252.154 the section heading and paragraphs (a)(1), (b), 
and (c) are revised 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 subject to this subpart more 
must certify to the Board that it meets capital adequacy standards on a 
consolidated basis that are established by its home-country supervisor 
and 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 subject to this 
subpart 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 
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
71. 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. A foreign banking organization subject to this subpart 
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 subject to this subpart 
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
72. In Sec.  252.156, the section heading and paragraphs (a)(1) 
introductory text, (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), and (g) are revised to read as follows:
    The revisions 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 subject to this subpart 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 subject to this subpart 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 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.

[[Page 59117]]

operations, and must establish procedures governing the content of such 
reports.
    (3) * * *
    (i) The U.S. chief risk officer of a foreign banking organization 
subject to this subpart 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 subject to this subpart 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 subject to this subpart 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 subject to this subpart 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 subject to this subpart must 
establish and maintain a review function, which 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 subject to this subpart 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 subject to this subpart 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) General. A foreign banking 
organization must monitor sources of liquidity risk and establish 
limits on liquidity risk that are consistent with the organization's 
established liquidity risk tolerance and that reflect the 
organization's capital structure, risk profile, complexity, activities, 
and size.
    (2) Liquidity risk limits established by a Category II foreign 
banking organization or Category III foreign banking organization. If 
the foreign banking organization is not a Category IV foreign banking 
organization, liquidity risk limits established under paragraph (f)(1) 
of this section must include limits on:
    (i) Concentrations in sources of funding by instrument type, single 
counterparty, counterparty type, secured and unsecured funding, and as 
applicable, other forms of liquidity risk;
    (ii) The amount of liabilities that mature within various time 
horizons; and
    (iii) Off-balance sheet exposures and other exposures that could 
create funding needs during liquidity stress events.
    (g) Collateral, legal entity, and intraday liquidity risk 
monitoring. A foreign banking organization subject to this subpart or 
more must establish and maintain procedures for monitoring liquidity 
risk as set forth in this paragraph (g).
    (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:

[[Page 59118]]

    (i) Calculates all of the collateral positions for its combined 
U.S. operations according to the frequency specified in paragraph 
(g)(1)(i)(A) or (B) of this section 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 at least a weekly basis; or
    (B) If the foreign banking organization is a Category IV foreign 
banking organization, on at least a monthly basis;
    (ii) Monitors the levels of unencumbered assets available to be 
pledged by legal entity, jurisdiction, and currency exposure;
    (iii) Monitors shifts in the foreign banking organization's funding 
patterns, including shifts between intraday, overnight, and term 
pledging of collateral; and
    (iv) Tracks operational and timing requirements associated with 
accessing collateral at its physical location (for example, the 
custodian or securities settlement system that holds the collateral).
    (2) Legal entities, currencies and business lines. The foreign 
banking organization must establish and maintain procedures for 
monitoring and controlling liquidity risk exposures and funding needs 
of its combined U.S. operations, within and across significant legal 
entities, currencies, and business lines and taking into account legal 
and regulatory restrictions on the transfer of liquidity between legal 
entities.
    (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 not a Category IV 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;
    (iii) 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;
    (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
73. In Sec.  252.157:
0
a. The section heading and paragraphs (a)(1)(i) through (iv), (a)(2), 
and (a)(7)(i) through (iii) are revised;
0
b. Paragraph (a)(8) is added;
0
c. Paragraphs (b) and (c)(1) and (c)(7)(i) through (iv) are revised; 
and
0
d. Paragraph (c)(7)(v) is added.
    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 subject to this subpart must 
conduct stress tests to separately assess the potential impact of 
liquidity stress scenarios on the cash flows, liquidity position, 
profitability, and solvency of:
    (A) Its combined U.S. operations as a whole;
    (B) Its U.S. branches and agencies on an aggregate basis; and
    (C) Its U.S. intermediate holding company, if any.
    (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) of this section 
according to the frequency specified in paragraph (a)(2)(i) or (ii) of 
this section 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 subject to 
this subpart, 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).
    (iii) Management information systems. The foreign banking 
organization must maintain management information systems and data 
processes sufficient to enable it to effectively and reliably collect, 
sort, and aggregate data and other information related to the liquidity 
stress testing of its combined U.S. operations.
    (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

[[Page 59119]]

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 subject to this subpart 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 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 subject to this subpart 
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.
* * * * *
    (7) * * *
    (i) Highly liquid assets. The asset must be a highly liquid asset. 
For these purposes, a highly liquid asset includes:
    (A) Cash;
    (B) Assets that meet the criteria for high quality liquid assets as 
defined in 12 CFR 249.20; or
    (C) Any other asset that the foreign banking organization 
demonstrates to the satisfaction of the Board:
    (1) Has low credit risk and low market risk;
    (2) Is traded in an active secondary two-way market that has 
committed market makers and independent bona fide offers to buy and 
sell so that a price reasonably related to the last sales price or 
current bona fide competitive bid and offer quotations can be 
determined within one day and settled at that price within a reasonable 
time period conforming with trade custom; and
    (3) Is a type of asset that investors historically have purchased 
in periods of financial market distress during which market liquidity 
has been impaired.
    (ii) Unencumbered. The asset must be unencumbered. For these 
purposes, an asset is unencumbered if it:
    (A) Is free of legal, regulatory, contractual or other restrictions 
on the ability of such company promptly to liquidate, sell or transfer 
the asset; and
    (B) Is either:
    (1) Not pledged or used to secure or provide credit enhancement to 
any transaction; or
    (2) Pledged to a central bank or a U.S. government-sponsored 
enterprise, to the extent potential credit secured by the asset is not 
currently extended by such central bank or U.S. government-sponsored 
enterprise or any of its consolidated subsidiaries.
    (iii) Calculating the amount of a highly liquid asset. In 
calculating the amount of a highly liquid asset included in the 
liquidity buffer, the foreign banking organization must discount the 
fair market value of the asset to reflect any credit risk and market 
price volatility of the asset.
    (iv) Operational requirements. With respect to the liquidity 
buffer, the foreign banking organization must:
    (A) Establish and implement policies and procedures that require 
highly liquid assets comprising the liquidity buffer to be under the 
control of the management function in the foreign banking organization 
that is charged with managing liquidity risk of its combined U.S. 
operations; and
    (B) Demonstrate the capability to monetize a highly liquid asset 
under each scenario required under Sec.  252.157(a)(3).
    (v) Diversification. The liquidity buffer must not contain 
significant concentrations of highly liquid assets by issuer, business 
sector, region, or other factor related to the foreign banking 
organization's risk, except with respect to cash and securities issued 
or guaranteed by the United States, a U.S. government agency, or a U.S. 
government sponsored enterprise.
* * * * *

0
74. In Sec.  252.158, the section heading and paragraphs (b)(1) 
introductory text, (b)(2)(i), (c)(1) introductory text, and (c)(2) 
introductory text are revised 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 subject to this subpart 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 paragraph 
(b)(2)(A) or (B):
    (A) If the foreign banking organization is not a Category IV 
foreign banking organization, at least annually; 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 subject to this 
subpart 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 subject to this 
subpart 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
75. Section 252.170 is revised 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;
    (D) A Category II U.S. intermediate holding company; and
    (E) A Category III U.S. intermediate holding company.

[[Page 59120]]

    (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.
    (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 a Category II U.S. 
intermediate holding company; or
    (B) The covered foreign entity is not a Category III U.S. 
intermediate holding company.

0
76. In Sec.  252.171,
0
a. Paragraph (f)(1) is revised;
0
b. Paragraph (aa) is removed; and
0
c. Paragraphs (bb) through (ll) are redesignated as paragraphs (aa) 
through (kk).
    The revision reads as follows:


Sec.  252.171  Definitions.

* * * * *
    (f) * * *
    (1) With respect to a natural person:
    (i) The natural person;
    (ii) Except as provided in paragraph (f)(1)(iii) of this section, 
if the credit exposure of the covered foreign entity to such natural 
person exceeds 5 percent of tier 1 capital, the natural person and 
members of the person's immediate family collectively; and
    (iii) Until January 1, 2021, with respect to a U.S. intermediate 
holding company that is a covered foreign entity and that has less than 
$250 billion in total consolidated assets as of December 31, 2019, if 
the credit exposure of the U.S. intermediate holding company to such 
natural person exceeds 5 percent of its capital stock and surplus, the 
natural person and member of the person's immediately family 
collectively.
* * * * *

0
77. In Sec.  252.172:
0
a. Paragraphs (a), (b), and (c) introductory text are revised;
0
b. Paragraph (c)(1) is removed and reserved; and
0
c. Paragraph (c)(2) is revised.
    The revisions read as follows:


Sec.  252.172   Credit exposure limits.

    (a) Transition limit on aggregate credit exposure for certain 
covered foreign entities. (1) A U.S. intermediate holding company that 
is a covered foreign entity and that has less than $250 billion in 
total consolidated assets as of December 31, 2019 is not required to 
comply with paragraph (b)(1) of this section until January 1, 2021.
    (2) Until January 1, 2021, no U.S. intermediate holding company 
that is a covered foreign entity and that has less than $250 billion in 
total consolidated assets as of December 31, 2019 may have an aggregate 
net credit exposure that exceeds 25 percent of the consolidated capital 
stock and surplus of the U.S. intermediate holding company.
    (b) Limit on aggregate net credit exposure for covered foreign 
entities. (1) Except as provided in paragraph (a) of this section, 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) Limit on aggregate net credit exposure of major foreign banking 
organizations to major counterparties.
    (1) [Reserved]
    (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
76. In Sec.  252.173 paragraphs (b)(1) and (2) are revised and 
paragraph (b)(3) is added to read as follows:


Sec.  252.173   Gross credit exposure.

* * * * *
    (b) * * *

[[Page 59121]]

    (1) A U.S. intermediate holding company that is a covered foreign 
entity and that has less than $250 billion in total consolidated assets 
as of December 31, 2019 is not required to comply with paragraph (b)(3) 
of this section until January 1, 2021.
    (2) Until January 1, 2021, unless the Board applies the 
requirements of Sec.  252.175 to the transaction pursuant to Sec.  
252.175(d), a U.S. intermediate holding company that is a covered 
foreign entity and that has less than $250 billion in total 
consolidated assets as of December 31, 2019 must:
    (i) Calculate pursuant to paragraph (a) of this section 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 in 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; and
    (ii) Attribute that gross credit exposure to the securitization 
vehicle, investment fund, or other special purpose vehicle for purposes 
of this subpart.
    (3) Except as provided in paragraph (b)(1) of this section, 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.
* * * * *

0
77. In Sec.  252.175, paragraph (a)(1) is revised to read as follows:


Sec.  252.175  Investments in an exposure to securitization vehicles, 
investment funds, and other special purpose vehicles that are not 
affiliates of the covered foreign entity.

    (a) * * *
    (1) This section applies to a covered foreign entity, except as 
provided in paragraph (a)(1)(i) of this section.
    (i) Until January 1, 2021, this section does not apply to a U.S. 
intermediate holding company that is a covered foreign entity with less 
than $250 billion in total consolidated assets as of December 31, 2019, 
provided that:
    (A) In order to avoid evasion of this subpart, the Board may 
determine, after notice to the covered foreign entity and opportunity 
for hearing, that a U.S. intermediate holding company with less than 
$250 billion in total consolidated assets must apply either the 
approach in this paragraph (a) or the look-through approach in 
paragraph (b) of this section, or must recognize exposures to a third 
party that has a contractual obligation to provide credit or liquidity 
support to a securitization vehicle, investment fund, or other special 
purpose vehicle that is not an affiliate of the covered foreign entity, 
as provided in paragraph (c) of this section; and
    (B) For purposes of paragraph (a)(1)(i)(A) of this section, the 
Board, in its discretion and as applicable, may allow a covered foreign 
entity to measure its capital base using the covered foreign entity's 
capital stock and surplus rather than its tier 1 capital.
* * * * *

0
78. In Sec.  252.176 paragraphs (a)(1) and (a)(2)(i) are revised to 
read as follows:


Sec.  252.176   Aggregation of exposures to more than one counterparty 
due to economic interdependence or control relationships.

    (a) * * *
    (1) This section applies to a covered foreign entity except as 
provided in paragraph (a)(1)(i) of this section.
    (i) Until January 1, 2021, paragraphs (a)(2) through (d) of this 
section do not apply to a U.S. intermediate holding company that is a 
covered foreign entity with less than $250 billion in total 
consolidated assets as of December 31, 2019.
    (ii) [Reserved]
    (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
79. In Sec.  252.178, paragraphs (a)(1) and (2) and (c)(2) are revised 
to read as follows:


Sec.  252.178   Compliance.

    (a) * * *
    (1) Except as provided in paragraph (a)(2) of this section, 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.
    (2) Until December 31, 2020, using all available data, including 
any data required to be maintained or reported to the Federal Reserve 
under this subpart, a U.S. intermediate holding company that is a 
covered foreign entity with less than $250 billion in total 
consolidated assets as of December 31, 2019 must comply with the 
requirements of this subpart on a quarterly basis, unless the Board 
determines and notifies the entity in writing that more frequent 
compliance is required.
* * * * *
    (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 capital stock and 
surplus or tier 1 capital, as applicable;
    (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.
* * * * *

0
80. In appendix A to part 252:
0
a. Section 1, paragraphs (a) and (b) are revised;
0
b. Section 2 is revised
0
c. Section 3, paragraph (a) is revised
0
d. Section 3.2, paragraph (a) is revised;
0
e. Section 4 is revised;
0
f. Section 4.1, paragraph (a) is revised;
0
g. Section 4.2 is revised;
0
h. Section 4.3 is removed;
0
i. Section 5, paragraphs (a) and (b) are revised;
0
j. Section 5.2.2, paragraph (a) is revised;
0
k. Section 5.3 is removed; and
0
l. Section 6, paragraph (d) is removed.
    The revisions read as follows:

[[Page 59122]]

Appendix A to Part 252--Policy Statement on the Scenario Design 
Framework for Stress Testing

1. Background

    (a) The Board has imposed stress testing requirements through 
its regulations (stress test rules) implementing section 165(i) of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act or Act) and section 401(e) of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act, and through its 
capital plan rule (12 CFR 225.8). Under the stress test rules, the 
Board conducts a supervisory stress test of each bank holding 
company with total consolidated assets of $100 billion or more, 
intermediate holding company of a foreign banking organization with 
total consolidated assets of $100 billion or more, and nonbank 
financial company that the Financial Stability Oversight Council has 
designated for supervision by the Board (together, covered 
companies).\1\ In addition, under the stress test rules, certain 
firms are also subject to company-run stress test requirements.\2\ 
The Board will provide for at least two different sets of conditions 
(each set, a scenario), including baseline and severely adverse 
scenarios for both supervisory and company-run stress tests 
(macroeconomic scenarios).\3\
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5365(i)(1); 12 CFR part 252, subpart E.
    \2\ 12 U.S.C. 5365(i)(2); 12 CFR part 252, subparts B and F.
    \3\ The stress test rules define scenarios as those sets of 
conditions that affect the United States economy or the financial 
condition of a company that the Board determines are appropriate for 
use in stress tests, including, but not limited to, baseline and 
severely adverse scenarios. The stress test rules define baseline 
scenario as a set of conditions that affect the United States 
economy or the financial condition of a company and that reflect the 
consensus views of the economic and financial outlook. The stress 
test rules define severely adverse scenario as a set of conditions 
that affect the U.S. economy or the financial condition of a company 
and that overall are significantly more severe than those associated 
with the baseline scenario and may include trading or other 
additional components.
---------------------------------------------------------------------------

    (b) The stress test rules provide that the Board will notify 
covered companies by no later than February 15 of each year of the 
scenarios it will use to conduct its supervisory stress tests and 
provide, also by no later than February 15, covered companies and 
other financial companies subject to the final rules the set of 
scenarios they must use to conduct their company-run stress tests. 
Under the stress test rules, the Board may require certain companies 
to use additional components in the severely adverse scenario or 
additional scenarios. For example, the Board expects to require 
large banking organizations with significant trading activities to 
include a trading and counterparty component (market shock, 
described in the following sections) in their severely adverse 
scenario. The Board will provide any additional components or 
scenario by no later than March 1 of each year.\4\ The Board expects 
that the scenarios it will require the companies to use will be the 
same as those the Board will use to conduct its supervisory stress 
tests (together, stress test scenarios).
---------------------------------------------------------------------------

    \4\ Id.
---------------------------------------------------------------------------

* * * * *

2. Overview and Scope

    (a) This policy statement provides more detail on the 
characteristics of the stress test scenarios and explains the 
considerations and procedures that underlie the approach for 
formulating these scenarios. The considerations and procedures 
described in this policy statement apply to the Board's stress 
testing framework, including to the stress tests required under 12 
CFR part 252, subparts B, E, and F as well as the Board's capital 
plan rule (12 CFR 225.8).\6\
---------------------------------------------------------------------------

    \6\ 12 CFR 252.14(a), 12 CFR 252.44(a), 12 CFR 252.54(a).
---------------------------------------------------------------------------

    (b) Although the Board does not envision that the broad approach 
used to develop scenarios will change from year to year, the stress 
test scenarios will reflect changes in the outlook for economic and 
financial conditions and changes to specific risks or 
vulnerabilities that the Board, in consultation with the other 
federal banking agencies, determines should be considered in the 
annual stress tests. The stress test scenarios should not be 
regarded as forecasts; rather, they are hypothetical paths of 
economic variables that will be used to assess the strength and 
resilience of the companies' capital in various economic and 
financial environments.
    (c) The remainder of this policy statement is organized as 
follows. Section 3 provides a broad description of the baseline and 
severely adverse scenarios and describes the types of variables that 
the Board expects to include in the macroeconomic scenarios and the 
market shock component of the stress test scenarios applicable to 
companies with significant trading activity. Section 4 describes the 
Board's approach for developing the macroeconomic scenarios, and 
section 5 describes the approach for the market shocks. Section 6 
describes the relationship between the macroeconomic scenario and 
the market shock components. Section 7 provides a timeline for the 
formulation and publication of the macroeconomic assumptions and 
market shocks.

3. Content of the Stress Test Scenarios

    (a) The Board will publish a minimum of two different scenarios, 
including baseline and severely adverse conditions, for use in 
stress tests required in the stress test rules.\7\ In general, the 
Board anticipates that it will not issue additional scenarios. 
Specific circumstances or vulnerabilities that in any given year the 
Board determines require particular vigilance to ensure the 
resilience of the banking sector will be captured in the severely 
adverse scenario. A greater number of scenarios could be needed in 
some years--for example, because the Board identifies a large number 
of unrelated and uncorrelated but nonetheless significant risks.
---------------------------------------------------------------------------

    \7\ 12 CFR 252.14(b), 12 CFR 252.44(b), 12 CFR 252.54(b).
---------------------------------------------------------------------------

* * * * *

3.2 Market Shock Component

    (a) The market shock component of the severely adverse scenario 
will only apply to companies with significant trading activity and 
their subsidiaries.\10\ The component consists of large moves in 
market prices and rates that would be expected to generate losses. 
Market shocks differ from macroeconomic scenarios in a number of 
ways, both in their design and application. For instance, market 
shocks that might typically be observed over an extended period 
(e.g., 6 months) are assumed to be an instantaneous event which 
immediately affects the market value of the companies' trading 
assets and liabilities. In addition, under the stress test rules, 
the as-of date for market shocks will differ from the quarter-end, 
and the Board will provide the as-of date for market shocks no later 
than February 1 of each year. Finally, as described in section 4, 
the market shock includes a much larger set of risk factors than the 
set of economic and financial variables included in macroeconomic 
scenarios. Broadly, these risk factors include shocks to financial 
market variables that affect asset prices, such as a credit spread 
or the yield on a bond, and, in some cases, the value of the 
position itself (e.g., the market value of private equity 
positions).
---------------------------------------------------------------------------

    \10\ Currently, companies with significant trading activity 
include any bank holding company or intermediate holding company 
that (1) has aggregate trading assets and liabilities of $50 billion 
or more, or aggregate trading assets and liabilities equal to 10 
percent or more of total consolidated assets, and (2) is not a large 
and noncomplex firm. The Board may also subject a state member bank 
subsidiary of any such bank holding company to the market shock 
component. The set of companies subject to the market shock 
component could change over time as the size, scope, and complexity 
of financial company's trading activities evolve.
---------------------------------------------------------------------------

* * * * *

4. Approach for Formulating the Macroeconomic Assumptions for Scenarios

    (a) This section describes the Board's approach for formulating 
macroeconomic assumptions for each scenario. The methodologies for 
formulating this part of each scenario differ by scenario, so these 
methodologies for the baseline and severely adverse scenarios are 
described separately in each of the following subsections.
    (b) In general, the baseline scenario will reflect the most 
recently available consensus views of the macroeconomic outlook 
expressed by professional forecasters, government agencies, and 
other public-sector organizations as of the beginning of the stress-
test cycle. The severely adverse scenario will consist of a set of 
economic and financial conditions that reflect the conditions of 
post-war U.S. recessions.
    (c) Each of these scenarios is described further in sections 
below as follows: Baseline (subsection 4.1) and severely adverse 
(subsection 4.2)

4.1 Approach for Formulating Macroeconomic Assumptions in the 
Baseline Scenario

    (a) The stress test rules define the baseline scenario as a set 
of conditions that affect the

[[Page 59123]]

U.S. economy or the financial condition of a banking organization, 
and that reflect the consensus views of the economic and financial 
outlook. Projections under a baseline scenario are used to evaluate 
how companies would perform in more likely economic and financial 
conditions. The baseline serves also as a point of comparison to the 
severely adverse scenario, giving some sense of how much of the 
company's capital decline could be ascribed to the scenario as 
opposed to the company's capital adequacy under expected conditions.
* * * * *

4.2 Approach for Formulating the Macroeconomic Assumptions in the 
Severely Adverse Scenario

    The stress test rules define a severely adverse scenario as a 
set of conditions that affect the U.S. economy or the financial 
condition of a financial company and that overall are significantly 
more severe than those associated with the baseline scenario. The 
financial company will be required to publicly disclose a summary of 
the results of its stress test under the severely adverse scenario, 
and the Board intends to publicly disclose the results of its 
analysis of the financial company under the severely adverse 
scenario.
* * * * *

5. Approach for Formulating the Market Shock Component

    (a) This section discusses the approach the Board proposes to 
adopt for developing the market shock component of the severely 
adverse scenario appropriate for companies with significant trading 
activities. The design and specification of the market shock 
component differs from that of the macroeconomic scenarios because 
profits and losses from trading are measured in mark-to-market 
terms, while revenues and losses from traditional banking are 
generally measured using the accrual method. As noted above, another 
critical difference is the time-evolution of the market shock 
component. The market shock component consists of an instantaneous 
``shock'' to a large number of risk factors that determine the mark-
to-market value of trading positions, while the macroeconomic 
scenarios supply a projected path of economic variables that affect 
traditional banking activities over the entire planning period.
    (b) The development of the market shock component that are 
detailed in this section are as follows: Baseline (subsection 5.1) 
and severely adverse (subsection 5.2).
* * * * *

5.2.2 Approaches to Market Shock Design

    (a) As an additional component of the severely adverse scenario, 
the Board plans to use a standardized set of market shocks that 
apply to all companies with significant trading activity. The market 
shocks could be based on a single historical episode, multiple 
historical periods, hypothetical (but plausible) events, or some 
combination of historical episodes and hypothetical events (hybrid 
approach). Depending on the type of hypothetical events, a scenario 
based on such events may result in changes in risk factors that were 
not previously observed. In the supervisory scenarios for 2012 and 
2013, the shocks were largely based on relative moves in asset 
prices and rates during the second half of 2008, but also included 
some additional considerations to factor in the widening of spreads 
for European sovereigns and financial companies based on actual 
observation during the latter part of 2011.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2019-23662 Filed 10-31-19; 8:45 am]
 BILLING CODE 6210-01-P