[Federal Register Volume 85, Number 17 (Monday, January 27, 2020)]
[Rules and Regulations]
[Pages 4569-4579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28293]



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 Rules and Regulations
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  Federal Register / Vol. 85, No. 17 / Monday, January 27, 2020 / Rules 
and Regulations  

[[Page 4569]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2019-0001]
RIN 1557-AE60

FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Docket ID R-1659]
RIN 7100-AF46

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AE81


Regulatory Capital Rule: Revisions to the Supplementary Leverage 
Ratio To Exclude Certain Central Bank Deposits of Banking Organizations 
Predominantly Engaged in Custody, Safekeeping, and Asset Servicing 
Activities

AGENCY: The Office of the Comptroller of the Currency; the Board of 
Governors of the Federal Reserve System; and the Federal Deposit 
Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency, Board of 
Governors of the Federal Reserve System, and Federal Deposit Insurance 
Corporation are issuing a final rule to implement section 402 of the 
Economic Growth, Regulatory Relief, and Consumer Protection Act. 
Section 402 directs these agencies to amend the regulatory capital rule 
to exclude from the supplementary leverage ratio certain funds of 
banking organizations deposited with central banks if the banking 
organization is predominantly engaged in custody, safekeeping, and 
asset servicing activities.

DATES: The rule is effective April 1, 2020.

FOR FURTHER INFORMATION CONTACT: OCC: Venus Fan, Risk Expert, or Guowei 
Zhang, Risk Expert, Capital and Regulatory Policy, (202) 649-6370; or 
Patricia Dalton, Director for Asset Management (202) 649-6401; or Rima 
Kundnani, Attorney, or Christopher Rafferty, Attorney, Chief Counsel's 
Office, (202) 649-5490; the Office of the Comptroller of the Currency, 
400 7th Street SW, Washington, DC 20219.
    Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Teresa A. Scott, Manager, (202) 475-6316; Donald Gabbai, Lead 
Financial Institution Policy Analyst, (202) 452-3358; Division of 
Supervision and Regulation; or Benjamin W. McDonough, Assistant General 
Counsel, (202) 452-2036; Mark Buresh, Senior Counsel, (202) 452-5270; 
Mary Watkins, Senior Attorney, (202) 452-3722; Legal Division, Board of 
Governors of the Federal Reserve System, 20th and C Streets NW, 
Washington, DC 20551. For the hearing impaired only, Telecommunication 
Device for the Deaf, (202) 263-4869.
    FDIC: Benedetto Bosco, Chief, Capital Policy Section, 
[email protected]; Noah Cuttler, Senior Policy Analyst, 
[email protected]; Dushan Gorechan, Financial Analyst, 
[email protected]; Keith Bergstresser, Capital Markets Policy Analyst, 
[email protected]; or [email protected]; Capital Markets 
Branch, Division of Risk Management Supervision, (202) 898-6888; 
Michael Phillips, Counsel, [email protected]; Catherine Wood, Counsel, 
[email protected]; Supervision Branch, Legal Division, Federal Deposit 
Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Overview of the Proposal
II. Background
    A. The Supplementary Leverage Ratio
    B. Fiduciary, Custody, Safekeeping, and Asset Servicing 
Activities
III. Discussion of the Comments and Final Rule
    A. Scope of Applicability
    1. Definition of Custodial Banking Organizations
    2. Assets Under Custody to Total Assets Measure
    3. Scope of Covered Entities
    B. Mechanics of the Central Bank Deposit Exclusion
    C. Central Bank Deposit Exclusion Limit
    D. Regulatory Reporting Requirements
IV. OCC Statement Regarding Standalone Depository Institutions
V. Interaction of Section 402 With Other Rules
    A. Total Loss-Absorbing Capacity
    B. The Enhanced Supplementary Leverage Ratio and Other Comments 
on the Proposal
VI. Impact Analysis
VII. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act Analysis
    C. Plain Language
    D. Riegle Community Development and Regulatory Improvement Act 
of 1994
    E. OCC Unfunded Mandates Reform Act of 1995 Determination
    F. Congressional Review Act

I. Overview of the Proposal

    In April 2019, the Office of the Comptroller of the Currency (OCC), 
Board of Governors of the Federal Reserve System (Board), and Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) 
published a notice of proposed rulemaking (proposal) \1\ to implement 
section 402 of the Economic Growth, Regulatory Relief, and Consumer 
Protection Act (section 402).\2\
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    \1\ 84 FR 18175 (April 30, 2019).
    \2\ Public Law 115-174, 132 Stat. 1296 (2018), section 402.
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    Section 402 requires the agencies to amend the supplementary 
leverage ratio, a measure of capital adequacy that applies to large 
banking organizations. Under section 402, the supplementary leverage 
ratio must not take into account funds of a custodial bank that are 
deposited with certain central banks, provided that any amount that 
exceeds the value of deposits of the custodial bank that are linked to 
fiduciary or custodial and safekeeping accounts must be taken into 
account when calculating the supplementary leverage ratio as applied to 
the custodial bank.\3\ Under section 402, central bank deposits that 
qualify for the exclusion include deposits of custodial banks placed 
with (1) the Federal Reserve System, (2) the European Central Bank, and 
(3) central banks of member countries of the Organisation for Economic 
Co-operation and

[[Page 4570]]

Development (OECD),\4\ if the member country has been assigned a zero 
percent risk weight under the agencies' regulatory capital rule 
(capital rule) and the sovereign debt of such member country is not in 
default or has not been in default during the previous five years.\5\ 
Section 402 defines a custodial bank as ``any depository institution 
holding company predominantly engaged in custody, safekeeping, and 
asset servicing activities, including any insured depository 
institution subsidiary of such a holding company.'' \6\
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    \3\ Id. at 402(b)(2).
    \4\ The OECD is an intergovernmental organization founded in 
1961 to stimulate economic progress and global trade. A list of OECD 
member countries is available on the OECD's website, www.oecd.org.
    \5\ Public Law 115-174, section 402(a).
    \6\ Id., at 402(b).
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    The proposal would have implemented section 402 by defining the 
scope of banking organizations considered to be predominantly engaged 
in custody, safekeeping, and asset servicing activities and by 
providing the standard by which such banking organizations would 
determine the amount of central bank deposits that could be excluded 
from total leverage exposure, which is the denominator of the 
supplementary leverage ratio in the capital rule.
    Under the proposal, a depository institution holding company with a 
ratio of assets under custody (AUC)-to-total assets of at least 30:1 
would have been considered predominantly engaged in custody, 
safekeeping, and asset servicing activities. Such a banking 
organization would have been termed a ``custodial banking 
organization.'' A custodial banking organization would have excluded 
from the supplementary leverage ratio deposits placed at a ``qualifying 
central bank,'' which would have included a Federal Reserve Bank, the 
European Central Bank, or any central bank of a member country of the 
OECD if the member country meets certain criteria. The amount of 
central bank deposits that could have been excluded from total leverage 
exposure would have been limited by the amount of deposit liabilities 
of the custodial banking organization that are linked to fiduciary or 
custody and safekeeping accounts.
    The agencies collectively received six comment letters on the 
proposal (from banking organizations and other interested parties). 
Some commenters were supportive of the agencies' proposal to implement 
section 402. Other commenters acknowledged that the agencies are 
required to implement section 402 but raised various concerns regarding 
the potential effect that implementation of section 402 would have on 
other aspects of the banking sector.
    The agencies have considered all the comments received on the 
proposal. As described in more detail below, the agencies are adopting 
the proposal as a final rule without modification. The agencies are 
required under section 402 to amend the capital rule to exclude from 
the supplementary leverage ratio certain central bank deposits of 
banking organizations predominantly engaged in custody, safekeeping, 
and asset servicing activities. The agencies' adoption of the proposal 
fulfills this statutory requirement. The final rule becomes effective 
on April 1, 2020.

II. Background

A. The Supplementary Leverage Ratio

    The supplementary leverage ratio measures tier 1 capital relative 
to total leverage exposure, which includes on-balance sheet assets 
(including deposits at central banks) and certain off-balance sheet 
exposures.\7\ A minimum supplementary leverage ratio of 3 percent 
applies to certain banking organizations and their depository 
institution subsidiaries.\8\ In addition, banking organizations that 
will be subject to Category I standards, which are the global 
systemically important bank holding companies (U.S. GSIBs), as well as 
their depository institution subsidiaries, are subject to enhanced 
supplementary leverage ratio (eSLR) standards. The eSLR standards 
require each U.S. GSIB to maintain a supplementary leverage ratio above 
5 percent to avoid limitations on the firm's distributions and certain 
discretionary bonus payments and also require each of its insured 
depository institutions to maintain a supplementary leverage ratio of 
at least 6 percent to be deemed ``well capitalized'' under the prompt 
corrective action framework of each agency.\9\
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    \7\ 12 CFR 3.10(a)(5) and (c)(4) (OCC); 12 CFR 217.10(a)(5) and 
(c)(4) (Board); 12 CFR 324.10(a)(5) and (c)(4) (FDIC).
    \8\ The agencies recently adopted final rules tailoring the 
application of capital requirements, including the supplementary 
leverage ratio, based on a banking organization's risk profile 
(tailoring rules). See 84 FR 59230 (November 1, 2019), available at 
https://www.federalreserve.gov/aboutthefed/boardmeetings/20191010open.htm. Under the tailoring rules, the minimum 
supplementary leverage ratio requirement applies to banking 
organizations subject to Category I, II, and III standards. The 
tailoring rules will be effective December 31, 2019. Until the 
tailoring rules are effective, the supplementary leverage ratio 
applies to advanced approaches banking organizations.
    \9\ See 79 FR 24528 (May 1, 2014). Under OCC and FDIC rules, a 
depository institution that is a subsidiary of a bank holding 
company with more than $700 billion in total consolidated assets or 
more than $10 trillion in assets under custody is subject to the 
eSLR standards. 12 CFR 6.4(c) (OCC); 12 CFR 324.403(b) (FDIC). Under 
the Board's rule, a bank holding company that is a U.S. GSIB is 
subject to the eSLR standards. See 12 CFR 217.11(d); 12 CFR part 
217, subpart H.
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B. Fiduciary, Custody, Safekeeping, and Asset Servicing Activities

    Certain banking organizations engage in fiduciary, custody, 
safekeeping, and asset servicing activities. Custody, safekeeping, and 
asset servicing activities generally involve holding securities or 
other assets on behalf of clients, as well as activities such as 
transaction settlement, income processing, and related record keeping 
and operational services. A banking organization may also act as a 
fiduciary by, for example, acting as trustee or executor, or by having 
investment discretion over the management of client assets. Banking 
organizations typically provide custody, safekeeping, and asset 
servicing to their fiduciary accounts. While many banking organizations 
offer some or all of these services, certain banking organizations 
specialize in these activities and often do not provide the same range 
or scale of traditional commercial or retail banking products as are 
provided by other banking organizations.\10\
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    \10\ See OCC Comptrollers Handbook, Custody Services (January 
2002).
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    Fiduciary and custody clients often maintain cash deposits at the 
banking organization in connection with these services. Clients 
typically maintain cash positions consisting of funds awaiting 
investment or distribution that are often in the form of deposits 
placed in banking organizations. These cash deposits help facilitate 
the administration of the custody account. Under U.S. generally 
accepted accounting principles (U.S. GAAP), cash deposits at a banking 
organization are a deposit liability and thus appear on the banking 
organization's balance sheet.
    Cash deposits that are linked to custody and fiduciary accounts at 
banking organizations fluctuate depending on the activities of the 
banking organization's custodial clients. For example, cash deposit 
balances of such banking organizations generally increase during 
periods when clients liquidate securities, such as during times of 
stress. To assist in managing these cash fluctuations, banking 
organizations may maintain significant cash deposits at central banks. 
Central bank deposits can be used as an asset-liability management 
strategy to facilitate these banking organizations' ability to support 
custodial clients' cash-related needs. Under U.S. GAAP,

[[Page 4571]]

central bank deposits placed by the banking organization are on-balance 
sheet assets of the banking organization.

III. Discussion of the Comments and Final Rule

A. Scope of Applicability

1. Definition of Custodial Banking Organization
    The proposal would have defined a depository institution holding 
company predominantly engaged in custody, safekeeping, and asset 
servicing activities, together with any subsidiary depository 
institution, as a ``custodial banking organization.'' \11\ To qualify 
as a custodial banking organization under the proposal, a depository 
institution holding company would have been required to have a ratio of 
AUC-to-total assets of at least 30:1, calculated as an average over the 
prior four calendar quarters.
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    \11\ The agencies note that the term ``custodial bank'' under 
the FDIC's risk-based deposit insurance assessments serves a 
separate purpose than the term ``custodial banking organization'' 
under this final rule. See 12 CFR 327.5(c). For assessment purposes, 
the FDIC defines a custodial bank consistent with section 331 of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, which 
requires the FDIC to define a custodial bank based on factors 
including the percentage of total revenues generated by custodial 
businesses and the level of assets under custody.
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    For the proposal, the agencies considered various measures that 
they could use to identify and define a custodial banking organization. 
As noted in the proposal, the agencies believe that the phrase 
``predominantly engaged in custodial, safekeeping, and asset servicing 
activities'' suggests that the banking organization's business model is 
primarily focused on custody, safekeeping, and asset servicing 
activities, as compared to its commercial lending, investment banking, 
or other banking activities.\12\ Specifically, the agencies considered 
both an AUC-to-total assets measure and an income-based measure to 
implement section 402.\13\ AUC-to-total assets would provide a measure 
of a banking organization's custody, safekeeping, and asset servicing 
business relative to its other businesses. An income-based measure 
would show the percentage of a banking organization's income that it 
derives from custodial, safekeeping, and asset servicing activities. As 
described in the proposal, the agencies' analysis on both measures 
indicated a clear separation between The Bank of New York Mellon 
Corporation, Northern Trust Corporation, and State Street Corporation, 
and the other depository institution holding companies subject to the 
supplementary leverage ratio.\14\ The agencies' analysis also revealed 
a significant positive correlation between the AUC-to-total assets 
measure and the income-based measure.\15\ The agencies proposed the 
AUC-to-total assets measure to identify and define a custodial banking 
organization because it appeared to function well and minimized burden 
by relying on already reported data.
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    \12\ See, e.g., 115 Cong. Rec. S1544 (Mar. 8, 2018) (statement 
of Sen. Corker) (``Section 402 is not intended to provide relief to 
an organization engaged in consumer banking, investment banking, or 
other businesses, and that also happens to have some custodial 
business or a banking subsidiary that engages in custodial 
activities . . . section 402 was intended as a very narrowly 
tailored provision, focused on true custodial banks.''); see also 
H.R. Rep. No. 115-656, at 3-4 (2018) (``Banks that have a 
predominant amount of businesses derived from custodial services are 
different from banks that engage in a wide variety of banking 
activities . . . .'').
    \13\ The agencies also considered using an absolute amount 
measure, but such a measure would only take the size of a banking 
organization's custodial, safekeeping, and asset servicing 
activities into account rather than considering the predominance of 
these activities relative to the banking organization's other 
activities.
    \14\ See 84 FR 18175, 18179. The legislative history of section 
402 suggests that members of Congress identified the same three 
institutions as custodial banking organizations. See, e.g., 115 
Cong. Rec. S1714 (Mar. 14, 2018) (statement of Sen. Warner) 
(``Section 402 provides relief to only three banks: Bank of New York 
Mellon, State Street, and Northern Trust . . . This provision does 
not mean that, if a bank has a large custodial business, it should 
get relief . . . .); 115 Cong Rec. S1659 (Mar. 13, 2018) (statement 
of Sen. Heitkamp) (``Under the plain reading of [section 402], the 
three custodial banking organizations are the only three 
institutions that are predominantly engaged in the custody 
business.'').
    \15\ See 84 FR 18175, 18178.
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    The agencies received several comments on the proposed definition 
of a custodial banking organization. One commenter supported adoption 
of the AUC-to-total assets measure under the proposal as a simple 
assessment that is consistent with legislative intent, and did not 
support the use of an income-based measure because it would increase 
reporting burden. Another commenter, however, supported an income-based 
measure to determine a custodial banking organization, arguing that an 
income-based measure would be more accurate than an asset-based measure 
in a stress environment.
    While an income-based measure would show the percentage of a 
banking organization's income that it derives from custodial, 
safekeeping, and asset servicing activities, the agencies are concerned 
that such an approach would increase reporting burden for banking 
organizations subject to the supplementary leverage ratio, as banking 
organizations do not currently report income from custodial, 
safekeeping, and asset servicing activities separately from income 
derived from fiduciary activities. In addition and as noted above, an 
income-based measure likely would not result in a different outcome 
than an asset-based measure, as the agencies' analysis revealed a 
significant positive correlation between the AUC-to-total assets 
measure and the income-based measure.
    As noted in the proposal, an AUC-to-total assets measure provides a 
metric for sizing a banking organization's custodial, safekeeping, and 
asset servicing business as compared with its other activities. Such a 
measure would compare assets held in custody--a major activity of 
banking organizations primarily focused on custody, safekeeping, and 
asset servicing activities--relative to on-balance sheet assets. The 
measure is objective because AUC often comprises marketable securities 
or other assets with widely quoted market values, and banking 
organizations typically exercise little or no valuation discretion when 
measuring AUC. In addition, the AUC-to-total assets measure is derived 
from items that are publicly reported and is subject to review by 
regulators, banking organizations, and the public.
    For these reasons, the agencies are adopting as final the proposed 
use of an AUC-to-total assets measure as the basis for defining a 
custodial banking organization.
    A commenter pointed out that the agencies omitted ``asset servicing 
activities'' from the definitions of ``fiduciary or custodial and 
safekeeping account'' and ``custodial banking organization'' in several 
parts of the proposal. Section 402 defines ``custodial bank'' as a 
``depository institution holding company predominantly engaged in 
custody, safekeeping, and asset servicing activities.'' In contrast 
with the term ``custodial banking organization'' in section 402, the 
statute uses the term ``fiduciary or custodial and safekeeping 
account'' to describe the limit on the exclusion of deposits at 
qualifying central banks and does not include ``asset servicing 
activities'' in this context. Accordingly, the final rule does not use 
the phrase ``asset servicing activities'' in the context of the 
exclusion.
2. Assets Under Custody to Total Assets Measure
    In defining a custodial banking organization, the proposal would 
have set a threshold for the AUC-to-total assets ratio at 30:1. This 
threshold represents the midpoint between the lowest AUC-to-total 
assets measure of

[[Page 4572]]

banking organizations that are subject to the supplementary leverage 
ratio and that specialize in providing custody, safekeeping, and asset 
servicing services between second quarter of 2016 through the third 
quarter of 2018 (52:1) and the highest such measure experienced by 
other banking organizations subject to the supplementary leverage ratio 
(9:1) over the same period. This amount also takes into account 
potential changes in such banking organizations' ratio of AUC-to-total 
assets during a stress environment. As noted in the proposal, the 
agencies recognize that a banking organization's ratio of AUC-to-total 
assets may fluctuate significantly during a stress environment as 
client securities decline in value or as clients liquidate custodial 
securities and deposit the cash with the banking organization (thus 
increasing the banking organization's total assets). Among The Bank of 
New York Mellon, Northern Trust Corporation, and State Street 
Corporation, the lowest AUC-to-total assets ratio observed during the 
period from the second quarter of 2016 through the third quarter of 
2018 was approximately 52:1.\16\ This means that the banking 
organization had approximately $52 in AUC for every $1 recognized in 
their total on-balance sheet assets. In comparison, among the other 
depository institution holding companies subject to the supplementary 
leverage ratio, the highest AUC-to-total assets ratio observed during 
that same period was approximately 9:1. An AUC-to-total assets ratio of 
30:1 is also less than the minimum estimated ratio for The Bank of New 
York Mellon, Northern Trust Corporation, and State Street Corporation 
(35:1) over the period from 2004 through the third quarter of 2018, 
which includes the 2007-2009 financial crisis.\17\
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    \16\ Banking organizations report AUC on the FR Form Y-15, 
Schedule C, Item 3, and banking organizations report total 
consolidated assets on the FR Form Y-9C, Schedule HC, Item 12. 
Quarterly reporting of the FR Y-15 became effective starting with 
the June 30, 2016 date.
    \17\ The agencies reviewed insured depository institution-level 
data from the Consolidated Reports of Condition and Income (Call 
Report) to approximate the holding company-level AUC-to-total assets 
ratios of advanced approaches banking organizations during the 
financial crisis, because banking organizations began reporting FR 
Y-15 in 2015. Information regarding AUC was derived from Call 
Report, Schedule RC-T, Items 10 and 11, Columns A (managed assets) 
and B (non-managed assets), and was used as a proxy for AUC at the 
holding company level, as most custodial services are conducted out 
of insured depository institution subsidiaries.
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    The proposal also incorporated use of a four-quarter average for 
the AUC-to-total assets measure. This approach would further minimize 
the effect of significant fluctuations in a banking organization's AUC-
to-total assets ratio, which is a particular concern under stress 
conditions. The 30:1 AUC-to-total assets measure also would limit the 
potential for a banking organization subject to the supplementary 
leverage ratio that does not predominantly engage in custody, 
safekeeping, and asset servicing activities, as compared to its other 
activities, to qualify as a custodial banking organization. The 
agencies did not receive comments on the proposed threshold. In 
addition, expanding the analysis to include the first and second 
quarters of 2019 produces the same range of AUC-to-total assets ratios. 
For the reasons provided above, the agencies are adopting as final the 
proposed threshold of 30:1 for the AUC-to-total assets measure.
3. Scope of Covered Entities
    Under the proposal, any subsidiary depository institution of a U.S. 
top-tier depository institution holding company that qualifies as a 
custodial banking organization also would be a custodial banking 
organization and therefore could exclude from total leverage exposure 
all deposits with a qualifying central bank that are recognized on its 
consolidated balance sheet in the same manner as its parent depository 
institution holding company.\18\ In other words, the proposal would not 
have required such a subsidiary depository institution to satisfy 
separately a ratio of AUC-to-total assets to be able to make this 
exclusion. The agencies believe this approach is both simple and 
consistent with section 402, which defines a ``custodial bank'' based 
on the characteristics of the holding company and provides that such a 
subsidiary depository institution may also exclude deposits at 
qualifying central banks from its supplementary leverage ratio, to the 
extent that these deposits do not exceed deposit liabilities of the 
banking organization that are linked to fiduciary or custodial and 
safekeeping accounts.
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    \18\ This rule applies to all depository institution 
subsidiaries of a custodial banking organization holding company, 
including uninsured national banks and Federal savings associations. 
However, the final rule does not apply to Federal branches and 
agencies supervised by the OCC.
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    The agencies also sought comment on whether to expand the scope of 
application and definition of custodial banking organization to include 
a depository institution that is not controlled by a holding company 
and that has a ratio of AUC-to-total assets of at least 30:1.\19\ The 
agencies did not receive any comments on this issue. Accordingly, the 
scope of application and definition of custodial banking organization 
are adopted in this final rule as proposed.
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    \19\ See 84 FR 18175, 18180 (April 30, 2019) for the agencies' 
description of this proposed addition to the rule, and request for 
comment.
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B. Mechanics of the Central Bank Deposit Exclusion

    Under the proposal, the amount of central bank deposits eligible 
for exclusion from total leverage exposure would have equaled the 
average daily balance over the reporting quarter of all deposits placed 
with a ``qualifying central bank.'' Under the proposal, and consistent 
with section 402, a qualifying central bank would have meant a Federal 
Reserve Bank, the European Central Bank, or a central bank of a member 
country of the OECD if an exposure to the member country receives a 
zero percent risk weight under section 32 of the capital rule and the 
sovereign debt of such member country is not in default or has not been 
in default during the previous five years.\20\ The proposal would have 
calculated the exclusion amount based on the average daily balance of 
deposits with a qualifying central bank over the reporting quarter to 
align with the calculation of on-balance sheet assets in total leverage 
exposure.\21\
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    \20\ Under section 32 of the capital rule, an exposure to a 
member country that qualifies for a zero percent risk weight cannot 
also be in default or have been in default during the previous five 
years. The agencies included this latter provision in the proposal, 
however, for clarity and to align with section 402. 12 CFR 3.32(a) 
(OCC); 12 CFR 217.32(a) (Board); 12 CFR 324.32(a) (FDIC).
    \21\ 12 CFR 3.10(c)(4)(i)(A) (OCC); 12 CFR 217.10(c)(4)(i)(A) 
(Board); 12 CFR 324.10(c)(4)(i)(A) (FDIC).
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    The agencies did not receive any comments addressing the mechanics 
of the central bank deposit exclusion. One commenter stated that 
custodial banking organizations should be permitted to distribute 
profits received from interest earned on excess reserves. The agencies 
note that this rulemaking does not affect the types of deposits that a 
bank may have with a Federal Reserve Bank, or the interest paid on 
those deposits.
    In addition, as discussed in the Supplementary Information to the 
proposal, all deposits placed with a Federal Reserve Bank qualify for 
the rule's central bank deposit exclusion, including deposits in a 
master account, deposits in a term deposit account that offers an early 
withdrawal feature, and deposits in an excess balance account.\22\ Any 
deposits with a qualifying central bank denominated in a foreign 
currency should be measured in U.S. dollars to determine the amount of 
the deposits that can be excluded from total leverage

[[Page 4573]]

exposure. Similarly, central bank deposits recognized on the 
consolidated balance sheet of a custodial banking organization may 
include cash placements with a central bank made by a foreign bank 
subsidiary. Although a foreign bank subsidiary itself will not be a 
custodial banking organization, any qualifying central bank deposits of 
the foreign bank subsidiary may be excluded from total leverage 
exposure of the parent organization to the extent that the central bank 
deposits are consolidated on the balance sheet of the parent 
organization and have satisfied the requirements for a qualifying 
central bank deposit.
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    \22\ 84 FR 18175, 18180 (April 30, 2019).
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    The agencies are adopting as final the proposed mechanics of the 
central bank deposit exclusion.

C. Central Bank Deposit Exclusion Limit

    Consistent with section 402, the proposal would have limited the 
amount of a custodial banking organization's deposits with a qualifying 
central bank that could have been excluded from total leverage 
exposure. In particular, the amount of such deposits that could have 
been excluded could not have exceeded an amount equal to the on-
balance-sheet deposit liabilities of the custodial banking organization 
that were linked to fiduciary or custody and safekeeping accounts. 
After considering the comments discussed below, the agencies are 
adopting this aspect of the proposal without change.
    The proposal would have defined a fiduciary or custodial and 
safekeeping account as an account administered by a custodial banking 
organization for which the custodial banking organization provides 
fiduciary or custodial and safekeeping services, as authorized by 
applicable federal and state law. Under the proposal, a deposit account 
would have been considered linked to a fiduciary or custodial and 
safekeeping account if the deposit account is used to facilitate the 
administration of the fiduciary or custody and safekeeping account.
    The agencies sought comment on the advantages and disadvantages of 
using the FDIC exclusion limit or the reporting instructions to 
Schedule RC-O of the Call Report for purposes of determining linkage 
between a deposit account and a fiduciary or custody and safekeeping 
account to calculate the limit on the amount of deposits that could be 
excluded from total leverage exposure. In particular, the proposal 
noted that the asset exclusion limit for ``custodial banks'' provided 
under the FDIC's regulations for purposes of determining risk-based 
deposit insurance assessments (FDIC exclusion limit) includes the 
concept of a ``linked'' deposit and that the Call Report collects 
information related to such linked deposits on Schedule RC-O.\23\ In 
addition, the agencies sought comment on whether the proposed 
definition of fiduciary or custody and safekeeping account should 
explicitly reference the reporting instructions under Schedule RC-T.
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    \23\ See 12 CFR 327.5(c) (Assessment base for custodial banks) 
and FFIEC 031 and FFIEC 041 Instructions, Schedule RC-O, Item No. 
11.b., Custodial bank deduction limit (``An institution that meets 
the definition of custodial bank is eligible to have the FDIC deduct 
certain assets from its assessment base, subject to a limit . . . 
which equals the average amount of the institution's transaction 
account deposit liabilities identified by the institution as being 
directly linked to a fiduciary, custodial, or safekeeping account 
reported in Schedule RC-T--Fiduciary and Related Services. The 
titling of a transaction account or specific references in the 
deposit account documents should clearly demonstrate the link 
between the transaction account and a fiduciary, custodial, or 
safekeeping account.''), available at www.ffiec.gov.
---------------------------------------------------------------------------

    One commenter supported defining the scope of fiduciary or 
custodial and safekeeping accounts in a manner that does not deviate 
materially from the current scope of fiduciary and custody and 
safekeeping accounts reported under schedule RC-T of the Call Report. 
To mitigate additional compliance obligations for the purpose of 
section 402, the commenter supported using the FDIC exclusion limit and 
reporting instructions in Schedule RC-O to determine whether a deposit 
account is linked to a fiduciary or custodial and safekeeping account.
    The agencies are adopting as final the proposed definition of 
fiduciary or custodial and safekeeping accounts. As noted in the 
proposal, the agencies anticipate that the scope of the fiduciary or 
custodial and safekeeping accounts under the rule should not deviate 
materially from the current scope of the fiduciary and custody and 
safekeeping accounts reported under Schedule RC-T of the Call Report. 
However, the agencies are clarifying that because this final rule 
applies to both custodial banking organization holding companies and 
custodial banking organization subsidiary depository institutions, and 
because holding companies do not report Schedule RC-T of the Call 
Report, the agencies are not referring directly to schedule RC-T for 
the scope of fiduciary or custodial and safekeeping accounts.
    The agencies are clarifying that the existing FDIC exclusion limit 
and the reporting instructions to Schedule RC-O are factors that a 
banking organization may take into account to determine linkage between 
a deposit account and a fiduciary or custody and safekeeping account. 
However, the agencies are not directly defining the linkage standard in 
the final rule by reference to the FDIC exclusion limit or Schedule RC-
O.
    The FDIC exclusion limit and the reporting instructions to Schedule 
RC-O were designed for the purpose of determining risk-based deposit 
insurance assessments for insured depository institutions. In addition, 
the FDIC exclusion limit and reporting instructions in Schedule RC-O 
were designed to limit the custodial bank deduction to transaction 
account deposit liabilities and therefore Schedule RC-O would not 
capture non-transaction account deposit liabilities.\24\ In contrast to 
the FDIC exclusion limit, this final rule applies to both custodial 
banking organization holding companies and custodial banking 
organization subsidiary depository institutions; uses a different 
standard to define a custodial banking organization; and applies only 
to custodial banking organizations that are subject to the 
supplementary leverage ratio. The agencies believe that not directly 
defining the linkage standard by reference to schedule RC-O and the 
FDIC exclusion limit is appropriate in light of the purpose served by 
section 402 (that is, prudential regulation of custodial banking 
organizations' regulatory capital) as compared to deposit insurance 
assessments, and because section 402 applies to a narrow set of the 
largest banking organizations (that is, banking organizations that 
qualify as custodial banking organizations that are subject to the 
supplementary leverage ratio). In light of these differences, the 
agencies are adopting as final the proposal's provision that a deposit 
account is considered linked to a fiduciary or custodial and 
safekeeping account if the deposit account is used to facilitate the 
administration of the fiduciary or custody and safekeeping account.
---------------------------------------------------------------------------

    \24\ 76 FR 10680 (February 25, 2011) (FDIC assessments 
regulation).
---------------------------------------------------------------------------

    The fact that a client has both a deposit account and a fiduciary 
or custody and safekeeping account at the same custodial banking 
organization, or an affiliate or subsidiary of such custodial banking 
organization, would not by itself be sufficient for those accounts to 
be considered ``linked'' for purposes of the final rule. On the other 
hand, cash deposits may be used to facilitate the administration of a 
custody or fiduciary account, such as holding interest and dividend 
payments related to securities held in the custody or

[[Page 4574]]

fiduciary account; cash transfers or distributions from the custody or 
fiduciary account; and the purchases and sale of securities for the 
account. Deposit accounts used in these ways would be considered linked 
for purposes of the final rule.
    Consistent with section 402, under the final rule, a custodial 
banking organization may exclude from total leverage exposure the 
lesser of (1) the amount of central bank deposits placed at qualifying 
central banks by the custodial banking organization (including deposits 
placed by consolidated subsidiaries), and (2) the amount of on-balance 
sheet deposit liabilities of the custodial banking organization 
(including consolidated subsidiaries) that are linked to fiduciary or 
custodial and safekeeping accounts.\25\
---------------------------------------------------------------------------

    \25\ The final rule does not affect the calculation of the size 
indicator under the Board's Banking Organization Systemic Risk 
Report (FR Y-15).
---------------------------------------------------------------------------

    One commenter asked the agencies to clarify that the calculation of 
the central bank exclusion limit must be done on a quarterly basis, 
consistent with the calculations required under Schedule RC-T and RC-
O.\26\ In calculating the central bank exclusion limit, a custodial 
banking organization should calculate the amount of deposit liabilities 
linked to a fiduciary or custody and safekeeping account as the average 
deposit liabilities for such accounts, calculated as of each day of the 
reporting quarter. This approach is consistent with the calculation of 
on-balance sheet assets for purposes of the supplementary leverage 
ratio.
---------------------------------------------------------------------------

    \26\ While the custodial bank deduction limit in item 11.b. of 
Schedule RC-O is reported on a quarterly basis, the limit is based 
on an average that is calculated on a daily or weekly basis.
---------------------------------------------------------------------------

D. Regulatory Reporting Requirements

    Banking organizations report their supplementary leverage ratios on 
FFIEC Form 101, Schedule A and Form Y-9C, Schedule HC-R, and Call 
Reports, Schedule RC-R. The agencies recently proposed modifications to 
the regulatory reporting requirements for the supplementary leverage 
ratio in a separate publication in the Federal Register to reflect the 
implementation of the central bank deposit exclusion described in this 
final rule.\27\ The agencies' adoption of these regulatory reporting 
requirements would fulfill the disclosure requirements for purposes of 
the capital rule.\28\ In particular, custodial banking organizations 
subject to the supplementary leverage ratio would be subject to the 
corresponding disclosure requirements in section 173, and would exclude 
qualifying central bank deposits from total leverage exposure as 
reported under section 173.
---------------------------------------------------------------------------

    \27\ 84 FR 53227 (October 4, 2019).
    \28\ See 12 CFR 3.173 (OCC); 12 CFR 217.173 (Board); 12 CFR 
324.173 (FDIC).
---------------------------------------------------------------------------

IV. OCC Statement Regarding Standalone Depository Institutions

    As discussed in section III, the agencies sought comment on whether 
to expand the scope of application and definition of ``custodial 
banking organization'' to include a depository institution that is not 
controlled by a holding company and that has a ratio of AUC-to-total 
assets of at least 30:1. For the reasons stated in the proposal,\29\ 
the OCC is considering this question for a future rulemaking.
---------------------------------------------------------------------------

    \29\ See 84 FR 18175, 18180 (April 30, 2019) for the agencies' 
description of this proposed addition to the rule and request for 
comment. As discussed previously, the agencies received no comments 
on this issue.
---------------------------------------------------------------------------

V. Interaction of Section 402 With Other Rules

A. Total Loss-Absorbing Capacity

    Under the Board's total loss-absorbing capacity (TLAC) rule, a 
covered company is subject to requirements that, in part, rely on the 
covered company's total leverage exposure.\30\ Thus, changes to the 
calculation of total leverage exposure under this final rule could 
affect the amount of eligible external TLAC required to be held by a 
covered company that is also a custodial banking organization. Under 
the proposal, the revised definition of total leverage exposure for 
custodial banking organizations would also apply for purposes of the 
TLAC rule.
---------------------------------------------------------------------------

    \30\ 12 CFR 252.60 through 252.65; 12 CFR 252.160 through 
252.167.
---------------------------------------------------------------------------

    Some commenters stated that the definition of total leverage 
exposure should be consistent across the supplementary leverage ratio 
and TLAC requirements. The commenters asserted that inconsistent 
treatment across the supplementary leverage ratio and TLAC requirements 
would be in tension with the legislative intent of section 402. 
Commenters stated that including central bank deposits in TLAC for 
custodial banking organizations could undermine the ability for such 
deposits to serve as a safe store of value for client cash during a 
stress event. In addition, commenters asserted that there is no 
compelling policy rationale for requiring a banking organization to 
include in TLAC an asset for which there is no corresponding capital 
requirement under the supplementary leverage ratio. Commenters also 
stated that the use of different measures for the supplementary 
leverage ratio and TLAC rule would increase complexity for bank capital 
allocation without improving risk assessment, because the differences 
between the measures would only reflect the amount of central bank 
placements.
    The agencies are adopting as final the proposed treatment of total 
leverage exposure. This treatment will align the TLAC rule with the 
supplementary leverage ratio and reduce burden by not requiring 
separate calculations for total leverage exposure under each of the 
TLAC rule and the supplementary leverage ratio.

B. The Enhanced Supplementary Leverage Ratio and Other Comments on the 
Proposal

    Several commenters acknowledged that the agencies are required to 
implement section 402 but raised various concerns regarding the 
potential effect that implementation of section 402 could have on other 
aspects of the banking sector. Two commenters raised concerns that 
implementation of section 402 would lead to a market concentration in 
custody services and provide custodial banking organizations with a 
competitive advantage relative to banking organizations that are 
subject to the supplementary leverage ratio but are not eligible to 
exclude central bank deposits. To help mitigate these concerns, these 
commenters urged for finalization of the proposal to recalibrate the 
eSLR standards issued by the Board and OCC.\31\
---------------------------------------------------------------------------

    \31\ 83 FR 17317 (April 19, 2018).
---------------------------------------------------------------------------

    The agencies did not propose recalibrating the eSLR standards as 
part of this rulemaking. Therefore, the agencies view comments on the 
eSLR standards as outside the scope of this rulemaking. Another 
commenter noted that while the agencies are required to implement 
section 402, the agencies are not prevented from using other 
authorities to counteract the potential effects of section 402 through 
making changes to other parts of the capital rule. As noted above, the 
proposal was designed to implement section 402, and the agencies did 
not seek comment on other changes. Changes to the capital rule that do 
not address the supplementary leverage ratio are outside of the scope 
of this rulemaking, but may be considered by the agencies in subsequent 
rulemakings.

VI. Impact Analysis

    Under the final rule, a top-tier U.S. depository institution 
holding company that qualifies as a custodial banking organization, and 
any of its depository institution subsidiaries, will be able to exclude 
certain central bank deposits

[[Page 4575]]

from total leverage exposure, subject to limits as described above. For 
custodial banking organization holding companies and their lead 
depository institution subsidiaries, the agencies estimate that central 
bank deposits eligible for exclusion represent between 20 and 28 
percent of their total leverage exposure.\32\ Based on an exclusion of 
this amount from each of these banking organization's total leverage 
exposure, the final rule may result in an estimated decrease in the 
amount of tier 1 capital required by the supplementary leverage ratio 
of approximately $8 billion in aggregate across the top-tier U.S. 
depository institution holding companies and approximately $8 billion 
in aggregate across their lead depository institution subsidiaries.\33\ 
However, this estimate relates solely to the supplementary leverage 
ratio and does not take into account any other applicable capital 
constraints that would prevent a decrease in tier 1 capital. Rather, 
the binding capital requirement for a given banking organization is the 
capital requirement that requires the highest amount of regulatory 
capital.\34\ Holding companies are subject to leverage, risk-based, and 
post-stress capital requirements, and only one of these requirements 
binds an individual holding company at any given time.\35\ Similarly, 
only one of the applicable leverage and risk-based capital requirements 
binds a depository institution at any given time.\36\ The risk profile 
and the capital requirements for the activities and exposures of a 
banking organization determine which capital requirement is binding.
---------------------------------------------------------------------------

    \32\ Analysis reflects data from the Consolidated Financial 
Statements for Holding Companies (FR Y-9C), the Consolidated Reports 
of Condition and Income for a Bank with Domestic and Foreign Offices 
(FFIEC 031), the Regulatory Capital Reporting for Institutions 
Subject to the Advanced Capital Adequacy Framework (FFIEC 101), as 
reported by The Bank of New York Mellon Corporation, Northern Trust 
Corporation, and State Street Corporation and their depository 
institution subsidiaries as of third quarter 2018, as well as data 
from the 2018 Comprehensive Capital Analysis and Review and 
confidential information on central bank deposits as of third 
quarter 2018 collected through the supervisory process. The 
reporting period of 2018 was chosen in the final rule for 
consistency and comparability of the impact analysis with the 
proposed rule.
    \33\ Because The Bank of New York Mellon Corporation and State 
Street Corporation are each U.S. GSIBs, the amount of tier 1 capital 
required to meet regulatory minimums and avoid limitations on 
capital distributions is based on a 5 percent minimum supplementary 
leverage ratio requirement at the holding company level and a 6 
percent minimum supplementary leverage ratio requirement at the 
depository institution subsidiary level. Because Northern Trust 
Corporation is not a U.S. GSIB, its required amount of tier 1 
capital is based on a 3 percent supplementary leverage ratio 
requirement at both the holding company and depository institution 
subsidiary levels.
    \34\ For purposes of this analysis, a capital requirement is 
considered binding at the level that it would impose restrictions on 
the ability of a banking organization to make capital distributions 
or if the banking organization would no longer be considered ``well 
capitalized'' under the agencies' prompt corrective action 
framework.
    \35\ The Board's capital plan rule requires certain large bank 
holding companies, including the U.S. GSIBs, to hold capital in 
excess of the minimum capital ratios by requiring them to 
demonstrate the ability to satisfy the capital requirements, 
including the supplementary leverage ratio, under stressful 
conditions. 12 CFR 225.8(e)(2).
    \36\ Depository institutions are not subject to post-stress 
capital requirements.
---------------------------------------------------------------------------

    Thus, the final rule would reduce the amount of tier 1 capital that 
must be maintained by a custodial banking organization holding company 
only if the supplementary leverage ratio currently serves as the 
binding capital requirement for the banking organization.\37\ Data from 
the third quarter of 2018 shows that top-tier U.S. depository 
institution holding companies that are expected to qualify as custodial 
banking organizations currently are bound by post-stress capital 
requirements. The risk-based capital standards applicable to these 
organizations also require a higher amount of tier 1 capital than the 
amount of tier 1 capital that would be required under the final rule 
for purposes of the supplementary leverage ratio. Therefore, the final 
rule is not expected to decrease the amount of tier 1 capital 
maintained by such holding companies.
---------------------------------------------------------------------------

    \37\ The findings set forth in this impact analysis with respect 
to the release of capital pertain only to the revisions under this 
rule, and do not consider the capital impact of anticipated or 
potential future changes to the capital rule.
---------------------------------------------------------------------------

    The supplementary leverage ratio as of the third quarter 2018 
serves as the binding constraint for two depository institution 
subsidiaries of custodial banking organization holding companies. 
Accordingly, under the final rule, the amount of tier 1 capital 
required of those institutions to the supplementary leverage ratio will 
decrease by approximately $7 billion, which represents approximately 23 
percent of the total amount of tier 1 capital that must be maintained 
by those institutions as of the third quarter 2018. As described above, 
given the applicable capital requirements for parent holding companies 
of these depository institutions, the final rule is not expected to 
decrease the amount of tier 1 capital maintained by such holding 
companies.
    One commenter expressed concern that the rule might allow custodial 
banking organizations to reduce the amount of tier 1 capital and urged 
the agencies to use other authorities to offset the potential capital 
impact. As described above, the capital standards and other constraints 
applicable at the custodial banking organization holding company level 
are expected to limit the amount of capital that such a holding company 
could distribute outside of the consolidated organization, thus 
limiting any safety and soundness or financial stability concerns for 
the holding company as a whole due to reduced requirements at the 
depository institution level. In addition, the agencies have regulatory 
and supervisory tools to ensure that depository institutions and 
holding companies maintain appropriate amounts of capital for their 
operations and risk profile.

VII. Regulatory Analyses

A. Paperwork Reduction Act

    The agencies' capital rule contains ``collections of information'' 
within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3501-3521). In accordance with the requirements of the PRA, the 
agencies may not conduct or sponsor, and the 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 OMB 
control number for the OCC is 1557-0318, Board is 7100-0313, and FDIC 
is 3064-0153. The information collections that are part of the 
agencies' capital rule will not be affected by this final rule and 
therefore no final submissions will be made by the FDIC or OCC to OMB 
under section 3507(d) of the PRA (44 U.S.C. 3507(d)) and Sec.  1320.11 
of the OMB's implementing regulations (5 CFR part 1320) in connection 
with this rulemaking.
    Related to the final rule, there are required changes to the 
Consolidated Reports of Condition and Income (Call Reports) (FFIEC 031, 
FFIEC 041, and FFIEC 051), the Regulatory Capital Reporting for 
Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 
101), and the Consolidated Financial Statements for Holding Companies 
(FR Y-9C; OMB No. 7100-0128 (Board)), which will be addressed through 
one or more separate Federal Register notices.\38\
---------------------------------------------------------------------------

    \38\ See 84 FR 53227 (October 4, 2019).
---------------------------------------------------------------------------

B. Regulatory Flexibility Act Analysis

    OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency, in connection with a proposed rule, to prepare an 
Initial Regulatory Flexibility Analysis describing the impact of the 
rule on small entities (defined by the Small Business

[[Page 4576]]

Administration (SBA) for purposes of the RFA to include commercial 
banks and savings institutions with total assets of $600 million or 
less and trust companies with total revenue of $41.5 million or less) 
or to certify that the proposed rule would not have a significant 
economic impact on a substantial number of small entities. As of 
December 31, 2018, the OCC supervised 782 small entities. The rule 
would impose requirements on four OCC supervised entities that are 
subject to the advanced approaches risk-based capital rule, which 
typically have assets in excess of $250 billion, and therefore would 
not be small entities. Therefore, the OCC certifies that the final rule 
would not have a significant economic impact on a substantial number of 
OCC-supervised small entities.
    Board: An initial regulatory flexibility analysis (IRFA) was 
included in the proposal in accordance with section 603(a) of the 
Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq. (RFA). In the 
IRFA, the Board requested comment on the effect of the proposed rule on 
small entities and on any significant alternatives that would reduce 
the regulatory burden on small entities. The Board did not receive any 
comments on the IRFA. The RFA requires an agency to prepare a final 
regulatory flexibility analysis unless the agency certifies that the 
rule will not, if promulgated, have a significant economic impact on a 
substantial number of small entities. Based on its analysis, and for 
the reasons stated below, the Board certifies that the rule will not 
have a significant economic impact on a substantial number of small 
entities.\39\
---------------------------------------------------------------------------

    \39\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    Under regulations issued by the Small Business Administration, a 
small entity includes a bank, bank holding company, or savings and loan 
holding company with assets of $600 million or less and trust companies 
with total assets of $41.5 million or less (small banking 
organization).\40\ On average since the second quarter of 2018, there 
were approximately 2,976 small bank holding companies, 133 small 
savings and loan holding companies, 70 small state member banks and no 
small trust companies.
---------------------------------------------------------------------------

    \40\ 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. 
84 FR 34261 (July 18, 2019). Consistent with the General Principles 
of Affiliation 13 CFR 121.103, 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.
---------------------------------------------------------------------------

    As discussed in the Supplementary Information section, the final 
rule revises the capital rule to implement section 402 of EGRRCPA. 
Specifically, the final rule allows custodial banking organization to 
exclude from the denominator of the supplementary leverage ratio 
certain funds of the banking organization that are deposited with 
central banks. The supplementary leverage ratio applies only to 
advanced approaches banking organizations, which are very large banking 
organizations and their depository institution subsidiaries regardless 
of size.\41\ Therefore, the final rule is not expected to apply to a 
substantial number of small entities.\42\ The Board does not expect 
that the final rule will result in a material change in the level of 
capital maintained by small banking organizations or in the compliance 
burden on small banking organizations. For these reasons, the Board 
does not expect the rule to have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \41\ See 12 CFR 217.100.
    \42\ To the extent any small entities are subject to the final 
rule, they will be small subsidiaries within large organizations and 
would be expected to rely on their parent banking organizations 
rather than bearing material costs in connection with the final 
rule.
---------------------------------------------------------------------------

    FDIC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires an agency, in connection with a final rule, to 
prepare and make available for public comment a final regulatory 
flexibility analysis that describes the impact of a final rule on small 
entities.\43\ However, a regulatory flexibility analysis is not 
required if the agency certifies that the 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 if they are either independently owned and 
operated or owned by a holding company that also has less than $600 
million in total assets.\44\
---------------------------------------------------------------------------

    \43\ 5 U.S.C. 601 et seq.
    \44\ The SBA defines a small banking organization as having $600 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See 13 CFR 121.201 
(as amended by 84 FR 34261, effective August 19, 2019). In its 
determination, the ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates.'' See 13 CFR 121.103. Following 
these regulations, the FDIC uses a covered entity's affiliated and 
acquired assets, averaged over the preceding four quarters, to 
determine whether the covered entity is ``small'' for the purposes 
of RFA.
---------------------------------------------------------------------------

    As of June 30, 2019, there were 3,424 FDIC-supervised institutions, 
of which 2,665 are considered small entities for the purposes of RFA. 
These small entities hold $514 billion in assets, accounting for 16.6 
percent of total assets held by FDIC-supervised institutions.\45\
---------------------------------------------------------------------------

    \45\ FDIC Call Report, June 30, 2019.
---------------------------------------------------------------------------

    The final rule applies to only three advanced approaches banking 
organizations, one of which has an IDI subsidiary that is FDIC-
supervised and has less than $600 million in total assets.\46\ However, 
that institution is not a small entity for the purposes of RFA since it 
is owned by a holding company with over $600 million in total assets. 
Since this final rule does not affect any FDIC-supervised institutions 
that are defined as small entities for the purposes of the RFA, the 
FDIC certifies that the rule will not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \47\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The agencies sought to present the 
final rule in a simple and straightforward manner, and did not receive 
any comments on the use of plain language.
---------------------------------------------------------------------------

    \47\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999).
---------------------------------------------------------------------------

D. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\48\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
IDIs, each Federal banking agency must consider, consistent with 
principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and clients 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.\49\
---------------------------------------------------------------------------

    \48\ 12 U.S.C. 4802(a).
    \49\ 12 U.S.C. 4802.
---------------------------------------------------------------------------

    The agencies considered the administrative burdens and benefits of 
the rule in determining its effective date

[[Page 4577]]

and administrative compliance requirements. As such, the final rule 
will be effective on April 1, 2020.

E. OCC Unfunded Mandates Reform Act of 1995 Determination

    The OCC has analyzed the final rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (UMRA).\50\ Under this analysis, 
the OCC considered whether the final rule includes a Federal mandate 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation). The 
UMRA does not apply to regulations that incorporate requirements 
specifically set forth in law.
---------------------------------------------------------------------------

    \50\ 2 U.S.C. 1531 et seq.
---------------------------------------------------------------------------

    The OCC's estimated UMRA cost is near zero. Therefore, the OCC 
finds that the final rule does not trigger the UMRA cost threshold. 
Accordingly, the OCC has not prepared the written statement described 
in section 202 of the UMRA.

F. The Congressional Review Act

    For purposes of Congressional Review Act, the Office of Management 
and Budget (OMB) makes a determination as to whether a final rule 
constitutes a ``major'' rule.\51\ If a rule is deemed a ``major rule'' 
by OMB, the Congressional Review Act generally provides that the rule 
may not take effect until at least 60 days following its 
publication.\52\
---------------------------------------------------------------------------

    \51\ 5 U.S.C. 801 et seq.
    \52\ 5 U.S.C. 801(a)(3).
---------------------------------------------------------------------------

    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in (A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\53\ As required by the Congressional Review Act, the 
agencies will submit the final rule and other appropriate reports to 
Congress and the Government Accountability Office for review.
---------------------------------------------------------------------------

    \53\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Risk.

12 CFR Part 217

    Administrative practice and procedure, Banks, Banking, Capital, 
Federal Reserve System, Holding companies.

12 CFR Part 324

    Administrative practice and procedure, Banks, Banking, Capital 
adequacy, Savings associations, State non-member banks.

Office of the Comptroller of the Currency

    For the reasons set out in the joint preamble, the OCC amends 12 
CFR part 3 as follows:

PART 3--CAPITAL ADEQUACY STANDARDS

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

    Authority:  12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).


0
 2. Section 3.2 is amended by adding the definitions of ``Custody 
bank'', ``Fiduciary or custodial and safekeeping account'', and 
``Qualifying central bank'' in alphabetical order to read as follows:


Sec.  3.2  Definitions.

* * * * *
    Custody bank means a national bank or Federal savings association 
that is a subsidiary of a depository institution holding company that 
is a custodial banking organization under 12 CFR 217.2.
* * * * *
    Fiduciary or custodial and safekeeping account means, for purposes 
of Sec.  3.10(c)(4)(ii)(J), an account administered by a custody bank 
for which the custody bank provides fiduciary or custodial and 
safekeeping services, as authorized by applicable Federal or state law.
* * * * *
    Qualifying central bank means:
    (1) A Federal Reserve Bank;
    (2) The European Central Bank; and
    (3) The central bank of any member country of the OECD, if:
    (i) Sovereign exposures to the member country would receive a zero 
percent risk-weight under Sec.  3.32; and
    (ii) The sovereign debt of the member country is not in default or 
has not been in default during the previous 5 years.
* * * * *

0
 3. Section 3.10 is amended by revising paragraph (c)(4)(ii) 
introductory text and adding paragraph (c)(4)(ii)(J) to read as 
follows:


Sec.  3.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) * * *
    (ii) For purposes of this part, total leverage exposure means the 
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of 
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a 
clearing member national bank and Federal savings association and 
paragraph (c)(4)(ii)(J) for a custody bank:
* * * * *
    (J) A custodial bank shall exclude from its total leverage exposure 
the lesser of:
    (1) The amount of funds that the custody bank has on deposit at a 
qualifying central bank; and
    (2) The amount of funds that the custody bank's clients have on 
deposit at the custody bank that are linked to fiduciary or custodial 
and safekeeping accounts. For purposes of this paragraph (c)(4)(ii)(J), 
a deposit account is linked to a fiduciary or custodial and safekeeping 
account if the deposit account is provided to a client that maintains a 
fiduciary or custodial and safekeeping account with the custody bank, 
and the deposit account is used to facilitate the administration of the 
fiduciary or custody and safekeeping account.
* * * * *

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, chapter II of title 12 
of the Code of Federal Regulations is amended as set forth below:

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

0
4. The authority citation for part 217 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371, and 5371 note.

[[Page 4578]]


0
5. Section 217.2 is amended by adding the definitions of ``Custodial 
banking organization,'' ``Fiduciary or custodial and safekeeping 
accounts,'' and ``Qualifying central bank'' in alphabetical order to 
read as follows:


Sec.  217.2  Definitions.

* * * * *
    Custodial banking organization means:
    (1) A Board-regulated institution that is:
    (i) A top-tier depository institution holding company domiciled in 
the United States that has assets under custody that are at least 30 
times the amount of the depository institution holding company's total 
assets; or
    (ii) A state member bank that is a subsidiary of a depository 
institution holding company described in paragraph (1)(i) of this 
definition.
    (2) For purposes of this definition, total assets are equal to the 
average of the banking organization's total consolidated assets for the 
four most recent calendar quarters. Assets under custody are equal to 
the average of the Board-regulated institution's assets under custody 
for the four most recent calendar quarters.
* * * * *
    Fiduciary or custodial and safekeeping account means, for purposes 
of Sec.  217.10(c)(4)(ii)(J), an account administered by a custodial 
banking organization for which the custodial banking organization 
provides fiduciary or custodial and safekeeping services, as authorized 
by applicable Federal or state law.
* * * * *
    Qualifying central bank means:
    (1) A Federal Reserve Bank;
    (2) The European Central Bank; and
    (3) The central bank of any member country of the Organisation for 
Economic Co-operation and Development, if:
    (i) Sovereign exposures to the member country would receive a zero 
percent risk-weight under Sec.  217.32; and
    (ii) The sovereign debt of the member country is not in default or 
has not been in default during the previous 5 years.
* * * * *

0
6. Section 217.10 is amended by revising paragraph (c)(4)(ii) 
introductory text and adding paragraph (c)(4)(ii)(J) to read as 
follows:


Sec.  217.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) * * *
    (ii) For purposes of this part, total leverage exposure means the 
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of 
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a 
clearing member Board-regulated institution and paragraph (c)(4)(ii)(J) 
for a custodial banking organization:
* * * * *
    (J) A custodial banking organization shall exclude from its total 
leverage exposure the lesser of:
    (1) The amount of funds that the custodial banking organization has 
on deposit at a qualifying central bank; and
    (2) The amount of funds in deposit accounts at the custodial 
banking organization that are linked to fiduciary or custodial and 
safekeeping accounts at the custodial banking organization. For 
purposes of this paragraph (c)(4)(ii)(J), a deposit account is linked 
to a fiduciary or custodial and safekeeping account if the deposit 
account is provided to a client that maintains a fiduciary or custodial 
and safekeeping account with the custodial banking organization and the 
deposit account is used to facilitate the administration of the 
fiduciary or custodial and safekeeping account.
* * * * *

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

    For the reasons set forth in the preamble, chapter III of title 12 
of the Code of Federal Regulations is amended as set forth below.

PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS

0
7. The authority citation for part 324 continues to read as follows:

    Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, 
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).

0
8. Section 324.2 is amended by adding the definitions of ``Custody 
bank,'' ``Fiduciary or custodial and safekeeping accounts,'' and 
``Qualifying central bank'' in alphabetical order as follows:


Sec.  324.2  Definitions.

* * * * *
    Custody bank means an FDIC-supervised institution that is a 
subsidiary of a depository institution holding company that is a 
custodial banking organization under 12 CFR 217.2.
* * * * *
    Fiduciary or custodial and safekeeping account means, for purposes 
of Sec.  324.10(c)(4)(ii)(J), an account administered by a custody bank 
for which the custody bank provides fiduciary or custodial and 
safekeeping services, as authorized by applicable Federal or state law.
* * * * *
    Qualifying central bank means:
    (1) A Federal Reserve Bank;
    (2) The European Central Bank; and
    (3) The central bank of any member country of the Organisation for 
Economic Co-operation and Development, if:
    (i) Sovereign exposures to the member country would receive a zero 
percent risk-weight under Sec.  324.32; and
    (ii) The sovereign debt of the member country is not in default or 
has not been in default during the previous 5 years.
* * * * *

0
9. Section 324.10 is amended by revising paragraph (c)(4)(ii) 
introductory text and adding paragraph (c)(4)(ii)(J) to read as 
follows:


Sec.  324.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) * * *
    (ii) For purposes of this part, total leverage exposure means the 
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of 
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a 
clearing member FDIC-supervised institution and paragraph (c)(4)(ii)(J) 
for a custody bank:
* * * * *
    (J) A custody bank shall exclude from its total leverage exposure 
the lesser of:
    (1) The amount of funds that the custody bank has on deposit at a 
qualifying central bank; and
    (2) The amount of funds in deposit accounts at the custody bank 
that are linked to fiduciary or custodial and safekeeping accounts at 
the custody bank. For purposes of this paragraph (c)(4)(ii)(J), a 
deposit account is linked to a fiduciary or custodial and safekeeping 
account if the deposit account is provided to a client that maintains a 
fiduciary or custodial and safekeeping account with the custody bank 
and the deposit account is used to facilitate the administration of the 
fiduciary or custodial and safekeeping account.
* * * * *


[[Page 4579]]


    Dated: November 19, 2019.
Joseph M. Otting,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, November 19, 2019.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on November 19, 2019.
Annmarie H. Boyd,
Assistant Executive Secretary.
[FR Doc. 2019-28293 Filed 1-24-20; 8:45 am]
 BILLING CODE 6210-01-P 4810-33-P; 6714-01-P