[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Rules and Regulations]
[Pages 15576-15605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-04838]



[[Page 15575]]

Vol. 85

Wednesday,

No. 53

March 18, 2020

Part II





 Federal Reserve System





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





12 CFR Parts 217, 225, and 252





 Regulations Q, Y, and YY: Regulatory Capital, Capital Plan, and Stress 
Test Rules; Final Rule

  Federal Register / Vol. 85 , No. 53 / Wednesday, March 18, 2020 / 
Rules and Regulations  

[[Page 15576]]


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

FEDERAL RESERVE SYSTEM

12 CFR Parts 217, 225, and 252

[Docket No. R-1603]
RIN 7100-AF02


Regulations Q, Y, and YY: Regulatory Capital, Capital Plan, and 
Stress Test Rules

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

ACTION: Final rule.

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

SUMMARY: The Board is adopting a rule (final rule) that simplifies the 
Board's capital framework while preserving strong capital requirements 
for large firms. The final rule would integrate the Board's regulatory 
capital rule (capital rule) with the Comprehensive Capital Analysis and 
Review (CCAR), as implemented through the Board's capital plan rule 
(capital plan rule). The final rule makes amendments to the capital 
rule, capital plan rule, stress test rules, and Stress Testing Policy 
Statement. Under the final rule, the Board will use the results of its 
supervisory stress test to establish the size of a firm's stress 
capital buffer requirement, which replaces the static 2.5 percent of 
risk-weighted assets component of a firm's capital conservation buffer 
requirement. Through the integration of the capital rule and CCAR, the 
final rule would remove redundant elements of the current capital and 
stress testing frameworks that currently operate in parallel rather 
than together, including the CCAR quantitative objection and the 
assumption that a firm makes all capital actions under stress. The 
final rule applies to bank holding companies and U.S. intermediate 
holding companies of foreign banking organizations that have $100 
billion or more in total consolidated assets.

DATES: Effective May 18, 2020.

FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Senior Associate Director, 
(202) 263-4833, Constance Horsley, Deputy Associate Director, (202) 
452-5239, Juan Climent, Manager (202) 872-7526, Andrew Willis, Lead 
Financial Institution Policy Analyst, (202) 912-4323, Christopher 
Appel, Senior Financial Institution Policy Analyst II, (202) 973-6862, 
Hillel Kipnis, Senior Financial Institution Policy Analyst II, (202) 
452-2924, and Palmer Osteen, Financial Institution Policy Analyst, 
(202) 785-6025, Division of Supervision and Regulation; Benjamin 
McDonough, Assistant General Counsel, (202) 452-2036, Julie Anthony, 
Senior Counsel, (202) 475-6682, Mark Buresh, Senior Counsel, (202) 452-
5270, Asad Kudiya, Senior Counsel, (202) 475-6358, or Mary Watkins, 
Senior Attorney, (202) 452-3722, Legal Division, Board of Governors of 
the Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) 
only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Introduction
II. Background and Overview of the Final Rule
    A. Background on the Stress Testing and Regulatory Capital 
Frameworks
    B. Overview of the Proposed Rule and Summary of Comments
    C. Overview of the Final Rule
III. The Stress Capital Buffer Requirement
    A. Assumptions, Methodologies and Calculation Mechanics Used in 
Determining the Stress Capital Buffer Requirement
    i. Capital Distribution Assumptions
    ii. Balance Sheet Assumptions
    iii. Business Plan Changes
    iv. Calculation Mechanics
    B. Volatility of Capital Requirements and Severity of Scenarios
    i. Predictability of Capital Requirements and Stress Test 
Scenario Volatility
    ii. Abruptness of Buffer Restrictions
    C. Stress Leverage Buffer
    D. Effective Dates for Stress Capital Buffer Requirement
IV. Changes to the Capital Plan Rule
    A. Quantitative Objection
    B. Requirements for a Firm's Planned Capital Distributions
    C. Elimination of Prior Approval
    D. Timeline for Reviewing Capital Plans and Calculating the 
Stress Capital Buffer Requirement
    E. Request for Reconsideration
    F. Capital Plan Resubmission and Circumstances Warranting 
Recalculation of the Stress
V. Changes to the Capital Rule and Mechanics of Distribution 
Limitations
VI. Changes to the Stress Test Rules
VII. Impact Analysis
VIII. Changes to Regulatory Reports
IX. Administrative Law Matters
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Use of Plain Language

I. Introduction

    Over the past ten years, stress testing has become a fundamental 
element of the Federal Reserve's supervision program for large banking 
organizations. In the same time period, the Board has strengthened the 
ongoing regulatory capital requirements applicable to these firms. On 
April 10, 2018, the Board issued a proposal to simplify its stress 
testing and regulatory capital frameworks with the introduction of the 
stress capital buffer requirement (the proposal).\1\ This final rule 
adopts the stress capital buffer requirement set forth in the proposal 
with certain adjustments. As in the proposal, the Board will use the 
results of its supervisory stress test to determine a firm's stress 
capital buffer requirement. A firm's stress capital buffer requirement, 
which varies based on a firm's risk, replaces the fixed 2.5 percent of 
risk-weighted assets portion of its capital conservation buffer 
requirement. A firm that does not maintain capital ratios above its 
minimums plus its buffer requirements faces restrictions on its capital 
distributions and discretionary bonus payments. This approach 
integrates CCAR with the capital rule, simplifies the Board's overall 
approach to capital regulation, and preserves strong capital 
requirements. Separate from the final rule, the Board intends to 
propose at a future date modifications to further simplify and increase 
the transparency of the stress testing framework.
---------------------------------------------------------------------------

    \1\ See 80 FR 18160 (April 25, 2018).
---------------------------------------------------------------------------

II. Background and Overview of the Final Rule

A. Background on the Stress Testing and Regulatory Capital Frameworks

    At the height of the 2008-2009 financial crisis, the Board created 
the Supervisory Capital Assessment Program (SCAP) as a way to help 
restore confidence in the largest U.S. banking organizations. SCAP 
estimated potential losses at those firms assuming that economic and 
financial conditions worsened. Building on the success of SCAP, the 
Board implemented the capital plan rule, which requires the largest 
firms to develop and maintain capital plans supported by robust 
processes for assessing their capital adequacy. The CCAR exercise 
established a quantitative assessment of firms' capital adequacy for 
all subject firms and a qualitative assessment of the capital planning 
practices of the largest and most complex firms' capital planning 
practices. The quantitative assessment includes an evaluation of firms' 
capital adequacy and their ability to continue to lend and absorb 
potential losses under severely adverse conditions. Under the CCAR 
quantitative evaluation, a firm is required to demonstrate the ability 
to maintain capital ratios above the minimum requirements under stress, 
taking into account nine quarters of planned capital distributions. In 
the qualitative assessment, the Federal Reserve evaluated how the 
largest and most complex firms identify, measure,

[[Page 15577]]

and determine capital needs for their material risks.
    At the same time that the Board was building the stress testing 
program, it was also making changes to its capital rule to address 
weaknesses observed during the 2008-2009 financial crisis.\2\ These 
changes included the establishment of a minimum common equity tier 1 
(CET1) capital requirement and a fixed capital conservation buffer 
equal to 2.5 percent of risk-weighted assets.\3\ Large banking 
organizations also became subject to a countercyclical capital buffer 
requirement, and the largest and most systemically important firms--
global systemically important bank holding companies, or GSIBs--became 
subject to an additional capital buffer based on a measure of their 
systemic risk, the GSIB surcharge.\4\ The capital rule's buffer 
requirements impose increasingly strict automatic limits on capital 
distributions as a firm's capital ratios decline toward the minimum 
requirements. For example, a firm in the bottom quartile of its capital 
conservation buffer may not make any capital distributions without 
prior approval from the Board.
---------------------------------------------------------------------------

    \2\ See 12 CFR part 217.
    \3\ See 12 CFR 217.11.
    \4\ See 80 FR 49082 (August 14, 2015).
---------------------------------------------------------------------------

    Stress testing and stronger capital requirements have significantly 
improved the resilience of the U.S. banking system. The common equity 
capital ratios of firms subject to CCAR have more than doubled since 
2009. Combined, these firms hold more than $1 trillion of CET1 capital. 
Notwithstanding these important improvements, the Board believes it is 
prudent to periodically review its regulations to ensure they are 
achieving their goals in an effective and efficient manner. 
Importantly, although the capital plan rule and the capital rule share 
similar goals, they were developed separately, and this has led to 
certain significant redundancies in the Board's capital framework. In 
keeping with other recent efforts to improve the efficiency and risk-
sensitivity of its regulations, the Board is adopting this final rule 
to integrate the overlapping requirements in the capital plan rule and 
the capital rule to increase the efficiency and simplicity of the 
Board's capital framework while maintaining its risk sensitivity and 
improvements in capital adequacy.

B. Overview of the Proposed Rule and Summary of Comments

    Under the proposed rule, for each firm subject to the capital plan 
rule, the Board would have calculated a stress capital buffer 
requirement based on the results of the supervisory stress test and 
four quarters of planned common stock dividends. The stress capital 
buffer requirement would have replaced the fixed 2.5 percent component 
of a firm's capital conservation buffer requirement. The proposal also 
would have introduced a stress leverage buffer on top of the 4 percent 
minimum leverage ratio requirement for firms subject to the capital 
plan rule. A firm's stress capital buffer requirement would have been 
``floored'' at 2.5 percent of risk-weighted assets, whereas the stress 
leverage buffer requirement would not have included a floor. A firm 
would have been required to maintain risk-based and leverage-based 
capital ratios above its buffer requirements in order to avoid 
restrictions on its capital distributions and certain discretionary 
bonus payments. The proposal also would have made changes to the 
Board's capital plan and stress test rules and related policy 
statements, and would have eliminated: (1) The assumption that a firm 
would make all planned capital distributions over the planning horizon, 
(2) the assumption that a firm's balance sheet assets would increase 
over the planning horizon, (3) the quantitative objection in CCAR; and 
(4) the 30 percent dividend payout ratio as a criterion for heightened 
scrutiny of a firm's capital plan.
    The Board received twenty-six comments on the proposal from banking 
organizations, public interest groups, private individuals, and other 
interested parties. Many commenters were supportive of the proposal's 
goal of integrating CCAR and the Board's capital rule. Commenters had 
mixed views, however, on the calibration of the stress capital buffer 
requirement, the need for a stress leverage buffer, the proposed 
changes to the assumptions in the Board's stress testing framework, and 
the flexibility provided to firms in their capital planning.\5\
---------------------------------------------------------------------------

    \5\ The Board received a number of comments that were outside of 
the scope of the proposal. In particular, commenters recommended 
further revisions related to the U.S. GSIB capital surcharge rule, 
total loss absorbing capacity rule, and current expected credit 
losses standard.
---------------------------------------------------------------------------

    Some commenters asserted that the proposed stress capital buffer 
requirement was too stringent, particularly when combined with the GSIB 
surcharge and the countercyclical capital buffer, and suggested 
alternatives. Other commenters asserted that it was important for the 
Federal Reserve to not take action that would lower capital 
requirements for any firm given improvements in capital since the 2008-
2009 financial crisis and that the Board should retain the assumption 
that firms make nine quarters of dividends and share repurchases in the 
stress test.
    Some commenters urged the Board to eliminate the proposed stress 
leverage buffer requirement, noting that its inclusion adds complexity 
to capital requirements and is inconsistent with the role of the 
leverage ratio as a backstop to risk-based capital requirements. These 
commenters were concerned that the proposed stress leverage buffer 
requirement would increase the probability that a banking 
organization's binding post-stress capital constraint would be a 
leverage requirement rather than a risk-based requirement. Some of 
these commenters argued that there should be a clearer delineation 
between the capital framework's risk-based and non-risk-based measures. 
Other commenters supported adopting the proposed stress leverage buffer 
requirement and urged the Board to retain a post-stress capital 
requirement for the supplementary leverage ratio to maintain the 
practice of evaluating off-balance sheet exposures in the supervisory 
stress test.
    Regarding the proposed changes to the assumptions in the stress 
test, some commenters argued that the Board should not include four 
quarters of common stock dividends in the stress capital buffer 
requirement because the capital rule already contains a distribution 
limitation mechanism to restrict a firm from making dividend payments 
if its capital ratios were at or below its minimums plus buffer 
requirements. Other commenters argued that not only should the Board 
include four quarters of dividends in the stress capital buffer 
requirement, but that the Board also should retain its assumption that 
a firm makes nine quarters of share repurchases and dividends as 
certain firms made dividend payments and executed share repurchases 
well into the beginning of the 2008-2009 financial crisis.
    Several commenters supported the proposed modifications to the 
balance sheet growth assumptions. Other commenters asserted that the 
Board should assume that trading assets would decline under stress, as 
such a reduction would align with reasonable expectations under stress. 
Still other commenters disagreed with the proposed modification to the 
balance sheet growth assumptions, as the current assumption that 
balance sheet assets would grow over the planning horizon helped to 
ensure that firms can lend and support the real economy during stress. 
These commenters were concerned that the proposed revisions would not 
ensure that banks would

[[Page 15578]]

continue their credit intermediation function during a recession.
    Some commenters asserted that, in light of the proposal integrating 
CCAR with the capital rule, the Board should address the potential 
volatility of Board's stress testing framework, including revising the 
Board's scenario design process and revising the definition of eligible 
retained income in the capital rule to ensure that the distribution 
restrictions in the capital rule gradually restrict a firm's ability to 
make capital distributions. Finally, regarding the ability of a firm to 
make distributions in excess of those in its capital plan, some 
commenters supported allowing the firm to exceed its planned capital 
distributions if its capital ratios were above those projected in the 
bank holding company baseline scenario projections.\6\ Others 
recommended allowing a firm to increase its planned capital 
distributions without prior approval from the Board as long as the firm 
did not exceed the distributions permitted under the capital rule's 
capital conservation buffer requirement. Other commenters supported 
maintaining the requirement that a firm seek approval from the Board 
before making capital distributions in excess of those in its capital 
plan, arguing that removing this requirement would weaken capital 
standards by allowing banks additional leeway in making capital 
distributions.
---------------------------------------------------------------------------

    \6\ The capital plan rule requires firms to submit a request to 
the Board for approval of a capital distribution that exceeds the 
amount of capital distributions described in a firm's annual capital 
plan submission.
---------------------------------------------------------------------------

C. Overview of the Final Rule

    The final rule integrates the capital plan rule and the capital 
rule by using the results of the supervisory stress test to establish a 
firm's stress capital buffer requirement and establish a unified 
approach to capital distribution limitations. Specifically, a firm's 
stress capital buffer requirement is calculated as: (1) The difference 
between the firm's starting and minimum projected CET1 capital ratios 
under the severely adverse scenario in the supervisory stress test 
(stress test losses) plus (2) the sum of the dollar amount of the 
firm's planned common stock dividends for each of the fourth through 
seventh quarters of the planning horizon as a percentage of risk-
weighted assets (dividend add-on).\7\ A firm must maintain capital 
ratios above the sum of its minimum requirements and buffer 
requirements in order to avoid restrictions on capital distributions 
and discretionary bonus payments.
---------------------------------------------------------------------------

    \7\ The planning horizon is the period of at least nine 
consecutive quarters over which the relevant projections extend, 
beginning with the quarter preceding the quarter in which the firm 
submits its capital plan.
---------------------------------------------------------------------------

    In a change from the proposal, the final rule does not include a 
stress leverage buffer requirement in order to maintain a clear 
distinction between the capital framework's risk-based and non-risk-
based capital requirements. In addition, to address the potential 
volatility of the stress capital buffer requirement and to ensure that 
the distribution limitations in the capital rule work as intended, the 
final rule revises the definition of eligible retained income to a 
quarterly average net income measure under certain conditions.
    The final rule adjusts the distribution assumptions used in CCAR by 
no longer presuming that a firm will make all planned capital 
distributions, including common stock dividends and repurchases, over 
the nine-quarter planning horizon. Instead, a firm's stress capital 
buffer requirement includes four quarters of planned common stock 
dividends (in the fourth through seventh quarters of the nine-quarter 
planning horizon). In a change from the proposal, to simplify the 
calculation of the dividend add-on and to create consistency between 
the calculation of the dividend add-on and the portion of the stress 
capital buffer requirement attributable to the decline in CET1 ratios, 
the Board will no longer calculate the dividend add-on as the sum of 
the ratios of the dollar amount of the firm's planned common stock 
dividends divided by the projected risk-weighted assets for each of the 
fourth through seventh quarters of the planning horizon. Instead the 
divided-add-on will be calculated by dividing the sum of the four 
quarters of planned common stock dividends by the projected risk-
weighted assets from the quarter in which the firm's projected CET1 
capital ratio reaches its minimum in the supervisory stress test.
    In addition, the final rule adjusts the methodology used in the 
supervisory stress test to assume that a firm takes actions to maintain 
a constant level of assets, including loans, trading assets, and 
securities over the planning horizon. In a change from the proposal, to 
simplify the stress test and to avoid potentially double-counting the 
impact of a merger or acquisition, the stress capital buffer 
requirement in the final rule does not include the projected impact of 
material business plan changes. Instead, any impact of these business 
changes will be reflected in a firm's ongoing capital ratios once the 
business plan change is consummated. As in current CCAR, the Board may 
require a firm to resubmit its capital plan and recalculate the firm's 
stress capital buffer requirement in the event of material business 
changes.
    The final rule also modifies certain elements in CCAR to further 
the goal of establishing a unified approach to capital distribution 
limitations. Specifically, the final rule eliminates the once-a-year 
quantitative objection process, given the integration of stress-test 
results into the stress capital buffer requirement's automatic 
distribution limitations.\8\ Relatedly, the final rule eliminates the 
30 percent dividend payout ratio as a criterion for heightened scrutiny 
of a firm's capital plan.
---------------------------------------------------------------------------

    \8\ In March 2019, the Board eliminated the CCAR qualitative 
objection for most firms. 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.
---------------------------------------------------------------------------

    Finally, while the final rule continues to require a firm to 
describe its planned capital distributions in a capital plan, a firm is 
no longer required to seek prior approval if it makes capital 
distributions in excess of those included in its capital plan (so long 
as the firm is otherwise in compliance with the capital rule's 
automatic restrictions on distributions). This approach harmonizes the 
approach to capital distributions in the capital plan rule and the 
capital rule. A similar change was made to provide additional 
flexibility in the ``adjustment process'' to permit a firm to increase 
its planned capital distributions upon receipt of its initial stress 
capital buffer requirement.\9\
---------------------------------------------------------------------------

    \9\ Upon completion of the supervisory stress test, the Federal 
Reserve will provide each firm with the results of its post-stress 
capital analysis, and each firm will have an opportunity to make a 
one-time adjustment to its planned capital actions.
---------------------------------------------------------------------------

III. The Stress Capital Buffer Requirement

    This section describes the calculation of the stress capital buffer 
requirement, including its calibration, and the changes to the 
assumptions in the Board's stress testing framework. The final rule 
adopts the calculation of the stress capital buffer requirement as 
proposed. It also includes a revised definition of eligible retained 
income, which affects how the stress capital buffer requirement limits 
capital distributions. As discussed below, and in response to comments, 
the final rule does not include a stress leverage buffer requirement.

[[Page 15579]]

A. Assumptions, Methodologies and Calculation Mechanics Used in 
Determining the Stress Capital Buffer Requirement

    The calculation of the stress capital buffer requirement generally 
includes the changes described in the proposal related to capital 
distribution and balance sheet assumptions. This section discusses the 
comments received on the proposed calculation of the stress capital 
buffer requirement and changes made in response to comments.
i. Capital Distribution Assumptions
    In its assessment of capital plans through CCAR, the Board assumed 
that a firm would make all nine quarters of its planned capital 
distributions, including dividend payments and share repurchases, under 
stress. The proposal would have modified this assumption to no longer 
assume that a firm made these planned capital distributions but, 
instead, would have included four quarters of planned common stock 
dividends in the calculation of the stress capital buffer requirement. 
In addition, the proposal would have eliminated the 30 percent dividend 
payout ratio as a criterion for heightened scrutiny of a firm's capital 
plan.
    Commenters generally were supportive of the proposal to eliminate 
all nine quarters of planned capital distributions. Several commenters 
similarly were opposed to including four quarters of planned dividends 
in the calculation of the stress capital buffer requirement, viewing it 
as unnecessary, complicated, and unduly punitive given the capital 
rule's existing automatic restrictions on capital distributions. These 
commenters asserted that if the Board maintains this requirement, it 
should allow a firm to continue to pay its planned dividends if the 
firm's capital ratios were in the dividend add-on portion of its buffer 
requirements. In addition, several commenters asserted that the 
underlying rationale for including four quarters of planned dividends 
does not apply to U.S. intermediate holding companies of foreign 
banking organizations given their ownership structures.
    Other commenters were supportive of including distributions in the 
calculation of the stress capital buffer requirement to create strong 
incentives for disciplined, forward-looking capital planning. Some 
commenters also argued that requiring a four-quarter dividend add-on is 
arbitrary and inconsistent with historical experience, while other 
commenters recommended that repurchases and redemptions should also 
factor into the stress capital buffer requirement.
    After considering these comments, the Board is adopting the 
proposed changes to the capital distribution assumptions, as proposed. 
Although including four quarters of planned common stock dividends in 
the calculation of a firm's stress capital buffer requirement adds a 
level of complexity to the stress capital buffer requirement 
calculation process, this approach is one way of promoting forward-
looking dividend planning given historical experience. During the last 
financial crisis, many firms continued to make significant 
distributions of capital, including through dividends, without due 
consideration of the effects that a prolonged economic downturn could 
have on their capital adequacy. In addition, the dividend add-on 
requirement is one way to mitigate the procyclicality of the Board's 
stress testing framework, because dividends tend to be higher when the 
economy is strong and earnings are high.\10\
---------------------------------------------------------------------------

    \10\ As in the current supervisory post-stress capital 
assessment, the Board will continue to assume in the supervisory 
stress test that a firm will make payments on any instrument that 
qualifies as additional tier 1 capital or tier 2 capital equal to 
the stated dividend, or contractual interest or principal due on 
such instrument during the quarter. Based on supervisory experience, 
reductions in these payments are generally viewed by market 
participants as a sign of material weakness, and firms are therefore 
likely to make them even under stressful conditions (see 12 CFR 
217.20(c) and (d)).
---------------------------------------------------------------------------

    To further simplify the Board's stress test framework, the final 
rule also removes the 30 percent dividend payout ratio applied as a 
criterion for heightened supervisory scrutiny of a firm's capital plan. 
This criterion was adopted to encourage firms to increase payouts 
through additional share repurchases rather than dividends. A dividend 
payout ratio criterion is no longer necessary because the final rule's 
automatic distribution limitations, combined with the perceived market 
signaling effect of dividend cuts, will sufficiently restrict dividend 
increases in the future.
    One commenter suggested that the Board include issuances related to 
employee compensation in the stress capital buffer requirement 
calculation as an offset to the impact on retained earnings that would 
be embedded in the stress test results. The final rule does not include 
most other capital actions in the stress test and excluding employee 
stock issuances, along with related share repurchases, is consistent 
with this approach. This approach also will make the stress test 
results more comparable across firms and more transparent to the 
public. Similar to other capital actions that are not included in the 
stress test results, in real-time, issuances related to employee 
compensation increase a firm's capital ratio and, therefore, impact the 
firm's ability to avoid the automatic distribution limitations. For 
these reasons, the final rule excludes such issuances in the 
calculation of the stress capital buffer requirement, consistent with 
the proposal.
ii. Balance Sheet Assumption
    Under the proposal, the Board would have modified its methodology 
for projecting a firm's balance sheet in the supervisory stress test. 
The proposal would have updated the Board's Stress Testing Policy 
Statement to include the assumption that a firm takes actions to 
maintain its current level of assets, including securities, trading 
assets, and loans, over the planning horizon.\11\ This assumption would 
have simplified the current supervisory stress test and also dissuaded 
firms from planning to reduce credit supply in a stress scenario. In 
addition, the proposal would have revised the Stress Testing Policy 
Statement to reflect that, in its projections, the Board would assume 
that a firm's risk-weighted assets and leverage ratio denominator 
remain unchanged over the planning horizon except for changes primarily 
related to deductions from regulatory capital or changes in the Board's 
regulations.
---------------------------------------------------------------------------

    \11\ While the Board will assume in the supervisory post-stress 
capital assessment that a firm's balance sheet does not grow, in a 
firm's company-run stress tests, the Board expects each firm's 
projected balance sheet to be consistent with each scenario and the 
firm's business strategy.
---------------------------------------------------------------------------

    Many commenters supported the proposed change to assume that the 
size of a firm's balance sheet remains constant over the planning 
horizon, arguing that this change would make the supervisory 
projections more realistic. Commenters opposing the proposed change 
argued that the Federal Reserve should continue to model balance sheet 
growth, noting that bank balance-sheets have grown during periods of 
stress and that CCAR should continue to evaluate whether a firm could 
continue to provide credit and support the real economy. Other 
commenters suggested that rather than assuming no growth, the Board's 
projections should assume that market declines and losses would reduce 
trading assets and risk-weighted assets. Commenters also requested that 
the Board require firms to make consistent assumptions in stress tests 
conducted by the firm.
    Consistent with the proposal, the final rule revises the Board's 
Stress Testing Policy Statement to include the assumption that a firm 
takes actions to

[[Page 15580]]

maintain its current level of assets over the planning horizon. 
Although a firm's balance sheet may change in different ways in periods 
of stress, a constant balance sheet assumption simplifies the Board's 
stress testing framework, while dissuading firms from planning to 
reduce credit supply in a stress scenario.
iii. Business Plan Changes
    Similar to the Board's current methodology, the proposal would have 
reflected the impact of expected changes to a firm's business plan that 
are likely to have a material impact on the firm's capital adequacy and 
funding profile (material business plan changes) in balance sheet, 
risk-weighted asset, and leverage ratio denominator projections for 
purposes of calculating the stress capital buffer requirement.\12\ One 
commenter suggested that the Board not reflect the impact of a material 
business plan change, such as a merger or acquisition, in a firm's 
stress capital buffer requirement because the impact would be reflected 
in the firm's balance sheet and risk-weighted assets once the merger or 
acquisition is consummated. This commenter argued that this approach 
would result in double-counting the impact of a merger or acquisition.
---------------------------------------------------------------------------

    \12\ A firm's capital plan must include a discussion of any 
expected changes to its business plan that are likely to have a 
material impact on the firm's capital adequacy or liquidity. See 12 
CFR 225.8(e)(2)(iv).
---------------------------------------------------------------------------

    The final rule does not incorporate material business plan changes 
in a firm's stress capital buffer requirement. For example, planned 
issuances of common or preferred stock in connection with a planned 
merger or acquisition will not be included in the stress capital buffer 
requirement calculation. In addition, any planned common stock 
dividends attributable to issuances that would be made in connection 
with a planned merger or acquisition will also not be included in the 
stress capital buffer requirement calculation.\13\ Excluding material 
business plan changes from the stress capital buffer requirement would 
simplify the framework and reduce burden. Material changes to a firm's 
business plan resulting from a merger or acquisition are incorporated 
into a firm's capital and risk-weighted assets upon consummation of the 
transaction. Including these changes in a firm's stress capital buffer 
requirement may overstate the impact of the business plan change while 
also adding complexity associated with predicting the impact of the 
material change in a firm's balance sheet.
---------------------------------------------------------------------------

    \13\ Specifically, the dividend add-on portion of a firm's 
stress capital buffer requirement will exclude dividends planned for 
the fourth through seventh quarters of the planning horizon to the 
extent that these dividends are associated with a material business 
plan change. To isolate and exclude dividends associated with a 
material business plan change from other dividends, the Board will 
rely on information submitted in the capital plans and may collect 
additional information from firms.
---------------------------------------------------------------------------

    In addition, the final rule would continue to require a firm to 
include in its capital plan a discussion of any expected changes to the 
firm's business plan that are likely to have a material impact on the 
capital adequacy or liquidity position of the firm. This requirement 
would help to ensure that a firm appropriately plans for changes to its 
business. If the material business plan change resulted in or would 
result in a material change in a firm's risk profile, the firm would be 
required to resubmit its capital plan and the Board may determine to 
recalculate the stress capital buffer requirement based on the 
resubmitted capital plan.
    The final rule would make conforming changes to the Board's stress 
testing rules to align with exclusion of material business plan changes 
in the calculation of the stress capital buffer requirement. The final 
rule also would make conforming changes to the Stress Test Policy 
Statement.
iii. Calculation Mechanics
    The proposal would have established a firm's stress capital buffer 
requirement based on the difference between the firm's starting and 
minimum projected CET1 capital ratios under the severely adverse 
scenario in the supervisory stress test. One commenter argued that the 
stress capital buffer requirement should be based on absolute dollar 
values of capital depletion rather than ratios, because a firm's losses 
in the stress test do not necessarily correspond to risk-weighted 
assets or total balance-sheet assets. In addition, one commenter argued 
for more frequent recalibration of a firm's stress capital buffer 
requirement.\14\
---------------------------------------------------------------------------

    \14\ See Section IV.F for further discussion on the 
recalculation of the stress capital buffer requirement.
---------------------------------------------------------------------------

    To ensure the capital framework is sufficiently risk-sensitive, the 
stress capital buffer requirement under the final rule is based on 
projected changes in a firm's capital ratio.\15\ Using the change in 
projected capital ratios, and not the projected dollars of losses, 
allows a firm's capital requirements to be sensitive to changes in its 
risk-weighted assets throughout the year. Under this approach, the 
Federal Reserve assumes that stress losses are related to a firm's 
risk-weighted assets. Under the commenter's recommendation, any 
increase in risk-weighted assets during the course of the year would be 
treated as having zero dollars of losses in the stress test, thereby 
reducing risk sensitivity of the capital requirements. With respect to 
frequency of the stress capital buffer requirement calculation, 
calculating the stress capital buffer requirement with the same 
frequency as the stress test promotes both stability in capital 
requirements and risk sensitivity. As discussed in Section IV.F, if a 
firm experiences or will experience a material change in its risk 
profile, the Board may determine to recalculate the firm's stress 
capital buffer requirement. The Board is therefore adopting the 
calculation of the stress capital buffer requirement as proposed.
---------------------------------------------------------------------------

    \15\ A firm's stress capital buffer requirement will be 
calculated up to a single decimal place (e.g.-2.7).
---------------------------------------------------------------------------

B. Volatility of Capital Requirements and Severity of Scenarios

i. Predictability of Capital Requirements and Stress Test Scenario 
Volatility
    Commenters raised concerns about potential volatility in capital 
requirements as a result of the Board's stress testing framework under 
the proposal. Some commenters suggested calculation changes to limit 
the year-over-year changes in a firm's stress capital buffer 
requirement. Another commenter suggested reducing volatility by basing 
the stress capital buffer requirement on firm-developed models, to be 
reviewed by the Federal Reserve.
    While the proposal would not have amended the Board's scenario 
design framework, commenters recommended that the Board enhance the 
transparency of the scenario design process, including by providing 
more parameters and shock ranges, in order to reduce the uncertainty 
associated with capital requirements. Commenters had a number of 
recommendations for enhancing the transparency of scenarios used in the 
supervisory stress test. Many commenters supported publishing each 
year's severely adverse scenario for notice and comment. Other 
commenters, however, thought that publishing the scenario for comment 
may lead to pressure to not include salient risks that reflect current 
market conditions.
    Some degree of volatility is inherent to risk-based capital 
requirements, including those determined by stress testing, as such 
requirements are sensitive to changes in a firm's activities, exposures 
and changes to macroeconomic conditions. In addition, some volatility 
in stress test results is to be expected because the stress test is

[[Page 15581]]

designed to capture a firm's vulnerability to plausible and salient 
risks to the U.S. financial system. The Federal Reserve continues to 
study potential ways to mitigate unnecessary volatility in 
requirements, while retaining plausible changes in the scenarios to 
reflect changing risks.
    To provide firms and the public with greater transparency regarding 
the Board's process for designing supervisory scenarios for stress 
testing, in 2013 the Board finalized a Policy Statement on the Scenario 
Design Framework for Stress Testing (Scenario Policy Statement).\16\ On 
February 5, 2019, the Board released materials intended to increase the 
transparency of the stress testing program.\17\ First, the Board 
updated the Scenario Policy Statement to provide additional information 
regarding the path of home price variables, in particular, reducing 
uncertainty about the path of these variables in the severely adverse 
scenario. Second, the Board adopted a final Stress Testing Policy 
Statement to provide additional information about the Board's 
principles and policies with regard to supervisory stress test model 
development and validation.\18\ As described in the Stress Testing 
Policy Statement, material changes to the supervisory stress test 
models are phased in over two years to reduce year-over-year volatility 
stemming from updates to the supervisory models.\19\ This approach 
contributes to the stability of the results of the supervisory stress 
test by ensuring changes in model projections primarily reflect changes 
in underlying risk factors and scenarios, year over year. Third, the 
Board provided additional information about the models used in the 
supervisory stress test.\20\ The Board is committed to continuing to 
provide additional information, including modeled loss rates by loan 
and borrower characteristics, of its stress test models as it has done 
most recently for its corporate loan and credit card models.\21\
---------------------------------------------------------------------------

    \16\ See 12 CFR part 252, Appendix A.
    \17\ https://www.federalreserve.gov/newsevents/pressreleases/bcreg20190205a.htm.
    \18\ See 12 CFR part 252, Appendix B.
    \19\ The Policy Statement defines a model change as highly 
material if its use results in a change in the CET1 ratio of 50 
basis points or more for one or more firms, relative to the model 
used in prior years' supervisory exercises. See 12 CFR 252, Appendix 
B 2.3.
    \20\ See 84 FR 6784 (February 5, 2019).
    \21\ See Board of Governors of the Federal Reserve System, Dodd 
Frank Act Stress Test 2019: Supervisory Stress Test Methodology 
(March 2019), https://www.federalreserve.gov/publications/files/2019-march-supervisory-stress-test-methodology.pdf.
---------------------------------------------------------------------------

    Regarding the publication of scenarios for comment, the Board is 
considering these comments and weighing the benefit of increased 
transparency against the costs, including, increased risk of window-
dressing by firms and reduced flexibility by the Board to respond to 
salient risks. Finally, the Board received no comments on the use of 
the severely adverse scenario to size a firm's stress capital buffer 
requirement, although some commenters expressed concern regarding the 
scope of application of additional components of the severely adverse 
scenario. Because these additional components capture risks that are 
not sufficiently captured by the macroeconomic scenario, the final rule 
maintains the supervisory stress test's severely adverse scenario as 
the basis for the calculation of a firm's stress capital buffer 
requirement and makes no changes to the scenario design process.
ii. Abruptness of Buffer Restrictions
    In light of the proposed integration of the supervisory stress test 
results into the capital rule, several commenters suggested that the 
Board revisit the mechanics of the capital conservation buffer 
requirement's payout restrictions, including the definition of eligible 
retained income. Specifically, commenters noted the case of a 
relatively healthy firm in normal economic conditions that distributes 
the full amount of its earnings in each of the preceding four quarters, 
such that its eligible retained income in the current quarter is zero. 
Under the proposal, if such a firm's capital ratios were to 
immaterially fall below its buffer requirements due to an increase in 
its stress capital buffer requirement, that firm would have been 
prohibited from making any distributions. To address this issue, some 
commenters recommended the calculation provided under the definition of 
eligible retained income should be based on a firm's prior four 
quarters of earnings gross of distributions. Other commenters suggested 
adopting a prospective payout restriction based on earnings recognized 
since the end of the last quarter in which a firm failed to meet its 
full stress capital buffer requirement. Some commenters noted that 
because firms are more likely to decrease share repurchases before 
decreasing dividends and executive compensation, the capital 
conservation buffer's payout restrictions should initially restrict 
only repurchases, and subsequently restrict dividends and executive 
compensation if a firm's capital levels declined further.
    The proposal would have used the current capital rule's definition 
of eligible retained income, which was adopted in the wake of the 
financial crisis when firms tended to retain a substantial portion of 
their earnings. Under a more benign business environment, firms tend to 
distribute all or nearly all of their net income, resulting in very low 
or zero eligible retained income and potential sudden and severe 
distribution limitations if a firm's capital ratio unexpectedly falls 
below its capital conservation buffer requirement. To reduce the 
potential for such a scenario, in connection with the stress capital 
buffer requirement, the final rule replaces the capital rule's current 
concept of eligible retained income with quarterly average net income--
the average of a firm's previous four quarters of net income--in 
certain cases. Specifically, to the extent that a firm's risk-based 
capital ratios determined under the standardized approach exceed the 
minimum requirements plus 2.5 percent plus any applicable GSIB 
surcharge and countercyclical capital buffer amount, the firm would use 
quarterly average net income to determine its eligible retained income.
    For example, under the final rule, if a firm has a stress capital 
buffer requirement of 5.5 percent, and its CET1 capital ratio falls to 
3 percent above the minimum requirement, the firm would use the average 
of its past four quarters of net income to calculate its maximum 
distributable amount. However, to ensure that firms subject to the 
stress capital buffer requirement are not subject to a capital 
conservation buffer requirement that is less strict than that the 
requirements that apply more broadly under the current capital rule, if 
this firm's CET1 capital ratio falls below 2.5 percent above the 
minimum requirements, the firm would be required to calculate its 
maximum distributable amount by using the previous four quarters of net 
income net of any distributions and associated tax effects not already 
reflected in net income.
    Even though income and capital ratios will not be reported on a 
firm's filings until later in the quarter, firms that are subject to 
the stress capital buffer requirement are expected to know their 
capital positions and be able to calculate any distribution 
restrictions on a daily basis. If a firm has any uncertainty regarding 
its quarter-end capital ratios prior to filing its regulatory reports, 
it should be conservative with capital distributions (including 
repurchases) during the beginning of a calendar quarter in order to 
avoid a situation in which it distributes more than the amount 
permitted under the capital rule. Under the final rule, all other

[[Page 15582]]

aspects of the stress capital buffer requirement are being finalized as 
proposed. Moving from the current definition of eligible retained 
income to a quarterly average net income measure in the capital rule 
makes the automatic limitations on a firm's distributions more gradual 
as the firm's capital ratios decline.

C. Stress Leverage Buffer

    The proposal would have included a stress leverage buffer 
requirement that would be determined based on the supervisory stress 
test. Some commenters urged the Board to remove the proposed stress 
leverage buffer requirement, noting that it could undermine the purpose 
of leverage-based measures to act as a simple, risk-insensitive 
backstop to risk-based capital requirements. These commenters were 
concerned that the proposed stress leverage buffer requirement would 
increase the probability that a banking organization's binding post-
stress capital constraint would be a leverage requirement rather than a 
risk-based one, and would add complexity to the capital rule. One 
commenter suggested that if the Board adopts the proposed stress 
leverage buffer requirement, it should revise the capital rule such 
that the stress leverage buffer requirement does not result in payout 
restrictions, but would only prompt heightened scrutiny through the 
Federal Reserve's ongoing supervisory processes. Other commenters 
supported adopting the proposed stress leverage buffer requirement and 
some urged the Board to retain a post-stress capital requirement for 
the supplementary leverage ratio to maintain the practice of evaluating 
off-balance sheet exposures in the supervisory stress test.
    Because leverage requirements are not risk-sensitive, the Board has 
long held the view that leverage ratio requirements should serve as a 
robust backstop to the risk-based requirements. In light of the 
integration of CCAR and the Board's non-stress capital requirements, 
which include leverage ratio requirements that serve as a backstop to 
the risk-based requirements, the final rule does not contain a stress 
leverage buffer requirement. Non-stress leverage ratio requirements 
continue to apply to all firms. The final rule results in unchanged 
CET1 capital requirements and not imposing a stress leverage buffer 
requirement increases the likelihood that that risk-based requirements 
will be the binding requirement for firms.

D. Effective Dates for Stress Capital Buffer Requirement

    A firm's stress capital buffer requirement becomes effective on 
October 1 of each year, and remains in effect until September 30 of the 
following year, unless the firm receives an updated stress capital 
buffer requirement from the Board.\22\ The final rule will be effective 
May 18, 2020, and a firm's first stress capital buffer requirement will 
be effective on October 1, 2020.\23\
---------------------------------------------------------------------------

    \22\ A firm may receive an updated stress capital buffer 
requirement in connection with a resubmitted capital plan or in 
connection with a request for reconsideration (as described in 
section IV of this preamble).
    \23\ To provide a transition between the 2019 CCAR cycle and the 
first stress capital buffer requirement, for the period from July 1 
through September 30, 2020, a firm will be authorized to make 
capital distributions that do not exceed the four-quarter average of 
capital distributions for which the Board or Reserve Bank indicated 
its non-objection in the previous capital plan cycle, unless 
otherwise determined by the Board.
---------------------------------------------------------------------------

IV. Changes to the Capital Plan Rule

    This section describes changes to the capital plan rule. 
Specifically, the final rule adopts the proposal's elimination of the 
quantitative objection and the process by which a firm determines the 
final planned capital distributions included in its capital plan. As 
discussed below and in response to comment, under certain conditions, 
the final rule no longer requires a firm to request prior approval to 
make distributions that exceed the amount included in its capital plan. 
The final rule also clarifies the timeline and procedures related to a 
firm's stress capital buffer requirement, requests for reconsideration, 
and capital plan resubmissions.

A. Quantitative Objection

    The proposal would have replaced the ability for the Board to 
object to a firm's capital plan if the firm did not demonstrate the 
ability to maintain capital ratios above the minimum requirements on a 
post-stress basis with the automatic distribution limitations included 
in the capital rule, which would include the firm's stress capital 
buffer requirement. Commenters generally were supportive of the 
elimination of the quantitative objection, and the final rule 
eliminates the quantitative objection as proposed.
    One commenter requested that the Board clarify that it would not 
qualitatively object to a firm's capital plan based on quantitative 
weaknesses in the firm's capital position. As noted above, the Board 
adopted a final rule in March 2019 to limit the use of the qualitative 
objection. For those firms that remain subject to the qualitative 
objection in CCAR 2020, the Board will not evaluate the firm's ability 
to maintain capital ratios above minimum requirements on a post-stress 
basis as a factor in its decision to object or not object to the firm's 
capital plan on a qualitative basis. As proposed, in determining 
whether to object to a firm's capital plan, the Board will consider 
whether the firm has material unresolved supervisory issues, the 
assumptions and analysis underlying its capital plan, and the capital 
planning process and methodologies of the firm.

B. Requirements for a Firm's Planned Capital Distributions

    To help ensure that a firm's planned capital distributions are 
consistent with statutory and regulatory requirements, the proposal 
would have required a firm to limit the planned capital distributions 
included in its capital plan for the fourth through seventh quarters of 
the planning horizon to those that would be consistent with any 
effective capital distribution limitations that would apply under the 
firm's own baseline projections (BHC baseline scenario).\24\ The 
proposal specified that a firm would be required to plan for all 
limitations on capital distributions in the Board's rules, except those 
specifically related to the advanced approaches capital conservation 
buffer requirement and total loss-absorbing capacity buffer requirement 
calculated using the advanced approaches.\25\ As discussed further in 
Section IV.D, the proposal would have required a firm to adjust its 
planned distributions to be consistent with these distribution 
limitations under the BHC baseline scenario, assuming the new stress 
capital buffer requirement applied.
---------------------------------------------------------------------------

    \24\ Under the proposal, a firm would have been required to 
ensure its planned capital distributions were consistent with any 
limitations on capital distributions in effect, including those 
related to any applicable capital buffer requirement, that it 
anticipates would apply under baseline conditions under the capital 
rule's standardized approach in the upcoming year. However, the 
proposal would not have required a firm to consider planned 
discretionary bonus payments.
    \25\ See e.g., 12 CFR 217.11, 12 CFR 252.63, 12 CFR 252.165, and 
12 CFR part 263.
---------------------------------------------------------------------------

    The Board did not receive any comments on the requirement that 
firms must plan to be in compliance with the capital rules in their BHC 
baseline scenario projection, and the Board is adopting this aspect of 
the proposed rule without modification.

C. Elimination of Prior Approval

    The proposal would have retained the requirement that a firm 
generally seek

[[Page 15583]]

prior approval from the Board to make a capital distribution in which 
the dollar amount of the firm's capital distributions exceeded the 
amount described in its capital plan. The Board sought comment on 
alternative approaches to this requirement, including the advantages or 
disadvantages of providing additional flexibility for a firm to make 
capital distributions in excess of the capital distributions included 
in its capital plan.
    Some commenters asserted that the prior approval requirement is 
unnecessary and duplicative in light of automatic distribution 
restrictions already in place in the capital rule. These commenters 
argued that retaining this requirement would result in undue burden on 
firms and would be inconsistent with the proposal's goal of simplifying 
the Board's capital requirements. These commenters also argued that 
eliminating prior approval would support flexible capital planning by 
allowing firms to adapt to actual capital and earnings. Other 
commenters were supportive of retaining the requirement. These 
commenters argued that providing additional flexibility to make capital 
distributions would further weaken capital standards by allowing firms 
additional leeway in making capital distributions and would be 
unnecessary in light of firm profitability and recent distributions.
    Commenters provided a number of suggestions for allowing firms to 
increase their planned capital distributions without seeking approval 
from the Board, including eliminating the prior approval requirement 
altogether. For, example, some commenters supported allowing a firm to 
exceed the capital distributions included in its capital plan on the 
condition that the firm's capital ratios exceeded its BHC baseline 
scenario projections. Others recommended that all increases in planned 
capital distributions become subject to an expedited prior approval 
requirement, such as the process applied to de minimis capital 
distribution increases, or that the Board remove the ``blackout 
period'' during which a firm is not permitted to request prior 
approval. These commenters also argued that the stress capital buffer 
requirement should be used to satisfy prior approval requirements in 
the capital rule, which requires a firm to seek prior approval for 
redemptions and repurchases of regulatory capital instruments.\26\
---------------------------------------------------------------------------

    \26\ As part of a separate final rule to simplify elements of 
the capital rule, the Board amended section 20 of the capital rule 
to remove the requirement to obtain prior approval of the Board 
before redeeming or repurchasing CET1 capital instruments only to 
the extent otherwise required by law or regulation. That final rule 
largely removes prior approval requirements for redemptions and 
repurchases of CET1 capital under the capital rule. Firms must 
obtain prior approval to redeem or repurchase CET1 capital only to 
the extent otherwise required by law or regulation, such as the 
requirements under section 225.4 of Regulation Y or section 11 of 
the Federal Reserve Act. See 12 CFR 217.20(f) and 84 FR 35234 (July 
22, 2019).
---------------------------------------------------------------------------

    After reviewing the comments, the Board has modified the proposed 
rule so that, as a general matter, a firm will no longer be required to 
request prior approval to make distributions in excess of those 
included in its capital plan, provided that the distribution is 
consistent with distribution limitations included in the capital rule. 
Removing the requirements to request prior approval for incremental 
capital distributions reduces burden, further integrates the capital 
plan rule and the capital rule, and provides firms with additional 
flexibility in capital planning. Under the final rule, firms will 
remain subject to the automatic distribution limitations in the capital 
rule, which will include a firm's stress capital buffer requirement.
    While the final rule provides firms additional flexibility, the 
capital plan rule requires that a firm engage in capital planning. A 
firm's processes for managing and allocating its capital resources are 
critical to its financial strength and resiliency and also to the 
stability and effective functioning of the U.S. financial system. The 
capital plan rule requires a firm to develop and maintain a capital 
plan that includes an assessment of the sources and uses of capital and 
reflects forward-looking projections of revenue and losses to monitor 
and maintain their internal capital adequacy. A capital plan must be 
reviewed and approved at least annually by the firm's board of 
directors or a designated subcommittee thereof. The firm's planned 
capital actions should be consistent with the firm's capital policy, 
including the amounts of planned dividends and repurchases. Taken 
together, these requirements help ensure disciplined capital planning. 
In addition, a firm's capital plan and capital planning processes will 
continue to be reviewed through the supervisory process and, if 
applicable, through the qualitative objection.
    The final rule also requires a firm to provide the Board and 
appropriate Reserve Bank with notice within 15 days after making any 
capital distributions in excess of those included in its capital plan. 
A firm would provide notice of additional distributions through an 
update to a firm's FR Y-14A Schedule C, Regulatory Capital Instruments. 
This reporting requirement will allow the Board to continue to monitor 
a firm's capital distributions.
    Under the final rule, there remain certain circumstances under 
which a firm will be required to seek prior approval to distribute 
capital. Specifically, if a firm receives a qualitative objection to 
its capital plan, it would be required to seek prior approval before 
making any capital distributions. In addition, if a firm or the Board 
determines that a firm must resubmit its capital plan, the firm would 
be required to seek prior approval before making any capital 
distributions until the firm received prior approval to make 
distributions or receives notice regarding recalculation of its stress 
capital buffer requirement. Maintaining prior approval requirements in 
these instances is appropriate given the circumstances that would give 
rise to a qualitative objection or a resubmitted capital plan. In the 
case of a qualitative objection, the Federal Reserve has determined 
that the firm's capital planning processes are inadequate or 
unreasonable, or would constitute an unsafe or unsound practice. In the 
case of a resubmitted capital plan, either the firm or the Board has 
determined that a material change to the firm's risk profile or 
financial condition has occurred or will occur, which may indicate that 
a firm's stress capital buffer requirement no longer adequately 
reflects its risk profile. Finally, the final rule provides a 
transition provision during the quarter before the first stress capital 
buffer requirement is effective to permit a firm to seek prior approval 
for any distribution that would exceed an amount equal to the average 
of the capital distributions for the four quarters to which the Board 
previously indicated its non-objection.
    With respect to the limited circumstances under which prior 
approval would still be required, the final rule makes certain targeted 
amendments to the prior approval process. Specifically, the final rule 
clarifies that a firm is required to submit either its current capital 
plan or a description of changes to its capital plan as part of its 
request for prior approval. This would permit the Board to consider a 
prior approval request in advance of receiving a resubmitted plan.\27\ 
The final rule would not change

[[Page 15584]]

other aspects of the prior approval process, including other 
informational requirements and the Board's process for considering 
these requests. In considering a request for prior approval in the 
past, the Board has generally permitted a firm to make capital 
distributions that are consistent with distributions included in its 
capital plan.
---------------------------------------------------------------------------

    \27\ A firm must resubmit its capital plan within 30 calendar 
days of determining that a resubmission is required or of receiving 
notice that a resubmission is required. In some cases, a 
resubmission may be triggered by an anticipated change to the 
corporate structure or risk profile of the firm. By allowing the 
Federal Reserve to consider a prior approval request in advance of 
receiving a resubmitted plan, the final rule would provide the Board 
additional flexibility to consider and act on a request based on a 
discussion of the changes to the capital plan rather than receipt of 
the capital plan. Consistent with past practice, a firm would be 
able to incorporate by reference portions of its previously filed 
capital plan to the extent that those portions are unaffected by the 
change requiring submission.
---------------------------------------------------------------------------

    In 2016, the Board amended the capital plan rule to include a 
``blackout period,'' during which a firm was prohibited from submitting 
a request for prior approval to make an additional capital 
distribution. This requirement helped to ensure that the Board's 
quantitative analysis in CCAR would represent a comprehensive and 
current evaluation of the firm's capital adequacy. Under the final 
rule, the calculation of a firm's stress capital buffer requirement no 
longer includes capital distributions (except for dividends in 
projection quarters four through seven), so a request by a firm for 
prior approval to make an additional capital distribution would not 
impact the calculation of a firm's stress capital buffer requirement. 
In addition, given the circumstances during which prior approval will 
be required and the potential for a capital plan resubmission at any 
time of the year, a ``blackout period'' is unnecessary. Therefore and 
in response to comments received, the final rule removes the ``blackout 
period'' for additional capital distribution requests.

D. Timeline for Reviewing Capital Plans and Calculating the Stress 
Capital Buffer Requirement

    The proposal included an updated timeline for the capital plan 
cycle under the stress capital buffer framework. The proposal 
maintained the Board's timeline for providing a firm with the results 
of the supervisory stress test and review of its capital plan. Under 
the proposal, a firm would have received notice of its stress capital 
buffer requirement by June 30 of each year.
    Some commenters expressed concerns regarding the effective date of 
a stress capital buffer requirement, which are discussed in Section 
III.D.
    The final rule generally adopts the timeline as proposed. Under the 
final rule, the as-of date for the capital plan cycle will be December 
31 of the previous calendar year, and the planning horizon for capital 
planning will be a period of nine consecutive quarters from that date. 
Firms will generally submit their capital plans and related regulatory 
reports by April 5. The Board will generally determine each firm's 
stress capital buffer requirement in the second quarter of the year 
(April through June).\28\ By June 30, the Board generally will disclose 
to the public each firm's stress capital buffer requirement.
---------------------------------------------------------------------------

    \28\ For firms subject to a potential qualitative objection, the 
qualitative assessment will take place from April to June. By June 
30, the Board generally will disclose the decision to object or not 
object to the capital plan of any firm subject to a qualitative 
objection.
---------------------------------------------------------------------------

    Commenters requested further clarity regarding public disclosure of 
the stress test results and stress capital buffer requirements. Some 
commenters requested that the Board disclose only one set of results. 
Other commenters expressed concerns regarding public disclosure of 
planned dividends and requests for reconsideration. The final rule 
clarifies, but does not require, that the Board to disclose of certain 
types of information. Consistent with current practice, the Board 
anticipates disclosing summary information regarding a firm's stress 
losses.\29\ The Board may consider additional changes to further 
streamline its stress testing disclosure practices.
---------------------------------------------------------------------------

    \29\ As discussed further in Section IV.E. and IV.F., a firm may 
request reconsideration of its stress capital buffer requirement and 
the Board may recalculate a firm's stress capital buffer requirement 
if a firm resubmits its capital plan. In the event that a firm 
receives a revised stress capital buffer requirement, a firm would 
be required to disclose its revised stress capital buffer 
requirement and its buffer on the FR Y-9C form.
---------------------------------------------------------------------------

    The final rule will not be effective before a firm is required to 
submit its capital plan and the results of its company-run stress test, 
if applicable, for the 2020 stress testing cycle. The final rule will 
be effective prior to the Board conducting the supervisory stress test. 
Accordingly, the results of a company-run stress test will reflect 
different assumptions, particularly regarding capital actions and 
material business plan changes, than would be used as part of the 
supervisory stress test. A firm will be required to disclose the 
results of its company-run stress test within 15 days of the Board 
disclosing the results of the supervisory stress test. The Board 
intends to clarify in its disclosures for 2020 that the assumptions 
used in the supervisory stress test are different from the assumptions 
used in the company-run stress tests for 2020 and, therefore, the 
results are not comparable.
    Under the proposal, within two business days of receipt of notice 
of its stress capital buffer requirement, a firm would have been 
required to assess whether its planned capital distributions are 
consistent with the effective capital distribution limitations under 
the BHC baseline scenario throughout the fourth through seventh 
quarters of the planning horizon, assuming that the firm's new stress 
capital buffer requirement replaced any existing stress capital buffer 
requirement. In the event of an inconsistency, a firm would have been 
required to reduce the capital distributions in its capital plan to be 
consistent with such limitations for those quarters of the planning 
horizon.\30\ A firm would have been required to notify the Board of any 
reductions in capital distributions in its capital plan (adjustment 
process).
---------------------------------------------------------------------------

    \30\ In addition, a firm that is not required to reduce its 
planned capital distributions will be permitted to do so after 
receiving its initial notice.
---------------------------------------------------------------------------

    Some commenters expressed concerns regarding the adjustment 
process. These commenters argued that modifications to the adjustment 
process were necessary to support flexible capital planning in light of 
variability in the supervisory stress test, particularly if the Board 
retained dividend add-on or prior approval requirements. For example, 
some commenters requested that firms be permitted to increase planned 
issuances in order to meet the requirements in the BHC baseline 
scenario projections and to allow planned increases in capital 
distributions.
    In response to comments, the Board has revised this process in the 
final rule to allow firms to make any adjustments to their planned 
capital distributions during the two-day adjustments process, provided 
that the revised planned capital distributions are consistent with the 
effective capital distribution limitations that would apply on a pro 
forma basis under the BHC baseline scenario throughout the fourth 
through seventh quarters of the planning horizon. Allowing a firm to 
increase its planned distributions would provide firms additional 
flexibility in capital planning, including by allowing firms to reflect 
the results of the supervisory stress test. Any increases in planned 
dividends in quarters four through seven of the planning horizon would 
be reflected in a firm's stress capital buffer requirement.
    Each firm's updated annual stress capital buffer requirement 
generally will become effective on October 1 and be in effect until 
September 30 of the

[[Page 15585]]

following calendar year. Table 1 below summarizes key actions and the 
dates that these actions generally will occur in the annual capital 
plan cycle under the final rule.

     Table 1--Key Dates and Actions in the Annual Capital Plan Cycle
------------------------------------------------------------------------
             Date                                Action
------------------------------------------------------------------------
December 31 of the preceding   As-of date of the capital plan cycle.
 calendar year.
By February 15...............  Board publishes scenarios for the
                                upcoming capital plan cycle.
By April 5...................  Each firm submits its capital plan
                                (including results of the bank holding
                                company's stress tests) and relevant
                                regulatory reports.
April through June...........  Board conducts its supervisory stress
                                test and calculates each firm's stress
                                capital buffer requirement.
By June 30...................  The Board provides to a firm notice of
                                its stress capital buffer requirement. A
                                firm will have 15 days to make a request
                                for reconsideration.
Within two business days of    Each firm must analyze its planned
 notice.                        capital distributions for the period of
                                October 1 through September 30 of the
                                following calendar year, adjust its
                                planned distributions if necessary, and
                                provide the Board its final planned
                                capital distributions.
October 1 through September    Effective dates of a firm's stress
 30 of the following calendar   capital buffer requirement.
 year.
------------------------------------------------------------------------

    The Board's previous review and approval of planned capital actions 
covers the four-quarter period between July 1 of each year and June 30 
of the following calendar year. The stress capital buffer requirement 
becomes effective on October 1, 2020. As a result, a firm will not have 
any approved planned capital actions for the period July 1 to September 
30, 2020. To provide a transition to the stress capital buffer 
requirement, the final rule authorizes a firm to make capital 
distributions for the period July 1 to September 30, 2020, that do not 
exceed a four quarter average of capital distributions to which the 
Board indicated its non-objection for the previous capital plan cycle, 
unless otherwise determined by the Board. A firm may seek prior 
approval to make additional capital distributions beyond this four-
quarter average amount using the prior approval process discussed in 
Section IV.C.

E. Requests for Reconsideration

    The proposed rule would have modified the process for requesting 
reconsideration of an objection to a capital plan and extended this 
process to include the ability to request reconsideration of the stress 
capital buffer requirement. Under the proposal, a firm that requested 
reconsideration of its stress capital buffer requirement would have 
been required to submit a request to the Board in writing within 15 
days of receipt of the firm's stress capital buffer requirement, and 
the Board would have responded in writing within 30 days. The firm's 
request would have been required to include an explanation of why the 
firm believes that its stress capital buffer requirement should be 
reconsidered.
    The proposed procedures were intended to provide a firm with an 
opportunity to respond to its stress capital buffer requirement or a 
qualitative objection to its capital plan, and to help ensure that the 
stress capital buffer requirement is appropriately sized and that the 
Board has considered all relevant aspects of the firm's capital 
planning and capital adequacy process. Some commenters argued that the 
proposed timeline for the reconsideration process should be extended, 
asserting that the proposed October 1 effective date of the stress 
capital buffer requirement would provide insufficient time to prepare 
for changes in capital requirements and, as a result, reduce the 
usefulness of the reconsideration process. These commenters argued that 
a firm would be required to prepare for a stress capital buffer 
requirement during the pendency of a request for reconsideration, 
reducing the value of the reconsideration process.
    The final rule maintains the proposed reconsideration process and 
timeline without modification. This process is based on the process 
that has been included in the capital plan rule since its adoption in 
2011.\31\ The reconsideration process is intended to provide the firm 
with a meaningful opportunity to request reconsideration of the stress 
capital buffer requirement or objection to a capital plan, including 
through the presentation of additional information, while promoting an 
efficient process. In particular, the timeline is intended to provide 
an opportunity for response, while ensuring that the results of the 
supervisory stress test and a firm's most recent capital plan are 
reflected in the firm's ongoing capital requirements and planned 
distributions as quickly as possible. Prolonging the period for 
requesting reconsideration or responding to a request for 
reconsideration also would delay incorporation of more current 
information about a firm's risk profile that are not contested, 
including its balance sheet, into the firm's stress capital buffer 
requirement or capital plan. In addition, the final rule provides that 
the Board may extend the time for acting on a request for 
reconsideration, which would allow the Board to request and the firm to 
submit additional information or delay the effective date of a stress 
capital buffer requirement, if needed. Finally, as discussed in Section 
III.B the Board has adopted changes to its stress testing framework to 
increase transparency and certainty. By providing greater transparency 
and predictability, these changes also may reduce the likelihood that a 
request for reconsideration is made.
---------------------------------------------------------------------------

    \31\ 76 FR 74631 (December 1, 2011).
---------------------------------------------------------------------------

    The capital plan rule provides that a firm that requests 
reconsideration of an objection to its capital plan may request an 
informal hearing as part of its request for reconsideration. The Board, 
in its sole discretion, may order an informal hearing if the Board 
finds that a hearing is appropriate or necessary to resolve issues of 
fact raised in the request for recommendation. The proposal would have 
extended this option to requests for reconsideration of a stress 
capital buffer requirement. The Board did not receive comments on the 
informal hearing procedures provisions as applied to the stress capital 
buffer requirement. Thus, the final rule provides firms with an 
opportunity to request an informal hearing as part of

[[Page 15586]]

their request for reconsideration of either an objection to a capital 
plan or a stress capital buffer requirement.

F. Capital Plan Resubmission and Circumstances Warranting Recalculation 
of the Stress Capital Buffer Requirement

    The proposal would have maintained the circumstances under which a 
firm was required to resubmit a capital plan and the process for 
reviewing a resubmitted capital plan. In particular, the Board could 
have required a firm to resubmit its capital plan if the Board 
determines that there has been a material change in the firm's risk 
profile, financial condition, or corporate structure or if the bank 
holding company stress scenario(s) used in the firm's most recent 
capital plan are no longer appropriate for the firm's business model 
and portfolios, or if changes in financial markets or the macro-
economic outlook that could have a material impact on a firm's risk 
profile and financial condition require the use of updated scenarios 
(material change). Additionally, a firm would have been required to 
resubmit its capital plan if it determines there has been or will be a 
material change since the firm last submitted its capital plan to the 
Board.
    The proposal would have integrated the existing resubmission 
process with the stress capital buffer requirement by permitting the 
Board to recalculate a firm's stress capital buffer requirement if the 
firm chose to or was required to resubmit its capital plan. Under the 
proposal, the Board would have reviewed a resubmitted capital plan 
within 75 calendar days after receipt and, at the Board's discretion, 
provided the firm with an updated stress capital buffer requirement. 
Upon a determination that a firm has had a material change in its risk 
profile, the Board could have conducted an updated supervisory stress 
test and recalculated the firm's stress capital buffer requirement 
based on the resubmitted capital plan.\32\ As with the process for 
submitting the annual capital plan, the planned capital distributions 
in the firm's resubmitted capital plan would have been required to be 
consistent with any capital distribution limitations that would have 
applied on a pro forma basis over the planning horizon. Any updated 
stress capital buffer requirement would have been in effect until the 
firm's updated stress capital buffer requirement from the next annual 
assessment by the Board became effective (unless the firm experienced 
another material change prior to that date).
---------------------------------------------------------------------------

    \32\ For this purpose, the planning horizon would have been the 
nine quarter period beginning on the date after the as-of date of 
the projections. For instance, if the as-of date of the projections 
was June 30, 2020, the planning horizon would have extended from 
July 1, 2020, through September 30, 2022.
---------------------------------------------------------------------------

    Some commenters supported the inclusion of a process to recalculate 
a firm's stress capital buffer requirement, but expressed concern about 
the circumstances under which a stress capital buffer requirement would 
be recalculated as well as the methodology for recalculation. In 
particular, some commenters expressed concern regarding the proposed 
approach of recalculating a firm's stress capital buffer requirement 
based on a resubmitted capital plan. One commenter argued that 
recalculation of a stress capital buffer requirement based on a 
resubmitted plan would discourage a firm from resubmitting a capital 
plan. Some commenters urged the Board to separate the process for 
recalculating a stress capital buffer requirement from resubmission of 
a capital plan, suggesting instead that recalculation of the stress 
capital buffer requirement be made at the option of the firm or 
automatically based on information reported on the FR Y-14 reports. 
Other commenters expressed concern regarding the methodology for 
recalculation, asserting that recalculation based on a new or different 
stress scenario could produce a significantly different stress capital 
buffer requirement. Finally, some commenters expressed concerns about 
the resubmission process generally, including the distribution 
limitations on firms that resubmit a capital plan as well as the 
circumstances under which a resubmission would be required.
    The final rule adopts the proposed process for recalculating a 
firm's stress capital buffer requirement based on a resubmitted capital 
plan.\33\ The circumstances that require a firm to resubmit its capital 
plan may also indicate that its stress capital buffer requirement no 
longer reflects its risk profile. Accordingly, the automatic 
distribution limitations that would apply if the firm held capital 
within its buffer also may not be sufficient. As commenters observed, a 
firm may resubmit a capital plan for a variety of reasons. Not every 
change to a firm's capital plan or balance sheet would be significant 
enough to warrant recalculation of its stress capital buffer 
requirement. In some cases, a capital plan may be resubmitted based on 
anticipated changes in the corporate structure or business of the firm, 
and a stress capital buffer requirement may be more accurately 
evaluated after consummation of the anticipated change. Accordingly, 
the final rule provides the Board discretion in determining when and 
how to recalculate a stress capital buffer requirement based on a 
resubmitted capital plan. If a firm resubmits its capital plan, the 
Board will inform the firm of whether its stress capital buffer 
requirement will be recalculated within 75 days of the capital plan 
being resubmitted. In response to concerns regarding the restrictions 
on distributions triggered by a resubmission, as discussed in Section 
IV.C., the final rule would simplify and clarify the submission 
requirements for prior approval requests made as a result of a 
resubmitted capital plan. The final rule also would maintain the 
criteria for resubmission of a capital plan based on a material change. 
These criteria help support an effective capital planning process.
---------------------------------------------------------------------------

    \33\ The final rule also would maintain the process for 
reviewing a resubmitted capital plan for a firm subject to the 
qualitative objection.
---------------------------------------------------------------------------

V. Changes to the Capital Rule and Mechanics of Distribution 
Limitations

    Under the capital rule, a firm is subject to restrictions on 
distributions and discretionary bonus payments if the firm's capital 
ratios are at or below its minimums plus its capital conservation 
buffer requirement.\34\ For all firms, the capital conservation buffer 
requirement is composed of CET1 capital and is equal to 2.5 percent of 
risk-weighted assets, plus any applicable countercyclical capital 
buffer amount and GSIB surcharge.
---------------------------------------------------------------------------

    \34\ See 12 CFR 217.11.
---------------------------------------------------------------------------

    To incorporate the stress capital buffer requirement into the 
capital rule, the proposal would have revised the capital rule to 
include the stress capital buffer requirement in the capital 
conservation buffer framework. A firm would have been subject to the 
most stringent distribution limitation, if any, as determined by the 
firm's standardized approach capital conservation buffer requirement, 
the firm's stress leverage buffer requirement and, if applicable, the 
firm's advanced approaches capital conservation buffer requirement, and 
the enhanced supplementary leverage ratio standard.\35\ A firm's 
standardized

[[Page 15587]]

approach capital conservation buffer requirement would have been equal 
to the sum of: (1) Its stress capital buffer requirement as calculated 
using the standardized approach, (2) as applicable, the firm's GSIB 
surcharge; and, (3) as applicable, the firm's countercyclical capital 
amount.\36\ A firm's advanced approaches capital conservation buffer 
requirement would have been equal to the sum of: (1) 2.5 percent of 
risk-weighted assets calculated using the advanced approaches, (2) as 
applicable, the firm's GSIB surcharge; and, (3) as applicable, the 
firm's countercyclical capital buffer amount. Similarly, under the 
proposal, a firm would have compared its leverage buffer to its stress 
leverage buffer requirement.
---------------------------------------------------------------------------

    \35\ Consistent with the proposal, the final rule does not alter 
the substance of the buffer applicable to GSIBs under the Board's 
enhanced supplementary leverage ratio standards. The regulatory 
language implementing this buffer is revised by the final rule to 
integrate the enhanced supplementary leverage ratio buffer with the 
stress capital buffer requirement within the capital rule.
    \36\ The existing buffer framework in the capital rule would 
have remained unchanged for firms not subject to the capital plan 
rule.
---------------------------------------------------------------------------

    Under the proposal, a firm would have been subject to the most 
stringent distribution limitation as determined by the firm's 
standardized approach capital conservation buffer requirement, the 
firm's stress leverage buffer requirement and, if applicable, the 
firm's advanced approaches capital conservation buffer requirement, and 
the enhanced supplementary leverage ratio standard. A firm would have 
determined the maximum amount it could pay in capital distributions and 
discretionary bonus payments during a given quarter by multiplying the 
firm's eligible retained income by its applicable payout ratio, if any, 
as determined under Table 2 to 12 CFR 217.11 of the proposed rule.
    Several commenters supported the proposal to separate the 
standardized approach capital conservation buffer and the advanced 
approaches capital conservation buffer and to only incorporate the 
stress capital buffer requirement into the standardized approach 
capital conservation buffer. Arguments in favor of not incorporating 
the stress capital buffer requirement into the advanced approaches 
capital conservation buffer generally focused on the complexity such an 
approach would add to the rule by combining two different model-based 
approaches (i.e., the advanced approaches and the stress test). 
However, some commenters supported applying the stress capital buffer 
requirement over advanced approaches risk-weighted assets by scaling 
the stress capital buffer requirement by the ratio of a firm's 
standardized risk-weighted assets to its advanced approaches risk-
weighted assets.
    Some commenters argued that the stress capital buffer requirement 
would remove the need for firms to calculate risk-weighted assets using 
the advanced approaches because both effectively measured capital needs 
based on a firm's internal risk-based methodologies. These commenters 
recommended removal of the advanced approaches from the capital rule 
altogether, or that the Board narrow the scope of the advanced 
approaches to only the largest, most systemic firms. Some commenters 
also supported removing the advanced approaches from the capital rule 
for reasons unrelated to this rulemaking.
    The final rule includes the buffer framework with certain revisions 
from the proposal. Most notably, the final rule includes a revised 
definition of eligible retained income and does not include the 
proposed stress leverage buffer.\37\
---------------------------------------------------------------------------

    \37\ The revisions to eligible retained income are discussed in 
greater detail in Section III.A and the stress leverage buffer 
requirement is discussed in greater detail in Section III.D.
---------------------------------------------------------------------------

    As discussed in the proposal, the interaction of the stress capital 
buffer requirement and a firm's risk-based capital ratios calculated 
using the advanced approaches would add excessive complexity to the 
rule, whether through the use of a scaling factor or other calibration 
adjustment. Consistent with the rationale in the proposal, the final 
rule does not incorporate the stress capital buffer requirement into 
the advanced approaches capital conservation buffer.
    The Board is not removing the advanced approaches from the capital 
rule in this final rule. The concerns related to the interaction of the 
advanced approaches and the stress capital buffer requirement are 
addressed in the final rule by limiting the application of the stress 
capital buffer requirement to the standardized approach capital 
requirements. The Board continues to believe that large and more 
systemic firms should be subject to more risk-sensitive capital 
requirements commensurate with their risk profiles.
    Some commenters supported the Board's proposal to include any 
applicable countercyclical capital amount in the capital conservation 
buffer requirement, noting that it is not redundant with the stress 
capital buffer requirement, as each addressed different risks 
independently. Other commenters argued that the stress capital buffer 
requirement could make the countercyclical capital buffer redundant, 
and recommended that the Board make only sparing use of the 
countercyclical capital buffer. Some commenters urged the Board to 
remove the countercyclical capital buffer from the capital rule, 
arguing that it was fully redundant with the stress capital buffer 
requirement due to countercyclical features of the stress tests. 
Commenters also argued that countercyclical capital requirements could 
be set more effectively through the stress capital buffer requirement 
than the countercyclical capital buffer. Commenters also argued that, 
if the countercyclical capital buffer were retained, any activation of 
the countercyclical capital buffer should be reflected in the stress 
testing framework.
    Consistent with the proposal, the final rule retains the 
countercyclical capital buffer as a tool the Board could use to address 
situations when systemic vulnerabilities are meaningfully above normal. 
The stress capital buffer requirement is not redundant with the 
countercyclical capital buffer. The countercyclical capital buffer is a 
macroprudential tool intended to strengthen the resiliency of financial 
firms and the financial system, by allowing the Board to raise capital 
standards when credit growth in the economy becomes excessive. The 
Board's stress testing scenario design framework is designed to 
mitigate the inherent procyclicality in the stress test, not to serve 
as an explicit countercyclical offset to the financial system. As a 
result, there may be circumstances where the countercyclical capital 
buffer is the appropriate tool to address systemic vulnerabilities, and 
it is important to retain this tool as a potential option going 
forward.
    One commenter urged the Board to recognize the ability of long-term 
debt issued under the Board's Total Loss-Absorbing Capacity (TLAC) rule 
to absorb losses in the same manner as common equity tier 1 capital. 
The commenter therefore recommended that firms be permitted to satisfy 
all or a portion of the stress capital buffer requirement with internal 
long-term debt or common equity tier 1 capital.
    Only a subset of firms subject to the capital plan rule are subject 
to the TLAC rule--U.S. GSIBs and the U.S. intermediate holding 
companies of non-U.S. GSIBs--and these firms are among the larger and 
more systemic firms subject to the capital plan rule. Providing these 
firms with greater flexibility to satisfy the buffers would be 
inconsistent with the general principle that larger and more systemic 
firms

[[Page 15588]]

should be subject to more stringent and risk-sensitive requirements. In 
addition, the loss-absorbing capacity of long-term debt issued under 
the Board's TLAC rule is not identical to the loss-absorbing capacity 
of CET1 capital as the way in which long-term debt could absorb losses 
varies by circumstance. As a result, the Board is maintaining the 
requirement that the standardized approach capital conservation buffer 
and the advanced approaches capital conservation buffer must be 
satisfied with common equity tier 1 capital.
    Several commenters raised concerns that the stress capital buffer 
requirement would be redundant with the GSIB surcharge. Some commenters 
noted that both the stress capital buffer requirement and GSIB 
surcharge account for risks arising from capital markets activities and 
for counterparty risks.
    One commenter suggested that the Board address the potential 
double-counting of risks by making the stress capital buffer 
requirement an alternative to the current capital conservation buffer 
requirements. Specifically, the commenter suggested that a firm's 
buffer requirement be the greater of (1) its stress capital buffer 
requirement, and (2) 2.5 percent, plus any applicable GSIB surcharge 
and countercyclical capital buffer amount. Other commenters suggested 
additional similar structures for a firm's buffer requirement. 
Commenters asked that the Board exclude the GSIB surcharge from the 
standardized approach capital conservation buffer, pending revisions to 
the Board's GSIB surcharge rule.
    The final rule, consistent with the proposal, establishes the 
buffer requirement for the standardized approach capital conservation 
buffer equal to a firm's stress capital buffer requirement, plus any 
applicable GSIB surcharge and countercyclical capital buffer amount. 
The stress capital buffer requirement, which will incorporate losses 
from the global market shock and the large counterparty default 
component, is not duplicative of the GSIB surcharge. The stress capital 
buffer requirement is calculated based on each firm's vulnerability to 
adverse economic or financial market conditions. The global market 
shock measures the trading mark-to-market losses associated with sudden 
changes in asset prices, and the large counterparty default scenario 
component measures the risk of losses due to an unexpected default of 
the counterparty whose default on all derivatives and securities 
financing transactions would generate the largest stressed losses for a 
firm. These components of the supervisory stress test do not capture 
the potential adverse impact of the failure of a GSIB on the financial 
system as a whole, which is captured only by the GSIB surcharge.
    Several commenters also raised concerns regarding the methodologies 
used to determine the GSIB surcharge. Some commenters favored the 
elimination of the GSIB framework's Method 1 score, while other 
commenters favored the elimination of the Method 2 score. In addition, 
commenters raised concerns with specific GSIB indicators' ability to 
capture systemic risk and recommended changes to the indicators. 
Several commenters also made recommendations on ways to recalibrate the 
GSIB surcharge, such as revisiting the calibration of Method 2 in light 
of post-crisis reforms. Others suggested updates to the GSIB surcharge 
coefficients and denominators. A commenter also recommended that the 
Board introduce a more gradated surcharge scale to avoid potential 
cliff effects. Commenters urged the Board to make changes to the GSIB 
surcharge methodologies effective concurrently with the effective date 
of the stress capital buffer requirement.
    The Board is not revising the GSIB surcharge rule in connection 
with the final rule. As noted, the GSIB surcharge is designed to 
address risks that differ from those addressed by the stress capital 
buffer requirement. As discussed in the preamble to the final GSIB 
surcharge rule, the GSIB surcharge, including the amount of the 
surcharges and the calculation of Method 1 and Method 2 scores, is 
designed to address the risks to the financial system presented by 
systemically important firms.
    Taken together, the components of a firm's buffer requirements each 
serve independent functions. Specifically, the stress capital buffer 
requirement ensures that a firm has sufficient capital to continue to 
serve as a financial intermediary during stress. The GSIB surcharge 
ensures that a GSIB internalizes the cost that its failure would have 
on the broader economy. The countercyclical capital buffer ensures 
capital when there is an elevated risk of above-normal losses. For 
these reasons, the stress capital buffer requirement, as adopted in the 
final rule, serves as an appropriate complement to the other capital 
buffers and the GSIB surcharges.
    The proposal would not have amended the current definitions of 
``distribution'' and ``capital distribution'' found in the capital rule 
and capital plan rule, respectively.\38\ Unlike the definition of 
distribution in the capital rule, the definition of capital 
distribution in the capital plan rule does not provide an exception for 
distributions accompanied by an offsetting issuance. The broader 
definition included in the capital plan rule ensures that all 
distributions, including those offset by issuances, are included in a 
firm's capital plan. However, because distributions offset by 
equivalent issuances within a quarter do not affect a firm's capital 
position, this type of distribution is not included in the definition 
in the capital rule. As discussed in Section IV.C, some commenters 
raised concerns regarding these differing definitions in the context of 
their recommendation to eliminate the prior approval requirement to 
make incremental capital actions. As the final rule eliminates the 
prior approval requirement, the Board is adopting this aspect of the 
proposal without modification and will continue to monitor this issue.
---------------------------------------------------------------------------

    \38\ Under the capital rule, the definition of distribution 
includes reductions in tier 1 capital through a repurchase or any 
other means, except when the institution, in the same quarter as the 
repurchase, fully replaces the tier 1 instrument by issuing a 
similar instrument. Under the capital plan rule, a capital 
distribution means a redemption or repurchase of any debt or equity 
capital instrument, a payment of common or preferred stock 
dividends, a payment that may be temporarily or permanently 
suspended by the issuer on any instrument that is eligible for 
inclusion in the numerator of any minimum regulatory capital ratio, 
and any similar transaction that the Board determines to be in 
substance a distribution of capital.
---------------------------------------------------------------------------

VI. Changes to the Stress Test Rules

    The proposal would have revised the capital action assumptions in 
the Board's supervisory stress test and the company-run stress tests 
conducted under Regulation YY, in order to harmonize the publicly 
disclosed supervisory and company-run stress test results with the 
stress capital buffer requirement.\39\ The proposal would not have 
included the four quarter dividend add-on in the required capital 
actions in the stress test rules.
---------------------------------------------------------------------------

    \39\ In the proposal, a firm's company-run stress test, would no 
longer include in their capital action assumptions: (1) Actual 
capital actions for the first quarter of the planning horizon; (2) 
any common stock dividends; or (3) issuance of common or preferred 
stock relating to expensed employee compensation. For the first 
quarter of the planning horizon, firms will include any 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. 
The capital action assumptions used in the company-run and 
supervisory stress tests will not include the four quarters of 
planned dividends.
---------------------------------------------------------------------------

    The Board received several comments on the capital distribution 
assumptions, which were addressed above in Section

[[Page 15589]]

III.B.i; however, there were no comments on the proposal to ensure that 
the capital actions in the company-run stress test rule matched the 
capital actions in the calculation of the stress capital buffer 
requirement. Therefore, the final rule adopts changes to the capital 
action assumptions in the Board's supervisory stress test and company-
run stress test to be consistent with one another. \40\
---------------------------------------------------------------------------

    \40\ The supervisory and company-run stress tests conducted 
under Regulation YY will not include four quarters of planned 
dividends.
---------------------------------------------------------------------------

    As discussed above in Section III.B.i, the final rule does not 
include a planned material business plan change (e.g. merger, 
acquisition, or divestiture) in a firm's stress capital buffer 
requirement. In order to harmonize the publicly disclosed supervisory 
and company-run stress test results with the stress capital buffer 
requirement, the final rule removes the requirement to include 
issuances 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. Consistent with current 
requirements, the final rule will continue to require a firm to include 
in its capital plan a discussion of any expected changes to the firm's 
business plan that are likely to have a material impact on the capital 
adequacy or liquidity position of the firm. Firms will continue to be 
expected to include the impact of a material business plan change on 
the FR Y-14A reports, including the Schedule A--Summary, Schedule C--
Regulatory Capital Instruments, and Schedule F--Business Plan Changes.
    The proposal would have incorporated the definition of 
``significant trading activity'' into the Board's company-run stress 
test requirements in order to increase transparency regarding the 
application of an additional trading and counterparty scenario 
component.\41\ Currently, significant trading activity is defined by 
reference to the Capital Assessments and Stress Testing report (FR Y-
14Q). The FR Y-14Q defines a firm with significant trading activity as 
any domestic bank holding company or U.S. intermediate holding company 
that is subject to supervisory stress tests and 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'' 
under the Board's capital plan rule. The proposal would have adopted 
this FR Y-14 definition of significant trading activity in the stress 
test rules for the annual company-run stress test. Commenters did not 
comment on this aspect of the proposal and it is finalized as proposed.
---------------------------------------------------------------------------

    \41\ See 12 CFR part 252, subpart F.
---------------------------------------------------------------------------

    While the Board's scenario design framework was not part of the 
proposal, commenters raised issues with the severity and plausibility 
of the supervisory scenarios. Some commenters argued that the Board's 
scenario design process resulted in scenarios that were implausibly 
severe and required firms to hold more capital than would be necessary 
to withstand stressful conditions. Commenters suggested that the Board 
introduce limits on the overall severity of the severely adverse 
scenario, as they argue that supervisory scenarios were more severe 
than historical experience. Another suggestion was to introduce a rule 
for scenario plausibility, including modifying the global market shock 
to make it more realistic and to ensure that the macroeconomic scenario 
is consistent with the global market shock.
    As described in Appendix A to 12 CFR part 252, severely adverse 
scenarios are designed to be plausible, relevant, and guided in large 
part by historical experience in severe U.S. recessions.\42\ By design, 
the severity of the scenarios is meant to mimic past recessions and 
financial crises with the addition of certain salient risks in order to 
ensure that firms can withstand stress and continue to lend. In 
addition, the Board may factor in particular risks to the scenario to 
make appropriate adjustments to the paths of specific economic 
variables that are historically less typical in order to highlight 
systemic risks. A comparison of the severity of recent CCAR scenarios 
to benchmarks in past recessions or financial crises, both domestic and 
international, suggests that the scenarios used in the 2017 through 
2019 CCAR assessments are plausibly severe. As in the current 
supervisory post-stress capital assessment in CCAR, under the proposal, 
the supervisory stress test will continue to use a common set of 
scenarios, models, and assumptions across firms.
---------------------------------------------------------------------------

    \42\ See 12 CFR part 252, Appendix A.
---------------------------------------------------------------------------

    Commenters also suggested that the Board enhance the transparency 
of the models used in the supervisory stress test by publishing model 
specifications for comment, or publishing its methodology for comment 
each year. One commenter opposed providing more information about 
supervisory models or publishing the model specifications for comment. 
The commenter suggested such publication could lead to firms adopting 
stress test models that are similar to the supervisory models, 
potentially causing models to have common weaknesses that create risks 
to financial stability.
    While the Board's methodology for conducting the supervisory stress 
test was not part of the proposal, the Board received several comments 
regarding the Board's models and methodology for conducting the 
supervisory stress test. Many of the comments focused on the 
assumptions associated with the global market shock and large 
counterparty default scenario component. These commenters' recommended 
reflecting the impact of the global market shock in capital deductions, 
reflecting variation margin in counterparty losses, capping trading 
losses and associated capital deductions at the total amount of a 
firm's trading exposure, and eliminating the double-counting of losses 
between the global market shock and the macroeconomic scenario. Other 
comments focused on other supervisory models, such as suggesting that 
the supervisory net income projections should reflect firm-specific 
considerations, such as tax attributes and that the FR Y-14 should 
collect credit risk mitigation transactions so that the Federal Reserve 
could reflect these transactions in its projections. Finally, 
commenters suggested that the Federal Reserve consider the impact of 
incorporating the current expected credit loss (CECL) methodology into 
the supervisory stress test.\43\
---------------------------------------------------------------------------

    \43\ See ASU 2016-13, ``Financial Instruments--Credit Losses 
(Topic 326): Measurement of Credit Losses on Financial 
Instruments.''
---------------------------------------------------------------------------

    Since the Board issued the proposal in 2018, the Board separately 
has taken steps to respond to these comments. For example, in February 
2019, the Board adopted a final stress test policy statement, which 
reduced the materiality threshold for phasing-in material model 
changes.\44\ Additionally, in order to address the suggestion to 
reflect the impact of the global market shock on regulatory capital 
deductions, the Board will begin collecting information regarding this 
impact on the FR Y-14A starting in CCAR 2020. Similarly, the Board will 
also begin collecting more granular information related to tax 
attributes on the FR Y-14A starting in CCAR 2020, to further understand 
the impact of tax related items under stress.
---------------------------------------------------------------------------

    \44\ See 12 CFR part 252, Appendix A.
---------------------------------------------------------------------------

    Regarding CECL, the Board has met with various affected parties, 
including firms subject to the supervisory stress test, and has 
determined to maintain the current modeling framework for loan

[[Page 15590]]

allowances in its supervisory stress test through 2021.\45\ The Board 
continues to consider how to implement CECL in its stress testing 
methodology and will continue to seek feedback on the best way to 
implement CECL in stress testing.
---------------------------------------------------------------------------

    \45\ See Board of Governors of the Federal Reserve System, 
``Statement on the current expected credit loss methodology (CECL) 
and stress testing'' December 21, 2018, available online at: 
www.federalreserve.gov/newsevents/pressreleases/files/bcreg20181221b1.pdf.
---------------------------------------------------------------------------

VII. Impact Analysis

    The Board analyzed the impact of the final rule on the capital 
requirements of affected firms. This analysis compared the capital 
required to avoid limitations on capital distributions under the 
current framework and under the final rule.\46\ In addition, the impact 
analysis considered the potential effects of the rule on economic 
activity.
---------------------------------------------------------------------------

    \46\ The analysis made certain simplifying assumptions. For 
example, the Board assumed the impact of the flat balance sheet 
assumption on projected losses and revenue in the stress test offset 
each other but included the impact of the assumption on the 
denominator of the projected capital ratios.
---------------------------------------------------------------------------

    The Board used data from the 2013 to 2019 CCAR exercises to obtain 
a through-the-cycle view of the impact of the rule.\47\ While 2013 to 
2019 represents a period of generally favorable economic and financial 
conditions, capital distributions--a key driver of the impact of the 
rule relative to current requirements--varied cyclically, rising from a 
relatively low level in 2013 to a high level in 2019. The impact of the 
rule will also vary through the economic and credit cycle based on the 
risk profile and planned capital distributions of individual firms, as 
well as on the specific severely adverse stress scenario used in the 
supervisory stress test.
---------------------------------------------------------------------------

    \47\ Firms were subject to a CET1 capital requirement over the 
entire planning horizon of the supervisory stress test beginning 
with the 2015 CCAR exercise. For the 2013 and 2014 CCAR exercises, 
tier 1 common equity capital serves as a proxy for CET1 capital and 
is broadly similar to CET1 but includes fewer deductions, among 
other differences. The supervisory stress test began in 2013.
---------------------------------------------------------------------------

    Based on data from CCAR 2013 to CCAR 2019, the rule is estimated to 
result in largely unchanged CET1 capital requirements: CET1 capital 
requirements are estimated to increase, on average, by $11 billion, a 
one percent increase from current requirements. As such, viewed 
through-the-cycle, the rule preserves the current requirements for the 
highest quality capital. Looking across CCAR years, the impact of the 
proposal on CET1 capital requirements ranges from a decline of $59 
billion to an increase of $78 billion.
    The Board expects that the impact of the rule would vary for GSIBs 
relative to the smaller and less complex firms that are subject to the 
stress capital buffer requirement. On average, from 2013 to 2019, the 
rule is expected to lead to an increase in CET1 capital requirements 
for GSIBs of $46 billion, a seven percent increase in their current 
aggregate CET1 capital requirement. By contrast, the CET1 capital 
requirements for firms subject to Category II-IV standards are expected 
to decrease by $35 billion, a 10 percent decrease relative to their 
current aggregate requirement. While the less stringent balance sheet 
and distribution assumptions in the supervisory stress test lower 
capital requirements for all firms, the increased requirement for GSIBs 
results from the integration of a stress test-based capital requirement 
with each firm's GSIB surcharge.\48\
---------------------------------------------------------------------------

    \48\ The fact that the required capital as measured by Board's 
stress tests typically acts as the most binding capital requirement 
in the current framework for many GSIBs reduces the impact of 
incorporating the GSIB surcharge to the stress capital buffer 
requirement, which is currently not included in the minimum capital 
standards in the stress tests.
---------------------------------------------------------------------------

    In part due to an elimination of the stress leverage buffer 
requirement, the rule is estimated to lower aggregate tier 1 capital 
requirements by $49 billion, based on average CCAR results from 2013 to 
2019, a four percent decrease relative to aggregate current tier 1 
capital requirements.\49\ Modified balance sheet and distribution 
assumptions in the supervisory stress test also contribute to the 
decline. On average, the tier 1 capital requirement for GSIBs, the 
riskiest and most systemically important firms, remains unchanged by 
the final rule. The tier 1 capital requirements for firms subject to 
Category II-IV standards is expected to decrease by $49 billion, a 12 
percent decrease relative to their current aggregate requirement. 
Looking across CCAR years, the impact of the rule would range from an 
aggregate reduction in tier 1 capital requirements of $102 billion to 
an aggregate increase in tier 1 capital requirements of $77 billion.
---------------------------------------------------------------------------

    \49\ Common equity tier 1 capital was developed after the 
financial crisis and consists of the highest quality regulatory 
capital. Prior to the financial crisis, tier 1 capital, which 
consists of common equity and non-cumulative perpetual preferred 
stock, was the main measure of capital adequacy.
---------------------------------------------------------------------------

    As the final rule has differential effects depending on the 
required form of regulatory capital, the Board studied the effect on 
overall bank funding costs to provide another view of the impact of the 
rule. The Board expects that the rule would slightly reduce the yearly 
dollar funding costs of capital and long-term debt needed to meet 
requirements. The changes in CET1 and tier 1 capital requirements drive 
these funding cost impacts.
    Firms often maintain ``management buffers'' of tier 1 and CET1 
capital that exceed regulatory requirements. As the final rule 
significantly changes how stress tests factor into capital 
requirements, firms may change their approach to management buffers in 
response to the rule. Such a change could lead to changes in levels of 
capital that differ from the changes in requirements reported above.
    The Board examined the impact of the rule on risk sensitivity, as 
stress losses will determine capital requirements only for firms above 
the stress capital buffer requirement floor. Combining firm-by-firm 
data across supervisory stress test exercises from 2013 to 2019, the 
Board estimated that about half of the observations would have a stress 
capital buffer requirement above 2.5 percent. In comparison, about 90 
percent of the observations in past CCAR exercises, which included the 
prior capital distribution assumptions and growing balance sheets, 
experienced capital declines of greater than 2.5 percent.
    The Board also assessed the macroeconomic consequences of the final 
rule using models that consider the benefit of higher amounts of 
regulatory capital in reducing the frequency of financial crisis versus 
the cost of reduced lending.\50\ Based on the estimated change in 
average capital requirements through the cycle, the proposal is 
expected to have little to no impact on the long-run level of GDP.
---------------------------------------------------------------------------

    \50\ See Firestone, S., A. Lorenc and B. Ranish, 2019, An 
empirical economic assessment of the costs and benefits of bank 
capital in the United States, Federal Reserve Bank of St. Louis 
Review, 101, pp. 203-230; and Basel Committee on Banking 
Supervision, 2010, An assessment of the long-term economic impact of 
stronger capital and liquidity requirements, white paper.
---------------------------------------------------------------------------

VIII. Changes to Regulatory Reports

    The proposal would have modified the Consolidated Financial 
Statements for Holding Companies Report (FR Y-9C; OMB: 7100-0128) to 
collect information regarding the stress capital buffer requirement 
applicable to a firm and the Capital Assessments and Stress Testing 
Report (FR Y-14A; OMB No. 7100-0341). Specifically, the proposal would 
have added new line items to the quarterly FR Y-9C in order to collect 
information regarding a firm's stress capital buffer requirement, 
stress leverage buffer requirement, and GSIB surcharge and 
countercyclical capital

[[Page 15591]]

buffer amount, as applicable, and information necessary to calculate a 
firm's distribution limitations, including its capital conservation 
buffer, advanced approaches capital conservation buffer, leverage 
buffer, eligible retained income, and distributions. The proposal would 
have also added similar items to the applicable FR Y-14A schedule. This 
information would enable the Board and the public to identify any 
distribution limitations and monitor a bank holding company's 
performance on a quarterly basis and allow the Board to compare a 
firm's projected capital ratios to expected buffer requirements and 
implement the proposed evaluation of planned capital actions under the 
BHC baseline scenario.\51\
---------------------------------------------------------------------------

    \51\ A firm generally will only be required to report this 
information annually in connection with its capital plan submission.
---------------------------------------------------------------------------

    One commenter suggested that it was unnecessary to report eligible 
retained income, maximum payout ratio, maximum payout amount, and 
distributions and discretionary bonus payments unless the firm is 
subject to a maximum payout ratio.
    The Board is adopting the proposed adjustments to the FR Y-9C, with 
some modifications to reflect changes made to the final rule. Firms 
will be required to report all items related to their buffer and 
potential limitations to provide critical information to the Board and 
public about the firm's capital adequacy and ability to continue to 
operate under stress. As the final rule does not include a stress 
leverage buffer requirement, the corresponding new line items on the FR 
Y-9C have been removed from the final FR Y-9C forms and instructions. 
Responses to these items will enable the Board and public to monitor a 
firm's capital adequacy relative to its requirements. The responses 
will also ensure that the Board and public can estimate the potential 
consequences for a firm if it were to undergo a period of stress.
    The proposed changes to the FR Y-14A are also being adopted as 
proposed, with some modifications to reflect changes made to the final 
rule. Similar to the FR Y-9C, line items related to the stress leverage 
buffer requirement have not been added to the FR Y-14A in the final 
rule. In addition, the Board has not added items to the FR Y-14A 
related to buffer requirements that are reported on the FR Y-9C by 
firms not subject to the capital plan rule, as these items are not 
applicable to FR Y-14 reporters. The changes to the FR Y-14A reporting 
forms and instructions are essential to understand a firm's projected 
capital positions under stress and will help shape the Federal 
Reserve's evaluation of the firm's capital planning processes.
    As described in Section IV above, the final rule provides that, 
within two business days of receipt of notice of its stress capital 
buffer requirement, a firm will be required to assess whether its 
planned capital distributions are consistent with the effective capital 
distribution limitations that will apply on a pro forma basis under the 
BHC baseline scenario throughout the fourth through seventh quarters of 
the planning horizon. In the event of an inconsistency, a firm will be 
required to reduce the capital distributions in its capital plan to be 
consistent with such limitations for those quarters of the planning 
horizon and provide the Board with its final planned capital actions 
following any such adjustments.\52\
---------------------------------------------------------------------------

    \52\ The final rule also permits a firm to reduce its planned 
capital distributions if the firm's planned capital distributions 
are consistent with effective capital distribution limitations.
---------------------------------------------------------------------------

    To implement this requirement, a firm will be required to report 
its capital distributions on the FR Y-14A filed in connection with its 
initial capital plan on April 5, and in the event of any downward 
adjustments to its planned capital distributions, resubmit the FR Y-14A 
summary schedule within two business days of receiving its stress 
capital buffer requirement, that reflect the stress capital buffer 
requirement and its reduced planned capital distributions.\53\ At the 
time a firm submits its capital plan and FR Y-14A report as of December 
31, the firm will not be aware of its stress capital buffer requirement 
for the upcoming cycle. For simplicity, the instructions contemplate 
that the firm will report the stress capital buffer requirement 
currently in effect, and assume that the stress capital buffer 
requirement remain constant through the planning horizon. However, the 
capital plan rule requires the firm's planned capital distributions to 
be consistent with effective capital distribution limitations in the 
fourth through seventh quarters of the planning horizon and not the 
distribution limitations in effect in the prior cycle. Thus, it will be 
possible for a firm to include planned capital distributions in its FR 
Y-14A as of December 31 that will exceed those permitted under the 
previous cycle's capital plan, but be consistent with the capital plan 
rule because the firm's stress capital buffer requirement declined.
---------------------------------------------------------------------------

    \53\ In the event that a firm requests reconsideration of its 
stress capital buffer requirement, a firm must evaluate its planned 
capital distributions in light of any modifications to its stress 
capital buffer requirement. The firm may be required to reduce or 
permitted to increase its capital distributions depending on any 
modifications, and must provide the Board with its final planned 
capital actions reflecting those adjustments. In the event of any 
adjustment, the firm will be required to file the FR Y-14A to 
reflect its revised planned capital distributions.
---------------------------------------------------------------------------

    The Board is also making changes to its regulatory reports to 
reflect the changes to the circumstances in which a firm is required to 
seek prior approval from the Federal Reserve before making capital 
distributions in excess of these included in the firm's capital plan. 
Currently, a firm is required to submit an updated FR Y-14A Schedule C, 
Regulatory Capital Instruments prior to making any additional capital 
distributions. As discussed in Section IV.C, the Board is eliminating 
the prior approval requirement. To reflect these changes in the 
regulatory reports, a firm will be required to submit an updated FR Y-
14A Schedule C, Regulatory Capital Instruments, within 15 days after 
notice of distributions in excess of planned distributions as required 
under the capital plan rule. This reporting requirement will allow the 
Board to continue to monitor a firm's capital distributions while 
reducing burden.

IX. Administrative Law Matters

A. Paperwork Reduction Act

    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 reviewed the final rule under the 
authority delegated to the Board by OMB. The Board did not receive any 
specific comments on the PRA for the FR Y-14 or FR Y-13.
    Regarding the proposed changes to the FR Y-9C, one commenter 
suggested that it was unnecessary for firms subject to the capital plan 
rule to report eligible retained income, maximum payout ratio, maximum 
payout amount, and distributions and discretionary bonus payments 
unless the firm is subject to a maximum payout ratio. As noted above, 
responses to these items will enable the Board and public to monitor a 
firm's capital adequacy relative to its requirements. The responses 
will also ensure that the Board and public can estimate the potential 
consequences for a firm if it were to undergo a period of stress.
    The final rule contains reporting requirements subject to the PRA. 
As described further below, the Board is revising the reporting 
requirements

[[Page 15592]]

found in section 12 CFR 225.8. Additionally, the Board is revising 
certain other collections of information to reflect the changes 
proposed in the proposed rule.
    Adopted Revision, With Extension for Three Years, of the Following 
Information Collections:
    (1) Report title: Financial Statements for Holding Companies.
    Agency form number: FR Y-9C; FR Y-9LP; FR Y-9SP; FR Y-9ES; FR Y-
9CS.
    OMB control number: 7100-0128.
    Effective date: December 31, 2020.
    Frequency: Quarterly, semiannually, and annually.
    Affected public: Businesses or other for-profit.
    Respondents: Bank holding companies (BHCs), savings and loan 
holding companies (SLHCs),\54\ securities holding companies (SHCs), and 
U.S. intermediate holding companies (IHCs) (collectively, holding 
companies (HCs)).
---------------------------------------------------------------------------

    \54\ An SLHC must file one or more of the FR Y-9 family of 
reports unless it is: (1) A grandfathered unitary SLHC with 
primarily commercial assets and thrifts that make up less than 5 
percent of its consolidated assets; or (2) a SLHC that primarily 
holds insurance-related assets and does not otherwise submit 
financial reports with the SEC pursuant to section 13 or 15(d) of 
the Securities Exchange Act of 1934.
---------------------------------------------------------------------------

    Estimated number of respondents:
    FR Y-9C (non AA HCs) with less than $5 billion in total assets--
155,
    FR Y-9C (non AA HCs) with $5 billion or more in total assets--189,
    FR Y-9C (AA HCs)--19,
    FR Y-9LP--434,
    FR Y-9SP--3,960,
    FR Y-9ES--83,
    FR Y-9CS--236.
    Estimated average hours per response:
Reporting
    FR Y-9C (non AA HCs) with less than $5 billion in total assets--
40.48,
    FR Y-9C (non AA HCs) with $5 billion or more in total assets--
46.45,
    FR Y-9C (AA HCs)--48.59,
    FR Y-9LP--5.27,
    FR Y-9SP--5.40,
    FR Y-9ES--0.50,
    FR Y-9CS--0.50.
Recordkeeping
    FR Y-9C (non AA HCs) with less than $5 billion in total assets--1,
    FR Y-9C (non AA HCs) with $5 billion or more in total assets--1,
    FR Y-9C (AA HCs)--1,
    FR Y-9LP--1,
    FR Y-9SP--0.50,
    FR Y-9ES--0.50,
    FR Y-9CS--0.50.
    Estimated annual burden hours:
Reporting
    FR Y-9C (non AA HCs) with less than $5 billion in total assets--
25,098,
    FR Y-9C (non AA HCs) with $5 billion or more in total assets--
35,116,
    FR Y-9C (AA HCs)--3,693,
    FR Y-9LP--9,149,
    FR Y-9SP--42,768,
    FR Y-9ES--42,
    FR Y-9CS--471.
Recordkeeping
    FR Y-9C (non AA HCs) with less than $5 billion in total assets--
620,
    FR Y-9C (non AA HCs) with $5 billion or more in total assets--756,
    FR Y-9C (AA HCs)--76,
    FR Y-9LP--1,736,
    FR Y-9SP--3,960,
    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 holding 
companies that examiners rely on in the intervals between on-site 
inspections. Financial data from these reporting forms are used to 
detect emerging financial problems, to review performance and conduct 
pre-inspection analysis, to monitor and evaluate capital adequacy, to 
evaluate holding company mergers and acquisitions, and to analyze a 
holding company'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 Board has the 
authority to impose the reporting and recordkeeping requirements 
associated with the FR Y-9 family of reports on BHCs pursuant to 
section 5 of the Bank Holding Company Act of 1956 (BHC Act) (12 U.S.C. 
1844); on SLHCs pursuant to section 10(b)(2) and (3) of the Home 
Owners' Loan Act (12 U.S.C. 1467a(b)(2) and (3)), as amended by 
sections 369(8) and 604(h)(2) of the Dodd-Frank Wall Street and 
Consumer Protection Act (Dodd-Frank Act); on U.S. IHCs pursuant to 
section 5 of the BHC Act (12 U.S.C 1844), as well as pursuant to 
sections 102(a)(1) and 165 of the Dodd-Frank Act (12 U.S.C. 511(a)(1) 
and 5365); and on securities holding companies pursuant to section 618 
of the Dodd-Frank Act (12 U.S.C. 1850a(c)(1)(A)). The obligation to 
submit the FR Y-9 series of reports, and the recordkeeping requirements 
set forth in the respective instructions to each report, are mandatory.
    With respect to the FR Y-9C report, Schedule HI's data item 7(g) 
``FDIC deposit insurance assessments,'' Schedule HC-P's data 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 data item 7(b) 
``Representation and warranty reserves for 1-4 family residential 
mortgage loans sold to other parties'' are considered confidential 
commercial and financial information. Such treatment is appropriate 
under exemption 4 of the Freedom of Information Act (FOIA) (5 U.S.C. 
552(b)(4)) because these data items reflect commercial and financial 
information that is both customarily and actually treated as private by 
the submitter, and which the Board has previously assured submitters 
will be treated as confidential. It also appears that disclosing these 
data items may reveal confidential examination and supervisory 
information, and in such instances, this information would also be 
withheld pursuant to exemption 8 of the FOIA (5 U.S.C. 552(b)(8)), 
which protects information related to the supervision or examination of 
a regulated financial institution.
    In addition, for both the FR Y-9C report and the FR Y-9SP report, 
Schedule HC's memorandum item 2.b., the name and email address of the 
external auditing firm's engagement partner, is considered confidential 
commercial information and protected by exemption 4 of the FOIA (5 
U.S.C. 552(b)(4)) if the identity of the engagement partner is treated 
as private information by HCs. The Board has assured respondents that 
this information will be treated as confidential since the collection 
of this data item was proposed in 2004.
    Aside from the data items described above, the remaining data items 
on the FR Y-9C report and the FR Y-9SP report are generally not 
accorded confidential treatment. The data items collected on FR Y-9LP, 
FR Y-9ES, and FR Y-9CS reports, are also generally not accorded 
confidential treatment. As provided in the Board's Rules Regarding 
Availability of Information (12 CFR part 261), however, a respondent 
may request confidential treatment for any

[[Page 15593]]

data items the respondent believes should be withheld pursuant to a 
FOIA exemption. The Board will review any such request to determine if 
confidential treatment is appropriate, and will inform the respondent 
if the request for confidential treatment has been denied.
    To the extent the instructions to the FR Y-9C, FR Y-9LP, FR Y-9SP, 
and FR Y-9ES reports each respectively direct the financial institution 
to retain the workpapers and related materials used in preparation of 
each report, such material would only be obtained by the Board as part 
of the examination or supervision of the financial institution. 
Accordingly, such information is considered confidential pursuant to 
exemption 8 of the FOIA (5 U.S.C. 552(b)(8)). In addition, the 
workpapers and related materials may also be protected by exemption 4 
of the FOIA, to the extent such financial information is treated as 
confidential by the respondent (5 U.S.C. 552(b)(4)).
    Current actions: The final rule will modify the FR Y-9C for holding 
companies subject to the capital plan rule in order to collect 
information regarding a firm's stress capital buffer requirement, GSIB 
surcharge, countercyclical capital buffer amount, as applicable, and 
any applicable distribution limitations under the regulatory capital 
rule. Specifically, the final rule will add new line items to the FR Y-
9C Schedule HC-R Part I to collect the following information from 
holding companies subject to the capital plan rule: (1) The firm's 
capital conservation buffer requirements (including its standardized 
approach capital conservation buffer requirement and the advanced 
approaches capital conservation buffer requirement) and leverage buffer 
requirement; (2) the firm's capital conservation buffer, advanced 
approaches capital conservation buffer, and, as applicable, leverage 
buffer as of the preceding quarter-end, which is the difference between 
the firm's relevant capital ratio and the relevant minimum requirement; 
and (3) information needed to calculate the firm's maximum payout 
amount, including the firm's planned total capital distributions, 
eligible retained income, and maximum payout ratio. The new line items 
will apply to top-tier holding companies subject to the Board's capital 
plan rule (BHCs and IHCs with total consolidated assets of $100 billion 
or more), for a total of 39 of the existing FR Y-9C respondents. The 
Board estimates that revisions to the FR Y-9 would increase the 
estimated average hours per response for FR Y-9C (non AA HCs) with $5 
billion or more in total assets filers by 0.11 hours and FR Y-9C (AA 
HCs) filers by 1 hour. The Board estimates that revisions to the FR Y-9 
would increase the estimated annual burden by 159 hours. The draft 
reporting form and instructions for the FR Y-9C are available at 
https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (2) Report title: Capital Assessments and Stress Testing.
    Agency form number: FR Y-14A/Q/M.
    OMB control number: 7100-0341.
    Effective date: The revisions are effective with the December 31, 
2020, as-of date, except for the revisions to FR Y-14A, Schedule C, 
which are effective when the final rule goes into effect.
    Frequency: Annually, quarterly, and monthly.
    Affected public: Businesses or other for-profit.
    Respondents: These collections of information are applicable to 
bank holding companies (BHCs), U.S. intermediate holding companies 
(IHCs), and savings and loan holding companies (SLHCs) \55\ with $100 
billion or more in total consolidated assets, as based on: (i) The 
average of the firm's total consolidated assets in the four most recent 
quarters as reported quarterly on the firm's Consolidated Financial 
Statements for Holding Companies (FR Y-9C); or (ii) if the firm has not 
filed an FR Y-9C for each of the most recent four quarters, then 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. 
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.
---------------------------------------------------------------------------

    \55\ SLHCs with $100 billion or more in total consolidated 
assets become members of the FR Y-14Q and FR Y-14M panels effective 
June 30, 2020, and the FR Y-14A panel effective December 31, 2020. 
See 84 FR 59032 (November 1, 2019).
---------------------------------------------------------------------------

    Estimated number of respondents: FR Y-14A/Q--36; FR Y-14M--34.\56\
---------------------------------------------------------------------------

    \56\ The estimated number of respondents for the FR Y-14M is 
lower than for the FR Y-14Q and FR Y-14A because, in recent years, 
certain respondents to the FR Y-14A and FR Y-14Q have not met the 
materiality thresholds to report the FR Y-14M due to their lack of 
mortgage and credit activities. The Board expects this situation to 
continue for the foreseeable future.
---------------------------------------------------------------------------

    Estimated average hours per response:
    FR Y-14A--1,085,
    FR Y-14Q--1,920,
    FR Y-14M--1,072,
    FR Y-14 Ongoing Automation Revisions--480,
    FR Y-14 Attestation--2,560.
    Estimated annual burden hours:
    FR Y-14A--39,060,
    FR Y-14Q--276,480,
    FR Y-14M--437,376,
    FR Y-14 Ongoing Automation Revisions--17,280,
    FR Y-14 Attestation--33,280.
    General description of report: This family of information 
collections is composed of the following three reports:
    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.\57\
---------------------------------------------------------------------------

    \57\ On October 10, 2019, the Board issued a final rule that 
eliminated the requirement for firms subject to Category IV 
standards to conduct and publicly disclose the results of a company-
run stress test. See 84 FR 59032 (Nov. 1, 2019). That final rule 
maintained the existing FR Y-14 substantive reporting requirements 
for these firms 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 its supervised firms. However, as 
noted in the final rule, the Board intends to provide greater 
flexibility to banking organizations subject to Category IV 
standards in developing their annual capital plans and consider 
further change to the FR Y-14 forms as part of a separate proposal. 
See 84 FR 59032, 59063.
---------------------------------------------------------------------------

    The quarterly FR Y-14Q collects granular data on various asset 
classes, including loans, securities, trading assets, and PPNR for the 
reporting period.
    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 needed to help ensure that large firms have 
strong, firm[hyphen]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 FR Y-14 reports are used 
to support the Board's annual Comprehensive Capital Analysis and Review 
(CCAR) and Dodd-Frank Act Stress Test (DFAST) exercises, which 
complement 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 
respondent financial institutions.

[[Page 15594]]

Respondent firms are currently required to complete and submit up to 17 
filings each year: One annual FR Y-14A filing, 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 file the FR Y-14 reports pursuant to section 
5(c) of the BHC Act (12 U.S.C. 1844(c)), and pursuant to section 165(i) 
of the Dodd-Frank Act (12 U.S.C. 5365(i)), as amended by section 401(a) 
and (e) of the Economic Growth, Regulatory Relief, and Consumer 
Protection Act (EGRRCPA).\58\ The Board has authority to require SLHCs 
file the FR Y-14 reports pursuant to section 10(b) of the Home Owners' 
Loan Act (12 U.S.C. 1467a(b)), as amended by section 369(8) and 
604(h)(2) of the Dodd-Frank Act. Lastly, the Board has authority to 
require IHCs file the FR Y-14 reports pursuant to section 5 of the BHC 
Act (12 U.S.C 1844), as well as pursuant to sections 102(a)(1) and 165 
of the Dodd-Frank Act (12 U.S.C. 5311(a)(1) and 5365).\59\ In addition, 
section 401(g) of EGRRCPA (12 U.S.C. 5365) note, provides that the 
Board has the authority to establish enhanced prudential standards for 
foreign banking organizations with total consolidated assets of $100 
billion or more, and clarifies that nothing in section 401 ``shall be 
construed to affect the legal effect of the final rule of the Board . . 
. entitled `Enhanced Prudential Standard for [BHCs] and Foreign Banking 
Organizations' (79 FR 17240 (March 27, 2014)), as applied to foreign 
banking organizations with total consolidated assets equal to or 
greater than $100 million.'' \60\ The information reported in the FR Y-
14 reports is collected as part of the Board's supervisory process, and 
therefore, such information is afforded confidential treatment pursuant 
to exemption 8 of the Freedom of Information Act (FOIA) (5 U.S.C. 
552(b)(8)). In addition, confidential commercial or financial 
information, which a submitter actually and customarily treats as 
private, and which has been provided pursuant to an express assurance 
of confidentiality by the Board, is considered exempt from disclosure 
under exemption 4 of the FOIA (5 U.S.C. 552(b)(4).
---------------------------------------------------------------------------

    \58\ Public Law 115-174, Title IV Sec.  401(a) and (e), 132 
Stat. 1296, 1356-59 (2018).
    \59\ Section 165(b)(2) of the Dodd-Frank Act, 12 U.S.C. 
5365(b)(2), refers to ``foreign-based bank holding company.'' 
Section 102(a)(1) of the Dodd-Frank Act, 12 U.S.C. 5311(a)(1), 
defines ``bank holding company'' for purposes of Title I of the 
Dodd-Frank Act to include foreign banking organizations that are 
treated as bank holding companies under section 8(a) of the 
International Banking Act of 1978, 12 U.S.C. 3106(a). The Board has 
required, pursuant to section 165(b)(1)(B)(iv) of the Dodd-Frank 
Act, 12 U.S.C. 5365(b)(1)(B)(iv), certain foreign banking 
organizations subject to section 165 of the Dodd-Frank Act to form 
U.S. intermediate holding companies. Accordingly, the parent 
foreign-based organization of a U.S. IHC is treated as a BHC for 
purposes of the BHC Act and section 165 of the Dodd-Frank Act. 
Because Section 5(c) of the BHC Act authorizes the Board to require 
reports from subsidiaries of BHCs, section 5(c) provides additional 
authority to require U.S. IHCs to report the information contained 
in the FR Y-14 reports.
    \60\ The Board's Final Rule referenced in section 401(g) of 
EGRRCPA specifically stated that the Board would require IHCs to 
file the FR Y-14 reports. See 79 FR 17240, 17304 (March 27, 2014).
---------------------------------------------------------------------------

    Current actions: To implement the reporting requirements of the 
final rule, the Board revised the FR Y-14A report to in order to 
collect information regarding a firm's capital conservation buffer 
requirements (including the stress capital buffer requirement) and any 
applicable distribution limitations under the regulatory capital rule. 
Specifically, the Board revised the FR Y-14A, Schedule A.1.d (Capital) 
report to collect the following items under firm baseline conditions: 
(1) The firm's capital conservation buffer requirement and, as 
applicable, leverage buffer requirement for each quarter of the 
planning horizon; (2) the firm's capital conservation buffer and, as 
applicable, leverage buffer as of the preceding quarter-end for each 
quarter of the planning horizon, which is the difference between the 
firm's relevant capital ratio and the relevant minimum requirement; and 
(3) information needed to calculate the firm's maximum payout amount, 
including the firm's planned total capital distributions, eligible 
retained income, and maximum payout ratio for each quarter of the 
planning horizon. Finally, to align with the final rule, the Board has 
revised the FR Y-14A instructions to require a firm to submit an 
updated FR Y-14A, Schedule C (Regulatory Capital Instruments), within 
15 days after notice of distributions in excess of planned 
distributions as required under the capital plan rule. The Board 
estimates that revisions to the FR Y-14 would increase the estimated 
average hours per response for FR Y-14A filers by 20 hours. The Board 
estimates that revisions to the FR Y-14 would increase the estimated 
annual burden by 720 hours. The draft reporting form and instructions 
for the FR Y-14A are available at https://www.federalreserve.gov/apps/reportforms/review.aspx.
    (3) Title of information collection: 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 the final rule.
    Frequency: Annually.
    Affected public: Businesses or other for-profit.
    Respondents: BHCs and IHCs.
    Estimated number of respondents:
Reporting
    Section 225.8(e)(1)(ii)--34.
    Section 225.8(e)(3)--25.
    Section 225.8(e)(4)--10.
    Section 225.8(h)(2)(ii)(B)--2.
    Section 225.8(j)--2.
    Sections 225.8(k)(1) and (2)--3.
    Section 225.8(k)(4)--2.
Recordkeeping
    Section 225.8(e)(1)(i)--34.
    Section 225.8(e)(1)(iii)--34.
    Estimated average hours per response:
Reporting \61\
---------------------------------------------------------------------------

    \61\ The reporting requirement in section 225.8(l) is identical 
to a reporting requirement in the FR Y-14A. The burden associated 
with this requirement is accounted for in the burden estimate for 
the FR Y-14 information collection.
---------------------------------------------------------------------------

    Section 225.8(e)(1)(ii)--80.
    Section 225.8(e)(3)--1,005.
    Section 225.8(e)(4)--100.
    Section 225.8(h)(2)(ii)(B)--2.
    Section 225.8(j)--16.
    Sections 225.8(k)(1) and (2)--100.
    Section 225.8(k)(4)--16.
Recordkeeping
    Section 225.8(e)(1)(i)--8,920.
    Section 225.8(e)(1)(iii)--100.
    Estimated annual burden hours:
Reporting
    Section 225.8(e)(1)(ii)--2,720.
    Section 225.8(e)(3)--25,125.
    Section 225.8(e)(4)--1,000.
    Section 225.8(h)(2)(ii)(B)--4.
    Section 225.8(j)--32.
    Sections 225.8(k)(1) and (2)--300.
    Section 225.8(k)(4)--32.
Recordkeeping
    Section 225.8(e)(1)(i)--303,280.
    Section 225.8(e)(1)(iii)--3,400.
    General description of report: Regulation Y (12 CFR part 225) 
requires large bank holding companies (BHCs) and U.S. intermediate 
holding companies (IHCs) to submit capital plans to the Federal Reserve 
on an annual basis and to request prior approval from the Federal 
Reserve under certain circumstances before making a capital 
distribution.
    Legal authorization and confidentiality: Section 616(a) of the

[[Page 15595]]

Dodd-Frank Act amended section 5(b) of the Bank Holding Company Act of 
1956 (BHC Act) (12 U.S.C. 1844(b)) to specifically authorize the Board 
to issue regulations and orders relating to capital requirements for 
BHCs. The Board is also authorized to collect and require reports from 
BHCs pursuant to section 5(c) of the BHC Act (12 U.S.C. 1844(c)). 
Additionally, the Board's rulemaking authority for the information 
collection and disclosure requirements associated with the FR Y-13 is 
found in sections 908 and 910 of the International Lending Supervision 
Act of 1983, as amended (12 U.S.C. 3907 and 3909). Additional support 
for FR Y-13 is found in sections 165 and 166 of the Dodd-Frank Act (12 
U.S.C. 5365 and 5366).\62\ The obligation to respond to this 
information collection is mandatory.
---------------------------------------------------------------------------

    \62\ Section 165 requires the Board to impose enhances 
prudential standards on large BHCs, including stress testing 
requirements; enhanced capital, liquidity, and risk management 
requirements; and a requirement to establish a risk committee. 
Section 166 requires the Board to impose early remediation 
requirements on large BHCs under which a large BHC experiencing 
financial distress must take specific remedial actions in order to 
minimize the probability that the company will become insolvent and 
to minimize the potential harm of such insolvency the United States.
---------------------------------------------------------------------------

    The capital plan information submitted by the covered BHC will 
consist of confidential and proprietary modeling information and highly 
sensitive business plans, such as acquisition plans submitted to the 
Board for approval. Therefore, it appears the information will be 
subject to withholding under exemption 4 of the Freedom of Information 
Act (5 U.S.C. 552(b)(4)).
    Current actions: The final rule modifies the process by which a 
firm determines the final planned capital distributions included in its 
capital plan. In addition, under certain conditions, the final rule 
removes the requirement for a firm to request prior approval to make 
distributions that exceed the amount included in its capital plan. The 
final rule also modifies the timeline and procedures related to a 
firm's stress capital buffer requirement, requests for reconsideration, 
and capital plan resubmissions. The Board estimates that response to 
notice; adjustments to planned capital distributions (reporting) 
(225.8(h)(2)(ii)) would be 2 hours per response. The Board estimates 
that revisions to the FR Y-13 would decrease the estimated annual 
burden by 2,028 hours.

B. Regulatory Flexibility Act

    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.\63\ 
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.\64\ 
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 
December 31, 2019, there were 2,799 bank holding companies, 171 savings 
and loan holding companies, and 497 state member banks that would fit 
the SBA's current definition of ``small entity'' for purposes of the 
RFA.
---------------------------------------------------------------------------

    \63\ 5 U.S.C. 601 et. seq.
    \64\ 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.
---------------------------------------------------------------------------

    In connection with the proposed rule, the Board stated that it did 
not believe the proposed rule would have a significant economic impact 
on a substantial number of small entities. Nevertheless, the Board 
published and invited comment on an initial regulatory flexibility 
analysis of the proposed rule. No comments were received on the initial 
regulatory flexibility analysis.
    The Board is finalizing amendments to Regulations Q,\65\ Y,\66\ and 
YY \67\ that would affect the regulatory requirements that apply to 
bank holding companies with total consolidated assets of $50 billion or 
more, any nonbank financial company supervised by the Board that 
becomes subject to the capital planning requirements pursuant to a rule 
or order of the Board, and to U.S. intermediate holding companies 
established pursuant to Regulation YY. The reasons and justification 
for the final rule are described above in more detail in this 
SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------

    \65\ See 12 CFR part 217.
    \66\ See 12 CFR part 225.
    \67\ See 12 CFR part 252.
---------------------------------------------------------------------------

    The Board has considered whether to conduct a final regulatory 
flexibility analysis in connection with this final rule. However, 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. Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471, 12 U.S.C. 4809) requires the federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The Board has sought to present the proposed rule in a 
simple and straightforward manner, and invites comment on the use of 
plain language.
    For example:
     Have we organized the material to suit your needs? If not, 
how could the rule be more clearly stated?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Will a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes will make the regulation easier to 
understand?
     Will more, but shorter, sections be better? If so, which 
sections should be changed?
     What else could we do to make the regulation easier to 
understand?

List of Subjects

12 CFR Part 217

    Administrative practice and procedure, Banks, Banking, 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

[[Page 15596]]

and recordkeeping requirements, Securities, Stress testing.

12 CFR Part 252

    Administrative practice and procedure, Banks, banking, Credit, 
Federal Reserve System, Holding companies, Investments, Qualified 
financial contracts, Reporting and recordkeeping requirements, 
Securities.

Authority and Issuance

    For the reasons stated in the Supplementary Information, the Board 
of Governors of the Federal Reserve System amends 12 CFR chapter II 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.


0
2. Section 217.11 is revised to read as follows:


Sec.  217.11  Capital conservation buffer, countercyclical capital 
buffer amount, and GSIB surcharge.

    (a) Capital conservation buffer--(1) Composition of the capital 
conservation buffer. The capital conservation buffer is composed solely 
of common equity tier 1 capital.
    (2) Definitions. For purposes of this section, the following 
definitions apply:
    (i) Eligible retained income. (A) The eligible retained income of a 
Board-regulated institution is the Board-regulated institution's net 
income, calculated in accordance with the instructions to the Call 
Report or the FR Y-9C, as applicable, for the four calendar quarters 
preceding the current calendar quarter, net of any distributions and 
associated tax effects not already reflected in net income.
    (B) Notwithstanding paragraph (a)(2)(i)(A) of this section, the 
eligible retained income of a Board-regulation institution subject to 
12 CFR 225.8 is the average of the Board-regulated institution's net 
income, calculated in accordance with the instructions to the FR Y-9C 
for the four calendar quarters preceding the current calendar quarter, 
if:
    (1) The Board-regulated institution is subject to a maximum payout 
ratio determined by its standardized approach capital conservation 
buffer under paragraph (c)(1)(ii) of this section; and
    (2) The Board-regulated institution's standardized approach capital 
conservation buffer is greater than the sum of:
    (i) 2.5 percent;
    (ii) Any applicable countercyclical capital buffer amount 
calculated in accordance with paragraph (b) of this section; and
    (iii) Any applicable GSIB surcharge calculated in accordance with 
paragraph (d) of this section.
    (ii) Maximum payout amount. A Board-regulated institution's maximum 
payout amount for the current calendar quarter is equal to the Board-
regulated institution's eligible retained income, multiplied by its 
maximum payout ratio.
    (iii) Maximum payout ratio. The maximum payout ratio is the 
percentage of eligible retained income that a Board-regulated 
institution can pay out in the form of distributions and discretionary 
bonus payments during the current calendar quarter. For a Board-
regulated institution that is not subject to 12 CFR 225.8, the maximum 
payout ratio is determined by the Board-regulated institution's capital 
conservation buffer, calculated as of the last day of the previous 
calendar quarter, as set forth in Table 1 to Sec.  217.11(a)(4)(iv). 
For a Board-regulated institution that is subject to 12 CFR 225.8, the 
maximum payout ratio is determined under paragraph (c)(1)(ii) of this 
section.
    (iv) Private sector credit exposure. Private sector credit exposure 
means an exposure to a company or an individual that is not an exposure 
to a sovereign, the Bank for International Settlements, the European 
Central Bank, the European Commission, the European Stability 
Mechanism, the European Financial Stability Facility, the International 
Monetary Fund, a MDB, a PSE, or a GSE.
    (v) Leverage buffer requirement. A bank holding company's leverage 
buffer requirement is 2.0 percent.
    (vi) Stress capital buffer requirement. A bank holding company's 
stress capital buffer requirement is the stress capital buffer 
requirement determined under 12 CFR 225.8.
    (3) Calculation of capital conservation buffer. (i) A Board-
regulated institution that is not subject to 12 CFR 225.8 has a capital 
conservation buffer equal to the lowest of the following ratios, 
calculated as of the last day of the previous calendar quarter:
    (A) The Board-regulated institution's common equity tier 1 capital 
ratio minus the Board-regulated institution's minimum common equity 
tier 1 capital ratio requirement under Sec.  217.10;
    (B) The Board-regulated institution's tier 1 capital ratio minus 
the Board-regulated institution's minimum tier 1 capital ratio 
requirement under Sec.  217.10; and
    (C) The Board-regulated institution's total capital ratio minus the 
Board-regulated institution's minimum total capital ratio requirement 
under Sec.  217.10; or
    (ii) Notwithstanding paragraphs (a)(3)(i)(A) through (C) of this 
section, if a Board-regulated institution's common equity tier 1, tier 
1 or total capital ratio is less than or equal to the Board-regulated 
institution's minimum common equity tier 1, tier 1 or total capital 
ratio requirement under Sec.  217.10, respectively, the Board-regulated 
institution's capital conservation buffer is zero.
    (4) Limits on distributions and discretionary bonus payments. (i) A 
Board-regulated institution that is not subject 12 CFR 225.8 shall not 
make distributions or discretionary bonus payments or create an 
obligation to make such distributions or payments during the current 
calendar quarter that, in the aggregate, exceed its maximum payout 
amount.
    (ii) A Board-regulated institution that is not subject 12 CFR 225.8 
and that has a capital conservation buffer that is greater than 2.5 
percent plus 100 percent of its applicable countercyclical capital 
buffer amount in accordance with paragraph (b) of this section is not 
subject to a maximum payout amount under paragraph (a)(2)(ii) of this 
section.
    (iii) Except as provided in paragraph (a)(4)(iv) of this section, a 
Board-regulated institution that is not subject to 12 CFR 225.8 may not 
make distributions or discretionary bonus payments during the current 
calendar quarter if the Board-regulated institution's:
    (A) Eligible retained income is negative; and
    (B) Capital conservation buffer was less than 2.5 percent as of the 
end of the previous calendar quarter.
    (iv) Prior approval. Notwithstanding the limitations in paragraphs 
(a)(4)(i) through (iii) of this section, the Board may permit a Board-
regulated institution that is not subject to 12 CFR 225.8 to make a 
distribution or discretionary bonus payment upon a request of the 
Board-regulated institution, if the Board determines that the 
distribution or discretionary bonus payment would not be contrary to 
the purposes of this section, or to the safety and soundness of the 
Board-regulated institution. In making such a determination, the Board 
will consider the nature and extent of the request and

[[Page 15597]]

the particular circumstances giving rise to the request.

Table 1 to Sec.   217.11(a)(4)(iv)--Calculation of Maximum Payout Amount
------------------------------------------------------------------------
           Capital conservation buffer             Maximum payout ratio
------------------------------------------------------------------------
Greater than 2.5 percent plus 100 percent of the  No payout ratio
 Board-regulated institution's applicable          limitation applies.
 countercyclical capital buffer amount.
Less than or equal to 2.5 percent plus 100        60 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount, and greater than 1.875 percent plus 75
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount.
Less than or equal to 1.875 percent plus 75       40 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount, and greater than 1.25 percent plus 50
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount.
Less than or equal to 1.25 percent plus 50        20 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount and greater than 0.625 percent plus 25
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount.
Less than or equal to 0.625 percent plus 25       0 percent.
 percent of the Board-regulated institution's
 applicable countercyclical capital buffer
 amount.
------------------------------------------------------------------------

    (v) Other limitations on distributions. Additional limitations on 
distributions may apply under 12 CFR 225.4 and 12 CFR 263.202 to a 
Board-regulated institution that is not subject to 12 CFR 225.8.
    (b) Countercyclical capital buffer amount--(1) General. An advanced 
approaches Board-regulated institution or a Category III Board-
regulated institution must calculate a countercyclical capital buffer 
amount in accordance with this paragraph (b) for purposes of 
determining its maximum payout ratio under Table 1 to Sec.  
217.11(a)(4)(iv) and, if applicable, Table 2 to Sec.  
217.11(c)(4)(iii).
    (i) Extension of capital conservation buffer. The countercyclical 
capital buffer amount is an extension of the capital conservation 
buffer as described in paragraph (a) or (c) of this section, as 
applicable.
    (ii) Amount. An advanced approaches Board-regulated institution or 
a Category III Board-regulated institution has a countercyclical 
capital buffer amount determined by calculating the weighted average of 
the countercyclical capital buffer amounts established for the national 
jurisdictions where the Board-regulated institution's private sector 
credit exposures are located, as specified in paragraphs (b)(2) and (3) 
of this section.
    (iii) Weighting. The weight assigned to a jurisdiction's 
countercyclical capital buffer amount is calculated by dividing the 
total risk-weighted assets for the Board-regulated institution's 
private sector credit exposures located in the jurisdiction by the 
total risk-weighted assets for all of the Board-regulated institution's 
private sector credit exposures. The methodology a Board-regulated 
institution uses for determining risk-weighted assets for purposes of 
this paragraph (b) must be the methodology that determines its risk-
based capital ratios under Sec.  217.10. Notwithstanding the previous 
sentence, the risk-weighted asset amount for a private sector credit 
exposure that is a covered position under subpart F of this part is its 
specific risk add-on as determined under Sec.  217.210 multiplied by 
12.5.
    (iv) Location. (A) Except as provided in paragraphs (b)(1)(iv)(B) 
and (C) of this section, the location of a private sector credit 
exposure is the national jurisdiction where the borrower is located 
(that is, where it is incorporated, chartered, or similarly established 
or, if the borrower is an individual, where the borrower resides).
    (B) If, in accordance with subpart D or E of this part, the Board-
regulated institution has assigned to a private sector credit exposure 
a risk weight associated with a protection provider on a guarantee or 
credit derivative, the location of the exposure is the national 
jurisdiction where the protection provider is located.
    (C) The location of a securitization exposure is the location of 
the underlying exposures, or, if the underlying exposures are located 
in more than one national jurisdiction, the national jurisdiction where 
the underlying exposures with the largest aggregate unpaid principal 
balance are located. For purposes of this paragraph (b), the location 
of an underlying exposure shall be the location of the borrower, 
determined consistent with paragraph (b)(1)(iv)(A) of this section.
    (2) Countercyclical capital buffer amount for credit exposures in 
the United States--(i) Initial countercyclical capital buffer amount 
with respect to credit exposures in the United States. The initial 
countercyclical capital buffer amount in the United States is zero.
    (ii) Adjustment of the countercyclical capital buffer amount. The 
Board will adjust the countercyclical capital buffer amount for credit 
exposures in the United States in accordance with applicable law.\1\
---------------------------------------------------------------------------

    \1\ The Board expects that any adjustment will be based on a 
determination made jointly by the Board, OCC, and FDIC.
---------------------------------------------------------------------------

    (iii) Range of countercyclical capital buffer amount. The Board 
will adjust the countercyclical capital buffer amount for credit 
exposures in the United States between zero percent and 2.5 percent of 
risk-weighted assets.
    (iv) Adjustment determination. The Board will base its decision to 
adjust the countercyclical capital buffer amount under this section on 
a range of macroeconomic, financial, and supervisory information 
indicating an increase in systemic risk including, but not limited to, 
the ratio of credit to gross domestic product, a variety of asset 
prices, other factors indicative of relative credit and liquidity 
expansion or contraction, funding spreads, credit condition surveys, 
indices based on credit default swap spreads, options implied 
volatility, and measures of systemic risk.
    (v) Effective date of adjusted countercyclical capital buffer 
amount--(A) Increase adjustment. A determination by the Board under 
paragraph (b)(2)(ii) of this section to increase the countercyclical 
capital buffer amount will be effective 12 months from the date of 
announcement, unless the Board establishes an earlier effective date 
and includes a statement articulating the reasons for the earlier 
effective date.
    (B) Decrease adjustment. A determination by the Board to decrease 
the established countercyclical capital buffer amount under paragraph 
(b)(2)(ii)

[[Page 15598]]

of this section will be effective on the day following announcement of 
the final determination or the earliest date permissible under 
applicable law or regulation, whichever is later.
    (vi) Twelve month sunset. The countercyclical capital buffer amount 
will return to zero percent 12 months after the effective date that the 
adjusted countercyclical capital buffer amount is announced, unless the 
Board announces a decision to maintain the adjusted countercyclical 
capital buffer amount or adjust it again before the expiration of the 
12-month period.
    (3) Countercyclical capital buffer amount for foreign 
jurisdictions. The Board will adjust the countercyclical capital buffer 
amount for private sector credit exposures to reflect decisions made by 
foreign jurisdictions consistent with due process requirements 
described in paragraph (b)(2) of this section.
    (c) Calculation of buffers for Board-regulated institutions subject 
to 12 CFR 225.8-- (1) Limits on distributions and discretionary bonus 
payments. (i) A Board-regulated institution that is subject to 12 CFR 
225.8 shall not make distributions or discretionary bonus payments or 
create an obligation to make such distributions or payments during the 
current calendar quarter that, in the aggregate, exceed its maximum 
payout amount.
    (ii) Maximum payout ratio. The maximum payout ratio of a Board-
regulated institution that is subject to 12 CFR 225.8 is the lowest of 
the payout ratios determined by its standardized approach capital 
conservation buffer; if applicable, advanced approaches capital 
conservation buffer; and, if applicable, leverage buffer; as set forth 
in Table 2 to Sec.  217.11(c)(4)(iii).
    (iii) Capital conservation buffer requirements. A Board-regulated 
institution that is subject to 12 CFR 225.8 has:
    (A) A standardized approach capital conservation buffer requirement 
equal to its stress capital buffer requirement plus its applicable 
countercyclical capital buffer amount in accordance with paragraph (b) 
of this section plus its applicable GSIB surcharge in accordance with 
paragraph (d) of this section; and
    (B) If the Board-regulated institution calculates risk-weighted 
assets under subpart E of this part, an advanced approaches capital 
conservation buffer requirement equal to 2.5 percent plus the Board-
regulated institution's countercyclical capital buffer amount in 
accordance with paragraph (b) of this section plus its applicable GSIB 
surcharge in accordance with paragraph (d) of this section.
    (iv) No maximum payout amount limitation. A Board-regulated 
institution that is subject to 12 CFR 225.8 is not subject to a maximum 
payout amount under paragraph (a)(2)(ii) of this section if it has:
    (A) A standardized approach capital conservation buffer, calculated 
under paragraph (c)(2) of this section, that is greater than its 
standardized approach capital conservation buffer requirement 
calculated under paragraph (c)(1)(iii)(A) of this section;
    (B) If applicable, an advanced approaches capital conservation 
buffer, calculated under paragraph (c)(3) of this section, that is 
greater than the Board-regulated institution's advanced approaches 
capital conservation buffer requirement calculated under paragraph 
(c)(1)(iii)(B) of this section; and
    (C) If applicable, a leverage buffer, calculated under paragraph 
(c)(4) of this section, that is greater than its leverage buffer 
requirement as calculated under paragraph (a)(2)(v) of this section.
    (v) Negative eligible retained income. Except as provided in 
paragraph (c)(1)(vi) of this section, a Board-regulated institution 
that is subject to 12 CFR 225.8 may not make distributions or 
discretionary bonus payments during the current calendar quarter if, as 
of the end of the previous calendar quarter, the Board-regulated 
institution's:
    (A) Eligible retained income is negative; and
    (B)(1) Standardized approach capital conservation buffer was less 
than its stress capital buffer requirement; or
    (2) If applicable, advanced approaches capital conservation buffer 
was less than 2.5 percent; or
    (3) If applicable, leverage buffer was less than its leverage 
buffer requirement.
    (vi) Prior approval. Notwithstanding the limitations in paragraphs 
(c)(1)(i) through (v) of this section, the Board may permit a Board-
regulated institution that is subject to 12 CFR 225.8 to make a 
distribution or discretionary bonus payment upon a request of the 
Board-regulated institution, if the Board determines that the 
distribution or discretionary bonus payment would not be contrary to 
the purposes of this section, or to the safety and soundness of the 
Board-regulated institution. In making such a determination, the Board 
will consider the nature and extent of the request and the particular 
circumstances giving rise to the request.
    (v) Other limitations on distributions. Additional limitations on 
distributions may apply under 12 CFR 225.4, 12 CFR 225.8, 12 CFR 
252.63, 12 CFR 252.165, and 12 CFR 263.202 to a Board-regulated 
institution that is subject to 12 CFR 225.8.
    (2) Standardized approach capital conservation buffer. (i) The 
standardized approach capital conservation buffer for Board-regulated 
institutions subject to 12 CFR 225.8 is composed solely of common 
equity tier 1 capital.
    (ii) A Board-regulated institution that is subject to 12 CFR 225.8 
has a standardized approach capital conservation buffer that is equal 
to the lowest of the following ratios, calculated as of the last day of 
the previous calendar quarter:
    (A) The ratio calculated by the Board-regulated institution under 
Sec.  217.10(b)(1) or (c)(1)(i), as applicable, minus the Board-
regulated institution's minimum common equity tier 1 capital ratio 
requirement under Sec.  217.10(a);
    (B) The ratio calculated by the Board-regulated institution under 
Sec.  217.10(b)(2) or (c)(2)(i), as applicable, minus the Board-
regulated institution's minimum tier 1 capital ratio requirement under 
Sec.  217.10(a); and
    (C) The ratio calculated by the Board-regulated institution under 
Sec.  217.10(b)(3) or (c)(3)(i), as applicable, minus the Board-
regulated institution's minimum total capital ratio requirement under 
Sec.  217.10(a).
    (iii) Notwithstanding paragraph (c)(2)(ii) of this section, if any 
of the ratios calculated by the Board-regulated institution under Sec.  
217.10(b)(1), (2), or (3), or if applicable Sec.  217.10(c)(1)(i), 
(c)(2)(i), or (c)(3)(i) is less than or equal to the Board-regulated 
institution's minimum common equity tier 1 capital ratio, tier 1 
capital ratio, or total capital ratio requirement under Sec.  
217.10(a), respectively, the Board-regulated institution's capital 
conservation buffer is zero.
    (3) Advanced approaches capital conservation buffer. (i) The 
advanced approaches capital conservation buffer is composed solely of 
common equity tier 1 capital.
    (ii) A Board-regulated institution that calculates risk-weighted 
assets under subpart E has an advanced approaches capital conservation 
buffer that is equal to the lowest of the following ratios, calculated 
as of the last day of the previous calendar quarter:
    (A) The ratio calculated by the Board-regulated institution under 
Sec.  217.10(c)(1)(ii) minus the Board-regulated institution's minimum 
common equity tier 1 capital ratio requirement under Sec.  217.10(a);
    (B) The ratio calculated by the Board-regulated institution under 
Sec.  217.10(c)(2)(ii) minus the Board-

[[Page 15599]]

regulated institution's minimum tier 1 capital ratio requirement under 
Sec.  217.10(a); and
    (C) The ratio calculated by the Board-regulated institution under 
Sec.  217.10(c)(3)(ii) minus the Board-regulated institution's minimum 
total capital ratio requirement under Sec.  217.10(a).
    (iii) Notwithstanding paragraph (c)(3)(ii) of this section, if any 
of the ratios calculated by the Board-regulated institution under Sec.  
217.10(c)(1)(ii), (c)(2)(ii), or (c)(3)(ii) is less than or equal to 
the Board-regulated institution's minimum common equity tier 1 capital 
ratio, tier 1 capital ratio, or total capital ratio requirement under 
Sec.  217.10(a), respectively, the Board-regulated institution's 
advanced approaches capital conservation buffer is zero.
    (4) Leverage buffer. (i) The leverage buffer is composed solely of 
tier 1 capital.
    (ii) A global systemically important BHC has a leverage buffer that 
is equal to the global systemically important BHC's supplementary 
leverage ratio minus 3 percent, calculated as of the last day of the 
previous calendar quarter.
    (iii) Notwithstanding paragraph (c)(4)(ii) of this section, if the 
global systemically important BHC's supplementary leverage ratio is 
less than or equal to 3 percent, the global systemically important 
BHC's leverage buffer is zero.

Table 2 to Sec.   217.11(c)(4)(iii)--Calculation of Maximum Payout Ratio
------------------------------------------------------------------------
               Capital buffer \1\                      Payout ratio
------------------------------------------------------------------------
Greater than the Board-regulated institution's    No payout ratio
 buffer requirement \2\.                           limitation applies.
Less than or equal to 100 percent of the Board-   60 percent.
 regulated institution's buffer requirement, and
 greater than 75 percent of the Board-regulated
 institution's buffer requirement.
Less than or equal to 75 percent of the Board-    40 percent.
 regulated institution's buffer requirement, and
 greater than 50 percent of the bank holding
 company's buffer requirement.
Less than or equal to 50 percent of the Board-    20 percent.
 regulated institution's buffer requirement, and
 greater than 25 percent of the Board-regulated
 institution's buffer requirement.
Less than or equal to 25 percent of the Board-    0 percent.
 regulated institution's buffer requirement.
------------------------------------------------------------------------
\1\ A Board-regulated institution's ``capital buffer'' means each of, as
  applicable, its standardized approach capital conservation buffer,
  advanced approaches capital conservation buffer, and leverage buffer.
\2\ A Board-regulated institution's ``buffer requirement'' means each
  of, as applicable, its standardized approach capital conservation
  buffer requirement, advanced approaches capital conservation buffer
  requirement, and leverage buffer requirement.

    (d) GSIB surcharge. A global systemically important BHC must use 
its GSIB surcharge calculated in accordance with subpart H of this part 
for purposes of determining its maximum payout ratio under Table 2 to 
Sec.  217.11(c)(4)(iii).

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.


0
4. Section 225.8 is revised to read as follows:


Sec.  225.8  Capital planning and stress capital buffer requirement.

    (a) Purpose. This section establishes capital planning and prior 
notice and approval requirements for capital distributions by certain 
bank holding companies. This section also establishes the Board's 
process for determining the stress capital buffer requirement 
applicable to these bank holding companies.
    (b) Scope and reservation of authority--(1) Applicability. Except 
as provided in paragraph (c) of this section, this section applies to:
    (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);
    (ii) Any other bank holding company domiciled in the United States 
that is made subject to this section, in whole or in part, by order of 
the Board;
    (iii) Any U.S. intermediate holding company subject to this section 
pursuant to 12 CFR 252.153; and
    (iv) 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) 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.
    (4) Reservation of authority. Nothing in this section shall limit 
the authority of the Federal Reserve to issue or enforce a capital 
directive or take any other supervisory or enforcement action, 
including an action to address unsafe or unsound practices or 
conditions or violations of law.
    (5) Rule of construction. Unless the context otherwise requires, 
any reference to bank holding company in this section shall include a 
U.S. intermediate holding company and shall include a nonbank financial 
company supervised by the Board to the extent this section is made 
applicable pursuant to a rule or order of the Board.
    (6) Application of this section by order. The Board may apply this 
section, in whole or in part, to a bank holding company by order based 
on the institution's size, level of complexity, risk profile, scope of 
operations, or financial condition.
    (c) Transition periods for certain bank holding companies. (1) A 
bank holding

[[Page 15600]]

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 of this section if the Board, or appropriate Reserve Bank 
with concurrence of the Board, determines that the requirement is 
appropriate on a different date based on the company's risk profile, 
scope of operation, or financial condition and provides prior notice to 
the company of the determination.
    (d) Definitions. For purposes of this section, the following 
definitions apply:
    (1) Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable.
    (2) Average total nonbank assets means the average of the total 
nonbank assets, calculated in accordance with the instructions to the 
FR Y-9LP, for the four most recent calendar quarters or, if the bank 
holding company has not filed the FR Y-9LP for each of the four most 
recent calendar quarters, for the most recent quarter or quarters, as 
applicable.
    (3) BHC baseline scenario means a scenario that reflects the bank 
holding company's expectation of the economic and financial outlook, 
including expectations related to the bank holding company's capital 
adequacy and financial condition.
    (4) BHC stress scenario means a scenario designed by a bank holding 
company that stresses the specific vulnerabilities of the bank holding 
company's risk profile and operations, including those related to the 
bank holding company's capital adequacy and financial condition.
    (5) Capital action means any issuance of a debt or equity capital 
instrument, any capital distribution, and any similar action that the 
Federal Reserve determines could impact a bank holding company's 
consolidated capital.
    (6) Capital distribution means a redemption or repurchase of any 
debt or equity capital instrument, a payment of common or preferred 
stock dividends, a payment that may be temporarily or permanently 
suspended by the issuer on any instrument that is eligible for 
inclusion in the numerator of any minimum regulatory capital ratio, and 
any similar transaction that the Federal Reserve determines to be in 
substance a distribution of capital.
    (7) Capital plan means a written presentation of a bank holding 
company's capital planning strategies and capital adequacy process that 
includes the mandatory elements set forth in paragraph (e)(2) of this 
section.
    (8) Capital plan cycle means the period beginning on January 1 of a 
calendar year and ending on December 31 of that year.
    (9) Capital policy means a bank holding company's written 
principles and guidelines used for capital planning, capital issuance, 
capital usage and distributions, including internal capital goals; the 
quantitative or qualitative guidelines for capital distributions; the 
strategies for addressing potential capital shortfalls; and the 
internal governance procedures around capital policy principles and 
guidelines.
    (10) Common equity tier 1 capital has the same meaning as under 12 
CFR part 217.
    (11) Effective capital distribution limitations means any 
limitations on capital distributions established by the Board by order 
or regulation, including pursuant to 12 CFR 217.11, 225.4, 252.63, 
252.165, and 263.202, provided that, for any limitations based on risk-
weighted assets, such limitations must be calculated using the 
standardized approach, as set forth in 12 CFR part 217, subpart D.
    (12) Final planned capital distributions means the planned capital 
distributions included in a capital plan that include the adjustments 
made pursuant to paragraph (h) of this section, if any.
    (13) Global systemically important BHC means a bank holding company 
identified as a global systemically important BHC under 12 CFR 217.402.
    (14) GSIB surcharge has the same meaning as under 12 CFR 217.403.
    (15) Large and noncomplex bank holding company means any bank 
holding company subject to this section that:
    (i) Has, as of December 31 of the calendar year prior to the 
capital plan cycle:
    (A) Average total consolidated assets of less than $250 billion;
    (B) Average total nonbank assets of less than $75 billion; and
    (ii) Is not a global systemically important BHC.
    (16) Nonbank financial company supervised by the Board means a 
company that the Financial Stability Oversight Council has determined 
under section 113 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (12 U.S.C. 5323) shall be supervised by the Board and 
for which such determination is still in effect.
    (17) Planning horizon means the period of at least nine consecutive 
quarters, beginning with the quarter preceding the quarter in which the 
bank holding company submits its capital plan, over which the relevant 
projections extend.
    (18) Regulatory capital ratio means a capital ratio for which the 
Board has established minimum requirements for the bank holding company 
by regulation or order, including, as applicable, the bank holding 
company's regulatory capital ratios calculated under 12 CFR part 217 
and the deductions required under 12 CFR 248.12; except that the bank 
holding company shall not use the advanced approaches to calculate its 
regulatory capital ratios.
    (19) Severely adverse scenario has the same meaning as under 12 CFR 
part 252, subpart E.
    (20) Stress capital buffer requirement means the amount calculated 
under paragraph (f) of this section.
    (21) Supervisory stress test means a stress test conducted using a 
severely adverse scenario and the assumptions contained in 12 CFR part 
252, subpart E.
    (22) U.S. intermediate holding company means the top-tier U.S. 
company that is required to be established pursuant to 12 CFR 252.153.
    (e) Capital planning requirements and procedures--(1) Annual 
capital planning. (i) A bank holding company must develop and maintain 
a capital plan.
    (ii) A bank holding company must submit its complete capital plan 
to the Board and the appropriate Reserve Bank by April 5 of each 
calendar year, or such later date as directed by the Board or by the 
appropriate Reserve Bank with concurrence of the Board.
    (iii) The bank holding company's board of directors or a designated 
committee thereof must at least annually and prior to submission of the 
capital plan under paragraph (e)(1)(ii) of this section:
    (A) Review the robustness of the bank holding company's process for 
assessing capital adequacy;
    (B) Ensure that any deficiencies in the bank holding company's 
process for

[[Page 15601]]

assessing capital adequacy are appropriately remedied; and
    (C) Approve the bank holding company's capital plan.
    (2) Mandatory elements of capital plan. A capital plan must contain 
at least the following elements:
    (i) An assessment of the expected uses and sources of capital over 
the planning horizon that reflects the bank holding company's size, 
complexity, risk profile, and scope of operations, assuming both 
expected and stressful conditions, including:
    (A) Estimates of projected revenues, losses, reserves, and pro 
forma capital levels, including regulatory capital ratios, and any 
additional capital measures deemed relevant by the bank holding 
company, over the planning horizon under a range of scenarios, 
including any scenarios provided by the Federal Reserve, the BHC 
baseline scenario, and at least one BHC stress scenario;
    (B) A discussion of the results of any stress test required by law 
or regulation, and an explanation of how the capital plan takes these 
results into account; and
    (C) A description of all planned capital actions over the planning 
horizon. Planned capital actions must be consistent with effective 
capital distribution limitations, except as may be adjusted pursuant to 
paragraph (h) of this section. In determining whether a bank holding 
company's planned capital distributions are consistent with effective 
capital distribution limitations, a bank holding company must assume 
that:
    (1) Any countercyclical capital buffer amount currently applicable 
to the bank holding company remains at the same level, except that the 
bank holding company must reflect any increases or decreases in the 
countercyclical capital buffer amount that have been announced by the 
Board at the times indicated by the Board's announcement for when such 
increases or decreases will take effect; and
    (2) Any GSIB surcharge currently applicable to the bank holding 
company when the capital plan is submitted remains at the same level, 
except that the bank holding company must reflect any increase in its 
GSIB surcharge pursuant to 12 CFR 217.403(d)(1), beginning in the fifth 
quarter of the planning horizon.
    (ii) A detailed description of the bank holding company's process 
for assessing capital adequacy, including:
    (A) A discussion of how the bank holding company will, under 
expected and stressful conditions, maintain capital commensurate with 
its risks, maintain capital above the regulatory capital ratios, and 
serve as a source of strength to its subsidiary depository 
institutions;
    (B) A discussion of how the bank holding company will, under 
expected and stressful conditions, maintain sufficient capital to 
continue its operations by maintaining ready access to funding, meeting 
its obligations to creditors and other counterparties, and continuing 
to serve as a credit intermediary;
    (iii) The bank holding company's capital policy; and
    (iv) A discussion of any expected changes to the bank holding 
company's business plan that are likely to have a material impact on 
the bank holding company's capital adequacy or liquidity.
    (3) Data collection. Upon the request of the Board or appropriate 
Reserve Bank, the bank holding company shall provide the Federal 
Reserve with information regarding:
    (i) The bank holding company's financial condition, including its 
capital;
    (ii) The bank holding company's structure;
    (iii) Amount and risk characteristics of the bank holding company's 
on- and off-balance sheet exposures, including exposures within the 
bank holding company's trading account, other trading-related exposures 
(such as counterparty-credit risk exposures) or other items sensitive 
to changes in market factors, including, as appropriate, information 
about the sensitivity of positions to changes in market rates and 
prices;
    (iv) The bank holding company's relevant policies and procedures, 
including risk management policies and procedures;
    (v) The bank holding company's liquidity profile and management;
    (vi) The loss, revenue, and expense estimation models used by the 
bank holding company for stress scenario analysis, including supporting 
documentation regarding each model's development and validation; and
    (vii) Any other relevant qualitative or quantitative information 
requested by the Board or by the appropriate Reserve Bank to facilitate 
review of the bank holding company's capital plan under this section.
    (4) Resubmission of a capital plan. (i) A bank holding company must 
update and resubmit its capital plan to the appropriate Reserve Bank 
within 30 calendar days of the occurrence of one of the following 
events:
    (A) The bank holding company determines there has been or will be a 
material change in the bank holding company's risk profile, financial 
condition, or corporate structure since the bank holding company last 
submitted the capital plan to the Board and the appropriate Reserve 
Bank under this section; or
    (B) The Board, or the appropriate Reserve Bank with concurrence of 
the Board, directs the bank holding company in writing to revise and 
resubmit its capital plan for any of the following reasons:
    (1) The capital plan is incomplete or the capital plan, or the bank 
holding company's internal capital adequacy process, contains material 
weaknesses;
    (2) There has been, or will likely be, a material change in the 
bank holding company's risk profile (including a material change in its 
business strategy or any risk exposure), financial condition, or 
corporate structure;
    (3) The BHC stress scenario(s) are not appropriate for the bank 
holding company's business model and portfolios, or changes in 
financial markets or the macro-economic outlook that could have a 
material impact on a bank holding company's risk profile and financial 
condition require the use of updated scenarios; or
    (4) For a bank holding company subject to paragraph (i) of this 
section, the capital plan or the condition of the bank holding company 
raise any of the issues described in paragraph (i)(2) of this section.
    (ii) A bank holding company may resubmit its capital plan to the 
Federal Reserve if the Board or the appropriate Reserve Bank objects to 
the capital plan.
    (iii) The Board, or the appropriate Reserve Bank with concurrence 
of the Board, may extend the 30-day period in paragraph (e)(4)(i) of 
this section for up to an additional 60 calendar days, or such longer 
period as the Board or the appropriate Reserve Bank, with concurrence 
of the Board, determines appropriate.
    (iv) Any updated capital plan must satisfy all the requirements of 
this section; however, a bank holding company may continue to rely on 
information submitted as part of a previously submitted capital plan to 
the extent that the information remains accurate and appropriate.
    (5) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this 
section 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).

[[Page 15602]]

    (f) Calculation of the stress capital buffer requirement--(1) 
General. The Board will determine the stress capital buffer requirement 
that applies under 12 CFR 217.11 pursuant to paragraph (f) of this 
section.
    (2) Stress capital buffer requirement calculation. A bank holding 
company's stress capital buffer requirement is equal to the greater of:
    (i) The following calculation:
    (A) The ratio of a bank holding company's common equity tier 1 
capital to risk-weighted assets, as calculated under 12 CFR part 217, 
subpart D, as of the final quarter of the previous capital plan cycle, 
unless otherwise determined by the Board; minus
    (B) The lowest projected ratio of the bank holding company's common 
equity tier 1 capital to risk-weighted assets, as calculated under 12 
CFR part 217, subpart D, in any quarter of the planning horizon under a 
supervisory stress test; plus
    (C) The ratio of:
    (1) The sum of the bank holding company's planned common stock 
dividends (expressed as a dollar amount) for each of the fourth through 
seventh quarters of the planning horizon; to
    (2) The risk-weighted assets of the bank holding company in the 
quarter in which the bank holding company had its lowest projected 
ratio of common equity tier 1 capital to risk-weighted assets, as 
calculated under 12 CFR part 217, subpart D, in any quarter of the 
planning horizon under a supervisory stress test; and
    (ii) 2.5 percent.
    (3) Recalculation of stress capital buffer requirement. If a bank 
holding company resubmits its capital plan pursuant to paragraph (e)(4) 
of this section, the Board may recalculate the bank holding company's 
stress capital buffer requirement. The Board will provide notice of 
whether the bank holding company's stress capital buffer requirement 
will be recalculated within 75 calendar days after the date on which 
the capital plan is resubmitted, unless the Board provides notice to 
the company that it is extending the time period.
    (g) Review of capital plans by the Federal Reserve. The Board, or 
the appropriate Reserve Bank with concurrence of the Board, will 
consider the following factors in reviewing a bank holding company's 
capital plan:
    (1) The comprehensiveness of the capital plan, including the extent 
to which the analysis underlying the capital plan captures and 
addresses potential risks stemming from activities across the bank 
holding company and the bank holding company's capital policy;
    (2) The reasonableness of the bank holding company's capital plan, 
the assumptions and analysis underlying the capital plan, and the 
robustness of its capital adequacy process;
    (3) Relevant supervisory information about the bank holding company 
and its subsidiaries;
    (4) The bank holding company's regulatory and financial reports, as 
well as supporting data that would allow for an analysis of the bank 
holding company's loss, revenue, and reserve projections;
    (5) The results of any stress tests conducted by the bank holding 
company or the Federal Reserve; and
    (6) Other information requested or required by the Board or the 
appropriate Reserve Bank, as well as any other information relevant, or 
related, to the bank holding company's capital adequacy.
    (h) Federal Reserve notice of stress capital buffer requirement; 
final planned capital distributions--(1) Notice. The Board will provide 
a bank holding company with notice of its stress capital buffer 
requirement and an explanation of the results of the supervisory stress 
test. Unless otherwise determined by the Board, notice will be provided 
by June 30 of the calendar year in which the capital plan was submitted 
pursuant to paragraph (e)(1)(ii) of this section or within 90 calendar 
days of receiving notice that the Board will recalculate the bank 
holding company's stress capital buffer requirement pursuant to 
paragraph (f)(3) of this section.
    (2) Response to notice--(i) Request for reconsideration of stress 
capital buffer requirement. A bank holding company may request 
reconsideration of a stress capital buffer requirement provided under 
paragraph (h)(1) of this section. To request reconsideration of a 
stress capital buffer requirement, a bank holding company must submit 
to the Board a request pursuant to paragraph (j) of this section.
    (ii) Adjustments to planned capital distributions. Within two 
business days of receipt of notice of a stress capital buffer 
requirement under paragraph (h)(1) or (j)(5) of this section, as 
applicable, a bank holding company must:
    (A) Determine whether the planned capital distributions for the 
fourth through seventh quarters of the planning horizon under the BHC 
baseline scenario would be consistent with effective capital 
distribution limitations assuming the stress capital buffer requirement 
provided by the Board under paragraph (h)(1) or (j)(5) of this section, 
as applicable, in place of any stress capital buffer requirement in 
effect; and
    (1) If the planned capital distributions for the fourth through 
seventh quarters of the planning horizon under the BHC baseline 
scenario would not be consistent with effective capital distribution 
limitations assuming the stress capital buffer requirement provided by 
the Board under paragraph (h)(1) or (j)(5) of this section, as 
applicable, in place of any stress capital buffer requirement in 
effect, the bank holding company must adjust its planned capital 
distributions such that its planned capital distributions would be 
consistent with effective capital distribution limitations assuming the 
stress capital buffer requirement provided by the Board under paragraph 
(h)(1) or (j)(5) of this section, as applicable, in place of any stress 
capital buffer requirement in effect; or
    (2) If the planned capital distributions for the fourth through 
seventh quarters of the planning horizon under the BHC baseline 
scenario would be consistent with effective capital distribution 
limitations assuming the stress capital buffer requirement provided by 
the Board under paragraph (h)(1) or (j)(5) of this section, as 
applicable, in place of any stress capital buffer requirement in 
effect, the bank holding company may adjust its planned capital 
distributions. A bank holding company may not adjust its planned 
capital distributions to be inconsistent with the effective capital 
distribution limitations assuming the stress capital buffer requirement 
provided by the Board under paragraph (h)(1) or (j)(5) of this section, 
as applicable; and
    (B) Notify the Board of any adjustments made to planned capital 
distributions for the fourth through seventh quarters of the planning 
horizon under the BHC baseline scenario.
    (3) Final planned capital distributions. The Board will consider 
the planned capital distributions, including any adjustments made 
pursuant to paragraph (h)(2)(ii) of this section, to be the bank 
holding company's final planned capital distributions on the later of:
    (i) The expiration of the time for requesting reconsideration under 
paragraph (j) of this section; and
    (ii) The expiration of the time for adjusting planned capital 
distributions pursuant to paragraph (h)(2)(ii) of this section.
    (4) Effective date of final stress capital buffer requirement. (i) 
The Board will provide a bank holding company with its final stress 
capital buffer requirement

[[Page 15603]]

and confirmation of the bank holding company's final planned capital 
distributions by August 31 of the calendar year that a capital plan was 
submitted pursuant to paragraph (e)(1)(ii) of this section, unless 
otherwise determined by the Board. A stress capital buffer requirement 
will not be considered final so as to be agency action subject to 
judicial review under 5 U.S.C. 704 during the pendency of a request for 
reconsideration made pursuant to paragraph (j) of this section or 
before the time for requesting reconsideration has expired.
    (ii) Unless otherwise determined by the Board, a bank holding 
company's final planned capital distributions and final stress capital 
buffer requirement shall:
    (A) Be effective on October 1 of the calendar year in which a 
capital plan was submitted pursuant to paragraph (e)(1)(ii) of this 
section; and
    (B) Remain in effect until superseded.
    (5) Publication. With respect to any bank holding company subject 
to this section, the Board may disclose publicly any or all of the 
following:
    (i) The stress capital buffer requirement provided to a bank 
holding company under paragraph (h)(1) or (j)(5) of this section;
    (ii) Adjustments made pursuant to paragraph (h)(2)(ii);
    (iii) A summary of the results of the supervisory stress test; and
    (iv) Other information.
    (i) Federal Reserve action on a capital plan --(1) Timing of 
action. Board or the appropriate Reserve Bank with concurrence of the 
Board, will object, in whole or in part, to the capital plan or provide 
the bank holding company with a notice of non-objection to the capital 
plan:
    (i) By June 30 of the calendar year in which a capital plan was 
submitted pursuant to paragraph (e)(1)(ii) of this section; and
    (ii) For a capital plan resubmitted pursuant to paragraph (e)(4) of 
this section, within 75 calendar days after the date on which a capital 
plan is resubmitted, unless the Board provides notice to the company 
that it is extending the time period.
    (2) Basis for objection to a capital plan. The Board, or the 
appropriate Reserve Bank with concurrence of the Board, may object to a 
capital plan submitted by a bank holding company that is not a large 
and noncomplex bank holding company if it determines that:
    (i) Until January 1, 2021, except as provided in paragraph 
(i)(2)(ii) of this section, for a bank holding company that was subject 
to this section as of January 1, 2019, but whose capital plan has not 
been subject to review and a potential qualitative objection under the 
criteria listed in paragraph (i)(2)(i)(A) through (C) of this section 
for any period of four consecutive years:
    (A) The bank holding company has material unresolved supervisory 
issues, including but not limited to issues associated with its capital 
adequacy process;
    (B) The assumptions and analysis underlying the bank holding 
company's capital plan, or the bank holding company's methodologies and 
practices that support its capital planning process, are not reasonable 
or appropriate; or
    (C) The bank holding company's capital planning process or proposed 
capital distributions otherwise constitute an unsafe or unsound 
practice, or would violate any law, regulation, Board order, directive, 
or condition imposed by, or written agreement with, the Board or the 
appropriate Reserve Bank. In determining whether a capital plan or any 
proposed capital distribution would constitute an unsafe or unsound 
practice, the Board or the appropriate Reserve Bank would consider 
whether the bank holding company is and would remain in sound financial 
condition after giving effect to the capital plan and all proposed 
capital distributions.
    (ii) Notwithstanding paragraph (i)(2)(i) of this section, a bank 
holding company that was subject to this section as of January 1, 2019, 
and that receives a qualitative objection in the fourth year of the 
four-year period described in paragraph (i)(2)(i), pursuant to the 
criteria in paragraph (i)(2)(i)(A) through (C) of this section, will 
remain subject to a qualitative objection under this section until 
January 1 of the year after the first year in which the bank holding 
company does not receive a qualitative objection.
    (3) Notification of decision. The Board or the appropriate Reserve 
Bank will notify the bank holding company in writing of the reasons for 
a decision to object to a capital plan.
    (4) Publication of summary results. The Board may disclose publicly 
its decision to object or not object to a bank holding company's 
capital plan under this section. Any disclosure under this paragraph 
(i)(4) will occur by June 30 of the calendar year in which a capital 
plan was submitted pursuant to paragraph (e)(1)(ii) of this section, 
unless otherwise determined by the Board.
    (j) Administrative remedies; request for reconsideration. The 
following requirements and procedures apply to any request under this 
paragraph (j):
    (1) General. To request reconsideration of an objection to a 
capital plan, provided under paragraph (i) of this section, or of a 
stress capital buffer requirement, provided under paragraph (h) of this 
section, a bank holding company must submit a written request for 
reconsideration.
    (2) Timing of request. (i) A request for reconsideration of an 
objection to a capital plan, provided under paragraph (i) of this 
section, must be received within 15 calendar days of receipt of a 
notice of objection to a capital plan.
    (ii) A request for reconsideration of a stress capital buffer 
requirement, provided under paragraph (h) of this section, must be 
received within 15 calendar days of receipt of a notice of a bank 
holding company's stress capital buffer requirement.
    (3) Contents of request. (i) A request for reconsideration must 
include a detailed explanation of why reconsideration should be granted 
(that is, why a stress capital buffer requirement or objection to a 
capital plan should be reconsidered). With respect to any information 
that was not previously provided to the Federal Reserve in the bank 
holding company's capital plan, the request should include an 
explanation of why the information should be considered.
    (ii) A request for reconsideration may include a request for an 
informal hearing on the bank holding company's request for 
reconsideration.
    (4) Hearing. (i) The Board may, in its sole discretion, order an 
informal hearing if the Board finds that a hearing is appropriate or 
necessary to resolve disputes regarding material issues of fact.
    (ii) An informal hearing shall be held within 30 calendar days of a 
request, if granted, provided that the Board may extend this period 
upon notice to the requesting party.
    (5) Response to request. (i) Within 30 calendar days of receipt of 
the bank holding company's request for reconsideration of an objection 
to a capital plan submitted under paragraph (j)(2) of this section or 
within 30 days of the conclusion of an informal hearing conducted under 
paragraph (j)(4) of this section, the Board will notify the company of 
its decision to affirm, modify, or withdraw the objection to the bank 
holding company's capital plan, or a specific capital distribution, 
provided that the Board may extend this period upon notice to the bank 
holding company.
    (ii) Within 30 calendar days of receipt of the bank holding 
company's request for reconsideration of its stress capital buffer 
requirement submitted under

[[Page 15604]]

paragraph (j)(2) of this section or within 30 days of the conclusion of 
an informal hearing conducted under paragraph (j)(4) of this section, 
the Board will notify the company of its decision to affirm or modify 
the bank holding company's stress capital buffer requirement, provided 
that the Board may extend this period upon notice to the bank holding 
company.
    (6) Distributions during the pendency of a request for 
reconsideration. During the pendency of the Board's decision under 
paragraph (j)(5) of this section, the bank holding company may make 
capital distributions that are consistent with effective distribution 
limitations, unless prior approval is required under paragraph (k)(1) 
of this section.
    (k) Approval requirements for certain capital actions--(1) 
Circumstances requiring approval--(i) Qualitative objection to and 
resubmission of a capital plan. Unless it receives prior approval 
pursuant to paragraph (k)(3) of this section, a bank holding company 
may not make a capital distribution (excluding any capital distribution 
arising from the issuance of a capital instrument eligible for 
inclusion in the numerator of a regulatory capital ratio) under the 
following circumstances:
    (A) The Board, or the appropriate Reserve Bank with the concurrence 
of the Board, objects to a capital plan and until such time as the 
Board, or the appropriate Reserve Bank with concurrence of the Board, 
issues a non-objection to the bank holding company's capital plan;
    (B) The capital distribution would occur after the occurrence of an 
event requiring resubmission under paragraph (e)(4)(i)(A) or (B) of 
this section.
    (ii) Transition for certain planned capital actions. For the period 
July 1, 2020, to September 30, 2020, a bank holding company is 
authorized to make capital distributions that do not exceed an amount 
equal to the average of capital distributions over the four quarters to 
which the Board or the appropriate Reserve Bank indicated its non-
objection for the previous capital plan cycle. A bank holding company 
may request prior approval to make capital distributions in excess of 
the amount authorized for the period July 1, 2020, to September 30, 
2020, pursuant to paragraph (k)(2) of this section.
    (2) Contents of request. A request for a capital distribution under 
this section must contain the following information:
    (i) The bank holding company's capital plan or a discussion of 
changes to the bank holding company's capital plan since it was last 
submitted to the Federal Reserve;
    (ii) The purpose of the transaction;
    (iii) A description of the capital distribution, including for 
redemptions or repurchases of securities, the gross consideration to be 
paid and the terms and sources of funding for the transaction, and for 
dividends, the amount of the dividend(s); and
    (iv) Any additional information requested by the Board or the 
appropriate Reserve Bank (which may include, among other things, an 
assessment of the bank holding company's capital adequacy under a 
severely adverse scenario, a revised capital plan, and supporting 
data).
    (3) Approval of certain capital distributions. (i) The Board, or 
the appropriate Reserve Bank with concurrence of the Board, will act on 
a request for prior approval of a capital distribution within 30 
calendar days after the receipt of all the information required under 
paragraph (k)(2) of this section.
    (ii) In acting on a request for prior approval of a capital 
distribution, the Board, or appropriate Reserve Bank with concurrence 
of the Board, will apply the considerations and principles in 
paragraphs (g) and (i) of this section, as appropriate. In addition, 
the Board, or the appropriate Reserve Bank with concurrence of the 
Board, may disapprove the transaction if the bank holding company does 
not provide all of the information required to be submitted under 
paragraph (k)(2) of this section.
    (4) Disapproval and hearing. (i) The Board, or the appropriate 
Reserve Bank with concurrence of the Board, will notify the bank 
holding company in writing of the reasons for a decision to disapprove 
any proposed capital distribution. Within 15 calendar days after 
receipt of a disapproval by the Board, the bank holding company may 
submit a written request for a hearing.
    (ii) The Board may, in its sole discretion, order an informal 
hearing if the Board finds that a hearing is appropriate or necessary 
to resolve disputes regarding material issues of fact. An informal 
hearing shall be held within 30 calendar days of a request, if granted, 
provided that the Board may extend this period upon notice to the 
requesting party.
    (iii) Written notice of the final decision of the Board shall be 
given to the bank holding company within 60 calendar days of the 
conclusion of any informal hearing ordered by the Board, provided that 
the Board may extend this period upon notice to the requesting party.
    (iv) While the Board's decision is pending and until such time as 
the Board, or the appropriate Reserve Bank with concurrence of the 
Board, approves the capital distribution at issue, the bank holding 
company may not make such capital distribution.
    (l) Post notice requirement. A bank holding company must notify the 
Board and the appropriate Reserve Bank within 15 days of making a 
capital distribution if:
    (1) The capital distribution was approved pursuant to paragraph 
(k)(3) of this section; or
    (2) The dollar amount of the capital distribution will exceed the 
dollar amount of the bank holding company's final planned capital 
distributions, as measured on an aggregate basis beginning in the 
fourth quarter of the planning horizon through the quarter at issue.

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

0
5. The authority citation for part 252 continues to read as follows:

    Authority: 12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 
1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 
5368, 5371.

Subpart 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
6. In Sec.  252.16, republish paragraph (b) and add paragraphs (b)(1) 
through (3) to read as follows:


Sec.  252.16  Reports of stress test results.

* * * * *
    (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):
    (1) A description of the types of risks being included in the 
stress test;
    (2) A summary description of the methodologies used in the stress 
test; and
    (3) For each quarter of the planning horizon, estimates of 
aggregate losses, pre-provision net revenue, provision for credit 
losses, net income, and regulatory capital ratios;
* * * * *

0
7. In Sec.  252.44, redesignate paragraph (c) as paragraph (d) and add 
new paragraph (c) to read as follows:


Sec.  252.44  Analysis conducted by the Board.

* * * * *
    (c) In conducting a stress test under this section, the Board will 
make the

[[Page 15605]]

following assumptions regarding a covered company's capital actions 
over the planning horizon:
    (1) The covered company will not pay any dividends on any 
instruments that qualify as common equity tier 1 capital;
    (2) The covered company will make payments on instruments that 
qualify as additional tier 1 capital or tier 2 capital equal to the 
stated dividend, interest, or principal due on such instrument;
    (3) The covered company will not make a redemption or repurchase of 
any capital instrument that is eligible for inclusion in the numerator 
of a regulatory capital ratio; and
    (4) The covered company will not make any issuances of common stock 
or preferred stock.
* * * * *

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

0
8. In Sec.  252.54, revise paragraph (b)(2) to read as follows:


Sec.  252.54  Stress test.

* * * * *
    (b) * * *
    (2) Additional components. (i) The Board may require a covered 
company with significant trading activity to include a trading and 
counterparty component in its severely adverse scenario in the stress 
test required by this section. A covered company has significant 
trading activity if it has:
    (A) 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;
    (B) Is not a large and noncomplex bank holding company as the term 
is used in 12 CFR 225.8.
    (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.
* * * * *

0
9. Section 252.56 is amended by revising paragraph (b) as follows:


Sec.  252.56  Methodologies and practices.

* * * * *
    (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:
    (1) The covered company will not pay any dividends on any 
instruments that qualify as common equity tier 1 capital;
    (2) The covered company will make payments on instruments that 
qualify as additional tier 1 capital or tier 2 capital equal to the 
stated dividend, interest, or principal due on such instrument;
    (3) The covered company will not make a redemption or repurchase of 
any capital instrument that is eligible for inclusion in the numerator 
of a regulatory capital ratio; and
    (4) The covered company will not make any issuances of common stock 
or preferred stock.
* * * * *

0
10. Appendix B to part 252 is amended by revising sections 2.6 and 2.7 
and adding section 3.4 to read as follows:

Appendix B to Part 252--Stress Test Policy Statement

* * * * *

2.6. Incorporation of Business Plan Changes

    (a) A firm's stress capital buffer requirement does not 
incorporate changes to its business plan that are likely to have a 
material impact on a covered company's capital adequacy and funding 
profile (material business plan changes). For example, planned 
issuances of common or preferred stock in connection with a planned 
merger or acquisition will not be included in the stress capital 
buffer requirement calculation. In addition, the common stock 
dividends attributable to issuances in connection with a planned 
merger or acquisition reflected in the covered company's pro-forma 
balance sheet estimates will also not be included in the stress 
capital buffer requirement calculation. Material business plan 
changes, including those resulting from a merger or acquisition, are 
incorporated into a covered company's capital and risk-weighted 
assets upon consummation of the transaction or occurrence of the 
change. As a result, the amount of capital required will adjust 
based on changes to the covered company's risk-weighted assets.
    (b) If the material business plan change resulted in or would 
result in a material change in a covered company's risk profile, the 
company is required to resubmit its capital plan and the Board may 
determine to recalculate the stress capital buffer requirement based 
on the resubmitted capital plan.

2.7. Credit Supply Maintenance

    (a) The supervisory stress test incorporates the assumption that 
aggregate credit supply does not contract during the stress period. 
The aim of supervisory stress testing is to assess whether firms are 
sufficiently capitalized to absorb losses during times of economic 
stress, while also meeting obligations and continuing to lend to 
households and businesses. The assumption that a balance sheet of 
consistent magnitude is maintained allows supervisors to evaluate 
the health of the banking sector assuming firms continue to lend 
during times of stress.
    (b) In order to implement this policy, the Federal Reserve must 
make assumptions about new loan balances. To predict losses on new 
originations over the planning horizon, newly originated loans are 
assumed to have the same risk characteristics as the existing 
portfolio, where applicable, with the exception of loan age and 
delinquency status. These newly originated loans would be part of a 
covered company's normal business, even in a stressed economic 
environment. While an individual firm may assume that it reacts to 
rising losses by sharply restricting its lending (e.g., by exiting a 
particular business line), the banking industry as a whole cannot do 
so without creating a ``credit crunch'' and substantially increasing 
the severity and duration of an economic downturn. The assumption 
that the magnitude of firm balance sheets will be fixed in the 
supervisory stress test ensures that covered companies cannot assume 
they will ``shrink to health,'' and serves the Federal Reserve's 
goal of helping to ensure that major financial firms remain 
sufficiently capitalized to accommodate credit demand in a severe 
downturn. In addition, by precluding the need to make assumptions 
about how underwriting standards might tighten or loosen during 
times of economic stress, the Federal Reserve follows the principle 
of consistency and comparability and promotes consistency across 
covered companies.
    (c) In projecting the denominator for the calculation of the 
leverage ratio, the Federal Reserve will account for the effect of 
changes associated with the calculation of regulatory capital or 
changes to the Board's regulations.
* * * * *

3.4. Simple approach for projecting risk-weighted assets

    (a) In projecting risk-weighted assets, the Federal Reserve will 
generally assume that a covered company's risk-weighted assets 
remain unchanged over the planning horizon. This assumption allows 
the Federal Reserve to independently project the risk-weighted 
assets of covered companies in line with the goal of simplicity 
(Principle 1.4). In addition, this approach is forward-looking 
(Principle 1.2), as this assumption removes reliance on historical 
data and past outcomes from the projection of risk-weighted assets.
    (b) In projecting a firm's risk-weighted assets, the Federal 
Reserve will account for the effect of changes associated with the 
calculation of regulatory capital or changes to the Board's 
regulations in the calculation of risk-weighted assets.

    By order of the Board of Governors of the Federal Reserve 
System, March 5, 2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-04838 Filed 3-17-20; 8:45 am]
 BILLING CODE P