[Federal Register Volume 88, Number 226 (Monday, November 27, 2023)]
[Rules and Regulations]
[Pages 82950-82980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23911]



[[Page 82949]]

Vol. 88

Monday,

No. 226

November 27, 2023

Part II





Federal Reserve System





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12 CFR Parts 217, 238, and 252





Regulatory Capital Rules: Risk-Based Capital Requirements for 
Depository Institution Holding Companies Significantly Engaged in 
Insurance Activities; Final Rule

  Federal Register / Vol. 88 , No. 226 / Monday, November 27, 2023 / 
Rules and Regulations  

[[Page 82950]]


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FEDERAL RESERVE SYSTEM

12 CFR Parts 217, 238, and 252

[Docket No. R-1673]
RIN 7100-AF56


Regulatory Capital Rules: Risk-Based Capital Requirements for 
Depository Institution Holding Companies Significantly Engaged in 
Insurance Activities

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board of Governors of the Federal Reserve System is 
adopting risk-based capital requirements for depository institution 
holding companies that are significantly engaged in insurance 
activities. This risk-based capital framework, termed the Building 
Block Approach, adjusts and aggregates existing legal entity capital 
requirements to determine enterprise-wide capital requirements. The 
final rule also contains a risk-based capital requirement excluding 
insurance activities, in compliance with section 171 of The Dodd-Frank 
Wall Street Reform and Consumer Protection Act. The Board also is 
adopting a reporting form FR Q-1 related to the Building Block 
Approach. The capital requirements and associated reporting form meet 
statutory mandates and will help to prevent the economic and consumer 
impacts resulting from the failure of organizations engaged in banking 
and insurance.

DATES: This rule is effective on January 1, 2024.

FOR FURTHER INFORMATION CONTACT: Lara Lylozian, Deputy Associate 
Director and Chief Accountant, (202) 475-6656; Matt Walker, Manager, 
Insurance Supervision & Regulation, (202) 872-4971; or John Muska, Lead 
Insurance Policy Analyst, (202) 384-7278; Division of Supervision and 
Regulation; or Dafina Stewart, Assistant General Counsel, (202) 452-
2677; Andrew Hartlage, Special Counsel, (202) 452-6483; Jonah Kind, 
Senior Counsel, (202) 452-2045; or Jasmin Keskinen, Attorney, (202) 
475-6650, Legal Division, Board of Governors of the Federal Reserve 
System, 20th Street and Constitution Avenue NW, Washington, DC 20551. 
For users of TTY-TRS, please call 711 from any telephone, anywhere in 
the United States.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
    A. Background
    B. Description of the Building Block Approach
    C. Summary of Comments Received on the NPR and Form FR Q-1
    D. Main Changes in the Final Rule and Form FR Q-1
II. Effective Date and Scope
    A. Scope
    B. Effective Date
III. Dodd-Frank Act Capital Calculation
IV. Minimum Capital Requirement and Capital Conservation Buffer
V. Determination of Building Blocks and Related Issues
    A. Inventory
    B. Identifying Capital Frameworks for Each Inventory Company
    C. Identification of Building Block Parents
    D. Material Financial Entity
    E. Treatment of Asset Managers
VI. Adjustments
    A. Capital Instruments
    B. Adjustments for Comparability
    C. Title Insurance Issues
VII. Title Insurance Reserves
VIII. Title Plant Assets
IX. Scaling
X. Aggregation
XI. Reporting
    A. Submission Date
    B. Public Disclosure
    C. Audit Requirements
XII. Economic Impact Analysis of the BBA
XIII. Administrative Law Matters
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Plain Language

I. Introduction

    The Board of Governors of the Federal Reserve System (Board) is 
adopting a rule that establishes minimum risk-based capital 
requirements for certain depository institution holding companies 
significantly engaged in insurance activities (insurance depository 
institution holding companies). The rule establishes an enterprise-wide 
risk-based capital framework, termed the ``building block'' approach 
(BBA), that incorporates legal entity capital requirements such as the 
requirements prescribed by state insurance regulators, taking into 
account differences between the business of insurance and banking.
    This final rule follows the issuance of two documents for comment 
by the Board. The first was the 2016 advance notice of proposed 
rulemaking (ANPR), in which the Board described the concept of the BBA 
as a capital framework and sought input on all aspects of its 
development at an early stage.\1\ The Board considered this feedback 
and invited comment on a detailed BBA proposal in the notice of 
proposed rulemaking (NPR or proposal) issued in September 2019.\2\ The 
NPR would have established risk-based capital requirements for 
insurance depository institution holding companies. As discussed in 
that proposal, insurance depository institution holding companies 
include depository institution holding companies that are insurance 
underwriting companies and depository institution holding companies 
that hold a significant percentage of total assets in insurance 
underwriting subsidiaries. In addition to the enterprise-wide capital 
requirement for insurance depository institution holding companies 
based on the BBA framework, the proposal would have applied a minimum 
risk-based capital requirement to the enterprise using the flexibility 
afforded under amendments enacted in 2014 to section 171 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 
to exclude certain state- and foreign-regulated insurance operations 
(section 171 calculation).\3\ The proposal included a buffer 
requirement that would have limited an insurance depository institution 
holding company's capital distributions and discretionary bonus 
payments if it did not hold sufficient capital relative to enterprise-
wide risk, including risk from insurance activities. The proposed rule 
would have relied on the Board's authority under section 10 of the Home 
Owners' Loan Act (HOLA) \4\ and section 171 of the Dodd-Frank Act.\5\
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    \1\ Capital Requirements for Supervised Institutions 
Significantly Engaged in Insurance Activities, 81 FR 38631 (June 14, 
2016).
    \2\ Regulatory Capital Rules: Risk-Based Capital Requirements 
for Depository Institution Holding Companies Significantly Engaged 
in Insurance Activities, 84 FR 57240 (October 24, 2019).
    \3\ Public Law 111-203, 124 Stat. 1376, 1435-38 (2010), as 
amended by Public Law 113-279, 128 Stat. 3017 (2014).
    \4\ 12 U.S.C. 1467a.
    \5\ 12 U.S.C. 5371.
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    The Board is responsible for protecting the safety and soundness of 
certain banking organizations. This responsibility includes 
establishing minimum requirements for the capital of holding companies 
of groups that conduct both depository and insurance operations.\6\ In 
the United States and other jurisdictions, the current risk-based 
capital assessment methodologies have been designed specifically for 
either insurance or banking.
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    \6\ Id.
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    In view of the above, the Board is adopting aggregation-based 
capital requirements for insurance depository institution holding 
companies. These capital requirements aggregate the required capital 
from insurance activities, as determined based on insurance capital 
rules set by the states or foreign jurisdictions, and banking

[[Page 82951]]

activities, as determined based on banking capital rules. These 
requirements fulfill the Board's goal of designing an appropriate 
capital standard for insurance depository institution holding 
companies. Prior to this rule, savings and loan holding companies 
(SLHCs) with significant insurance operations have been excluded from 
the Board's banking capital rule pending this rulemaking, while bank 
holding companies (BHCs) with significant insurance operations have 
been required to comply with the Board's banking capital rule.
    In addition to the NPR, the Board invited comment on a draft 
reporting form ``Capital Requirements for Board-Regulated Institutions 
Significantly Engaged in Insurance Activities'' (form FR Q-1) and 
associated instructions, which would gather data related to the BBA, 
and published a white paper describing how the BBA translated between 
the banking and insurance capital frameworks. The Board also launched a 
quantitative impact study (QIS) alongside the NPR using the draft 
reporting form. The comments received on the NPR and on the reporting 
form and instructions, as well as the QIS results, have informed this 
final rule and are discussed in the following sections. The reporting 
form and instructions are being finalized along with this final rule 
with certain changes in response to the comments.

A. Background

    In response to the 2007-09 financial crisis, Congress enacted the 
Dodd-Frank Act, which, among other purposes, was enacted to ensure 
appropriate supervision of depository institution holding companies 
without regard to charter type of their insured depository institution 
subsidiaries and to streamline the supervision of such holding 
companies. In furtherance of these purposes, Title III of the Dodd-
Frank Act expanded the Board's supervisory role by transferring to the 
Board all supervisory functions related to SLHCs and their non-
depository subsidiaries.
    As a result, the Board became the Federal supervisory authority for 
all depository institution holding companies, including insurance 
depository institution holding companies.\7\ Concurrent with the 
expansion of the Board's supervisory role, section 616 of the Dodd-
Frank Act amended HOLA to provide the Board express authority to adopt 
regulations or orders that set capital requirements for SLHCs.\8\
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    \7\ Public Law 111-203, title III, section 301, 124 Stat. 1520 
(2010).
    \8\ Dodd-Frank Act 616(b); HOLA sec. 10(g)(1). Under Title I of 
the Dodd-Frank Act, the Board also supervises any nonbank financial 
companies designated by the Financial Stability Oversight Council 
(FSOC) for supervision by the Board. Under section 113 of the Dodd-
Frank Act, the FSOC may designate a nonbank financial company, 
including an insurance company, to be supervised by the Board. 
Currently, no firms are subject to the Board's supervision pursuant 
to this provision.
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    Any capital requirements the Board may establish for SLHCs are 
subject to minimum standards under the Dodd-Frank Act. Specifically, 
section 171 of the Dodd-Frank Act requires the Board to establish 
minimum risk-based and leverage capital requirements on a consolidated 
basis for depository institution holding companies. These requirements 
must be not less than the capital requirements established by the 
Federal banking agencies to apply to insured depository institutions 
under the prompt corrective action regulations implementing section 38 
of the Federal Deposit Insurance Act,\9\ nor quantitatively lower than 
the capital requirements that applied to these institutions when the 
Dodd-Frank Act was enacted.
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    \9\ 2 U.S.C. 1831o. The floor for capital requirements 
established pursuant to section 171 of the Dodd-Frank Act, referred 
to as the ``generally applicable'' requirements, is defined to 
include the regulatory capital components in the numerator of those 
capital requirements, the risk-weighted assets in the denominator of 
those capital requirements, and the required ratio of the numerator 
to the denominator.
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    Section 171 of the Dodd-Frank Act was amended in 2014 (2014 
Amendment) to provide the Board flexibility when developing 
consolidated capital requirements for insurance depository institution 
holding companies.\10\ The 2014 Amendment permits the Board, in 
establishing minimum risk-based and leverage capital requirements on a 
consolidated basis, to exclude companies engaged in the business of 
insurance and regulated by a state insurance regulator, as well as 
certain companies engaged in the business of insurance and regulated by 
a foreign insurance regulator.
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    \10\ Public Law 113-279, 128 Stat. 3017 (2014).
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    Section 171 of the Dodd-Frank Act also provides that the Board may 
not require, under its authority pursuant to section 171 of the Dodd-
Frank Act or HOLA, a supervised firm that is also a state-regulated 
insurer and files financial statements with a state insurance regulator 
or the National Association of Insurance Commissioners (NAIC) utilizing 
only Statutory Accounting Principles (SAP) to prepare such financial 
statements in accordance with U.S. generally accepted accounting 
principles (GAAP).\11\ The Board notes that, unlike GAAP, SAP does not 
include an accounting consolidation concept. As discussed in detail in 
subsequent sections of this SUPPLEMENTARY INFORMATION, the BBA is thus 
an aggregation-based approach, designed to comprehensively capture 
risk, including all material risks, at the level of the entire 
enterprise or group.
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    \11\ 12 U.S.C. 5371(c)(3)(A).
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    The Board is adopting the BBA in this final rule in order to set 
risk-based capital requirements for BHCs and SLHCs that are 
significantly engaged in insurance activities.

B. Description of the Building Block Approach

    As adopted in this final rule, the BBA aggregates the available 
capital and required capital positions of certain entities determined 
to be building block parents in order to determine the capital position 
of top-tier supervised insurance depository institution holding 
companies (supervised insurance organizations or SIOs). The BBA 
expresses such a capital position as a BBA ratio, which is the ratio of 
the aggregated available capital to the aggregated required capital of 
the enterprise.\12\ The SIO must maintain a BBA ratio of at least 250 
percent and a capital conservation buffer of 150 percent, resulting in 
a total requirement of 400 percent.
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    \12\ When aggregating required capital for the denominator, the 
BBA follows NAIC Risk-Based Capital in using the Authorized Control 
Level (ACL) risk-based capital. This is the amount of capital below 
which a state insurance regulator would be authorized to take 
control of the company.
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    The BBA groups legal entities together into building blocks to 
calculate the BBA ratio. These building blocks are developed by 
grouping entities in the supervised insurance organization that are 
covered under the same regulatory capital framework. By grouping 
related legal entities in this manner, the BBA maintains the regulatory 
framework developed for the particular business activity and reduces 
regulatory burden. Without grouping in this type of capital construct, 
a large SIO would need to perform a capital calculation for each of 
hundreds of legal entities. Typically, the building blocks follow other 
existing legal-entity capital regulations. For instance, a typical U.S. 
legal entity that offers life insurance is assessed together with most 
of its subsidiaries using its existing regulatory capital framework, 
NAIC Risk-Based Capital (RBC). Depository institutions and their 
subsidiaries are assessed using Federal banking capital rules. The BBA 
does, however, sometimes deviate from

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existing regulatory groupings to ensure risks are appropriately 
captured. For example, certain financial companies owned by insurance 
companies are not directly subject to capital regulation. For these 
companies, the parent's regime assesses a simplified capital charge 
that may not appropriately reflect the risk.
    The BBA separately assesses, applies a capital regime to, and 
aggregates these companies if they are material and engage in financial 
activities and their risks would not otherwise be appropriately 
measured.\13\
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    \13\ For example, it would typically be inappropriate to assess 
the risk of a material financial subsidiary engaging primarily in 
derivative transactions by application of a risk charge applied to 
its net equity.
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    The BBA makes certain adjustments to the required and available 
capital of entities when preparing the building blocks for aggregation. 
Some of these adjustments avoid double counting capital or risk, others 
increase comparability among SIOs, while others are intended to align 
with certain aspects of the banking capital requirements to reduce the 
potential for arbitrage. One such adjustment is requiring all capital 
instruments to meet certain criteria and subjecting certain types of 
capital instruments to limits. These criteria and limits substantively 
match those applied to other depository institution holding companies.
    The BBA aggregates the adjusted capital positions of the building 
blocks to calculate an SIO's capital position. To enable aggregation of 
the output of different capital frameworks, the BBA includes a 
translation mechanism called scaling. Scaling converts a capital 
position from one capital framework to its equivalent in another 
capital framework. The BBA then sums the scaled, adjusted capital 
position of each building block to calculate an SIO's capital position. 
This aggregated capital position is compared to the minimum requirement 
and capital conservation buffer discussed above.

C. Summary of Comments Received on the NPR and Form FR Q-1

    The Board received 18 substantive comment letters on the proposal 
and several recommendations from the Board's Insurance Policy Advisory 
Committee. Comments were received from insurers supervised by the 
Board, insurers not supervised by the Board, insurance trade groups, a 
U.S. Senator, and the NAIC.
    Most commenters supported the BBA's general framework, which 
aggregates existing capital requirements to determine an enterprise-
wide capital requirement. Commenters strongly preferred applying this 
framework, rather than other frameworks like the banking capital rules 
or the Insurance Capital Standard, to depository institution holding 
companies that are significantly engaged in insurance activities. The 
Insurance Capital Standard is being developed by the International 
Association of Insurance Supervisors. Indeed, certain commenters argued 
that the BBA should further leverage existing insurance capital 
requirements. Although commenters were supportive of the framework, 
some commenters expressed concerns with the level of detail that would 
be required in form FR Q-1 due to the proposed requirement to report 
assets and liabilities of inventory companies.
    Specific comments are discussed below in the sections that follow. 
Some of the main issues that were raised by commenters include:
    Section 171 Calculation--Most commenters argued that the section 
171 calculation was flawed and should not be adopted. Commenters argued 
the BBA would still comply with section 171 of the Dodd-Frank Act 
without this calculation.
    Calibration--Most commenters supported setting the BBA's 
requirement equal to other banking capital requirements based on the 
indicated results from the scaling white paper, rather than including 
an upward adjustment designed to account for uncertainty. These 
commenters contended that the upward adjustment would have resulted in 
excess conservatism.
    Qualifying Capital Instruments and Limits--Most commenters argued 
that the Board's proposed capital instrument qualification criteria 
were too narrow and that senior debt should qualify as capital, 
although several commenters and the Board's Insurance Policy Advisory 
Committee disagreed. Some commenters and the Board's Insurance Policy 
Advisory Committee also argued for increasing the proposed limits on 
less loss-absorbing tiers of capital instruments. Some commenters also 
argued that surplus notes should qualify as tier 1 capital and if they 
are tier 2, then no limits should apply.
    Insurance Adjustments--Commenters expressed diverging opinions on 
the proposed adjustments to reduce differences among states in 
insurance capital regulation. Along with the NPR, the Board also 
invited comments about related work on the International Association of 
Insurance Supervisors' Insurance Capital Standard. In the NPR, the 
Board asked for the comparative strengths and weaknesses of both 
approaches. The Board appreciates the comments received on this work 
and will take these comments into consideration in the ongoing 
International Association of Insurance Supervisors deliberations.

D. Main Changes in the Final Rule and Form FR Q-1

    The final rule differs from the proposal in several ways. One 
change relates to the capital conservation buffer. The final rule 
includes a 150 percent capital conservation buffer, rather than the 235 
percent buffer proposed in the NPR. This smaller capital conservation 
buffer better aligns the BBA's stringency with the Board's banking 
capital rule. With this change, the BBA's total capital requirement 
equals the total requirement applied to most other banking 
organizations, as estimated based on the parameters derived in the 
Board's scaling white paper.
    The final rule includes an additional tier of capital instruments, 
additional tier 1 capital, that is eligible as available capital. The 
proposal only included two tiers of capital because no SIO had issued 
additional tier 1 capital. Commenters requested its addition in order 
to allow SIOs flexibility in their capital structures. In order to 
provide such flexibility, and be consistent with the Board's banking 
capital rule, the final rule includes this additional capital tier. The 
additional tier 1 capital limit has been set at 100 percent of the 
building block capital requirement for the top-tier parent. Any amount 
of additional tier 1 capital above this amount would be eligible for 
inclusion as tier 2 capital, subject to limitations on the inclusion of 
tier 2 capital instruments.
    The final rule also increases a proposed limit to 150 percent on 
the amount of tier 2 capital instruments that could have been counted 
toward the building block capital requirement of a top-tier parent 
holding company in an SIO. Under the proposal, the BBA would have 
limited tier 2 capital instruments to be no more than 62.5 percent of 
the building block capital requirement for the top-tier parent. 
Commenters expressed concern that the conservative nature of statutory 
accounting distorts the ratio of tier 2 capital instruments to common 
equity tier 1 capital which causes the 62.5 percent to be overly 
conservative.
    The proposal included an adjustment that would have removed the 
effects of legacy treatment or transitional measures under a capital 
framework in determining capital requirements. Some commenters 
expressed concerns with

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the burden associated with adjusting capital resources to eliminate the 
impact of transitional provisions or legacy treatment when there are 
changes in an underlying capital regime. Some commenters were 
particularly concerned with having to restate legacy business under the 
NAIC Principles Based Reserving Standard (PBR) for life insurance 
reserves. PBR was adopted only prospectively by the NAIC and states. 
The final rule maintains the legacy treatment and transitional 
requirements for consistency in measurement, but provides a simple 
factor-based approximation rather than a full PBR calculation to the 
legacy reserves. This approach will allow for consistency for the 
measurement of life insurance reserves while minimizing burden.
    In addition to the changes discussed above, the final rule 
simplifies the insurance adjustments, increases the limits on certain 
capital instruments, and eliminates an exception of certain asset 
managers from being material financial entities, and reduces the burden 
of the proposed form FR Q-1.
    The Board is also making changes to the reporting form FR Q-1 as 
part of this final rule. The final form FR Q-1 is less burdensome than 
in the proposal. In particular, SIOs will not need to report the assets 
and liabilities of all subsidiaries. Numerous companies said providing 
this information would be difficult. Additionally, the annual due date 
for form FR Q-1's has been moved from March 15 to March 31 to allow 
companies additional time to complete the reporting template after 
their statutory filings are due.

II. Effective Date and Scope

A. Scope

    The proposal would have applied to SLHCs significantly engaged in 
insurance activities. Under the proposal, a firm would have been 
subject to the BBA if the top-tier SLHC were an insurance underwriting 
company or the top-tier SLHC, together with its subsidiaries, if 25 
percent of its total consolidated assets were in insurance underwriting 
subsidiaries (other than assets associated with insurance underwriting 
for credit risk related to bank lending). For purposes of this 
threshold, a supervised firm would have calculated its total 
consolidated assets in accordance with U.S. GAAP, or, if the firm does 
not calculate its total consolidated assets under U.S. GAAP for any 
regulatory purpose (including compliance with applicable securities 
laws), the company would have been permitted to estimate its total 
consolidated assets, subject to review and adjustment by the Board. The 
proposal also would have permitted the Board to determine to apply the 
BBA to another Board-regulated institution.\14\
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    \14\ The preamble to the proposal indicated that this type of 
determination may be appropriate with respect to, for example, an 
intermediate holding company, if its top-tier parent company were 
primarily engaged in non-financial commercial activity.
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    As consolidated supervisor of the top-tier depository institution 
holding company of an insurance depository institution holding company, 
the Board proposed to include, within the scope of the BBA calculation, 
all owned or controlled subsidiaries of this top-tier parent. The NPR 
sought comments about whether the BBA should apply to BHCs. The 
proposal would have excluded BHCs; however, the NPR noted the Board 
would consider subjecting BHCs significantly engaged in insurance 
activities to the BBA in the final rule in light of the enactment of 
the Economic Growth, Regulatory Relief, and Consumer Protection Act 
(EGRRCPA).\15\ This Act allowed Federal savings associations with total 
consolidated assets of up to $20 billion, as reported to the Office of 
the Comptroller of the Currency (OCC) as of year-end 2017, to elect to 
operate as covered savings associations.\16\
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    \15\ Public Law 115-174, 132 Stat. 1296 (2018).
    \16\ EGRRCPA section 206. With limited exceptions, a covered 
savings association has the same rights and privileges, and is 
subject to the same duties, restrictions, penalties, liabilities, 
conditions, and limitations, as a national bank that has its main 
office in the same location as the home office of the covered 
savings association. The Board generally treats a company that 
controls a covered savings association as a bank holding company.
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    Four commenters addressed the scope of the BBA in their comments. 
One commenter supported applying the BBA to BHCs significantly engaged 
in insurance activities. Two commenters asked for clarifications 
related to 25 percent asset test. These commenters noted that some SIOs 
do not calculate consolidated assets and contended that the Board 
legally cannot require GAAP financial statements from certain insurers. 
They asked that the asset test be aligned with 12 CFR part 246 (Board 
Regulation TT), which concerns the assessment of fees from certain 
Board- regulated companies based on their total assets and contains a 
provision for estimating total assets in the absence of GAAP 
statements. One commenter recommended that the BBA include additional 
flexibility to exclude certain companies within an SIO from the BBA and 
instead treating a subsidiary company as if it were the top tier. This 
commenter was concerned that the Board may lack the legal authority to 
select a mid-tier holding company as the top-tier holding company for 
purposes of the BBA when the insurance company is controlled by a 
company significantly engaged in non-insurance commercial activities. 
Another commenter suggested explicitly excluding certain non-operating 
holding companies from the BBA.
    Based on the comments received, as well the Board's policy to 
achieve regulatory consistency across both types of depository 
institution holding companies, the final rule adopts the proposed scope 
of the BBA framework with a change to include BHCs significantly 
engaged in insurance activities. The final rule does not alter the 
proposed 25 percent asset test but does address the comments received. 
The final rule will instead allow SIOs that do not calculate 
consolidated GAAP assets to provide an estimate of consolidated total 
assets. The calculation would be subject to review and adjustment by 
the Board.
    The final rule does not amend the Board's authority to modify the 
scope of the BBA, as the reservations of authority in the final rule 
and elsewhere in the banking capital rule are sufficient to allow the 
Board to exclude from the BBA a top-tier holding company that is a 
controlling depository institution holding company under this rule. 
While possible, this likely will not occur frequently due to statutory 
mandates to ensure that depository institution holding companies can 
serve as a source of strength to their depository institutions, as well 
as other policy considerations. The final rule does streamline the 
reservation of authority to clarify the Board's authority to require an 
SIO to make certain decisions involved in the BBA calculation, such as 
the identification of the top-tier building block parents, building 
block parents, and Material Financial Entities (MFEs).

B. Effective Date

    The NPR did not propose an effective date for the BBA framework. 
Several commenters requested delaying the BBA's effective date 
significantly beyond its finalization. One suggested having at least a 
two-year transition period from the effective date, or a longer 
transition period if the finalized total capital requirement were above 
400 percent. This commenter also suggested providing a further 
opportunity for public comment regarding any changes related to the 
proposed form FR Q-1, which could impact the effective date because 
form FR Q-1 is needed to effectuate the BBA's requirements. Another

[[Page 82954]]

commenter suggested that the first filing date of the associated form 
FR Q-1 should be two years after the publication date of the final 
rulemaking.
    One commenter suggested using a five-year monitoring period, like 
that used by the International Association of Insurance Supervisors 
(IAIS) for its Insurance Capital Standard, before making the BBA 
effective. Other commenters argued that there is a need to delay 
certain of the proposed requirements of form FR Q-1. The proposed form 
FR Q-1 attestation section of the cover page would have required 
reporting firms to attest that effective controls were in place 
throughout the reporting period. Because form FR Q-1 was proposed as an 
annual report, commenters asserted that at least a one-year delay would 
be needed between the final rule becoming effective and the first form 
FR Q-1 attestation requirement to avoid it applying retroactively.
    Under the final rule, companies must comply with most of the BBA 
beginning on January 1, 2024. Beginning at that time, companies are 
expected to hold capital sufficient to comply with the BBA's minimum 
requirement.
    Companies must first report on their capital adequacy under the BBA 
capital requirement as of December 31, 2024. As described above, the 
comments received on form FR Q-1 primarily related to reporting of 
legal entities, filing date, and reporting of results. The Board 
received only non-substantive clarification requests through the QIS 
process on form FR Q-1.
    Given that only small technical changes were made to the proposed 
reporting form based on these comments and requests for clarification, 
the Board elected not to seek further comments on form FR Q-1. 
Additionally, the January 1, 2024, effective date of this rules allows 
firms time to ensure that effective internal controls are in place for 
the first reporting date. As such, the first form FR Q-1 submissions, 
which will be due in March 2025, must include the attestation section 
of the cover page.
    Firms that are not initially subject to the BBA, but subsequently 
become subject to the BBA during January through June in a year, will 
be required to begin submitting the form FR Q-1 in March of the 
calendar year following the year they become subject to the BBA, except 
for the attestation section of the cover page, which must be submitted 
beginning with the firm's second form FR Q-1. Firms that are not 
initially subject to the BBA, but subsequently become subject to the 
BBA during July through December in a year, will be required to begin 
submitting the form FR Q-1 in March of the second calendar year 
following the year they become subject to the BBA, except for the 
attestation section of the cover page, which must be submitted 
beginning with the firm's second form FR Q-1.
    The final rule also clarifies the timing of the application of the 
buffer. In the absence of any enterprise-wide group income calculation, 
the BBA links the amount of eligible distributions under the capital 
conservation buffer with changes to building block available capital.
    Calculating the change in building block available capital requires 
two years of BBA data, meaning that firms would not be able calculate 
their permissible distributions before completing their second form FR 
Q-1. Consequently, the BBA's buffer requirements are effective starting 
with the submission of a firm's second form FR Q-1.\17\ In the year 
proceeding the second form FR Q-1 submission, the Board expects firms 
to consider the pending requirements and to set their distribution 
policies to avoid needing a large and sudden change in payouts at the 
effective date.
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    \17\ See 12 CFR 217.306.
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III. Dodd-Frank Act Capital Calculation

    The proposal would have applied a separate minimum risk-based 
capital requirement calculation to insurance depository institution 
holding companies, which would have used the flexibility afforded by 
the 2014 Amendment to exclude certain state- and foreign-regulated 
insurance operations and to exempt top-tier insurance underwriting 
companies from the risk-based capital requirement. The proposed section 
171 calculation would have applied the Board's existing minimum risk-
based capital requirements to a top-tier insurance SLHC on a 
consolidated basis when this company is not an insurance underwriting 
company. In the case of an insurance SLHC that is an insurance 
underwriting company, the proposal would have applied the requirements 
to any subsidiary SLHC of an insurance SLHC, where the subsidiary SLHC 
is not itself an insurance underwriting company, provided that the 
subsidiary SLHC is the farthest upstream non-insurer SLHC (i.e., the 
subsidiary SLHC's assets and liabilities are not consolidated with 
those of a holding company that controls the subsidiary for purposes of 
determining the parent holding company's capital requirements and 
capital ratios under the Board's banking capital rule) (an insurance 
SLHC mid-tier holding company).
    The proposed section 171 calculation would have been implemented by 
amending the definition of ``covered savings and loan holding company'' 
for the purposes of the Board's banking capital rule.\18\ The proposal 
would have resulted in an insurance SLHC becoming a covered SLHC 
subject to the requirements of the Board's banking capital rule unless 
it was a legacy unitary SLHC \19\ that derived 50 percent or more of 
its total consolidated assets or 50 percent or more of its total 
revenues on an enterprise-wide basis (as calculated under GAAP) from 
activities that are not financial in nature. However, the proposal 
would not have required top-tier SLHCs that are engaged in insurance 
underwriting and regulated by a state insurance regulator, or certain 
foreign insurance regulators, to comply with the generally applicable 
risk-based capital requirements.\20\ Instead, those requirements would 
have applied to any insurance SLHC mid-tier holding companies.
---------------------------------------------------------------------------

    \18\ 12 CFR 217.2.
    \19\ This term refers to a SLHC that meets the requirements of 
section 10(c)(9)(C) of HOLA (12 U.S.C. 1467a(c)(9)(C).
    \20\ In accordance with section 171 of the Dodd-Frank Act, a 
foreign insurance regulator that falls under this provision is one 
that ``is a member of the [IAIS] or other comparable foreign 
insurance regulatory authority as determined by the Board of 
Governors following consultation with the State insurance 
regulators, including the lead State insurance commissioner (or 
similar State official) of the insurance holding company system as 
determined by the procedures within the Financial Analysis Handbook 
adopted by the [NAIC].''
---------------------------------------------------------------------------

    As noted above, commenters opposed this calculation and argued that 
the BBA would comply with section 171 of the Dodd-Frank Act without 
this additional calculation. Commenters contended that the proposal 
without the section 171 calculation meets the Board's statutory 
requirements under section 171 of the Dodd-Frank Act, as amended by the 
2014 Amendment, to establish minimum risk-based capital requirements 
for these companies. Commenters argued that the section 171 calculation 
would introduce burdens and costs that do not meaningfully advance the 
Board's supervisory objectives. Some commenters also contended that the 
2014 Amendment indicates that Congress did not intend for the Board to 
implement the section 171 calculation. Commenters argued that the 
section 171 calculation duplicates certain requirements of the BBA and 
inappropriately treats firms differently according to legal form.
    The Board considered the comments and has decided to include the 
section

[[Page 82955]]

171 calculation in the final rule. Section 171 of the Dodd-Frank Act 
generally requires that the minimum risk-based capital requirements 
established by the Board for depository institution holding companies 
apply on a consolidated basis. The Board believes that including the 
section 171 calculation accords with the plain language meaning of 
section 171 of the Dodd-Frank Act, considering also the use of terms in 
section 171 elsewhere in the Federal banking laws, and the legislative 
history of section 171 and the 2014 Amendment. Moreover, the Board 
believes that the treatments for insurance activities under the section 
171 calculation is an appropriate exercise of the discretion given to 
the Board by Congress in the 2014 Amendment.
    The proposed section 171 calculation would have allowed an 
insurance SLHC subject to the generally applicable risk-based capital 
requirements (i.e., that is not a top-tier insurance underwriting 
company) to elect not to consolidate the assets and liabilities of all 
of its subsidiary state-regulated insurers and certain foreign-
regulated insurers. The proposal would have provided two alternative 
approaches if this election is made. Under the first alternative, the 
holding company could have elected to deduct the aggregate amount of 
its outstanding equity investment in its subsidiary state-regulated and 
certain foreign-regulated insurers, including retained earnings, from 
its common equity tier 1 capital elements. Under the second 
alternative, the holding company could have included the amount of its 
investment in its risk-weighted assets and assigned to the investment a 
400 percent risk weight, consistent with the risk weight applicable 
under the simple risk-weight approach in Sec.  217.52 of the Board's 
banking capital rule to an equity exposure that is not publicly 
traded.\21\
---------------------------------------------------------------------------

    \21\ 12 CFR 217.52(b)(6).
---------------------------------------------------------------------------

    A commenter expressed concerns regarding the proposed equity-
deduction treatment, contending that it would be unduly punitive. The 
commenter also urged the Board to permit firms to risk-weight a 
company's net equity investment in insurance operations consistently 
with NAIC RBC's treatment of equity investments in affiliates. The 
commenter also suggested that the Board permit firms to satisfy the 
section 171 calculation through use of the Small Bank Holding Company 
and Savings and Loan Holding Company Policy Statement and measuring 
compliance with the applicability thresholds of that statement after 
applying the election not to consolidate the assets and liabilities of 
subsidiary state-regulated insurers and certain foreign-regulated 
insurers.
    In the final rule, firms that elect not to consolidate the assets 
and liabilities of all of its subsidiary state-regulated insurers and 
certain foreign-regulated insurers have the option to choose between 
the proposed treatments. This optional provision should provide firms 
with greater flexibility to apply an appropriate treatment in view of a 
firm's individual structural and other business circumstances. In the 
final rule, a firm that makes such an election and chooses to risk-
weight its net equity investment in the deconsolidated subsidiaries 
must apply a risk weight of 400 percent, consistent with the proposal. 
The Board believes that this treatment is appropriate considering the 
risk weights applied to non-publicly traded equity exposures. Finally, 
a firm may not comply with the section 171 calculation through use of 
the Small Bank Holding Company and Savings and Loan Holding Company 
Policy Statement.\22\ This policy statement states expressly that the 
statement applies only to holding companies that are ``not engaged in 
significant nonbanking activities either directly or through a nonbank 
subsidiary''; \23\ the section 171 calculation applies only to 
companies that are members of a holding company organization that is 
significantly engaged in insurance activities, a nonbank activity.
---------------------------------------------------------------------------

    \22\ 12 CFR part 225, appendix C.
    \23\ Id. section 1.
---------------------------------------------------------------------------

IV. Minimum Capital Requirement and Capital Conservation Buffer

    The proposal was designed to produce an enterprise-wide risk-based 
capital requirement that is not less stringent than the results derived 
from the Board's banking capital rule. To enable aggregation of 
available capital and capital requirements across different building 
blocks, the proposal included a mechanism (scaling) that would have 
translated a capital position under one capital framework to its 
equivalent in another capital framework.\24\ At the enterprise level, 
the proposal would have applied a minimum risk-based capital 
requirement that leverages the minimum requirement from the Board's 
banking capital rule, expressed as its equivalent value in terms of the 
BBA ratio based on the Board's published scaling white paper. In 
addition to this equivalent value, the proposal would have also 
included a margin of conservatism to provide a heightened degree of 
confidence that the BBA's requirement would be compliant with section 
171 of the Dodd-Frank Act, which requires the BBA to be ``not less 
than'' the Board's banking capital requirements. In addition to 
complying with section 171 of the Dodd-Frank Act, calibrating the BBA 
to the same stringency level as the banking capital requirements 
minimizes the incentive for depository institution holding companies to 
acquire or sell insurance operations due to disparate capital 
requirements.
---------------------------------------------------------------------------

    \24\ Two building blocks under two different capital frameworks 
cannot typically be added together if, as is frequently the case, 
each framework has a different scale for its ratios and thresholds. 
As discussed below in section VII, the BBA proposes to scale and 
equate capital positions in different frameworks through analyzing 
historical defaults under those frameworks.
---------------------------------------------------------------------------

    The proposal would have established a minimum BBA ratio of 250 
percent and a capital conservation buffer of 235 percent. Together, 
these would have created a 485 percent total requirement. Insurers that 
breach this total requirement would have faced limits on capital 
distributions such as dividend payments and on discretionary bonus 
payments. The proposed minimum ratio, 250 percent, would have aligned 
with the midpoint between two prominent, existing state insurance 
supervisory intervention points, the ``company action level'' and 
``trend test level'' under state insurance RBC requirements. To 
determine the appropriate threshold for a capital conservation buffer 
under the BBA, the Board took a similar approach to how it determined 
the minimum requirement. The full amount of the buffer under the 
Board's banking capital rule, 2.5 percent, translates to approximately 
235 percent under the NAIC RBC framework. This translated buffer 
threshold would have been applied in the BBA.
    Commenters criticized the proposed margin for conservatism and 
indicated that proposed minimum capital requirements and total capital 
requirements are significantly higher than the banking capital 
requirements. Some of these comments distinguished between including 
margins for conservatism in the minimum and total capital requirements. 
Consequently, while most commenters opposed including the margins in 
the total requirement, only some opposed uplifting the minimum 
requirement. Commenters justified this nuance because section 171 of 
the Dodd-Frank Act applies to only the minimum requirement. Legally, 
any margin included in the minimum requirement could be offset by a 
smaller capital conservation buffer. This would reduce

[[Page 82956]]

the BBA's total requirement from 485 percent to 400 percent.\25\ 
Commenters argued that the margin could competitively disadvantage SIOs 
as compared to other insurers or alternatively create externalities for 
companies not subject to the rule by changing industry-wide perceptions 
of capital adequacy.
---------------------------------------------------------------------------

    \25\ The proposal's capital requirement included an 
approximately 85 percent increase over the best-estimate translation 
to account for the uncertainty. That is, the best-estimate 
translation of an 8 percent total capital ratio is a BBA ratio of 
near 165 percent. This was uplifted to a 250 percent proposed 
requirement in the proposal. Removing this 85 percent uplift from 
the buffer reduces the proposed 485 percent total BBA ratio 
requirement to 400 percent. A 400 percent BBA ratio requirement 
aligns with the best-estimate translation of a 10.5 percent total 
capital ratio.
---------------------------------------------------------------------------

    Several commenters also argued that other aspects of the BBA are 
excessively conservative. These commenters criticized the BBA for the 
lack of diversification credit between entities in the group, treatment 
of captive reinsurance transactions, and criteria for including capital 
instruments in available capital. Several commenters argued the BBA's 
capital requirements should be reduced in order to offset these 
conservative aspects of the framework.
    Some commenters suggested fundamental changes to the calibration of 
the BBA. A few commenters argued that the BBA's requirements should not 
equal those applied to other banking organizations. Two commenters 
suggested instead tailoring the BBA's requirements to the loss 
experience of insurers. Two other commenters argued for eliminating the 
capital conservation buffer, either because insurance does not create 
systemic risk or because subsidiary depository institutions already are 
subject to a buffer requirement. Finally, one commenter argued that any 
capital requirements in excess of state insurance capital requirements 
would be unlawful and inappropriate. In the alternative, this commenter 
argued that an SIO buffer should depend on the size of its depository 
institution.
    Commenters also raised concerns about the impact of breaching the 
BBA requirements and how they would interact with the NAIC RBC 
requirements. First, two commenters disagreed with limiting 
policyholder dividends when the BBA's total requirement is breached. 
Second, some commenters questioned how the BBA's requirements would 
interact with NAIC RBC, which is calibrated differently. An additional 
commenter requested clarification of the impact of not meeting the 
total capital requirement.
    Based on the comments received, the Board has decided to modify the 
proposed calibration of the BBA. Most significantly, the Board has 
removed the margin from the proposed capital conservation buffer, 
dropping the BBA's total requirement from 485 percent to 400 percent.
    Like the proposal, the final rule attempts to calibrate the BBA to 
the same level of stringency as the Board's banking capital rules. The 
BBA takes into account the different risks involved in insurance 
activities, on the one hand, and banking activities, on the other, 
through its aggregation process, rather than through an altered 
calibration or by eliminating the capital conservation buffer. While 
some commenters suggested that the BBA's calibration should be tailored 
to insurance, no commenter explained either how or why engaging in 
insurance activities should change the stringency of capital 
requirements that apply to a bank holding company or SLHC.\26\
---------------------------------------------------------------------------

    \26\ A commenter contended that the proposal was inconsistent 
with the McCarran-Ferguson Act, 15 U.S.C. 1011 et seq. The Board 
believes that section 5 of the Bank Holding Company Act, section 
10(g) of the Home Owners' Loan Act, and section 171 of the Dodd-
Frank Act provide authority for the Board to establish capital 
requirements for companies significantly engaged in insurance 
activities that have elected also to engage in the business of 
banking by operating a subsidiary bank or savings association. In 
particular, the 2014 Amendment expressly contemplates that the Board 
would establish minimum capital requirements for such companies.
---------------------------------------------------------------------------

    To ensure safety and soundness of the SIOs, the BBA's minimum 
capital requirement includes a margin. This margin ensures, to a high 
degree of confidence, that the BBA's minimum requirement is not less 
than the banking capital requirements. The margin's size corresponds to 
the upper bound of a 95 percent confidence interval on the BBA's 
calibration from the scaling regressions.\27\ Sensitivity tests of the 
calibration using different assumptions also informed the analysis.\28\ 
Consequently, the final rule does not include a margin for the capital 
conservation buffer. As a result, the BBA's total requirement equals 
the total requirement applicable to most other banking organizations.
---------------------------------------------------------------------------

    \27\ The Board used Monte Carlo simulation to translate the 
standard errors displayed in Table 2 of the white paper to a 
confidence interval for the calibration. In 95 percent of 
simulations, 8 percent total capitalization Risk Weighted Assets 
ratio translated to between 80 percent ACL RBC and 251 percent ACL 
RBC.
    \28\ Table 3 of the white paper parameterizes the scalars using 
alternative assumptions. These parameters can be used to translate 8 
percent and 10.5 percent risk-weighted assets to NAIC RBC using the 
scaling formulas derived in Appendix 1.
---------------------------------------------------------------------------

    The minimum capital ratio of 250 percent has not been reduced in 
the final rule in response to the comments about the proposal's alleged 
conservatism in its treatment of certain capital instruments, 
application of the banking rules to unregulated entities, lack of 
diversification credit, or treatment of prescribed and permitted 
practices. While some of these differences may make the BBA more 
conservative than NAIC RBC, the differences provide for a consistent 
level of conservatism between the BBA and the banking capital rule and 
consistency between SIOs. For example, the Board's capital rule applies 
to holding companies on a consolidated basis, including any unregulated 
entities. The BBA treatment of some non- depository institution, non-
insurer subsidiaries of insurance BHCs and insurance SLHCs as MFEs and 
application of the banking capital rule to them does not justify 
reducing the BBA's calibration to below the banking capital rule.
    Additionally, even if the BBA were intended to match the stringency 
of NAIC RBC rather than the banking capital rule, many of the 
referenced details still would not justify reducing the BBA's 
requirements. Senior debt does not qualify as capital for the issuer in 
either the BBA or NAIC RBC. If senior debt is downstreamed to a 
subsidiary as equity, it qualifies as capital for the subsidiary in 
both.\29\ By design, NAIC RBC excludes the parent and other affiliated 
companies. The impact of these exclusions varies. If an unregulated 
entity is relatively well capitalized, including it would be less 
conservative than NAIC RBC. Similarly, prescribed and permitted 
practices could either increase or decrease surplus.
---------------------------------------------------------------------------

    \29\ Senior debt may qualify as capital for the issuer in the 
NAIC's Group Capital Calculation (GCC). The BBA is, however, 
designed to match the stringency of requirements for other 
depository institution holding companies, not the GCC. The BBA and 
GCC also have different purposes. The GCC will be used as a tool by 
state insurance regulators, rather than a requirement. No GCC ratio 
would necessarily produce a similar intervention to a breach of the 
BBA's minimum requirement.
---------------------------------------------------------------------------

    No changes were made regarding the interaction of the BBA and NAIC 
RBC or the operation of the capital conservation buffer. The BBA and 
NAIC RBC create separate requirements. SIOs must comply with all 
applicable legal requirements. The final rule, like the proposal, 
treats policyholder dividends as capital distributions. Policyholder 
dividends are how mutual insurers distribute earnings to their owners. 
These capital distributions are analogous to shareholder dividends for 
stock companies. Prudent management requires limiting these payments 
when capital is low.

[[Page 82957]]

V. Determination of Building Blocks and Related Issues

A. Inventory

    The proposed BBA calculation started by creating an inventory of 
the legal entities in a SIO, which generally would have been all legal 
entities under the depository institution holding company. This 
inventory would have served as the foundation for the BBA's 
aggregation.
    As the proposal did elsewhere, it leveraged existing regulations to 
define the inventory. Under the proposal, a SIO's inventory would have 
included all entities that appear on organizational structure data 
reported to the Board or state insurance regulators.\30\
---------------------------------------------------------------------------

    \30\ The inventory would have contained any entity required to 
be reported under the Board's FR Y-6 or Y-10 reports or considered 
an affiliate under Statutory Statement of Accounting Principle 
(SSAP) 25 and reported on Schedule Y of the insurer's statutory 
annual report.
---------------------------------------------------------------------------

    In rare cases, the inventory would have included a special purpose 
entity not included in the organizational structure data provided to 
the Board or filed with the state insurance regulators. The 
organizational data provided are generally based on control of a 
subsidiary, and therefore may not include all entities that the Board 
intends to include in the scope of the BBA in order to avoid missing 
risks. The burden of including such entities in the inventory would 
have been limited, as only special purpose entities with which an SIO 
enters into a derivative or reinsurance contract would have been 
included.
    Under the proposed form FR Q-1, SIOs would have needed to report 
certain basic information (e.g., total assets) for all inventory 
companies. Two commenters suggested significantly reducing the 
reporting burden. The commenters asserted that SIOs could not easily 
calculate the total assets of subsidiaries multiple levels down their 
organization chart. To avoid this burden, these commenters argued for 
excluding immaterial, non-operating entities from the inventory.
    One other commenter opposed including in the inventory any company 
that is not included in existing regulatory reporting. The commenter 
noted that determining whether a company needed to be included in the 
inventory would require estimating the company's expected losses, which 
would be difficult.
    In response to the comments, the final form FR Q-1 requires less 
information than the proposal. Specifically, the final form FR Q-1 does 
not require reporting the assets and liabilities of inventory companies 
whose parents represent less than one percent of the group's assets. 
Based on QIS data, this form FR Q-1 change reduces the BBA's burden 
similarly to the inventory change suggested by two commenters.
    In light of this change to the reporting form FR Q-1, the final 
rule does not alter the scope of the inventory in determining the scope 
in the BBA. For each inventory company, the final rule still requires 
checking whether the company should become a building block parent, but 
it would not require the asset and liability information from all 
inventory companies. The tests for becoming a building block parent, 
which are examined in the next section, focus on whether the BBA 
appropriately captures the company's risks. The final rule applies 
these tests broadly to avoid excluding material risks.

B. Identifying Capital Frameworks for Each Inventory Company

    After the creation of the inventory, the proposal would have 
identified each inventory company's applicable capital framework, which 
would have been used to partition the inventory companies into building 
blocks. For insurance companies, the applicable capital framework would 
have been their current regulatory framework, except in rare cases.\31\ 
For all other companies, the applicable capital framework would have 
been the Board's capital rule or, the capital rule applied by the 
Federal Deposit Insurance Corporation (FDIC), or the capital rule 
applied by the Office of the Comptroller of the Currency (OCC).
---------------------------------------------------------------------------

    \31\ Examples of rare cases would have included title insurers 
and non-scalar compatible insurers.
---------------------------------------------------------------------------

    Commenters generally did not oppose the rules for assigning 
companies to capital frameworks, but several QIS participants expressed 
confusion that the proposal would not actually have applied the 
``applicable capital framework'' in all instances.\32\ For instance, 
the applicable capital framework for non-insurance subsidiaries of 
insurers would have been the Board's capital rule. However, most such 
companies would have remained in their insurance parent's building 
block. This insurance parent would continue to assess the inventory 
companies' risks using its insurance capital framework, unless they are 
an MFE.
---------------------------------------------------------------------------

    \32\ Some commenters criticized the proposed application of the 
banking capital rule to companies other than banks. The root 
disagreement from these commenters appeared to be with the scoping 
and grouping rules rather than the identification of the banking 
capital rule as the indicated capital framework for companies not 
engaged in insurance. The commenters preferred to either exclude the 
companies from the BBA or analyze these companies together with 
their parents rather than specifying an alternative capital 
framework for analysis.
---------------------------------------------------------------------------

    To address this comment, the final rule replaces the term 
``applicable capital framework'' with ``indicated capital framework.'' 
This revised terminology better describes the BBA's usage. The 
indicated capital framework is the capital framework that would apply 
to a company if it were determined to be a building block parent.

C. Identification of Building Block Parents

    After identifying an applicable capital framework for each 
inventory company, the proposal would have identified building block 
parents (BBPs). Under the proposal, a building block parent could have 
been one of several different types of companies. The first would have 
been the top-tier depository institution holding company. In the 
absence of any other identified building block parents, the top-tier 
depository institution holding company's building block would have 
contained all of the top-tier depository institution holding company's 
subsidiaries. A second type of building block parent would have been a 
mid-tier holding company that is a ``depository institution holding 
company'' under U.S. law. The proposed treatment of these companies as 
building block parents would have allowed for the calculation of a 
separate BBA ratio at the level of these companies in the enterprise 
and helped to ensure that these companies remain appropriately 
capitalized.
    The proposal would have identified additional building block 
parents based on grouping rules that would have generally relied on 
existing capital regulations. Relying on these frameworks materially 
reduces burden and the potential for unintended consequences. 
Additionally, the proposal would have identified certain other 
financial entities that are material to the group as building block 
parents. The proposal deemed these entities as MFEs, which are 
described below.
    The proposal would have determined which entities are building 
block parents by considering whether the capital framework applicable 
to each inventory company or MFE is the same as that of the next-
upstream company that is directly subject to a capital framework.
    Generally, the proposal would have had companies subject to the 
same capital framework remain in the same building block, except for 
one case. This exceptional case would have been where a company's 
applicable capital

[[Page 82958]]

framework treats the company's subsidiaries in a way that does not 
substantially reflect the subsidiary's risk. For instance, there could 
be situations in which NAIC RBC may not fully reflect the risks in 
certain subsidiaries (typically, certain foreign subsidiaries) that 
assume risk from affiliates.\33\ In such cases, the subsidiary (which 
could be a capital-regulated company or MFEs) would have been 
identified as a building block parent so that its risks could more 
appropriately be reflected in the BBA.
---------------------------------------------------------------------------

    \33\ The BBA proposes to apply NAIC RBC to such subsidiaries. 
However, under state laws, the application of NAIC RBC on the parent 
would not normally operate to include the available and required 
capital from applying NAIC RBC to the subsidiary. However, when the 
subsidiary is identified as a building block parent in the BBA, the 
subsidiary's available and required capital under NAIC RBC would be 
reflected by the parent after aggregation.
---------------------------------------------------------------------------

    The proposal would have taken into account the risks of companies 
that are not building block parents indirectly through a building block 
parent's capital calculation using its regulatory requirements. This 
could have been through consolidation by a building block parent or 
accounting for the inventory company as an investment by the building 
block parent.
    Figure 1 illustrates the how the rules for identifying building 
block parents would have worked under the proposal.
[GRAPHIC] [TIFF OMITTED] TR27NO23.000

D. Material Financial Entity

    A key step in the proposal's identification of building block 
parents would have been assessing whether a financial entity is an MFE. 
If an entity was determined to be a MFE in the proposal, it would have 
become a building block parent and assessed under either the banking 
capital rule or NAIC RBC. The proposal would have defined a financial 
entity as material if the top-tier depository institution holding 
company's total exposure to it exceeds 1 percent of the top-tier 
depository institution holding company's consolidated assets. While a 
parent company's exposure to a subsidiary most commonly arises from 
potential losses on the parent company's investment, the exposure could 
also result from guarantees and other sources. In addition to this 
quantitative materiality definition, the proposed rule would have 
included a qualitative definition to capture entities that are 
otherwise significant when assessing capital. The proposal would have 
excluded certain entities, including some asset managers, from the MFE 
definition. The proposal would have also contained an option of 
electing to treat certain pass-through entities as MFEs or including 
their risks in the capital calculation of other building block parents.

[[Page 82959]]

    Typically, such a company would be one that serves as a pass-
through or risk management intermediary for other companies under the 
insurance depository institution holding company.\34\ If an insurance 
depository institution holding company were to make this election, the 
risks posed by this company would nonetheless have been reflected in 
the BBA. As proposed, the BBA would have required the insurance 
depository institution holding company to allocate the risks that the 
company faces to the other companies in the enterprise with which the 
company engages in transactions.
---------------------------------------------------------------------------

    \34\ Frequently a pass-through company enters into transactions 
with affiliates (e.g., operating insurers) and enters into back-to-
back transactions with third parties to manage risks on a portfolio 
basis.
---------------------------------------------------------------------------

    Commenters expressed diverging views on the concept of MFEs. 
Several commenters criticized some results of identifying MFEs as 
building block parents. These commenters noted the burden and 
complexity of applying the banking capital rule to non-banking 
companies. One commenter noted that this would be particularly 
problematic in the case of investment subsidiaries, as it would create 
burden and result in a misalignment with how an entity is treated in 
its parent's capital regime. This commenter believed these entities 
should be assessed along with the insurance company.
    Other commenters either explicitly agreed with the proposal or 
suggested only minor revisions. Commenters suggested that the threshold 
of 1 percent of total assets should be higher. One commenter argued 
that using total assets as the base measure for materiality is 
inconsistent with state-based insurance regulations, where surplus is 
most often used. Additionally, a commenter asserted that using total 
assets could penalize property and casualty (P&C) insurers relative to 
life insurers because P&C insurers are generally less leveraged. 
Another commenter suggested clarifying aspects of the definition of 
materiality, particularly with regards to captive insurers who may not 
use NAIC Statutory Accounting Practices. One commenter suggested 
considering size, off-balance sheet exposures, and activities involving 
derivatives or securitizations within the materiality definition.
    Consistent with the proposal, the final rule continues to designate 
MFEs as building block parents when certain conditions are met. The 
Board intends the BBA to capture all material risks within the group. 
Designating MFEs as building block parents is essential to ensuring 
that these risks are appropriately reflected. Without this designation, 
SIOs could easily evade and manipulate BBA results by transferring 
risks from regulated entities to unregulated entities that would only 
be captured in the BBA through inclusion in their parent's capital 
requirement based on an equity risk factor applied to their net equity, 
which could result in a very small capital requirement if the entity is 
thinly capitalized. Based on the QIS results, identifying MFEs as 
building block parents will result in only minimal burden, but could 
have a significant impact in reducing the potential for regulatory 
arbitrage. All SIOs collectively identified only a very small number of 
MFEs in the QIS.
    The final rule does, however, modify the definition of materiality 
in response to the comments. The final rule uses a threshold of 5 
percent of equity of the top-tier depository institution's holding 
company rather than 1 percent of its assets. Because the BBA assesses 
capitalization, capital represents a better benchmark for materiality 
than assets, and 5 percent better aligns with the thresholds used in 
other contexts (e.g., accounting). By assessing the materiality of 
exposure from all sources (e.g., investments and guarantees), the BBA's 
assessment of materiality incorporates the factors suggested by one 
commenter (e.g., off-balance sheet exposures).
    The Board does not agree that designating an investment subsidiary 
as an MFE is problematic, as the proposal contained an exclusion that 
would have allowed pass-through treatment of the risk of the entity 
rather than treating it as an MFE. In addition, QIS results indicated 
this exclusion will operate as intended. The final rule does not change 
this treatment.
    Based on the QIS, the final rule also makes a small change to 
address inventory companies that have no upstream entity and that are 
not a top-tier SLHC (e.g., a mutual insurance company controlled 
through common management). The NPR did not contemplate these types of 
companies. The final rule clarifies that if a company is an MFE or a 
company subject to capital regulation, then it must be considered a 
building block parent. These companies are exempted from the typical 
tests comparing their indicated capital framework to their upstream 
building block parent's indicated capital framework.

E. Treatment of Asset Managers

    The proposal would have excluded certain asset managers from the 
MFE definition. Asset managers owned by insurers would have been 
assessed as they currently are in their insurance parent's risk-based 
capital calculation based on NAIC RBC. Asset managers owned by 
companies assessed using the Board's banking capital rule would have 
been consolidated by their parent company. Commenters were divided on 
this exclusion from the MFE definition. Several commenters supported 
the exclusion and noted that the Board's banking capital rule would not 
necessarily be more appropriate than the treatment of these 
subsidiaries under NAIC RBC. One commenter supported expanding the 
exclusion to also cover any activity that could be undertaken by a 
financial subsidiary. This commenter argued that other financial 
subsidiaries and asset managers should have the same treatment. This 
commenter also noted that the NPR specifically excluded financial 
subsidiaries of banks from the MFE definition through a different 
exclusion. Another commenter suggested further assessing the risks 
presented by different types of asset managers and varying the 
treatment of asset managers accordingly. Conversely, several other 
commenters did not support the exclusion. The commenters noted that due 
to the proposed exclusion, the treatment of material asset managers 
would have depended on the organizational structure of the SIO, and 
they argued that the BBA should seek to neutralize this discrepancy.
    Commenters also disagreed on the best framework for assessing asset 
managers. Two commenters supported application of the banking capital 
rule to these companies. Other commenters supported broader application 
of NAIC RBC to asset managers. One commenter suggested an alternative 
approach based on GAAP for a subset of asset managers.
    The final rule eliminates the exclusion of asset managers from the 
MFE definition so that all asset managers would be treated consistently 
under the Board's banking capital rule. Consistent with the proposal, 
financial subsidiaries of banks are excluded from MFE definition 
because Federal banking law requires deduction of these values from a 
bank's capital.\35\
---------------------------------------------------------------------------

    \35\ See 12 U.S.C. 24a(c).
---------------------------------------------------------------------------

VI. Adjustments

A. Capital Instruments

    The proposal would have required certain adjustments at the level 
of determining building block available capital that would have 
included deducting any capital instrument issued by a company within 
the building block,

[[Page 82960]]

that fails one or more of the eleven criteria for tier 2 capital under 
the Board's banking capital rule.\36\
---------------------------------------------------------------------------

    \36\ The criteria are listed in Sec.  217.608(a) of this rule. 
In the banking capital rule, they are codified at 12 CFR 217.20(d).
---------------------------------------------------------------------------

    For consistency with the Board's banking capital rule, senior debt 
would not have been considered as available capital. As noted above, 
many commenters expressed a view that senior debt should be included as 
qualifying capital, as it is structurally subordinated to policyholder 
liabilities and is similar to surplus notes in that regard. The Board's 
Insurance Policy Advisory Committee disagreed with these respondents 
and recommended the Board adopt the proposed capital instrument 
qualification without modification.
    The proposal would have allowed surplus notes to be eligible for 
inclusion in tier 2 available capital under the BBA, provided that the 
notes meet the criteria. Recognizing that not all surplus notes 
previously issued would have addressed all of the tier 2 qualifying 
capital criteria, the proposal also including a legacy provision that 
allows surplus notes to qualify if issued by a top-tier depository 
institution holding company or its subsidiary to a non-affiliate prior 
to November 1, 2019. Commenters indicated that surplus notes should be 
included as tier 1 qualifying capital and if they only qualified as 
tier 2 capital, the proposed 62.5 percent limitation on the amount of 
tier 2 capital that can be counted toward an SIO's capital requirement 
should be higher.
    The proposal also would have limited, at the level of building 
block available capital for the top-tier parent, tier 2 capital 
instruments to be no more than 62.5 percent of the building block 
capital requirement for that top-tier parent. Commenters observed that 
statutory accounting is more conservative than GAAP, and this 
conservatism reduces the value of common equity tier 1 capital, but not 
the value of tier 2 capital instruments. This, in commenters' view, 
distorts the ratio of tier 2 capital instruments to common equity tier 
1 capital, which the NPR would have used to limit tier 2 capital 
instruments.
    The Board considered the comments and decided to maintain 
consistency with the Board's banking capital rule for both surplus 
notes and senior debt. This would require insurers to issue surplus 
notes meeting all of the Board's criteria consistent with the banking 
capital rule to qualify as tier 1 capital. For surplus notes that only 
qualify as tier 2 capital instruments, the Board did change the tier 2 
limit as noted above. This also results in senior debt not being 
considered as qualifying capital. The Board recognizes the structural 
subordination argument; however, this argument applies to the insurance 
subsidiaries and not the regulated holding company, which does not 
benefit from structural subordination. The Board also recognizes that 
there are some similarities between surplus notes and senior debt, but 
unlike surplus notes, a default is triggered for non-payment of senior 
debt, which would impact the entire group.
    Although the Board has decided to maintain consistency with the 
banking capital criteria, considering the impact of the conservatism of 
statutory accounting as expressed by the commenters, the final rule 
increases the tier 2 capital instrument limit to 150 percent of the 
building block capital requirement for the top-tier parent. In 
addition, in order to provide capital flexibility to firms, the Board 
added an additional tier 1 capital component as discussed above.

B. Adjustments for Comparability

    The proposal included a series of adjustments to improve 
comparability among U.S. insurance entities. These adjustments 
including reversing permitted and prescribed practices, disallowing 
legacy treatment and transitional measures in the application of new 
capital regulation for insurers, and reversing certain transactions 
(e.g., captives) in order to ensure consistency between SIOs. While 
many aspects of insurance regulation have been harmonized across 
states, other aspects can differ significantly across companies and 
states.
    The proposal would have used a consistent approach by assessing all 
U.S. insurers using NAIC RBC. Because NAIC RBC focuses on legal 
entities, it can be impacted by intercompany transactions. Some life 
insurers have used affiliated reinsurance transactions to alter their 
NAIC RBC ratios through the use of captives. These transactions move 
risks into captive reinsurance companies, which are generally not 
subject to the same accounting, disclosure, and capital requirements as 
NAIC RBC. The proposal would have neutralized much of the impact of 
these transactions through its grouping rules, which would have 
resulted in these affiliated reinsurance companies being analyzed using 
the same capital framework applicable to the ceding insurer.
    The proposal would have gone further to provide consistent 
treatment by mandating the use of the accounting principles promulgated 
by the NAIC. States can and do deviate from the framework. States can 
either mandate that regulated companies do or do not recognize certain 
financial transactions or can require a measurement basis other than 
that promulgated by the NAIC (``prescribed practices'') or allow 
differences in recognition or measurement for a specific transaction 
(``permitted practices''). These practices can decrease the capital 
requirements for insurers. For instance, one of the contributing 
factors in the use of life insurance captives was that some states 
allowed a permitted practice whereby life insurers could transfer 
certain life insurance business to a captive that would use a different 
accounting. This was due to the belief that some of the life insurance 
reserving requirements in NAIC RBC were overly conservative, and the 
captives were able to apply recognition and measurement concepts that 
were viewed as more appropriate. In moving the business to a captive, 
the life insurance entities could receive significant capital 
relief.\37\
---------------------------------------------------------------------------

    \37\ Matthew Walker and Li Cheng, CFA, FRM, FSA, Page 2, 
Standard and Poor's Rating Services, Peaking =Inside the Black 
Boxes: Why North American Life Insurers are Using Captives and Why 
it Matters, May 12, 2015.
---------------------------------------------------------------------------

    The proposed rule included adjustments to address permitted 
practices, prescribed practices, or other practices, including legal, 
regulatory, or accounting, that departs from a capital framework as 
promulgated for application in a jurisdiction. The proposed rule would 
have adjusted capital requirements (the denominator in the BBA ratio) 
to reverse state permitted and prescribed practices (and, where 
relevant, any approved variations applied by solvency regulators other 
than U.S. state and territory insurance supervisors). The proposed 
adjustment was meant to provide for a consistent representation of 
financial information across all companies in the jurisdiction.
    The proposal also would have removed all legacy treatment and 
transitional measures associated with changes in a capital regime, 
unless the measures were approved by the Board.\38\ Transitional 
provisions and legacy treatment are utilized to make adoption of 
significant changes less burdensome for insurers, but can result in 
differences in application between insurers. An example of this, 
described above, is the change to PBR by the NAIC and states. Many 
states required insurers to apply

[[Page 82961]]

PBR prospectively to new business beginning in 2020. This was optional 
in most states beginning in 2017. Due to the long-term nature of 
insurance liabilities, the measurement basis of most insurance 
liabilities by volume will continue to be the previous rules for many 
years. The proposal would have accelerated the transition by removing 
transitional measures not approved by the Board, which would have 
required applying PBR to legacy business (i.e., all business prior to 
2020).
---------------------------------------------------------------------------

    \38\ Because the Board has approved all transitional measures 
within the banking capital rule, this adjustment would have only 
affected insurance transitional measures.
---------------------------------------------------------------------------

    Commenters expressed divergent views that generally split into two 
high-level positions. One group of commenters argued against the 
proposed adjustments to increase consistency. Another group of 
commenters supported the adjustments but suggested simplifying certain 
aspects of the proposal to reduce burden.
    Most commenters argued against making any of the suggested 
insurance adjustments. Several commenters argued that state prescribed 
and permitted accounting practices aren't motivated by arbitrage. For 
example, a company may not update its accounting practices after 
previously ambiguous rules are clarified differently. One commenter 
linked these practices to a broader issue of supervisory or 
jurisdictional discretion, which also exists in other frameworks such 
as Europe's Solvency II, and argued that these should all be recognized 
by the BBA. Several commenters argued that state prescribed and 
permitted practices can more faithfully represent idiosyncratic 
situations than the broad, default accounting rules. In these 
situations, the commenters argued that the proposed adjustments may 
decrease comparability. Similarly, commenters asserted that 
retroactively applying PBR could harm comparability because of 
differences in assumptions and interpretations. Several commenters also 
argued that these adjustments could confuse external stakeholders and 
management by causing the BBA to diverge from operating company RBC 
ratios. Commenters also stated that applying PBR retroactively would be 
burdensome. A large number of commenters argued that the Board should 
defer to the states on this topic. One of these commenters argued that 
failing to do so jeopardizes financial stability. Other commenters 
argued for further study, either of existing permitted and practices or 
state regulations, which one commenter believed would indicate that 
these adjustments are not needed.
    Several commenters supported the proposed adjustments with 
suggested modifications to reduce burden. These commenters asserted 
that individual state's permitted and prescribed practices can be 
justified, but they do harm comparability in aggregate. By volume, most 
state permitted and prescribed practices do not address idiosyncratic 
issues. Instead, they specify different substantive treatments on 
common issues. These commenters argued that the treatment of business 
should not depend on the state of the insurer or the cession of 
business to an affiliated reinsurance company.
    The commenters, however, did suggest simplifying and clarifying the 
proposed insurance adjustments. Commenters wanted clarity on the scope 
of the adjustment on transitional measures and suggested that it may 
have unintended consequences by reversing transition measures related 
to the current expected credit losses methodology for estimating 
allowances for credit losses or requiring the restatement of insurance 
business using old mortality tables. With regard to PBR, commenters 
requested clarity on which types and years of business would require 
revaluation. Many commenters suggested simplifying or narrowing the 
scope of PBR revaluation. Approaches suggested included an 
approximation of a full PBR calculation by applying factors to current 
reserves, allowing the use of GAAP reserves instead, and allowing 
companies without captives or material exposures to opt out. Because 
PBR will apply prospectively, commenters suggested that these 
simplifications would better balance costs and benefits. One commenter 
also suggested retaining flexibility to maintain any given permitted or 
prescribed practice.
    The final rule simplifies but does not eliminate the proposed 
adjustments that increase comparability. Comparing institutions helps 
the Board identify unsafe and unsound conditions and could also benefit 
other users of the BBA. These adjustments effectively harmonize the 
approaches of different states to the approach set collectively through 
the NAIC. This aligns with other parts of the BBA. The BBA uses NAIC 
RBC, not the approach of any particular state, as the common capital 
framework. These adjustments convert individual company financial 
statements to that basis and justify not requiring any scaling between 
states. The final rule also includes the flexibility to allow any 
particular accounting practices if merited through the broad 
reservations of authority.
    In place of the proposal's reversal of transitional measures that 
have not otherwise been approved by the Board, the final rule adopts 
the factor-based simplification for PBR suggested by some commenters. 
The final rule specifies factors that will be applied to current 
statutory reserves for certain types of insurance business that are 
subject to legacy treatment under the NAIC rule, to approximate PBR 
reserves.\39\ This narrower treatment of transitional measures 
eliminates any unintended effects on domestic insurance business. While 
the Board may eventually decide to reverse certain transitional 
measures in foreign insurance systems, these issues are currently not 
material to the Board's supervised population.
---------------------------------------------------------------------------

    \39\ A 40 percent factor is applied to all term life insurance 
business accounted for using an approach based on the Valuation of 
Life Insurance Policies Model Regulation (Regulation XXX). A 90 
percent factor is applied to all secondary-guaranteed universal life 
insurance products accounted for using Actuarial Guideline XXXVIII--
The Application of the Valuation of Life Insurance Policies Model 
(AXXX).
---------------------------------------------------------------------------

C. Title Insurance Issues

    The proposal would have assessed title insurers using the banking 
capital framework because title insurers currently lack risk-based 
capital rules. To capture the risk of title insurance businesses, an 
additional 300 percent risk weight would have been applied to title 
insurance reserves. Additionally, title plants, which are collections 
of data and records related to the titles of real property, would have 
been deducted from available capital like other intangible assets in 
the banking capital framework.
    The Board received two comment letters on the treatment of title 
insurance. These commenters did not oppose using the banking capital 
rule to assess title insurance business. However, they suggested 
modifying the treatment of title insurance reserves and title plant 
assets. They argued that title insurance reserves should qualify as 
tier 2 capital, that the 300 percent risk weight for title insurance 
reserves was too high, and that title plant assets should not be 
deducted from capital.

VII. Title Insurance Reserves

    Commenters advocated including title insurance reserves in tier 2 
capital and not applying a risk weight for two reasons. First, they 
argued this would be more consistent with the banking capital rule 
because title insurance reserves are analogous to banks' provisions for 
credit losses. Banks may count these allowances as tier 2 capital, 
subject to a limit of 1.25 percent of risk

[[Page 82962]]

weighted assets. Second, commenters argued this would encourage 
conservative reserving.
    The commenters also argued that the proposed 300 percent risk 
weight for title insurance reserves was inappropriately high. They 
claimed title insurance reserves are less risky than publicly traded 
equities based on a comparison of industry-wide title insurance 
reserves and returns of equity indices. They also argued that title 
insurance policies and underwriting standards have evolved since the 
financial crisis to make the industry less risky.
    Based on an analysis of the comment letter and data, the final rule 
maintains the proposed treatment of title insurance reserves. Insurance 
reserves are substantively and significantly different than banks' 
allowances. Allowances are a contra-asset that reflect expected future 
reductions in asset cashflows; title insurance reserves are a liability 
which represents expected future cash outflows. The reserves on other 
insurance products are a better analogy. Insurance capital frameworks 
unanimously classify insurance reserves as liabilities rather than 
capital.
    Indeed, many insurance capital frameworks, including NAIC RBC, 
explicitly use very conservative reserving methodologies to safeguard 
even more funds as liabilities. Commenters argued that this treatment 
incentivizes underestimating reserves; however, there are actuarial 
standards of practice that are followed by the vast majority of 
actuaries when developing reserves estimates. Additionally, applying a 
factor to a liability value is consistent with many other insurance 
capital regimes. Independent of the BBA, reserves impact earnings, 
taxes, executive compensation, and strategic business decisions. Some 
members of management can have a short-term incentive to reduce 
reserves to increase earnings, but internal controls help to protect 
against this risk. Fear about these controls failing, which would 
result in some reserves becoming capital, does not just justify 
treating reserves like capital.
    The final rule maintains the 300 percent factor for title insurance 
reserves. During the financial crisis, the four largest title insurers' 
reserves varied significantly more than equity indices. While the 
financial crisis hit title insurers particularly hard, the percentage 
losses on these reserves also exceeded the equity losses in any period, 
including the Great Depression.
    One of the four largest title insurers became insolvent. Another's 
reserves more than doubled. A third's reserves increased by more than 
50 percent. The industry-wide data from commenters underestimate the 
potential volatility for individual companies. Data since 2011 on all 
title insurers show that 10 percent reserve increases are somewhat 
common even when industry-wide reserves are relatively stable.

VIII. Title Plant Assets

    Commenters also argued that title plant assets, which are 
collections of data and records related to the titles of real property, 
should not be deducted from capital and should instead receive a risk 
weight of 100 percent. They stated that title plant ownership interests 
are readily transferable. Insurers and agents often transfer ownership 
interests in title plants, which can be done without selling a 
business. The commenters believed these transactions could be completed 
even under adverse financial conditions.
    The final rule deducts title plant assets from capital. During a 
stress event, title plant assets would likely not be capable of 
generating significant resources. The most likely buyers for an asset 
which helps underwrite title insurance would be a title insurer. But if 
one large title insurer needs capital, others are likely to require 
capital as well. Even if a potentially willing and able buyer were 
found, the transaction could face other difficulties, including 
antitrust scrutiny. The title insurance industry is highly 
concentrated. An attempted merger of two large title insurers in 2019 
was abandoned after the Federal Trade Commission opposition on 
antitrust grounds.\40\
---------------------------------------------------------------------------

    \40\ See, https://www.sec.gov/edgar/searchedgar/companysearch 
(Fidelity National Financial, Inc. Form 8-K Termination of Material 
Definitive Agreement, Filed September 11, 2019 Fidelity National 
Financial, Inc. Form 8-K).
---------------------------------------------------------------------------

IX. Scaling

    Scaling was considered in the proposal because regulatory capital 
frameworks differ in their outputs. While these outputs all assess 
capital, some use radically different terminology and scales. Banking 
capital frameworks focus on of risk weighted asset ratios, with 
requirements set at levels well below 100 percent. Insurance capital 
frameworks, in contrast, are set based on multiples of state 
requirements and target ratios well above 100 percent. Aggregating 
these different metrics requires translating (that is, ``scaling'') 
them.
    Because of scaling's importance to the BBA, the Board published a 
white paper \41\ on it. The white paper explored scaling and assessed 
different potential scaling methods. On the basis of the white paper's 
assessment, the proposal would have based scaling between the Board's 
banking capital rules and NAIC RBC based on historical default 
probabilities. The proposed method used these default rates as a 
benchmark for translation. The white paper's analysis indicated this 
results in the most accurate translation of any method. Accurate 
translations facilitate aggregation and ultimately the assessment of an 
institution's safety and soundness.
---------------------------------------------------------------------------

    \41\ Comparing Capital Requirements in Different Regulatory 
Frameworks, September 2019, https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20190906a1.pdf.
---------------------------------------------------------------------------

    The proposal did not propose scalars for other jurisdictional 
regimes at this time primarily due to a lack of consistent default 
information. Instead, the proposal included a provisional scaling 
method that would have applied in the absence of specified scalars. 
This method assumed the equivalence of available capital calculations 
and regulatory intervention points after an adjustment for country 
risk.
    Commenters largely agreed with the Board's analysis. Several 
commenters explicitly supported the Board's proposed approach. These 
commenters said the approach was thoughtful, rigorous, and practical. 
No commenter explicitly disagreed with using it to translate between 
NAIC RBC and the Federal banking capital rule. One commenter, did, 
however raise concerns that the proposed approach was ``bank centric'' 
and overly dependent on default data from P&C insurance groups, which 
may differ from data from other types of insurers.
    The main criticism of the Board's overall scaling proposal was that 
it supplies scalars only between two capital frameworks as described 
above. Several commenters asked the Board to specify scalars for other 
frameworks rather than relying on this provisional scaling method. They 
argued that this would reduce uncertainty and aid international 
negotiations. Because of the lack of default data on other frameworks, 
these commenters also encouraged the Board to develop practical 
alternatives to relying on default data. In addition to the comments on 
developing scalars for other jurisdictions, the Board also received 
comments on the provisional scaling method. One commenter argued that 
this country risk adjustment disfavors international frameworks 
relative to the U.S. framework. Another commenter disagreed with some 
of the discussion in the white paper of the provisional methodology and 
argued

[[Page 82963]]

that it did not adequately consider the possibility of interpolating a 
scaling methodology from a single assumed equivalency point or the 
possibility of using multiyear analysis to mitigate volatility. Another 
commenter thought the proposed provisional scaling method was not as 
sophisticated as what the NAIC is considering as part of its group 
capital calculation. Those methods rely on an alternative assumption 
related to the different insurance industries being equally well 
capitalized.
    After reviewing these comments, the Board is finalizing scalars 
between NAIC RBC and the Board's banking capital rule as proposed. As 
explained in the white paper, historical insolvency rates are a fair 
benchmark for solvency ratios from different frameworks, and the 
Board's testing did not indicate a bias toward either banks or 
insurers. Extensive data exists on banks, P&C insurers, and life 
insurers. This data did not support treating the life and P&C capital 
frameworks differently.\42\
---------------------------------------------------------------------------

    \42\ When parameterized separately, life and P&C insurance 
frameworks generated nearly identical scalars. A t-test regarding 
the differences in these parameters resulted in a p-value close to 
50 percent. See page 18 of the White Paper for further information.
---------------------------------------------------------------------------

    The Board considered and attempted to survey all potential scaling 
methods in the published white paper. The Board's analysis revealed a 
trade-off in scaling methods between the reasonableness of their 
assumptions and the amount of data they required. Without data, scaling 
requires using untested assumptions. No comment disputed this trade-
off.
    Because more accurate scaling requires data and data is limited on 
many frameworks, the Board could either vary its approach based on the 
data available or exclusively use a framework that would rely on data 
that is more likely to be available but would not provide scaling 
results to sufficient degree of accuracy. The final rule, like the 
proposal, avoids setting a uniform approach to scaling. This does 
create some uncertainty about how foreign insurance frameworks would be 
treated, but it also allows more accurate translations domestically. To 
reduce the uncertainty, the Board will continue working with the NAIC 
domestically, and at the IAIS internationally, on scaling, including 
parameterizing scalars within the BBA as appropriate.
    The final rule also adopts the provisional scaling methodology as 
proposed for material foreign insurance entities. Other approaches may 
produce more accurate translations, but they also require more data. A 
provisional scaling method must always output a valid translation. 
Without this, a SIO would not be able to compute its BBA ratio in the 
absence of a further Board rulemaking or order. The proposed 
methodology requires the least amount of data.
    Additionally, the NAIC is currently using an unscaled approach in 
its development of the GCC, which, like the provisional approach, would 
leverage the capital requirements in jurisdictions with risk-based 
regimes, though it does not include a country risk adjustment. The 
final rule maintains this adjustment as country risk affects the 
insurers operating in those jurisdictions.
    With regard to the technical points made, the Board believes these 
were accurately discussed in the white paper. One commenter noted that 
changes to NAIC RBC could impact scalars and asked about the timeframe 
for updates to the scalars and their effect time. The Board will 
monitor changes to NAIC RBC and plans to update scalars as necessary 
rather than on a predetermined schedule.
    Proposed updates to the scalars will be released for public comment 
prior to adoption.

X. Aggregation

    The proposal would have aggregated the adjusted and scaled output 
from the building block parents. At each level of aggregation, the 
scaled and adjusted results from subsidiary building block parents 
would have replaced the default treatment for these risks in the 
indicated capital framework of the upstream building block parent. For 
example, an insurance company that owns a depository institution would 
have held this depository institution on its balance sheet based on 
GAAP equity and applied a factor to this value to calculate the capital 
required on the investment. When calculating available capital, the 
proposal would have replaced the GAAP equity with the bank's scaled 
capital, as calculated under the proposed BBA. Similarly, scaled and 
adjusted output from the bank capital framework would have replaced the 
insurance capital framework's treatment of the bank subsidiary.
    The proposal would have used proportional consolidation to address 
the partial ownership of building block parents. When aggregating the 
risks of a downstream building block parent, the upstream building 
block parent would have only included a fraction of the downstream 
parent that is proportional to its ownership. In the proposal, this 
proportion would have been based on the fraction of the capital 
resources of the downstream building block parent owned by the upstream 
building block parent.
    The Board received one comment regarding this aspect of the 
proposal. The commenter suggested using the proportion of equity in 
place of the proportion of capital to allocate ownership of an 
inventory company among multiple building block parents.
    As suggested by the commenter, the final rule uses equity ownership 
percentages to incorporate partially owned building block parents. This 
fraction is calculated for other purposes and would simplify the rule 
without materially impacting the calculation of the BBA ratio.\43\ The 
final rule otherwise adopts the proposed method of aggregation under 
the BBA.
---------------------------------------------------------------------------

    \43\ A top-tier depository institution holding company's BBA 
ratio would be impacted by this change only if (1) a subsidiary 
building block parent issued capital outside of the group, (2) the 
subsidiary building block parent issued both equity and non-equity 
capital instruments, and (3) the group's ownership percentage of the 
non-equity capital instruments differed from its ownership of equity 
capital instruments.
---------------------------------------------------------------------------

XI. Reporting

    To implement the BBA, the Board proposed a new reporting form. This 
reporting form, form FR Q-1 would have collected information needed to 
carry out the BBA calculations.\44\ Form FR Q-1 would have facilitated 
monitoring the capital position of companies subject to the BBA.
---------------------------------------------------------------------------

    \44\ The adopted form FR Q-1 and instructions are available at 
https://www.federalreserve.gov/apps/reportforms/review.aspx.
---------------------------------------------------------------------------

    The Board published a proposed version of form FR Q-1 for comment 
along with the NPR. This proposed reporting form served as the basis 
for a voluntary QIS from SIOs. Several comment letters addressed form 
FR Q-1. Additionally, QIS participants provided feedback based on their 
experience completing the form.
    Several issues raised in the context of form FR Q-1 overlap with 
other aspects of the BBA and are discussed elsewhere in this 
Supplementary Information section. As discussed above in section II 
related to the BBA's effective date, several comments requested 
deferring the first filing of form FR Q-1's attestation cover page to 
avoid requiring controls related to the BBA to be in place before the 
BBA becomes effective. The final rule defers the first filing of the 
attestation cover page until the submission of the second form FR Q-1. 
As discussed in section V.A related to the BBA's inventory, commenters 
suggested the Board restrict the definition of an inventory company to 
reduce form FR Q-1's burden. Instead, the adopted version of form FR Q-
1

[[Page 82964]]

limits the inventory companies that are required to provide asset 
information to achieve a similar effect.
    Commenters also raised issues regarding form FR Q-1's proposed 
March 15 yearly deadline, the amount of form FR Q-1 information that 
would be made public, and how much of the information related to form 
FR Q-1 would need to be audited.

A. Submission Date

    The proposal would have had a March 15 annual submission deadline 
for form FR Q-1. This date was selected to closely follow the March 1 
date on which state insurance legal entities must submit their annual 
statements to state insurance regulators. Because the BBA relies on 
information in these reports, form FR Q-1's deadline should occur after 
it. A date shortly after this deadline was proposed because timely 
information facilitates better supervision.
    Commenters requested extending the submission deadline for form FR 
Q-1. These commenters cited the burden of an additional reporting form 
tied to the year-end. They suggested that form FR Q-1 be submitted 
further back in the queue of these reports. June 1 was the most common 
requested filing date, which would coincide with the date insurers must 
submit audited financial statements. Commenters noted the additional 
accuracy with these audited statements. Two other commenters suggested 
slightly earlier dates.
    In response to the comments, the final rule includes a March 31 due 
date for form FR Q-1. This allows SIOs an extra two weeks to complete 
the report in recognition of the report's reliance on U.S. statutory 
financial statements that are filed with the states, and the existing 
burden on reporting staff during this period of time. The final rule 
does not, however, extend the deadline as much as suggested by 
commenters. Doing so would significantly disrupt the Board's 
supervision schedule and mean that the most recent BBA information 
available would be between 5 and 17 months out of date. Conversely, for 
other banking organizations, significantly more detailed consolidated 
financial information is reported quarterly, around a month after the 
close of a quarter.

B. Public Disclosure

    Under the proposal, the vast majority of the information reported 
to the Board through the proposed reporting form FR Q-1 would not have 
been made public. The information that the Board proposed to make 
public would have consisted of the building block available capital, 
building block capital requirement, and BBA ratio for the top-tier 
parent of an insurance depository institution holding company's 
enterprise. This sought to protect some of the non-public information 
contained within form FR Q-1 while still providing the public some 
transparency into the capitalization of the firm, which could be used 
as the basis for supervisory actions. The proposed disclosure was 
significantly less extensive than the disclosure required for other 
financial institutions because of the Board's limited role in 
regulating supervised insurance institutions and the potential 
competitive effects of requiring disclosure from only a small subset of 
the sector.
    Commenters expressed diverging opinions on the disclosure proposal. 
One commenter supported the proposal. Three other commenters argued 
that all aspects of the BBA should be confidential. They argued that 
disclosing the BBA ratio could cause competitive disadvantages because 
the NAIC does not intend to make public the results of their group 
capital calculation.
    The final rule adopts the proposed disclosure standard. The Board 
will publish each SIO's overall results along with their numerator and 
denominator. Although publishing detailed information on a supervised 
institution, some of which is contained in form FR Q-1, could cause 
competitive harm, publishing this overall BBA ratio and the numerator 
and denominator would not. No trade secret information can be derived 
from disclosing this high-level datum related to the overall 
enterprise's capitalization. Outside of revealing confidential 
information, the BBA ratio could place an SIO at a competitive 
disadvantage if the ratio itself could be used against the company. A 
very poor BBA ratio could be marketed against a company, but a very 
poor BBA ratio likely could not be kept a secret regardless because it 
results in supervisory consequences. For example, companies that breach 
the BBA's minimum requirements will face limitations on capital 
distributions that would be difficult to conceal. Additionally, it is 
likely that for any SIO with a low BBA ratio, there would be publicly 
available information indicating that some of the underlying building 
blocks are thinly capitalized through either the published banking 
capital ratios or the U.S. statutory filings. The net impact of the 
disclosure then relates to the exact amount of the BBA ratio, 
particularly when it is above the minimum. No commenter provided any 
plausible avenue for how this could be used to harm an SIO.

C. Audit Requirements

    The NPR was not clear about how much of the information entered 
into form FR Q-1 would need to be subject to an independent audit. 
However, it included a requirement that all BBA controls would be 
subject to an internal audit annually. The proposal would have mandated 
that building block parents calculate their available and required 
capital under their indicated capital framework, but it did not specify 
whether the source financial statements should be audited. The bank 
rules referenced by the BBA do not clearly resolve the issue. There is 
no universal financial statement audit requirement, although FDIC 
regulations do require audited financial statements from depository 
institutions over a certain asset threshold, and this audit can be 
satisfied by an audit of the depository institution holding 
company.\45\ Section 238.5 of the Board's Regulation MM also requires 
audited financial statements for SLHCs with greater than $500 million 
in consolidated assets.\46\
---------------------------------------------------------------------------

    \45\ 12 CFR 363.1.
    \46\ 12 CFR 238.5.
---------------------------------------------------------------------------

    Commenters argued that an independent audit of financial statements 
for each building block parent should not be required by the BBA or 
form FR Q-1 instructions. They argued this would be burdensome, without 
creating corresponding benefits. In relation to the proposed internal 
audit requirement, one commenter argued that the requirement would be 
overly burdensome and unnecessary on account of the requirement for a 
senior officer to attest to the accuracy of form FR Q-1 and existence 
of appropriate controls.
    The final rule and form FR Q-1 instructions remove the proposed 
internal audit requirement and clarify the Board's expectations for 
independent audits of building block parent financial statements. While 
the final rule does not require Internal audit coverage of form FR Q-1 
each year, the Senior Officer in signing form FR Q-1 must attest that 
related internal controls of the firm are considered adequate by 
Internal audit.
    As noted above, the proposal did not include an explicit audit 
requirement for the underlying building blocks or for the enterprise, 
and the Board has not adopted one in the final rule. However, the 
safety and soundness considerations that justify the audit requirements 
of 12 CFR 238.5 and in FDIC annual audit

[[Page 82965]]

rules \47\ apply to SIOs as well. Typically, the financial statements 
of large companies, particularly those with $500 million or more in 
consolidated assets, should be subject to an audit performed by a 
qualified independent public accountant. This is particularly true of 
large building block parents, whose financial statements would 
typically be relied upon for this calculation and when making business 
decisions. As with the financial statements of depository institutions 
under the FDIC rule, this audit expectation could be fulfilled through 
an audit of a holding company's financial statements if the holding 
company consolidates the entity. In addition, U.S. statutory accounting 
requirements (rules) have audit requirements for most insurance legal 
entities. Between the banking requirements and the U.S. statutory 
requirements, it is expected that most of the building block parents 
will have audits.
---------------------------------------------------------------------------

    \47\ See 12 CFR part 363.
---------------------------------------------------------------------------

    The Board will monitor implementation of the BBA and determine if 
there are audit gaps. If gaps are discovered, the Board would consider 
implementing an audit requirement by independent public accountants of 
financial statements of building block parents with total assets of 
$500 million.

XII. Economic Impact Analysis of the BBA

    The Board analyzed the potential costs and benefits of the proposed 
minimum risk-based capital requirements for supervised insurance 
holding companies. Setting the BBA at the similar stringency level as 
bank capital requirements minimizes the incentive for BHCs to acquire 
or sell insurance operations due to disparate capital requirements, 
while maintaining the safety and soundness of supervised firms. The 
Board analyzed whether the proposed level of the BBA requirements might 
drive currently supervised firms to shed their depository institutions 
or meaningful deter other insurers from acquiring thrifts, given that 
the BBA's total capital requirement would be higher than any current 
state requirements. Data from the BBA QIS, as of year-end 2018, 
indicated that none of the currently supervised insurance institutions 
would have needed to raise capital to comply with the rule. This was 
confirmed to still be the case as of year-end 2021 based on analysis of 
these firms' Statutory Insurance Annual Statements and data on 
depository institutions and intermediate holding companies.
    This same data was used to assess the distribution of Risk Based 
Capital ratios relative to the BBA requirements for the universe of 
insurers with over $1 billion in assets. Nearly nine in ten insurers 
could meet the 400 percent total requirement without raising capital 
and only 1 percent of insurers were below the proposed 250 percent 
minimum. This demonstrates that the vast majority of insurers would not 
be deterred by the BBA from acquiring thrifts by the BBA while 
appropriately excluding the least capitalized insurers from doing so.
    Parallel to the capital required by the BBA calculation, insurance 
depository institution holding company would also have to demonstrate 
capital adequacy on a fully consolidated basis as prescribed by section 
171 of the Dodd-Frank Act. An SIO may comply with this requirement on a 
fully consolidated basis using the bank capital requirements. 
Alternatively, an SIO may utilize the flexibility afforded by the 2014 
Amendment to exclude certain state- and foreign-regulated insurance 
operations and to exempt top-tier insurance underwriting companies from 
the risk-based capital requirement. The final rule allows SIOs to 
utilize one of two different calculations that consider the section 171 
calculation scope exceptions: full deduction from capital of investment 
in subsidiaries or risk weighting of these investments at 400 percent, 
consistent with the current treatment of bank's equity exposures. The 
Board's analysis confirms that for most mutual insurance companies, the 
parallel requirement would not be relevant. A significant percentage of 
publicly traded companies would likely fail to meet the requirement 
based on the deduction option, though most could satisfy the risk-
weight option. Overall, the parallel requirement would not have 
material impact due to the different options for achieving compliance.
    The BBA framework is designed to protect subsidiary insured 
depository institutions from risks in the broader enterprise. The Board 
analyzed the experience of insurance depository institution holding 
companies during a significant stress period, the 2007-09 financial 
crisis, to shed light on the potential benefits of an enterprise-wide 
risk-based capital requirements. Prior to the financial crisis, more 
than twenty holding companies would have been subject to enterprise-
wide capital requirements, had such a rule been in place, due to their 
significant engagement in insurance activities. These combined assets 
of these firms were over $3.3 trillion, according to data from forms FR 
Y-9C and OTS 1313 (Thrift Financial Reports).
    Depository institution subsidiaries tended to be a source of 
strength for these insurers when some of them suffered significant 
capital impairment at their non-banking subsidiaries. No depository 
institution affiliates of insurers were resolved by the FDIC during the 
2007-09 financial crisis. Banking-insurance combinations also enabled 
some insurers to access emergency relief programs available to banks. 
Three of these insurers received public assistance aimed at bolstering 
their solvency, while six participated in Federal Reserve liquidity 
facilities and seven increased their reliance on public liquidity 
backstops. These included the largest three pre-crisis insurance 
depository institution holding companies and in aggregate accounted for 
about two-thirds of the total assets of this group.
    Unlike regulations in place during the 2007-09 financial crisis, 
the BBA provides a clear regulatory capital framework for insurers that 
try to acquire depository institutions for the purposes of accessing 
emergency facilities. Had it been in place, the BBA could have either 
forced the insurers to raise capital before completing the transactions 
or prevented such transactions due to a lack of consolidated capital. 
In such a context, the BBA could help protect taxpayer funds by 
ensuring the safety and soundness of insurers accessing emergency 
facilities via a depository institution acquisition, since the insurer 
would need to meet the BBA minimum requirement in order to do so. As 
such, the consolidated BBA may lessen moral hazard associated with the 
implicit government backstop seen in the financial crisis.
    When the Federal Reserve assumed responsibility for supervision of 
insurance SLHCs in mid-2011 there were 28 such firms. Fairly rapidly, a 
majority of these firms left the Federal Reserve's regulatory purview, 
either by converting their depository subsidiaries to trust banks or by 
divesting from their thrifts entirely. These divestments could be 
troubling if it implied that potentially synergistic mergers have been 
discouraged. While it is difficult to precisely ascribe these 
dissolutions to any particular factors, the Board's analysis relied on 
financial comparisons and textual evidence to illuminate the likely 
causes.
    A quantitative comparison was conducted, using data collected by 
the Office of Thrift Supervision leading up to the time of the handover 
of supervisory responsibility to the Board,

[[Page 82966]]

between those firms keeping their depository institution subsidiaries 
and those that either converted their depository subsidiaries to trust 
banks or divested from their thrifts entirely. The firms that kept 
their thrift subsidiaries tended to have banking as a larger share of 
their overall business operations and to be more profitable. The firms 
that de-thrifted tended to be riskier as measured by leverage and the 
volatility of earnings.
    Reviewing the record of banking-insurance combinations highlights 
three drivers of de-thrifting that are tangential to the BBA capital 
rule. First, most divestments preceded the development of the BBA. 
While some insurers did cite regulatory concerns as a factor in their 
decisions, they highlighted potential stress tests or distribution 
restrictions rather than capital standards. Second, the economies of 
scale envisioned from cross-selling banking and insurance products 
failed to materialize. Finally, the small size of the thrifts at most 
insurance SLHCs suggest an additional headwind. Economies of scale from 
technological advances and the loosening of branching restrictions have 
long raised competitive difficulties for small depository institutions 
that are unrelated to any specific requirements of the BBA. It is clear 
from the analysis that the development of the BBA was not the driver of 
insurers divesting or switching charters. Further, the primary aim of 
the rule, protecting insured depository subsidiaries from risks in the 
broader enterprise, fits with the pattern of the riskiest firms 
divesting their banks while those who maintain them have banking as a 
major business line, are well capitalized, and operate at low risk 
levels.
    The BBA capital rule is more stringent than state level insurance 
regulation in that it entails swifter regulatory intervention should 
capital deteriorate. The Board quantified this comparative stringency 
using data collected through the QIS for the firms in the Board's 
supervisory portfolio. Intervention probabilities over a three-year 
horizon were estimated based on how BBA ratios, projected back over the 
prior two decades, have compared against the required capital plus the 
buffer. Relative to a firm's respective state-level requirement, 
threshold breach probabilities were on average about four percentage 
points higher under the BBA, though this varied form near zero to over 
10 percent. This demonstrates that the BBA capital rule is consistently 
more conservative than state-level requirements, enhancing protection 
of the insured depository subsidiaries. Regulatory interventions, to 
the extent they reduce the ability to do business or require additional 
compliance resources, can impose costs on firms. In practice, firms 
with higher intervention probabilities based on their current 
financials may raise their capital levels to forestall the need for 
regulatory intervention.
    In addition to somewhat higher capital requirements, supervised 
insurance holding companies would also see two notable differences in 
how their capital levels are determined relative to state-level 
regulations, both of which are intended to enhance the quality of 
capital.
    First, captive reinsurers are consolidated under the same 
accounting standards as U.S. operating insurance entities rather than 
being permitted to back some policy reserves with lower- quality 
assets. Such a treatment could put insurers covered by the BBA at a 
competitive disadvantage by necessitating higher premiums on certain 
products. The effect on currently supervised firms would be small given 
their limited use of captive reinsurance. The Board's calculations 
suggest about one-fifth of life insurers by assets industry-wide would 
not have sufficient capital to meet the BBA capital conservation buffer 
without the relief provided by captives, potentially deterring their 
interest in acquiring a depository institution. Because this form of 
capital relief derives from a corporate structure choice rather than 
actual risk differences, it would be counter to the principle that the 
same activity should get the same regulatory treatment.
    Second, the share of insurer capital that can be accounted for by 
surplus notes is capped.
    While the NAIC considers these instruments as capital, they are a 
form of unsecured subordinated debt with fixed payment schedules. In 
principle, heavy users of surplus notes would be disincentivized from 
acquiring a depository institution given the need to raise more costly 
forms of capital. The impact in practice is expected to be minimal 
given the stipulation under the BBA legacy treatment of existing 
surplus notes as a qualifying capital instrument.
    Further, the Board's analysis found that the incremental difference 
in the share of firms industry-wide who would not meet the BBA's 
regulatory thresholds is not meaningfully different with the use of 
surplus notes capped.

XIII. Administrative Law Matters

A. Paperwork Reduction Act

    In connection with the final rule, the Board is implementing 
``collections of information'' within the meaning of the Paperwork 
Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3521). In accordance with 
the requirements of the PRA, 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 OMB control number is 7100-NEW. The Board 
reviewed the final rule under the authority delegated to the Board by 
OMB.
    In order to implement the final rule, the Board is implementing the 
FR Q-1 reporting form, which contains reporting requirements subject to 
the PRA. The reporting form has been implemented pursuant to section 
171 of the Dodd-Frank Act and section 10 of HOLA for insurance 
depository institution holding companies. The Board received no 
comments specifically related to the PRA. The Board did receive two 
comments, as described above, relating to the difficulties of providing 
certain information for all subsidiaries. The Board lowered the 
reporting burden by adding a materiality threshold that will eliminate 
some of the reporting on immaterial inventory companies.
Implementation of the Following Information Collection
    Collection title: Capital Requirements for Board-regulated 
Institutions Significantly Engaged in Insurance Activities.
    Collection identifier: FR Q-1.
    OMB control number: 7100-NEW.
    General description of report: Section 171 of the Dodd-Frank Act 
requires, and section 10 of the HOLA authorizes, the Board to implement 
risk-based capital requirements for depository institution holding 
companies, including those that are significantly engaged in insurance 
activities.
    Frequency: Annual.
    Affected Public: Businesses or other for-profit.
    Respondents: Insurance depository institution holding companies.
    Estimated number of respondents: 5.
    Estimated average hours per response: 175.50 for initial setup and 
43.88 for ongoing compliance.
    Estimated annual burden hours: 1,097 (878 for initial setup and 219 
for ongoing compliance).
    Current Actions: Pursuant to section 171 of the Dodd-Frank Act and 
section 10 of HOLA, the Board has adopted the

[[Page 82967]]

application of risk-based capital requirements to certain depository 
institution holding companies. The Board has adopted an aggregation-
based approach, the Building Block Approach, that would aggregate 
capital resources and capital requirements across the different legal 
entities under an insurance depository institution holding company to 
calculate consolidated, enterprise-wide qualifying and required 
capital. The BBA utilizes, to the greatest extent possible, capital 
frameworks already in place for the entities in the enterprise of a 
depository institution holding company significantly engaged in 
insurance activities and is tailored to the supervised firm's business 
model, capital structure, and risk profile. The new reporting form (FR 
Q-1) requires a depository institution holding company to produce 
certain information required for the application of the BBA. The 
reporting form and instructions are available on the Board's public 
website at https://www.federalreserve.gov/apps/reportingforms/home/review.
    The Board made several changes to form FR Q-1 and the FR Q-1 
instructions that correspond with changes to the final rule. The 
changes include the addition of a new column for additional tier 1 
capital, revising the tier 2 limit, the materiality calculation for 
reporting requirement on inventory companies, a simplification on how 
building blocks are aggregated, and the inclusion of a request for 
confidentiality check box. One additional change was made to include a 
column to list the Legal Entity Identifier for inventory companies, 
which allows for more consistent identification of legal entities. The 
changes in the aggregate are a reduction in the burden from the 
proposed FR Q-1. Form FR Q-1 is effective January 1, 2024.

B. Regulatory Flexibility Act

    An initial regulatory flexibility analysis was included in the 
proposal in accordance with section 603(a) of the Regulatory 
Flexibility Act (RFA).\48\ In the initial regulatory flexibility 
analysis, the Board requested comment on the effect of the proposed 
rule on small entities and on any significant alternatives that would 
reduce regulatory burden on small entities. The Board did not receive 
any comments on the initial regulatory flexibility analysis. The RFA 
requires an agency to prepare a final regulatory flexibility analysis 
unless the agency certifies that the rule will not, if promulgated, 
have a significant economic impact on a substantial number of small 
entities. Based on its analysis, and for the reasons stated below, the 
Board certifies that the rule will not have a significant economic 
impact on a substantial number of small entities.\49\ In accordance 
with section 171 of the Dodd-Frank Act and section 10 of HOLA, the 
Board is adopting subpart J to 12 CFR part 217 (Regulation Q) to 
establish risk-based capital requirements for insurance depository 
institution holding companies.\50\ An insurance depository institution 
holding company's aggregate capital requirements generally are the sum 
of the capital requirements applicable to the top tier parent and 
certain subsidiaries of the insurance depository institution holding 
company, where the capital requirements for regulated financial 
subsidiaries are based on the regulatory capital rules of the 
subsidiaries' functional regulators--whether a state Department of 
Insurance or a foreign insurance regulator for insurance subsidiaries, 
or a Federal banking regulator for insured depository institutions 
(IDIs). The BBA then builds upon and aggregates capital resources and 
requirements across groups of legal entities in the insurance 
depository institution holding company's enterprise (insurance, non-
insurance financial, non-financial, and holding company), subject to 
adjustments.
---------------------------------------------------------------------------

    \48\ 5 U.S.C. 601 et seq.
    \49\ 5 U.S.C. 605(b).
    \50\ See 12 U.S.C. 1467a and 5371.
---------------------------------------------------------------------------

    Under Small Business Administration (SBA) regulations, the finance 
and insurance sector includes direct life insurance carriers, direct 
title insurance carriers, and direct P&C insurance carriers, which 
generally are considered ``small'' for the purposes of the RFA if a 
life insurance carrier or title insurance carrier has average annual 
receipts of $47 million or less or if a P&C insurance carrier has less 
than 1,500 employees.\51\
---------------------------------------------------------------------------

    \51\ 13 CFR 121.201. Consistent with the SBA's General 
Principles of Affiliation, the Board includes the assets of all 
domestic and foreign affiliates toward the applicable size threshold 
when determining whether to classify a particular entity as a small 
entity. See 13 CFR 121.103.
---------------------------------------------------------------------------

    Life insurance companies and title insurance companies that are 
subject to the rule all substantially exceed the $47 million average 
annual receipt threshold at which they would be considered a ``small 
entity'' under SBA regulations. P&C insurance companies subject to the 
rule exceed the less than 1,500 employee threshold below which a P&C 
entity is considered a ``small entity'' under SBA regulations.
    Because the rule does not apply to any life insurance carrier or 
title insurance carrier with average annual receipts of less than $47 
million, or P&C carrier with less than 1,500 employees, it will not 
apply to a substantial number of small entities for purposes of the 
RFA. Accordingly, the Board does not expect the rule to have a 
significant economic impact on a substantial number of small entities.

C. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \52\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The Board sought to present the 
proposal in a simple and straightforward manner and did not receive any 
comments on the use of plain language.
---------------------------------------------------------------------------

    \52\ 12 U.S.C. 4809.
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 217

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Investments, National banks, 
Reporting and recordkeeping requirements, Securities.

12 CFR Part 238

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

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 set forth in the preamble, the Board of Governors 
of the Federal Reserve System amends chapter II of title 12 of the Code 
of Federal Regulations 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, 5371 note, and sec. 4012, Pub. L. 
116-136, 134 Stat. 281.

Subpart A--General Provisions

0
2. In Sec.  217.1:

[[Page 82968]]

0
a. Revise paragraph (c)(1); and
0
b. Add paragraph (g).
    The revision and addition read as follows:


Sec.  217.1   Purpose, applicability, reservations of authority, and 
timing.

* * * * *
    (c) * * *
    (1)(i) Applicability in general. This part applies on a 
consolidated basis to every Board-regulated institution that is:
    (A) A state member bank;
    (B) A bank holding company domiciled in the United States that is 
not subject to 12 CFR part 225, appendix C, provided that the Board may 
by order apply any or all of this part to any bank holding company, 
based on the institution's size, level of complexity, risk profile, 
scope of operations, or financial condition; or
    (C) A covered savings and loan holding company domiciled in the 
United States, other than a savings and loan holding company that meets 
the requirements of 12 CFR part 225, appendix C, as if the savings and 
loan holding company were a bank holding company and the savings 
association were a bank. For purposes of compliance with the capital 
adequacy requirements and calculations in this part, savings and loan 
holding companies that do not file form FR Y-9C or form FR Q-1 should 
follow the instructions to the FR Y-9C.
    (ii) Mid-tier holding companies of insurance depository institution 
holding companies. In the case of a bank holding company, or a covered 
savings and loan holding company, that does not calculate minimum risk-
based capital requirements under subpart B of this part by operation of 
Sec.  217.10(f)(1), this part applies to a depository institution 
holding company that is a subsidiary of such bank holding company or 
covered savings and loan holding company, provided that:
    (A) The subsidiary depository institution holding company is an 
insurance mid-tier holding company; and
    (B) The subsidiary depository institution holding company's assets 
and liabilities are not consolidated with those of a depository 
institution holding company that controls the subsidiary for purposes 
of determining the parent depository institution holding company's 
capital requirements and capital ratios under subparts B through F of 
this part.
* * * * *
    (g) Depository institution holding companies and treatment of 
subsidiary state-regulated insurers, regulated foreign subsidiaries, 
and regulated foreign affiliates--(1) In general. In complying with the 
capital adequacy requirements of this part (except for the requirements 
and calculations of subpart J of this part), including any 
determination of applicability under Sec.  217.100 or Sec.  217.201, an 
insurance bank holding company, insurance savings and loan holding 
company, or insurance mid-tier holding company may elect not to 
consolidate the assets and liabilities of its subsidiary state-
regulated insurers, regulated foreign subsidiaries, and regulated 
foreign affiliates. Such an institution that makes this election must 
either:
    (i) Deduct from the sum of its common equity tier 1 capital 
elements the aggregate amount of its outstanding equity investment, 
including retained earnings, in such subsidiaries and affiliates; or
    (ii) Include in the risk-weighted assets of the Board-regulated 
institution the aggregate amount of its outstanding equity investment, 
including retained earnings, in such subsidiaries and affiliates and 
assign to these assets a 400 percent risk weight.
    (2) Method of election. (i) An insurance bank holding company, 
insurance savings and loan holding company, or insurance mid-tier 
holding company may make the election described in paragraph (g)(1) of 
this section by indicating that it has made this election on the 
applicable regulatory report, filed by the insurance bank holding 
company, insurance savings and loan holding company, or insurance mid-
tier holding company for the first reporting period in which it is an 
insurance bank holding company, insurance savings and loan holding 
company, or insurance mid-tier holding company. The electing Board-
regulated institution must indicate on the applicable regulatory report 
whether it elects to deduct from the sum of its common equity tier 1 
capital elements in accordance with paragraph (g)(1)(i) of this section 
or whether it elects to include an amount in its risk-weighted assets 
in accordance with paragraph (g)(1)(ii) of this section.
    (ii) An insurance bank holding company, insurance savings and loan 
holding company, or insurance mid-tier holding company that has not 
made an effective election pursuant to paragraph (g)(2)(i) of this 
section, or that seeks to change its election (or its choice of 
treatment under paragraph (g)(1) of this section) due to a change in 
control, business combination, or other legitimate business purpose, 
may do so only with the prior approval of the Board, effective as of 
the first reporting period after the period in which the Board approves 
the election, or such other date specified in the approval.

0
3. In Sec.  217.2:
0
a. Revise the definition of ``Covered savings and loan holding 
company''; and
0
b. Add the definitions of ``Insurance bank holding company,'' 
``Insurance mid-tier holding company'', ``Insurance savings and loan 
holding company'', ``Regulated foreign subsidiary and regulated foreign 
affiliate'', and ``State-regulated insurer'' in alphabetical order.
    The revision and additions read as follows:


Sec.  217.2   Definitions.

* * * * *
    Covered savings and loan holding company means a top-tier savings 
and loan holding company other than an institution that--
    (1) Meets the requirements of section 10(c)(9)(C) of the Home 
Owners' Loan Act (12 U.S.C. 1467a(c)(9)(C)); and
    (2) As of June 30 of the previous calendar year, derived 50 percent 
or more of its total consolidated assets or 50 percent of its total 
revenues on an enterprise-wide basis (as calculated under GAAP) from 
activities that are not financial in nature under section 4(k) of the 
Bank Holding Company Act (12 U.S.C. 1843(k)).
* * * * *
    Insurance bank holding company means:
    (1)(i) A bank holding company that is an insurance underwriting 
company; or
    (ii) A bank holding company that, as of June 30 of the previous 
calendar year, held 25 percent or more of its total consolidated assets 
in subsidiaries that are insurance underwriting companies (other than 
assets associated with insurance underwriting for credit risk).
    (2) For purposes of this definition, the company must calculate its 
total consolidated assets in accordance with GAAP, or if the company 
does not calculate its total consolidated assets under GAAP for any 
regulatory purpose (including compliance with applicable securities 
laws), the company may estimate its total consolidated assets, subject 
to review and adjustment by the Board.
    Insurance mid-tier holding company means a bank holding company, or 
savings and loan holding company, domiciled in the United States that:
    (1) Is a subsidiary of:
    (i) An insurance bank holding company to which subpart J of this 
part applies; or
    (ii) An insurance savings and loan holding company to which subpart 
J of this part applies; and

[[Page 82969]]

    (2) Is not an insurance underwriting company that is subject to 
state law capital requirements.
    Insurance savings and loan holding company means:
    (1)(i) A top-tier savings and loan holding company that is an 
insurance underwriting company; or
    (ii) A top-tier savings and loan holding company that, as of June 
30 of the previous calendar year, held 25 percent or more of its total 
consolidated assets in subsidiaries that are insurance underwriting 
companies (other than assets associated with insurance underwriting for 
credit risk).
    (2) For purposes of this definition, the company must calculate its 
total consolidated assets in accordance with GAAP, or if the company 
does not calculate its total consolidated assets under GAAP for any 
regulatory purpose (including compliance with applicable securities 
laws), the company may estimate its total consolidated assets, subject 
to review and adjustment by the Board.
* * * * *
    Regulated foreign subsidiary and regulated foreign affiliate means 
a person described in section 171(a)(6) of the Dodd-Frank Act (12 
U.S.C. 5371(a)(6)) and any subsidiary of such a person other than a 
state-regulated insurer.
* * * * *
    State-regulated insurer means a person regulated by a state 
insurance regulator as defined in section 1002(22) of the Dodd-Frank 
Act (12 U.S.C. 5481(22)), and any subsidiary of such a person, other 
than a regulated foreign subsidiary and regulated foreign affiliate.
* * * * *

Subpart B--Capital Ratio Requirements and Buffers

0
4. In Sec.  217.10, add paragraph (f) to read as follows:


Sec.  217.10   Minimum capital requirements.

* * * * *
    (f) Insurance depository institution holding companies. 
Notwithstanding paragraphs (a) through (d) of this section:
    (1) An insurance bank holding company that is a state-regulated 
insurer, or an insurance savings and loan holding company that is a 
state-regulated insurer, is not required to meet the minimum capital 
ratio requirements in paragraphs (a)(1)(i) through (iii) of this 
section if the company is subject to subpart J of this part; and
    (2) A Board-regulated institution that is an insurance bank holding 
company, insurance savings and loan holding company, or insurance mid-
tier holding company is not required to meet the minimum capital ratio 
requirements in paragraphs (a)(1)(iv) and (v) of this section.

0
5. In Sec.  217.11, add paragraph (e) to read as follows:


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

* * * * *
    (e) Insurance depository institution holding companies. 
Notwithstanding any other provision of this section:
    (1) A Board-regulated institution that is an insurance bank holding 
company that is subject to subpart J of this part calculates its 
capital conservation buffer in accordance with Sec.  217.604;
    (2) A Board-regulated institution that is an insurance savings and 
loan holding company that is subject to subpart J of this part 
calculates its capital conservation buffer in accordance with Sec.  
217.604; and
    (3) A Board-regulated institution that is an insurance mid-tier 
holding company is not subject to the provisions of this section.

Subpart G--Transitional Provisions

0
6. Add Sec.  217.306 to read as follows:


Sec.  217.306   Building Block Approach (BBA) capital conservation 
buffer transition.

    (a) Notwithstanding any provision of this part and subject to 
paragraph (b) of this section, an insurance bank holding company, or 
insurance savings and loan holding company, that, on January 1, 2023, 
was not subject to this part is not subject to any restrictions on 
distributions or discretionary bonus payments under Sec. Sec.  217.11 
and 217.604.
    (b) This section ceases to be effective after March 31, 2026.

0
7. Add subpart J to read as follows:

Subpart J--Risk-Based Capital Requirements for Board-Regulated 
Institutions Significantly Engaged in Insurance Activities

Sec.
217.601 Purpose, applicability, and reservations of authority.
217.602 Definitions.
217.603 BBA ratio and minimum requirements.
217.604 Capital conservation buffer.
217.605 Determination of building blocks.
217.606 Scaling parameters.
217.607 Capital requirements under the Building Block Approach.
217.608 Available capital resources under the Building Block 
Approach.


Sec.  217.601   Purpose, applicability, and reservations of authority.

    (a) Purpose. This subpart establishes a framework for assessing 
overall risk-based capital for Board-regulated institutions that are 
significantly engaged in insurance activities. The framework in this 
subpart is used to measure available capital resources and capital 
requirements across a Board-regulated institution and its subsidiaries 
that are subject to diverse capital frameworks, aggregate available 
capital resources and capital requirements and calculate a ratio that 
reflects the overall capital adequacy of the Board-regulated 
institution.
    (b) Applicability. This subpart applies to every Board-regulated 
institution that is:
    (1) A top-tier depository institution holding company that is an 
insurance underwriting company; or
    (2) A top-tier depository institution holding company, that, as of 
June 30 of the previous calendar year, held 25 percent or more of its 
total consolidated assets in insurance underwriting companies (other 
than assets associated with insurance underwriting for credit risk). 
For purposes of this paragraph (b)(2), the Board-regulated institution 
must calculate its total consolidated assets in accordance with GAAP, 
or if the Board-regulated institution does not calculate its total 
consolidated assets under GAAP for any regulatory purpose (including 
compliance with applicable securities laws), the company may estimate 
its total consolidated assets, subject to review and adjustment by the 
Board; or
    (3) Depository institution holding company in a supervised 
insurance organization; or
    (4) An institution that is otherwise made subject to this subpart 
by the Board.
    (c) Exclusion of certain depository institution holding companies. 
Notwithstanding paragraph (b) of this section, this subpart does not 
apply to a top-tier depository institution holding company that--
    (1) Exclusively files financial statements in accordance with 
Statutory Accounting Principles (SAP);
    (2) Is not subject to a state insurance capital requirement; and
    (3) Has no subsidiary depository institution holding company that--
    (i) Is subject to a capital requirement; or
    (ii) Does not exclusively file financial statements in accordance 
with SAP.
    (d) Reservation of authority--(1) Regulatory capital resources. (i) 
If the Board determines that a particular company capital element has

[[Page 82970]]

characteristics or terms that diminish its ability to absorb losses, or 
otherwise present safety and soundness concerns, the Board may require 
the supervised insurance organization to exclude all or a portion of 
such element from building block available capital for a depository 
institution holding company in the supervised insurance organization.
    (ii) Notwithstanding any provision of Sec.  217.608, the Board may 
find that a capital resource may be included in the building block 
available capital of a depository institution holding company on a 
permanent or temporary basis consistent with the loss absorption 
capacity of the capital resource and in accordance with Sec.  
217.608(g).
    (2) Required capital amounts. If the Board determines that the 
building block capital requirement for any depository institution 
holding company is not commensurate with the risks of the depository 
institution holding company, the Board may adjust the building block 
capital requirement and building block available capital for the 
supervised insurance organization.
    (3) Structural requirements. In order to achieve the appropriate 
application of this subpart, the Board may require a supervised 
insurance organization to take any of the following actions with 
respect to the application of this subpart, if the Board determines 
that such action would better reflect the risk profile of an inventory 
company or the supervised insurance organization:
    (i) Identify components under this subpart differently than as done 
by the supervised insurance organization. This could include a 
different identification of a top-tier depository institution holding 
company, an inventory company, a material financial entity, or a 
building block parent, then that made by the supervised insurance 
organization; or
    (ii) Set a building block parent's allocation share of a downstream 
building block parent equal to 100 percent.
    (4) Other reservation of authority. With respect to any treatment 
required under this subpart, the Board may require a different 
treatment, provided that such alternative treatment is commensurate 
with the supervised insurance organization's risk and consistent with 
safety and soundness.
    (e) Notice and response procedures. In making any determinations 
under paragraph (d) of this section, the Board will apply notice and 
response procedures in the same manner as the notice and response 
procedures in Sec.  263.202 of this chapter.


Sec.  217.602   Definitions.

    (a) Terms that are set forth in Sec.  217.2 and used in this 
subpart have the definitions assigned thereto in Sec.  217.2.
    (b) For the purposes of this subpart, the following terms are 
defined as follows:
    Allocation share means the portion of a downstream building block's 
available capital or building block capital requirement that a building 
block parent must aggregate in calculating its own building block 
available capital or building block capital requirement, as applicable, 
and calculated in accordance with Sec.  217.605(d).
    Assignment means the process of associating an inventory company 
with one or more building block parents for purposes of inclusion in 
the building block parents' building blocks.
    BBA ratio is defined in Sec.  217.603.
    Building block means a building block parent and all downstream 
companies and subsidiaries assigned to the building block parent.
    Building block available capital has the meaning set out in Sec.  
217.608.
    Building block capital requirement has the meaning set out in Sec.  
217.607.
    Building block parent means the lead company of a building block 
whose indicated capital framework must be applied to all members of a 
building block for purposes of determining building block available 
capital and the building block capital requirement.
    Capital-regulated company means a company that is--
    (i) A depository institution, foreign bank, or company engaged in 
the business of insurance in a supervised insurance organization; and
    (ii) Directly subject to a regulatory capital framework.
    Common capital framework means NAIC RBC.
    Company available capital means, for a company, the amount of its 
capital elements, net of any adjustments and deductions, as determined 
in accordance with the company's indicated capital framework.
    Company capital element means any part, item, component, balance 
sheet account, instrument, or other element qualifying as regulatory 
capital under a company's indicated capital framework prior to any 
adjustments and deductions under that framework.
    Company capital requirement means:
    (i) For a company whose indicated capital framework is NAIC RBC, 
the Authorized Control Level risk-based capital requirement as set 
forth in NAIC RBC;
    (ii) For a company whose indicated capital framework is a U.S. 
Federal banking capital rule, the total risk-weighted assets; and
    (iii) For any other company, a risk-sensitive measure of required 
capital used to determine the jurisdictional intervention point 
applicable to that company.
    Downstream building block parent means a building block parent that 
is a downstream company of another building block parent.
    Downstream company means a company whose company capital element is 
directly or indirectly owned, in whole or in part, by another company 
in the supervised insurance organization.
    Downstreamed capital means direct ownership of a downstream 
company's company capital element that is accretive to a downstream 
building block parent's building block available capital. When 
calculating building block available capital, the amount of the 
downstreamed capital is calculated as the amount, excluding any impact 
on taxes, of the company available capital of the building block parent 
of the upstream building block, if the owner were to deduct the 
downstreamed capital.
    Financial entity means:
    (i) A bank holding company; a savings and loan holding; a U.S. 
intermediate holding company established or designated for purposes of 
compliance with part 252 of this chapter;
    (ii) A depository institution as defined in section 3(c) of the 
Federal Deposit Insurance Act (12 U.S.C. 1813(c)); an organization that 
is organized under the laws of a foreign country and that engages 
directly in the business of banking outside the United States; a 
Federal credit union or state credit union; a national association, 
state member bank, or state nonmember bank that is not a depository 
institution; an institution that functions solely in a trust or 
fiduciary capacity; an industrial loan company, an industrial bank, or 
other similar institution;
    (iii) An entity that is state-licensed or registered as:
    (A) A credit or lending entity, including a finance company; money 
lender; installment lender; consumer lender or lending company; 
mortgage lender, broker, or bank; motor vehicle title pledge lender; 
payday or deferred deposit lender; premium finance company; commercial 
finance or lending company; or commercial mortgage company; except 
entities registered or licensed solely on account of financing the 
entity's direct sales of goods or services to customers; or
    (B) A money services business, including a check casher; money 
transmitter; currency dealer or

[[Page 82971]]

exchange; or money order or traveler's check issuer;
    (iv) Any person registered with the Commodity Futures Trading 
Commission as a swap dealer or major swap participant pursuant to the 
Commodity Exchange Act (7 U.S.C. 1 et seq.), or an entity that is 
registered with the U.S. Securities and Exchange Commission as a 
security-based swap dealer or a major security-based swap participant 
pursuant to the Securities Exchange Act of 1934 (15 U.S.C. 78a et 
seq.);
    (v) A securities holding company as defined in section 618 of the 
Dodd-Frank Act (12 U.S.C. 1850a); a broker or dealer as defined in 
sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(4)-(5)); an investment company registered with the U.S. 
Securities and Exchange Commission under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.); or a company that has elected to be 
regulated as a business development company pursuant to section 54(a) 
of the Investment Company Act of 1940 (15 U.S.C. 80a-53(a));
    (vi) A private fund as defined in section 202(a) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an entity that would be an 
investment company under section 3 of the Investment Company Act of 
1940 (15 U.S.C. 80a-3) but for section 3(c)(5)(C) of that Act; or an 
entity that is deemed not to be an investment company under section 3 
of the Investment Company Act of 1940 pursuant to 17 CFR 270.3a-7 
(Investment Company Act Rule 3a-7 of the U.S. Securities and Exchange 
Commission);
    (vii) A commodity pool, a commodity pool operator, or a commodity 
trading advisor as defined, respectively, in sections 1a(10), 1a(11), 
and 1a(12) of the Commodity Exchange Act (7 U.S.C. 1a(10), 1a(11), and 
1a(12)); a floor broker, a floor trader, or introducing broker as 
defined, respectively, in sections 1a(22), 1a(23) and 1a(31) of the 
Commodity Exchange Act (7 U.S.C. 1a(22), 1a(23), and 1a(31)); or a 
futures commission merchant as defined in section 1a(28) of the 
Commodity Exchange Act (7 U.S.C. 1a(28));
    (viii) An entity that is organized as an insurance company, 
primarily engaged in underwriting insurance or reinsuring risks 
underwritten by insurance companies;
    (ix) Any designated financial market utility, as defined in section 
803 of the Dodd-Frank Act (12 U.S.C. 5462); and
    (x) An entity that would be a financial entity described in 
paragraphs (i) through (ix) of this definition, if it were organized 
under the laws of the United States or any State thereof.
    Indicated capital framework is defined in Sec.  217.605, provided 
that for purposes of Sec.  217.605(b)(2), the NAIC RBC frameworks for 
life insurance and fraternal insurers, property and casualty (P&C) 
insurance, and health insurance companies are different indicated 
capital frameworks.
    Inventory company means a company identified pursuant to Sec.  
217.605(b)(1).
    Material means, for a company in the supervised insurance 
organization:
    (i) Where the top-tier depository institution holding company's 
total exposure to the company exceeds 5 percent of the maximum of--
    (A) Top-tier depository institution holding company's company 
available capital; and
    (B) The largest company available capital of all capital regulated 
companies reported in the supervised insurance organization's 
inventory; or
    (ii) The company is otherwise significant when assessing the 
building block available capital or building block capital requirement 
of the top-tier depository institution holding company based on factors 
including risk exposure, activities, organizational structure, 
complexity, affiliate guarantees or recourse rights, and size.
    (iii) For purposes of this definition, total exposure includes:
    (A) The absolute value of the top-tier depository institution 
holding company's direct or indirect interest in the company capital 
elements of the company;
    (B) The maximum possible loss from a guarantee (explicit or 
implicit) the top-tier depository institution holding company or any 
other company in the supervised insurance organization provides for the 
benefit of the company; and
    (C) Maximum potential counterparty credit risk to the top-tier 
depository institution holding company or any other company in the 
supervised insurance organization arising from any derivative or 
similar instrument, reinsurance or similar arrangement, or other 
contractual agreement.
    Material financial entity means a financial entity that, together 
with its subsidiaries, but excluding any subsidiary capital-regulated 
company (or subsidiary thereof), is material, provided that an 
inventory company is not eligible to be a material financial entity if:
    (i) The supervised insurance organization has elected pursuant to 
Sec.  217.605(c) not to treat the company as a material financial 
entity; or
    (ii) The inventory company is a financial subsidiary, as defined in 
section 121 of the Gramm-Leach-Bliley Act.
    Member means, with respect to a building block, the building block 
parent or any of its downstream companies or subsidiaries that have 
been assigned to a building block.
    NAIC means the National Association of Insurance Commissioners.
    NAIC RBC means the most recent version of the Risk-Based Capital 
(RBC) For Insurers Model Act, together with the RBC instructions, as 
adopted in a substantially similar manner by an NAIC member and 
published in the NAIC's Model Regulation Service.
    Permitted accounting practice means an accounting practice, 
specifically requested by a state-regulated insurer, that departs from 
SAP and state prescribed accounting practices and has been approved by 
the state-regulated insurer's domiciliary state regulatory authority.
    Prescribed accounting practice means an accounting practice that is 
incorporated directly or by reference to state laws, regulations, and 
general administrative rules applicable to all insurance companies 
domiciled in a particular state.
    Principles based reserving (PBR) means the valuation standard 
adopted for certain life insurance reserves by the NAIC effective as of 
January 1, 2020.
    Recalculated building block capital requirement means, for a 
downstream building block parent and an upstream building block parent, 
the downstream building block parent's building block capital 
requirement recalculated assuming that the downstream building block 
parent had no upstream investment in the upstream building block 
parent.
    Regulatory capital framework means, with respect to a company, the 
applicable legal requirements, excluding this subpart, specifying the 
minimum amount of total regulatory capital the company must hold to 
avoid restrictions on distributions and discretionary bonus payments, 
regulatory intervention on the basis of capital adequacy levels for the 
company, or equivalent standards; provided that the NAIC RBC frameworks 
for life and fraternal insurance, P&C insurance, and health insurance 
companies are different regulatory capital frameworks.
    SAP means Statutory Accounting Principles as promulgated by the 
NAIC and adopted by a jurisdiction for purposes of financial reporting 
by insurance companies.
    Scaling means the translation of building block available capital 
and

[[Page 82972]]

building block capital requirement from one indicated capital framework 
to another by application of Sec.  217.606.
    Scalar compatible means a capital framework:
    (i) For which the Board has determined scalars; or
    (ii) That is an insurance capital regulatory framework, and 
exhibits each of the following three attributes:
    (A) The framework is clearly defined and broadly applicable;
    (B) The framework has an identifiable regulatory intervention point 
that can be used to calibrate a scalar; and
    (C) The framework provides a risk-sensitive measure of required 
capital reflecting material risks to a company's financial strength.
    Submission date means the date as of which form FR Q-1 is filed 
with the Board.
    Supervised insurance organization means:
    (i) In the case of a depository institution holding company, the 
set of companies consisting of:
    (A) A top-tier depository institution holding company that is an 
insurance underwriting company, together with its inventory companies; 
or
    (B) A top-tier depository institution holding company, together 
with its inventory companies, that, as of June 30 of the previous 
calendar year, held 25 percent or more of its total consolidated assets 
in insurance underwriting companies (other than assets associated with 
insurance underwriting for credit risk). For purposes of this paragraph 
(i)(B), the supervised firm must calculate its total consolidated 
assets in accordance with GAAP, or if the firm does not calculate its 
total consolidated assets under GAAP for any regulatory purpose 
(including compliance with applicable securities laws), the company may 
estimate its total consolidated assets, subject to review and 
adjustment by the Board; or
    (ii) An institution that is otherwise subject to this subpart, as 
determined by the Board, together with its inventory companies.
    Tier 2 capital instruments has the meaning set out in Sec.  
217.608(a).
    Top-tier depository institution holding company means a depository 
institution holding company that is not controlled by another 
depository institution holding company.
    Upstream building block parent means an upstream company that is a 
building block parent.
    Upstream company means a company within a supervised insurance 
organization that directly or indirectly controls a downstream company, 
or directly or indirectly owns part or all of a downstream company's 
company capital elements.
    Upstream investment means any direct or indirect investment by a 
downstream building block parent in an upstream building block parent. 
When calculating adjusted downstream building block available capital, 
the amount of the upstream investment is calculated as the impact, 
excluding any impact on taxes, on the downstream building block 
parent's building block available capital if the owner were to deduct 
the investment.
    U.S. Federal banking capital rules mean this part, other than this 
subpart, and the regulatory capital rules promulgated by the Federal 
Deposit Insurance Corporation at chapter III of this title and the 
Office of the Comptroller of the Currency at chapter I of this title.


Sec.  217.603   BBA ratio and minimum requirements.

    (a) In general. A supervised insurance organization must determine 
its BBA ratio, subject to the minimum requirement set out in this 
section and buffer set out in Sec.  217.604, for each depository 
institution holding company within its enterprise by:
    (1) Establishing an inventory that includes the supervised 
insurance organization and every company that meets the requirements of 
Sec.  217.605(b)(1);
    (2) Identifying all building block parents as required under Sec.  
217.605(b)(3);
    (3) Determining the available capital and capital requirement for 
each building block parent in accordance with its indicated capital 
framework;
    (4) Determining the building block available capital and building 
block capital requirement for each building block, reflecting 
adjustments and scaling as set out in this subpart;
    (5) Rolling up building block available capital and building block 
capital requirement amounts across all building blocks in the 
supervised insurance organization's enterprise to determine the same 
for any depository institution holding companies in the enterprise; and
    (6) Determining the ratio of building block available capital to 
building block capital requirement for each depository institution 
holding company in the supervised insurance organization.
    (b) Determination of BBA ratio. For a depository institution 
holding company in a supervised insurance organization, the BBA ratio 
is the ratio of the company's building block available capital to the 
company's building block capital requirement, each scaled to the common 
capital framework in accordance with Sec.  217.606.
    (c) Minimum capital requirement. A depository institution holding 
company in a supervised insurance organization must maintain a BBA 
ratio of at least 250 percent.
    (d) Capital adequacy. (1) Notwithstanding the minimum requirement 
in this subpart, a depository institution holding company in a 
supervised insurance organization must maintain capital commensurate 
with the level and nature of all risks to which it is exposed. The 
supervisory evaluation of the depository institution holding company's 
capital adequacy is based on an individual assessment of numerous 
factors, including the character and condition of the company's assets 
and its existing and prospective liabilities and other corporate 
responsibilities.
    (2) A depository institution holding company in a supervised 
insurance organization must have a process for assessing its overall 
capital adequacy in relation to its risk profile and a comprehensive 
strategy for maintaining an appropriate level of capital.


Sec.  217.604   Capital conservation buffer.

    (a) Capital conservation buffer--(1) Composition of the capital 
conservation buffer. The capital conservation buffer is composed solely 
of building block available capital excluding tier 2 capital 
instruments and additional tier 1 capital instruments.
    (2) Definitions. For purposes of this section, the following 
definitions apply:
    (i) Distribution means:
    (A) A reduction of tier 1 capital through the repurchase of a tier 
1 capital instrument or by other means, except when a Board-regulated 
institution, within the same quarter when the repurchase is announced, 
fully replaces a tier 1 capital instrument it has repurchased by 
issuing another capital instrument that meets the eligibility criteria 
for:
    (1) A common equity tier 1 capital instrument if the instrument 
being repurchased was part of the Board-regulated institution's common 
equity tier 1 capital; or
    (2) A common equity tier 1 or additional tier 1 capital instrument 
if the instrument being repurchased was part of the Board-regulated 
institution's tier 1 capital;
    (B) A reduction of tier 2 capital through the repurchase, or 
redemption prior to maturity, of a tier 2 capital instrument or by 
other means, except when a Board-regulated institution, within the same 
quarter when the repurchase or redemption is announced,

[[Page 82973]]

fully replaces a tier 2 capital instrument it has repurchased by 
issuing another capital instrument that meets the eligibility criteria 
for a tier 1 or tier 2 capital instrument;
    (C) A dividend declaration or payment on any tier 1 capital 
instrument;
    (D) A dividend declaration or interest payment on any tier 2 
capital instrument if the Board-regulated institution has full 
discretion to permanently or temporarily suspend such payments without 
triggering an event of default;
    (E) A discretionary dividend payment on participating insurance 
policies; or
    (F) Any similar transaction that the Board determines to be in 
substance a distribution of capital.
    (ii) Eligible retained income means, for a depository institution 
holding company in a supervised insurance organization, the annual 
change in the company's building block available capital, calculated as 
of the last day of the current and immediately preceding calendar years 
based on the supervised insurance organization's most recent form FR Q-
1, net of any distributions and accretion to building block available 
capital from capital instruments issued in the current or immediately 
preceding calendar year, excluding issuances corresponding with 
retirement of capital instruments under paragraph (a)(2)(i)(A) of this 
section.
    (iii) Maximum payout amount means, for the current calendar year, 
is equal to the Board-regulated institution's eligible retained income, 
multiplied by its maximum payout ratio.
    (iv) Maximum payout ratio means 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 year. 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 year, as set forth in table 1 to 
this section.
    (3) Calculation of capital conservation buffer. The capital 
conservation buffer for a depository institution holding company in a 
supervised insurance organization is the greater of its BBA ratio, 
calculated as of the last day of the previous calendar year based on 
the supervised insurance organization's most recent form FR Q-1, minus 
the minimum capital requirement under Sec.  217.603(c), and zero.
    (4) Limits on distributions and discretionary bonus payments. (i) A 
top-tier depository institution holding company in a supervised 
insurance organization shall not make distributions or discretionary 
bonus payments or create an obligation to make such distributions or 
payments during the current calendar year that, in the aggregate, 
exceed its maximum payout amount.
    (ii) A top-tier depository institution holding company in a 
supervised insurance organization and that has a capital conservation 
buffer that is greater than 150 percent is not subject to a maximum 
payout amount under this section.
    (iii) Except as provided in paragraph (a)(4)(iv) of this section, a 
top-tier depository institution holding company in a supervised 
insurance organization may not make distributions or discretionary 
bonus payments during the current calendar year if the Board-regulated 
institution's:
    (A) Eligible retained income is negative; and
    (B) Capital conservation buffer was less than 150 percent as of the 
end of the previous calendar year.
    (iv) Notwithstanding the limitations in paragraphs (a)(4)(i) 
through (iii) of this section, the Board may permit a top-tier 
depository institution holding company in a supervised insurance 
organization to make a distribution or discretionary bonus payment upon 
a request of the depository institution holding company, 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 depository institution holding company. 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.
    (b) [Reserved]

     Table 1 to Sec.   217.604--Calculation of Maximum Payout Amount
------------------------------------------------------------------------
                                             Maximum payout ratio (as a
        Capital conservation buffer            percentage of eligible
                                                  retained income)
------------------------------------------------------------------------
Greater than 150 percent..................  No payout ratio limitation
                                             applies.
Less than or equal to 150 percent, and      60 percent.
 greater than 113 percent.
Less than or equal to 113 percent,          40 percent.
 andgreater than 75 percent.
Less than or equal to 75 percent, and       20 percent.
 greater than 38 percent.
Less than or equal to 38 percent..........  0 percent.
------------------------------------------------------------------------

Sec.  217.605   Determination of building blocks.

    (a) In general. A supervised insurance organization must identify 
each building block parent and its allocation share of any downstream 
building block parent, as applicable.
    (b) Operation. To identify building block parents and determine 
allocation shares, a supervised insurance organization must take the 
following steps in the following order:
    (1) Inventory of companies. A supervised insurance organization 
must identify as inventory companies:
    (i) All companies that are--
    (A) Required to be reported on the FR Y-6;
    (B) Required to be reported on the FR Y-10; or
    (C) Classified as affiliates in accordance with NAIC Statement of 
Statutory Accounting Principles (SSAP) No. 25 and Schedule Y;
    (ii) Any company, special purpose entity, variable interest entity, 
or similar entity that:
    (A) Enters into one or more reinsurance or derivative transactions 
with inventory companies identified pursuant to paragraph (b)(1)(i) of 
this section;
    (B) Is material;
    (C) Is engaged in activities such that one or more inventory 
companies identified pursuant to paragraph (b)(1)(i) of this section 
are expected to absorb more than 50 percent of its expected losses; and
    (D) Is not otherwise identified as an inventory company; and
    (iii) Any other company that the Board determines must be 
identified as an inventory company.
    (2) Determination of indicated capital framework. (i) A supervised 
insurance organization must:
    (A) Determine the indicated capital framework for each inventory 
company; and
    (B) Identify inventory companies that are subject to a regulatory 
capital framework.

[[Page 82974]]

    (ii) The indicated capital framework for an inventory company is:
    (A) If the inventory company is not engaged in insurance or 
reinsurance underwriting, the U.S. Federal banking capital rules, in 
particular:
    (1) If the inventory company is not a depository institution, 
subparts A through F of this part; and
    (2) If the inventory company is a depository institution, the 
regulatory capital framework applied to the depository institution by 
the appropriate primary Federal regulator--that is, subparts A through 
F of this part (Board), part 3 of this title (Office of the Comptroller 
of the Currency), or part 324 of this title (Federal Deposit Insurance 
Corporation), as applicable;
    (B) If the inventory company is engaged in insurance or reinsurance 
underwriting and subject to a regulatory capital framework that is 
scalar compatible, the regulatory capital framework; and
    (C) If the inventory company is engaged in insurance or reinsurance 
underwriting and not subject to a regulatory capital framework that is 
scalar compatible, then NAIC RBC for life and fraternal insurers, 
health insurers, or property & casualty insurers based on the company's 
primary source of premium revenue.
    (3) Identification of building block parents. A supervised 
insurance organization must identify all building block parents 
according to the following procedure:
    (i)(A) Identify all top-tier depository institution holding 
companies in the supervised insurance organization.
    (B) Any top-tier depository institution holding company is a 
building block parent.
    (ii)(A) Identify any inventory company that is a depository 
institution holding company.
    (B) An inventory company identified in paragraph (b)(3)(ii)(A) of 
this section is a building block parent.
    (iii) Identify all inventory companies that are capital-regulated 
companies (that is, inventory companies that are subject to a 
regulatory capital framework) or material financial entities.
    (iv)(A) Of the inventory companies identified in paragraph 
(b)(3)(iii) of this section, identify any inventory company that:
    (1) Is assigned an indicated capital framework that is different 
from the indicated capital framework of any next upstream inventory 
company identified in paragraphs (b)(3)(i) through (iii) of this 
section or does not have a next upstream inventory company; and
    (i) In a simple structure, an inventory company would compare its 
indicated capital framework to the indicated capital framework of its 
parent company. However, if the parent company does not meet the 
criteria to be identified as a building block parent, the inventory 
company must compare its capital framework to the next upstream company 
that is eligible to be identified as a building block parent. For 
purposes of this paragraph (b)(3)(iv), a company is ``next upstream'' 
to a downstream company if it controls or owns, in whole or in part, a 
company capital element of the downstream company either directly, or 
indirectly other than through a company identified in paragraphs 
(b)(3)(ii) and (iii) of this section.
    (ii) [Reserved]
    (2) Is assigned an indicated capital framework for which the Board 
has determined a scalar or, if the company in aggregate with all other 
companies subject to the same indicated capital framework are material, 
a provisional scalar;
    (B) Of the inventory companies identified in paragraph (b)(3)(iii) 
of this section, identify any inventory company that:
    (1) Is assigned an indicated capital framework that is the same as 
the indicated capital framework of each next upstream inventory company 
identified in paragraphs (b)(3)(i) through (iii) of this section;
    (2) Is assigned an indicated capital framework for which the Board 
has determined a scalar or, if the company in aggregate with all other 
companies subject to the same indicated capital framework is material, 
a provisional scalar; and
    (3) Is owned, in whole or part, by an inventory company that is 
subject to the same regulatory capital framework, and the owner:
    (i) Applies a charge on the inventory company's equity value in 
calculating its company capital requirement; or
    (ii) Deducts all or a portion of its investment in the inventory 
company in calculating its company available capital.
    (C) An inventory company identified in paragraph (b)(3)(iv)(A) 
through (B) of this section is a building block parent.
    (v) Include any inventory company identified in paragraph 
(b)(1)(ii) of this section as a building block parent.
    (vi)(A) Identify any inventory company--
    (1) For which more than one building block parent, as identified 
pursuant to paragraphs (b)(3)(i) through (v) of this section, owns a 
company capital element either directly or indirectly other than 
through another such building block parent; and
    (2)(i) Is consolidated under any such building block parent's 
indicated capital framework; or
    (ii) Owns downstreamed capital.
    (B) An inventory company identified in paragraph (b)(3)(vi)(A) of 
this section is a building block parent.
    (4) Building blocks. (i) Except as provided in paragraph (b)(4)(ii) 
of this section, a supervised insurance organization must assign an 
inventory company to the building block of any building block parent 
that owns a company capital element of the inventory company, or of 
which the inventory company is a subsidiary, directly or indirectly 
through any company other than a building block parent, unless the 
inventory company is a building block parent.
    (A) For purposes of this section, subsidiary includes a company 
that is required to be reported on the FR Y-6, FR Y-10, or NAIC's 
Schedule Y, as applicable.
    (B) [Reserved]
    (ii) A supervised insurance organization is not required to assign 
to a building block any inventory company that is not a downstream 
company or subsidiary of a top-tier depository institution holding 
company.
    (5) Financial statements. The supervised insurance organization 
must:
    (i) For any inventory company whose indicated capital framework is 
NAIC RBC, prepare financial statements in accordance with SAP; and
    (ii) For any building block parent whose indicated capital 
framework is subparts A through F of this part:
    (A) Apply the same elections and treatment of exposures as are 
applied to the subsidiary depository institution;
    (B) Apply subparts A through F of this part, to the members of the 
building block of which the building block parent is a member, on a 
consolidated basis, to the same extent as if the building block parent 
were a Board-regulated institution; and
    (C) Where the building block parent is not the top-tier depository 
institution holding company, not deduct investments in capital of 
unconsolidated financial institutions, nor exclude these investments 
from the calculation of risk-weighted assets.
    (6) Allocation share. A supervised insurance organization must, for 
each building block parent, identify any downstream building block 
parent owned directly or indirectly through any company other than a 
building block parent, and determine the building block parent's 
allocation share of these downstream building block

[[Page 82975]]

parents pursuant to paragraph (d) of this section.
    (c) Material financial entity election. (1) A supervised insurance 
organization may elect not to treat an inventory company meeting the 
criteria in paragraph (c)(2) of this section as a material financial 
entity. An election under this paragraph (c)(1) must be included with 
the first financial statements submitted to the Board after the company 
is included in the supervised insurance organization's inventory.
    (2) The election in paragraph (c)(1) of this section is available 
to an inventory company if:
    (i) The company engages in transactions consisting solely of 
either--
    (A) Transactions for the purpose of transferring risk from one or 
more affiliates within the supervised insurance organization to one or 
more third parties; or
    (B) Transactions to invest assets contributed to the company by one 
or more affiliates within the supervised insurance organization, where 
the company is established for purposes of limiting tax obligation or 
legal liability; and
    (ii) The supervised insurance organization is able to calculate the 
adjustment required in Sec.  217.607(b)(4).
    (d) Allocation share. (1) Except as provided in paragraph (d)(2) of 
this section, a building block parent's allocation share of a 
downstream building block parent is calculated as the percentage of 
equity ownership of a downstream building block parent, including 
associated paid-in capital, held by an upstream building block parent 
directly or indirectly through a member of the upstream building block 
parent's building block.
    (2) The top-tier depository institution holding company's 
allocation share of a building block parent that has no outstanding 
common equity or that is identified under paragraph (b)(3)(v) of this 
section is 100 percent. Any other building block parent's allocation 
share of such building block parent is zero.


Sec.  217.606  Scaling parameters.

    (a) Scaling specified by the Board--(1) Scaling between the U.S. 
Federal banking capital rules and NAIC RBC--(i) Scaling capital 
requirement. When calculating the building block capital requirement 
for a building block parent in accordance with Sec.  217.607, where the 
indicated capital framework is NAIC RBC or the U.S. Federal banking 
capital rules, and where the indicated capital framework of the 
appropriate downstream building block parent is NAIC RBC or the U.S. 
Federal banking capital rules, the capital requirement scaling modifier 
is provided by table 1 to this paragraph (a)(1)(i).

  Table 1 to Paragraph (a)(1)(i)--Capital Requirement Scaling Modifiers
         for NAIC RBC and the U.S. Federal Banking Capital Rules
------------------------------------------------------------------------
                                      Upstream building block parent's
                                        indicated capital framework:
                                   -------------------------------------
                                                    U.S. Federal banking
                                       NAIC RBC         capital rules
------------------------------------------------------------------------
Downstream building block parent's
 indicated capital framework:
    U.S. Federal banking capital            0.0106                     1
     rules........................
    NAIC RBC......................               1                  94.3
------------------------------------------------------------------------

    (ii) Scaling available capital. When calculating the building block 
available capital for a building block parent in accordance with Sec.  
217.608, where the indicated capital framework is NAIC RBC or the U.S. 
Federal banking capital rules, and where the indicated capital 
framework of the appropriate downstream building block parent is NAIC 
RBC or the U.S. Federal banking capital rules, the available capital 
scaling modifier is provided by table 2 to this paragraph (a)(1)(ii).

Table 2 to Paragraph (a)(1)(ii)--Available Capital Scaling Modifiers for
           NAIC RBC and the U.S. Federal Banking Capital Rules
------------------------------------------------------------------------
                                     Upstream building block parent's
                                       indicated capital framework:
                                 ---------------------------------------
                                                         U.S. Federal
                                       NAIC RBC         banking capital
                                                             rules
------------------------------------------------------------------------
Downstream building block
 parent's indicated capital
 framework:
    U.S. Federal banking capital  Recalculated        0.
     rules.                        building block
                                   capital
                                   requirement *
                                   0.063.
    NAIC RBC....................  0.................  Recalculated
                                                       building block
                                                       capital
                                                       requirement *
                                                       5.9.
Capital framework:
    NAIC RBC....................  0.................  Recalculated
                                                       building block
                                                       capital
                                                       requirement *
                                                       5.9.
------------------------------------------------------------------------

    (2) Scaling to determine BBA ratio. For purposes of determining the 
BBA ratio under Sec.  217.603(b)--
    (i) A depository institution holding company for which the 
indicated capital framework is the U.S. Federal banking capital rules 
scales its building block available capital and building block capital 
requirement the common capital framework by using the methods described 
in paragraphs (a)(1) of this section. For purposes of scaling under 
this paragraph (a)(2)(i), the downstream building block parent's 
indicated capital framework is the U.S. Federal banking capital rules 
and the upstream building block parent's indicated capital framework is 
NAIC RBC; and
    (ii) A depository institution holding company for which the 
indicated capital framework is NAIC RBC does not scale

[[Page 82976]]

its building block available capital or building block capital 
requirement.
    (b) Scaling not specified by the Board but framework is scalar 
compatible. Where a scaling modifier to be used in Sec.  217.607 or 
Sec.  217.608 is not specified in paragraph (a) of this section, and 
the building block parent's indicated capital framework (i.e., 
jurisdictional capital framework) is scalar compatible, a building 
block parent determines the scaling modifier as follows:
    (1) Definitions. For purposes of this section, the following 
definitions apply:
    (i) Jurisdictional intervention point. The jurisdictional 
intervention point is the capital level, under the laws of the 
jurisdiction for its domestic insurers, at which the supervisory 
authority in the jurisdiction may intervene as to a company subject its 
capital framework by imposing restrictions on distributions and 
discretionary bonus payments by the company or, if no such intervention 
may occur in a jurisdiction, then the capital level at which the 
supervisory authority would first have the authority to take action 
against a company based on its capital level.
    (ii) Jurisdiction adjustment. The jurisdictional adjustment is the 
risk adjustment set forth in table 3 to this paragraph (b)(1)(ii), 
based on the country risk classification set by the Organization for 
Economic Cooperation and Development (OECD) for the jurisdiction. This 
adjustment is applied to the jurisdictional intervention point.

  Table 3 to Paragraph ( b)(1)(ii)--Jurisdictional Adjustments by OECD
                       Country Risk Classification
------------------------------------------------------------------------
                                                         Jurisdictional
                       OECD CRC                            adjustment
                                                           (percent)
------------------------------------------------------------------------
0-1, including jurisdictions with no OECD country                      0
 risk classification.................................
2....................................................                 20
3....................................................                 50
4-6..................................................                100
7....................................................                150
------------------------------------------------------------------------

    (2) Scaling capital requirement. When calculating the building 
block capital requirement for a building block parent in accordance 
with Sec.  217.607, where the indicated capital framework of the 
appropriate downstream building block parent is a scalar-compatible 
framework for which the Board has not specified a capital requirement 
scaling modifier, the capital requirement scaling modifier is 
calculated according to the following formula:
Equation 1 to Paragraph (b)(2)
[GRAPHIC] [TIFF OMITTED] TR27NO23.001

Where:

Adjustmentscaling from is equal to the jurisdictional adjustment of 
the downstream building block parent;
Requirementscaling from is equal to the jurisdictional intervention 
point of the downstream building block parent; and
Requirementscaling to is equal to the jurisdictional intervention 
point of the upstream building block parent.

    (3) Scaling available capital. When calculating the building block 
available capital for a building block parent in accordance with Sec.  
217.608, where the indicated capital framework of the appropriate 
downstream building block parent is a scalar-compatible framework for 
which the Board has not specified an available capital scaling 
modifier, the available capital scaling modifier is equal to zero.


Sec.  217.607  Capital requirements under the Building Block Approach.

    (a) Determination of building block capital requirement. For each 
building block parent, building block capital requirement means the sum 
of the items in paragraphs (a)(1) and (2) of this section:
    (1) The company capital requirement of the building block parent; 
that is:
    (i) Recalculated under the assumption that members of the building 
block parent's building block had no investment in any downstream 
building block parent; and is:
    (ii) Adjusted pursuant to paragraph (b) of this section;
    (2) For each downstream building block parent, the adjusted 
downstream building block capital requirement (BBCRADJ), which is 
calculated according to the following formula:
Equation 1 to Paragraph (a)(2)
BBCRADJ = BBCRDS [middot] CRSM [middot] AS

Where:

BBCRDS is equal to the building block capital requirement of the 
downstream building block parent recalculated under the assumption 
that the downstream building block parent had no upstream investment 
in the building block parent;
CRSM is equal to the appropriate capital requirement scaling 
modifier under Sec.  217.606; and
AS is equal to the building block parent's allocation share of the 
downstream building block parent.

    (b) Adjustments in determining the building block capital 
requirement. A supervised insurance organization must adjust the 
company capital requirement for any building block parent as follows:
    (1) Internal credit risk charges. A supervised insurance 
organization must deduct from the building block parent's company 
capital requirement any difference between:
    (i) The building block parent's company capital requirement; and
    (ii) The building block parent's company capital requirement 
recalculated excluding capital requirements related to potential for 
the possibility of default of any company in the supervised insurance 
organization.
    (2) Permitted accounting practices and prescribed accounting 
practices. A supervised insurance organization must adjust the building 
block parent's company capital requirement by any difference between:

    Note 1 to paragraph (b)(2) introductory text: The adjustment can 
be either positive or negative depending on the permitted or 
prescribed practices. In most cases, the reversal of the permitted 
or prescribed practice would result in an increase in the building 
block parent's company required capital. In rare cases, a permitted 
or prescribed practice could increase the insurers required capital. 
In this instance, this adjustment would reduce the building block 
parent's company required capital.

    (i) The building block parent's company capital requirement, after 
making any adjustment in accordance with paragraph (b)(1) of this 
section; and
    (ii) The building block parent's company capital requirement, after 
making any adjustment in accordance with paragraph (b)(1) of this 
section, recalculated under the assumption that neither the building 
block parent, nor any company that is a member of that building block 
parent's building block, had prepared its financial statements with the 
application of any permitted

[[Page 82977]]

accounting practice, prescribed accounting practice, or other practice, 
including legal, regulatory, or accounting procedures or standards, 
that departs from a solvency framework as promulgated for application 
in a jurisdiction.
    (3) Risks of certain intermediary entities. Where a supervised 
insurance organization has made an election with respect to a company 
not to treat that company as a material financial entity pursuant to 
Sec.  217.605(c), the supervised insurance organization must add to the 
company capital requirement of any building block parent, whose 
building block contains a member, with which the company engages in one 
or more transactions, and for which the company engages in one or more 
transactions described in Sec.  217.605(c)(2) with a third party, any 
difference between:
    (i) The building block parent's company capital requirement; and
    (ii) The building block parent's company capital requirement 
recalculated taking into account the risks of the company, excluding 
internal credit risks described in paragraph (b)(1) of this section, 
allocated to the building block parent, reflecting the transaction(s) 
that the company engages in with any member of the building block 
parent's building block. Note, the total allocation of the risks of the 
intermediary entity to building block parents must capture all material 
risks and avoid double counting.
    (4) Investments in own capital instruments--(i) In general. A 
supervised insurance organization must deduct from the building block 
parent's company capital requirement any difference between:
    (A) The building block parent's company capital requirement; and
    (B) The building block parent's company capital requirement 
recalculated after assuming that neither the building block parent, nor 
any company that is a member of the building block parent's building 
block, held any investment in the building block parent's own capital 
instrument(s), including any net long position determined in accordance 
with paragraph (b)(5)(ii) of this section.
    (ii) Net long position. For purposes of calculating an investment 
in a building block parent's own capital instrument under this section, 
the net long position is determined in accordance with Sec.  217.22(h), 
provided that a separate account asset or associated guarantee is not 
regarded as an indirect exposure unless the net long position of the 
fund underlying the separate account asset (determined in accordance 
with Sec.  217.22(h) without regard to this paragraph (b)(4)(ii)) 
equals or exceeds 5 percent of the value of the fund.
    (5) Risks relating to title insurance. A supervised insurance 
organization must add to the building block parent's company capital 
requirement the amount of the building block parent's reserves for 
claims pertaining to title insurance, multiplied by 300 percent.


Sec.  217.608   Available capital resources under the Building Block 
Approach.

    (a) Qualifying capital instruments--(1) General criteria. A 
qualifying capital instrument with respect to a building block parent 
is a capital instrument that meets the following criteria:
    (i) The instrument is issued and paid-in;
    (ii) The instrument is subordinated to depositors and general 
creditors of the building block parent;
    (iii) The instrument is not secured, not covered by a guarantee of 
the building block parent or of an affiliate of the building block 
parent, and not subject to any other arrangement that legally or 
economically enhances the seniority of the instrument in relation to 
more senior claims;
    (iv) The instrument has a minimum original maturity of at least 
five years. At the beginning of each of the last five years of the life 
of the instrument, the amount that is eligible to be included in 
building block available capital is reduced by 20 percent of the 
original amount of the instrument (net of redemptions), and is excluded 
from building block available capital when the remaining maturity is 
less than one year. In addition, the instrument must not have any terms 
or features that require, or create significant incentives for, the 
building block parent to redeem the instrument prior to maturity; and

    Note 1 to paragraph (a)(1)(iv): A building block parent may 
replace qualifying capital instruments concurrent with the 
redemption of existing qualifying capital instruments.

    (v) The instrument, by its terms, may be called by the building 
block parent only after a minimum of five years following issuance, 
except that the terms of the instrument may allow it to be called 
sooner upon the occurrence of an event that would preclude the 
instrument from being included in the building block parent's company 
available capital or building block available capital, a tax event, or 
if the issuing entity is required to register as an investment company 
pursuant to the Investment Company Act of 1940 (15 U.S.C. 80a-1 et 
seq.). In addition:
    (A) The top-tier depository institution holding company must 
receive the prior approval of the Board to exercise a call option on 
the instrument.
    (B) The building block parent does not create at issuance, through 
action or communication, an expectation the call option will be 
exercised.
    (C) Prior to exercising the call option, or immediately thereafter, 
the top-tier depository institution holding company must either: 
replace any amount called with an equivalent amount of an instrument 
that meets the criteria for qualifying capital instruments under this 
section; or demonstrate to the satisfaction of the Board that following 
redemption, the top-tier depository institution holding company would 
continue to hold an amount of capital that is commensurate with its 
risk.

    Note 2 to paragraph (a)(1)(v)(C): A building block parent may 
replace qualifying capital instruments concurrent with the 
redemption of existing qualifying capital instruments.

    (vi) Redemption of the instrument prior to maturity or repurchase 
requires the prior approval of the Board.
    (vii) The instrument meets the criteria in Sec.  217.20(d)(1)(vi) 
through (ix) and (xi), except that each instance of ``Board-regulated 
institution'' is replaced with ``building block parent'' and, in Sec.  
217.20(d)(1)(ix), ``tier 2 capital instruments'' is replaced with 
``qualifying capital instruments''.
    (2) Additional tier 1 capital instruments. Additional tier 1 
capital instruments of a top-tier depository institution holding 
company are instruments issued by any inventory company that are 
qualifying capital instruments under paragraph (a)(1) of this section 
and meet all of the following criteria:

    Note 3 to paragraph (a)(2) introductory text: For purposes of 
this paragraph (a)(2), the supervised insurance organization 
evaluates the criteria in paragraph (a)(1) of this section with 
regard to the building block in which the issuing inventory company 
is a member.

    (i) The instrument is subordinated to depositors, general 
creditors, and subordinated debt holders of the building block parent 
in a receivership, insolvency, liquidation, or similar proceeding;
    (ii) The instrument is not secured, not covered by a guarantee of 
the building block parent or of an affiliate of the building block 
parent, and not subject to any other arrangement that legally or 
economically enhances the seniority of the instrument;
    (iii) The instrument has no maturity date and does not contain a 
dividend step-up or any other term or feature that creates an incentive 
to redeem; and
    (iv) If callable by its terms, the instrument may be called only 
after a

[[Page 82978]]

minimum of five years following issuance, except that the terms of the 
instrument may allow it to be called earlier than five years upon the 
occurrence of a regulatory event that precludes the instrument from 
being included in the building block parent's company available capital 
or building block available capital, a tax event, or if the issuing 
entity is required to register as an investment company pursuant to the 
Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.). In addition:
    (A) The top-tier depository institution holding company must 
receive the prior approval of the Board to exercise a call option on 
the instrument.
    (B) The building block parent does not create at issuance, through 
action or communication, an expectation that the call option will be 
exercised.
    (C) Prior to exercising the call option, or immediately thereafter, 
the top-tier depository institution holding company must either: 
replace any amount called with an equivalent amount of an instrument 
that meets the criteria for additional tier 1 capital instruments or 
common equity tier 1 instruments under this section; or demonstrate to 
the satisfaction of the Board that following redemption, the top-tier 
depository institution holding company would continue to hold an amount 
of capital that is commensurate with its risk.

    Note 4 to paragraph (a)(2)(iv)(C):  A building block parent may 
replace qualifying capital instruments concurrent with the 
redemption of existing qualifying capital instruments.

    (v) Redemption or repurchase of the instrument requires prior 
approval of the Board.
    (vi) The paid-in amount would be classified as equity under GAAP.
    (vii) The instrument meets the criteria in Sec.  217.20(c)(1)(vii) 
through (ix) and (xi) through (xiv), except that each instance of 
``Board-regulated institution'' is replaced with ``building block 
parent''.
    (3) Common equity tier 1 capital instruments. Common equity tier 1 
capital instruments of a top-tier depository institution holding 
company are instruments issued by any inventory company that are 
qualifying capital instruments under paragraph (a)(1) of this section 
and that meet all of the following criteria:

    Note 5 to paragraph (a)(3) introductory text:  For purposes of 
this paragraph (a)(3), the supervised insurance organization 
evaluates the criteria in paragraph (a)(1) of this section with 
regard to the building block in which the issuing inventory company 
is a member.

    (i) The holders of the instrument bear losses, as they occur, 
equally, proportionately, and simultaneously with the holders of all 
other qualifying capital instruments (other than additional tier 1 
capital instruments or tier 2 capital instruments) before any losses 
are borne by holders of claims on the building block parent any with 
greater priority in a receivership, insolvency, liquidation, or similar 
proceeding.
    (ii) The paid-in amount would be classified as equity under GAAP.
    (iii) The instrument meets the criteria in Sec.  217.20(b)(1)(i) 
through (vii) and (x) through (xiii).
    (4) Tier 2 capital instruments. Tier 2 capital instruments of a 
top-tier depository institution holding company are instruments issued 
by any inventory company that are qualifying capital instruments under 
paragraph (a)(1) of this section and are not additional tier 1 capital 
instruments or common equity tier 1 capital instruments.
    (b) Determination of building block available capital--(1) In 
general. For each building block parent, building block available 
capital means the sum of the items described in paragraphs (b)(1)(i) 
and (ii) of this section:
    (i) The company available capital of the building block parent:
    (A) Less the amount of downstreamed capital owned by any member of 
the building block parent's building block; and
    (B) Adjusted pursuant to paragraph (c) of this section.
    (ii) For each downstream building block parent, the adjusted 
downstream building block available capital (BBACADJ), which 
is calculated according to the following formula:
Equation 1 to Paragraph (b)(1)(ii)
BBACADJ = (BBACDS-UpInv + ACSM) [middot]AS

Where:

BBACDS is equal to the building block available capital of the 
downstream building block parent;
UpInv is equal to the amount of any upstream investment held by that 
downstream building block parent in the building block parent;
ACSM is equal to the appropriate available capital scaling modifier 
under Sec.  217.606; and AS is equal to the building block parent's 
allocation share of the downstream building block parent.

    (2) Combining tiers of capital. If there is more than one tier of 
company available capital under a building block parent's indicated 
capital framework, the amounts of company available capital from all 
tiers are combined in calculating building block available capital in 
accordance with paragraph (b) of this section.
    (c) Adjustments in determining building block available capital. 
For purposes of the calculations required in paragraph (b) of this 
section, a supervised insurance organization must adjust the company 
available capital for any building block parent as follows:
    (1) Nonqualifying capital instruments. A supervised insurance 
organization must deduct from the building block parent's company 
available capital any accretion arising from any instrument issued by 
any company that is a member of the building block parent's building 
block, where the instrument is not a qualifying capital instrument.
    (2) Insurance underwriting RBC. When applying the U.S. Federal 
banking capital rules as the indicated capital framework for a building 
block parent, a supervised insurance organization must add back into 
the building block parent's company available capital any amounts 
deducted pursuant to Sec.  3.22(b)(3) of this title, Sec.  
217.22(b)(3), or Sec.  324.22(b)(3) of this title, as applicable.
    (3) Permitted accounting practices and prescribed accounting 
practices. A supervised insurance organization must adjust the building 
block parent's company available capital by any difference between:
    (i) The building block parent's company available capital; and
    (ii) The building block parent's company available capital 
recalculated under the assumption that neither the building block 
parent, nor any company that is a member of that building block 
parent's building block, had prepared its financial statements with the 
application of any permitted accounting practice, prescribed accounting 
practice, or other practice, including legal, regulatory, or accounting 
procedures or standards, that departs from a solvency framework as 
promulgated for application in a jurisdiction.
    (4) Adjusting certain life insurance reserves. A supervised 
insurance organization must adjust the building block parent's company 
available capital by any difference between:
    (i) The building block parent's company available capital; and
    (ii) The building block parent's company available capital 
recalculated based on using a 40 percent factor applied to all term 
life insurance accounted for using an approach based on the Valuation 
of Life Insurance Policies Model Regulation and a 90 percent factor 
applied to all secondary-guaranteed universal life insurance products 
accounted for using Actuarial Guideline XXXVIII--The Application of the 
Valuation of Life Insurance Policies Model Regulation.

[[Page 82979]]

    (5) Deduction of investments in own capital instruments--(i) In 
general. A supervised insurance organization must deduct from the 
building block parent's company available capital any investment by the 
building block parent in its own capital instrument(s), or any 
investment by any member of the building block parent's building block 
in capital instruments of the building block parent, including any net 
long position determined in accordance with paragraph (c)(5)(ii) of 
this section, to the extent that such investment(s) would otherwise be 
accretive to the building block parent's building block available 
capital.
    (ii) Net long position. For purposes of calculating an investment 
in a building block parent's own capital instrument under this section, 
the net long position is determined in accordance with Sec.  217.22(h), 
provided that a separate account asset or associated guarantee is not 
regarded as an indirect exposure unless the net long position of the 
fund underlying the separate account asset (determined in accordance 
with Sec.  217.22(h) without regard to this paragraph (c)(5)(ii)) 
equals or exceeds 5 percent of the value of the fund.
    (6) Reciprocal cross holdings in the capital of financial 
institutions. A supervised insurance organization must deduct from the 
building block parent's company available capital any investment(s) by 
the building block parent in the capital of unaffiliated financial 
institutions that it holds reciprocally, where such reciprocal cross 
holdings result from a formal or informal arrangement to swap, 
exchange, or otherwise intend to hold each other's capital instruments, 
to the extent that such investment(s) would otherwise be accretive to 
the building block parent's building block available capital.
    (d) Limits on certain elements in building block available capital 
of top-tier depository institution holding companies--(1) Investment in 
capital of unconsolidated financial institutions. (i) A top-tier 
depository institution holding company must deduct from its building 
block available capital any accreted capital from an investment in the 
capital of an unconsolidated financial institution that is not an 
inventory company, that exceeds twenty-five percent of the amount of 
its building block available capital, prior to application of this 
adjustment, excluding tier 2 capital instruments. For purposes of this 
paragraph (d)(1), the amount of an investment in the capital of an 
unconsolidated financial institution is calculated in accordance with 
Sec.  217.22(h), except that a separate account asset or associated 
guarantee is not an indirect exposure.
    (ii) The deductions described in this paragraph (d)(1) are net of 
associated deferred tax liabilities in accordance with Sec.  217.22(e).
    (2) Adjustments to accretions from tier 2 capital instruments. A 
top-tier depository institution holding company must adjust accretions 
from tier 2 capital instruments in accordance with this paragraph 
(d)(2).
    (i) A top-tier depository institution holding company must deduct 
any accretions from tier 2 capital instruments that, in the aggregate, 
exceed the greater of:
    (A) 150 percent of the amount of its building block capital 
requirement; and
    (B) The amount of instruments subject to paragraph (e) or (f) of 
this section that are outstanding as of the submission date; and
    (ii) A top-tier depository institution holding company must 
increase accretions from tier 2 capital instruments by any amount 
deducted from accretions from additional tier 1 capital instruments by 
operation of paragraph (d)(3) of this section.
    (3) Limitation on additional tier 1 capital instruments. A top-tier 
depository institution holding company must deduct any accretions from 
additional tier 1 capital instruments that, in the aggregate, exceed 
the greater of:
    (i) 100 percent of the amount of its building block capital 
requirement; and
    (ii) The amount of instruments subject to paragraph (f) of this 
section that are outstanding as of the submission date.
    (e) Treatment of outstanding surplus notes. A surplus note issued 
by any company in a supervised insurance organization is deemed to meet 
the criteria in paragraphs (a)(1)(iii) and (vi) of this section if:
    (1) The instrument was issued prior to the later of--
    (i) November 1, 2019; and
    (ii) The earliest date on which any depository institution holding 
company in the group became a depository institution holding company;
    (2) The surplus note is a company capital element for the issuing 
company;
    (3) The surplus note is not owned by an affiliate of the issuer; 
and
    (4) The surplus note is outstanding as of the submission date.
    (f) Treatment of certain callable instruments. Notwithstanding the 
criteria under paragraph (a)(1) of this section, an instrument with 
terms that provide that the instrument may be called earlier than five 
years upon the occurrence of a rating event does not violate the 
criterion in paragraph (a)(1)(v) of this section, provided that the 
instrument was a company capital element issued prior to January 1, 
2014, and that such instrument satisfies all other criteria under 
paragraph (a)(1) of this section.
    (g) Board approval of a capital instrument. (1) A supervised 
insurance organization must receive Board prior approval to include in 
its building block available capital for any building block an 
instrument (as listed in this section), issued by any company in the 
supervised insurance organization, unless the instrument:
    (i) Was a capital element for the issuer prior to May 19, 2010, in 
accordance with the indicated capital framework that was effective as 
of that date and the underlying instrument meets the criteria to be a 
qualifying capital instrument (as defined in paragraph (a) of this 
section); or
    (ii) Is equivalent, in terms of capital quality and ability to 
absorb losses with respect to all material terms, to a company capital 
element that the Board determined may be included in regulatory capital 
pursuant to paragraph (g)(2) of this section, or may be included in the 
regulatory capital of a Board-regulated institution pursuant to Sec.  
217.20(e)(3).
    (2) After determining that an instrument may be included in a 
supervised insurance organization's regulatory capital under this 
subpart, the Board will make its decision publicly available, including 
a brief description of the material terms of the instrument and the 
rationale for the determination.

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

0
7. The authority citation for part 238 continues to read as follows:

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

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

0
8. In Sec.  238.142:
0
a. Revise paragraph (a)(1) introductory text; and
0
b. Add paragraph (a)(3).
    The revision and addition read as follows:


Sec.  238.142   Applicability.

    (a) * * *
    (1) Applicability. Except as provided in paragraphs (a)(3) and (b) 
of this

[[Page 82980]]

section, this subpart applies to any covered company, which includes:
* * * * *
    (3) Insurance savings and loan holding companies. Notwithstanding 
any other provision of this paragraph (a), this subpart does not apply 
to a covered company that is subject to part 217, subpart J, of this 
chapter.
* * * * *

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

0
9. 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-1, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 
5368, 5371.

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

0
10. In Sec.  252.53:
0
a. Revise paragraph (a)(1) introductory text; and
0
b. Add paragraph (a)(3).
    The revision and addition read as follows:


Sec.  252.53   Applicability.

    (a) * * *
    (1) Applicability. Except as provided in paragraphs (a)(3) and (b) 
of this section, this subpart applies to any covered company, which 
includes:
* * * * *
    (3) Insurance bank holding companies. Notwithstanding any other 
provision of this paragraph (a), this subpart does not apply to a 
covered company that is a bank holding company that is subject to part 
217, subpart J, of this chapter.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2023-23911 Filed 11-24-23; 8:45 am]
BILLING CODE P