[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Proposed Rules]
[Pages 3166-3172]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1135]
=======================================================================
-----------------------------------------------------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325, Subpart C
RIN 3064-AD91
Annual Stress Test
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Proposed rule with request for public comment.
-----------------------------------------------------------------------
SUMMARY: The Federal Deposit Insurance Corporation (the ``Corporation''
or ``FDIC'') requests comment on this proposed rule that implements the
requirements in Section 165(i) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the ``Dodd-Frank Act'') regarding stress tests
(``proposed rule''). This proposed rule would implement section
165(i)(2) by requiring state nonmember banks and state savings
associations supervised by the Corporation with total consolidated
assets of more than $10 billion to conduct annual stress tests in
accordance with the proposed rule, report the results of such stress
tests to the Corporation and the Board of Governors of the Federal
Reserve System (``Board'') at such time and in such a form containing
the information required by the Corporation, and publish a summary of
the results of the required stress tests.
DATES: Comments should be received on or before March 23, 2012.
[[Page 3167]]
ADDRESSES: You may submit comments by any of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429.
Hand Delivered/Courier: The guard station at the rear of
the 550 17th Street Building (located on F Street), on business days
between 7 a.m. and 5 p.m.
Email: Comments@FDIC.gov.
Instructions: Comments submitted must include ``FDIC'' and ``RIN
3064-AD91.'' Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any
personal information provided.
FOR FURTHER INFORMATION CONTACT: George French, Deputy Director,
Policy, (202) 898-3929, Robert Burns, Associate Director, Mid-Tier Bank
Branch, (202) 898-3905, or Karl R. Reitz, Senior Capital Markets
Specialist, (202) 898-6775, Division of Risk Management and
Supervision; Mark G. Flanigan, Counsel, (202) 898-7426, or Ryan K.
Clougherty, Senior Attorney, (202) 898-3843, Legal Division, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC,
20429.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview of Section 165(i) of the Dodd-Frank Act
Section 165(i)(2) of the Dodd-Frank Act requires the Corporation to
issue regulations that require FDIC-insured state nonmember banks and
FDIC-insured state-chartered savings associations with total
consolidated assets of more than $10 billion (``covered banks'') to
conduct annual stress tests (``bank-run stress tests'').
For these stress tests, section 165(i)(2) requires that the
Corporation issue regulations that: (1) Define the term ``stress test''
for purposes of the regulations; (2) establish methodologies for the
conduct of the stress tests that provide for at least three different
sets of conditions, including baseline, adverse, and severely adverse
conditions; (3) establish the form and content of a required report on
the stress tests that banks subject to the regulation must submit to
the Corporation; and (4) require covered banks to publish a summary of
the results of the required stress tests.
Section 165(i)(2)(C) of the Dodd-Frank Act requires the
Corporation, in coordination with the Board and the Federal Insurance
Office, to issue consistent and comparable regulations to implement the
requirements of this section. This proposed rule implements section
165(i)(2) as described further below.
B. Overview of Proposed Rule
1. Annual Stress Tests
a. Purpose
The Corporation views the bank-run stress tests required under the
proposed rule as providing forward-looking information to assist the
Corporation in its overall assessment of a covered bank's capital
adequacy, helping to better identify potential downside risks and the
potential impact of adverse outcomes on the covered bank's capital
adequacy, and to assist it in ensuring the institution's financial
stability. Further, these stress tests are expected to improve the
quality of covered banks' internal assessments of capital adequacy and
overall capital planning.
The proposed rule would require covered banks to conduct annual
stress tests. The proposed rule defines a stress test as a process to
assess the potential impact on a covered bank of economic and financial
conditions (``scenarios'') on the consolidated earnings, losses and
capital of the covered bank over a set planning horizon, taking into
account the current condition of the covered bank and its risks,
exposures, strategies, and activities.
The Corporation expects that the stress tests required under the
proposed rule would be one component of the broader stress testing
activities conducted by covered banks. The broader stress testing
activities should address the impact of a broad range of potentially
adverse outcomes across a broad set of risk types affecting other
aspects of a bank's financial condition beyond capital adequacy alone.
For example, under existing guidance, supervisors expect banks to
evaluate their liquidity under stressed conditions and their exposure
to changes in interest rates.\1\ In addition, a full assessment of a
bank's capital adequacy must take into account a range of factors,
including evaluation of its capital planning processes, the governance
over those processes, regulatory capital measures, results of
supervisory stress tests where applicable, and market assessments,
among other factors. The Corporation notes that the stress tests
described in the proposed rule focus on capital adequacy and do not
focus on other aspects of financial condition.
---------------------------------------------------------------------------
\1\ On June 15, 2011, the Corporation, along with the other
banking agencies, published for comment proposed guidance on covered
banks' stress testing as a part of overall institution risk
management. The guidance included stress testing non-capital related
aspects of financial condition. (76 FR 35072)
---------------------------------------------------------------------------
b. Applicability
The proposed rule would apply to covered banks. Covered banks are
defined under the proposed rule as any state nonmember bank or state-
chartered savings association that has more than $10 billion in total
consolidated assets, as determined based on the average total
consolidated assets as reported on the state nonmember bank's four most
recent Consolidated Reports of Condition and Income (``Call Reports'')
or on the state savings association's four most recent Thrift Financial
Reports (``TFRs''), respectively. Once a state nonmember bank or state
savings association becomes a covered bank, it will remain so for
purposes of the proposed rule unless and until the state nonmember bank
or state savings association has $10 billion or less in total
consolidated assets as determined on each of, for state nonmember
banks, the four most recent Call Reports or, for state savings
associations, each of the four most recent TFRs.
The Corporation may accelerate or extend any specified deadline for
stress testing if the Corporation determines such modification is
appropriate in light of the institution's activities, operations, risk
profile, or regulatory capital.
c. Process Overview
Except as otherwise provided in the proposed rule, a bank that
becomes a covered bank no less than 90 days before September 30 of any
given calendar year must comply with the requirements, including the
timing of required submissions to the Corporation, of the proposed rule
from September 30 forward. With respect to initial applicability, a
bank that is a covered bank on the effective date of the proposed rule
is subject to the proposed requirements as of the effective date,
including the timing of required submissions to the Corporation. The
Corporation expects to use the following general process and timetables
in connection with the stress tests.
i. Reporting by Covered Banks
Under the proposed rule, the Corporation would collect the covered
bank's stress test results and additional qualitative and quantitative
information about the tests on a confidential basis. The Corporation
plans to publish notice of both specific requirements and related
instructions for the report to be
[[Page 3168]]
submitted to the Corporation, as described below. Following the annual
stress test, each covered bank would be required to publish a summary
of its results.
ii. Annual Stress Test
Each year, in advance of the annual stress test required of all
covered banks on a schedule to be established, the Corporation would
provide to such banks at least three scenarios, including baseline,
adverse, and severely adverse, that each covered bank must use to
conduct its annual stress test required under the proposed rule.
iii. Proposed Steps for Annual Stress Test
Table A below describes proposed steps for the stress test cycle
for covered banks, including proposed general time frames for each
step. The proposed time frames are illustrative and are subject to
change.
Table A--Process Overview of Annual Stress Test Cycle
[Using data as of September 30]
------------------------------------------------------------------------
Step Proposed timeframe
------------------------------------------------------------------------
1. FDIC provides covered banks No later than mid-November.
with scenarios for annual
stress tests.
2. Covered banks submit By January 5.
required regulatory reports to
the FDIC on their stress tests.
3. Covered banks make required By early April.
public disclosures.
------------------------------------------------------------------------
d. Overview of Stress Test Requirements
i. General Requirements for Stress Tests
Under the proposed rule, each covered bank would be required to
conduct annual stress tests using the bank's financial data as of
September 30 of that year to assess the potential impact of different
scenarios on the consolidated earnings and capital of that bank and
certain related items over a nine-quarter forward-looking planning
horizon, taking into account all relevant exposures and activities.
The Corporation recognizes that certain parent company structures
of covered banks may include one or more financial companies, each with
total consolidated assets greater than $10 billion. The stress test
requirements of section 165(i)(2) apply to the parent company and to
each subsidiary financial company (including covered banks) regulated
by a primary federal financial regulatory agency that has more than $10
billion in total consolidated assets. To avoid unnecessary complexity
or duplication of effort associated with this requirement, the
Corporation intends to coordinate with the other primary federal
financial regulatory agencies, to the extent needed. For example, the
Corporation will aim to coordinate, as appropriate, with the other
primary federal financial regulatory agencies in providing scenarios to
be used by multiple entities within a holding company structure when
meeting the requirements of the stress tests described in the proposed
rule.
ii. Scenarios
The proposed rule would require each covered bank to use a minimum
of three sets of economic and financial conditions, including baseline,
adverse, and severely adverse scenarios, or such additional conditions
as the Corporation determines appropriate. The Corporation would
provide at least three scenarios (baseline, adverse, and severely
adverse) in advance of the annual stress tests.
iii. Methodologies and Practices
Under the proposed rule, each covered bank would be required to use
the applicable scenarios discussed above in conducting its stress tests
to calculate, for each quarter-end within the planning horizon, the
impact on its potential losses, pre-provision revenues, loan loss
reserves, and pro forma capital positions over the planning horizon,
including the impact on capital levels and ratios. Each covered bank
would also be required to calculate, for each quarter-end within the
planning horizon, the potential impact of the specific scenarios on its
capital ratios, including regulatory and any other capital ratios
specified by the Corporation.
The proposed rule would require each covered bank to establish and
maintain a system of controls, oversight, and documentation, including
policies and procedures, designed to ensure that the stress testing
processes used by the bank are effective in meeting the requirements of
the proposed rule. The covered bank's policies and procedures must, at
a minimum, outline the bank's stress testing practices and
methodologies, validation, use of stress test results, and processes
for updating the bank's stress testing practices consistent with
relevant supervisory guidance. The board of directors and senior
management of each covered bank must approve and annually review the
controls, oversight, and documentation, including policies and
procedures, of the covered bank established in the proposed rule.
iv. Stress Test Information and Results
1. Required Report to the FDIC of Stress Test Information and
Results
On or before January 5 of each year, each covered bank would be
required to report to the Corporation, in the manner and form
prescribed in the proposed rule, the results of the stress tests
conducted by the bank during the immediately preceding year (``required
report''). The Corporation plans to publish for comment a description
of items to be included in the required report to the Corporation. It
is anticipated that the required report would include (but not
necessarily be limited to) the following qualitative and quantitative
information.
Qualitative information:
A general description of the use of stress tests required
by the proposed rule in the bank's capital planning and capital
adequacy assessments;
A description of the types of risks (e.g., credit, market,
operational, etc.) being captured in the stress test;
A general description of the methodologies employed to
estimate losses, pre-provision net revenues, loan loss reserves,
changes in capital levels and ratios, and changes in the bank's balance
sheet over the planning horizon;
Assumptions about potential capital distributions over the
planning horizon; and
Any other relevant qualitative information to facilitate
supervisory assessment of the tests, upon request by the Corporation.
Quantitative information under each scenario:
Estimated pro forma capital levels and capital ratios,
including regulatory and any other capital ratios specified by the
Corporation;
Estimated losses by exposure category;
Estimated pre-provision net revenue;
[[Page 3169]]
Estimated changes in loan loss reserves;
Estimated total assets and risk-weighted assets;
Estimated aggregate loan balances;
Potential capital distributions over the planning horizon;
and
Any other relevant quantitative information to facilitate
supervisory understanding of the tests, upon request by the primary
supervisor of the covered bank.
The confidentiality of information submitted to the Corporation
under the proposed rule shall be determined in accordance with
applicable law including any available exemptions under the Freedom of
Information Act (5 U.S.C. 552(b)) and the FDIC's Rules and Regulations
regarding the Disclosure of Information (12 CFR part 309).
The Corporation may also obtain supplemental information as needed.
Question: What are the anticipated costs on covered banks
associated with internal data collection and developing methodologies
for stress testing in line with requirements in the regulation?
2. Supervisory Review of Covered Banks' Stress Test Processes and
Results
Based on information submitted by a covered bank in the required
report to the Corporation, as well as other relevant information, the
Corporation would conduct an analysis of the quality of the bank's
stress test processes and related results. The Corporation envisions
that feedback concerning such analysis would be provided to a covered
bank through the supervisory process. In addition, each covered bank
would be required to take the results of the annual stress test, in
conjunction with the Corporation's analyses of those results, into
account in making changes, as appropriate, to: the bank's capital
structure (including the level and composition of capital); its
exposures, concentrations, and risk positions; any plans of the covered
bank for recovery and resolution; and to improve the overall risk
management of the firm. The Corporation may also require other actions
consistent with safety and soundness of the covered bank.
3. Publication of Results
Consistent with the requirements of the Dodd-Frank Act, the
proposed rule would require each covered bank to publish a summary of
the results of its annual stress tests within 90 days of the required
date for submitting its stress test report to the Corporation. The
summary may be published on a covered bank's Web site or any other
forum that is reasonably accessible to the public. It is expected that
a covered bank that is a subsidiary of a parent company also subject to
section 165(i)(2) summary publication requirements could publish its
summary on the parent company's Web site or in another forum with the
parent company's summary. The required information publicly disclosed
by each covered bank, as applicable, would, at a minimum, include:
(1) A description of the types of risks being included in the
stress test;
(2) A general description of the methodologies employed to estimate
losses, pre-provision net revenue, loss reserves, and changes in
capital positions over the planning horizon; and
(3) Aggregate losses, pre-provision net revenue, loss reserves, net
income, and pro forma capital levels and capital ratios (including
regulatory and any other capital ratios specified by the Corporation)
over the planning horizon, under each scenario.
Question: Is the proposed method of public disclosure appropriate
and why? If not, what alternatives would be more appropriate? Do
commenters have concerns with the content of public disclosures,
including the details of qualitative and quantitative information?
II. Request for Comments
The Corporation requests comments on all aspects of the proposed
rule for stress testing. What, if any, specific challenges exist with
respect to the proposed steps and time frames? What specific
alternatives exist to address these challenges that still allow the
companies to meet their statutory requirements?
Is the proposed timing of stress testing appropriate and why? If
not, what alternatives would be more appropriate? What, if any,
specific challenges exist with respect to the proposed steps and time
frames? What specific alternatives exist to address these challenges
that still allow the Corporation to meet its statutory requirements?
Please comment on the use of the ``as of'' date of September 30, the
January 5 reporting date, the publication date, and the sufficiency of
time for completion of the stress test. Does the immediate
effectiveness of the proposed rule provide sufficient time for a
covered bank as of the effective date of the rule to conduct its first
stress test?
III. Administrative Law Matters
A. Paperwork Reduction Act Analysis
A. Request for Comment on Proposed Information Collection
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3521) (``PRA''), the Corporation may not
conduct or sponsor, and the respondent is not required to respond to,
an information collection unless it displays a currently valid Office
of Management and Budget (``OMB'') control number. The information
collection requirements contained in this notice of proposed rulemaking
have been submitted by the Corporation to OMB for review and approval
under section 3506 of the PRA and section 1320.11 of OMB's implementing
regulations (5 CFR part 1320).
Comments are invited on:
(a) Whether the collection of information is necessary for the
proper performance of the agency's functions, including whether the
information has practical utility;
(b) The accuracy of the estimates of the burden of the information
collection, including the validity of the methodology and assumptions
used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
You may submit written comments by any of the following methods:
Agency Web Site: http://www.fdic.gov/regulations/laws/
federal/propose.html. Follow the instructions for submitting comments
on the FDIC Web site.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: Comments@FDIC.gov. Include RIN 3064-AD91 on the
subject line of the message.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments, FDIC, 550 17th Street NW., Washington, DC 20429.
Hand Delivery/Courier: Guard station at the rear of the
550 17th Street Building (located on F Street) on business days between
7 a.m. and 5 p.m.
Public Inspection: All comments received will be posted without
change
[[Page 3170]]
to http://www.fdic.gov/regulations/laws/federal/propose.html including
any personal information provided. Comments may be inspected at the
FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002,
Arlington, VA 22226 between 9 a.m. and 4:30 p.m. on business days.
A copy of the comments may also be submitted to the OMB desk
officer for the agencies: By mail to the U.S. Office of Management and
Budget, 725 17th Street NW., 10235, Washington, DC 20503 or by
facsimile to (202) 395-6974, Attention: Federal Banking Agency Desk
Officer.
B. Proposed Information Collection
Title of Information Collection: Stress Test Reporting.
Frequency of Response: Annually.
Affected Public: State nonmember banks and state savings
associations supervised by the Corporation.
Abstract: The information collection requirements are found in
sections 325.204, 325.205, and 325.207 of the proposed rule. These
requirements implement the stress testing and stress testing reporting
requirements set forth in Section 165(i) of the Dodd-Frank Act. Section
325.204(a) identifies the calculations of the potential impact on
capital that must be made during each quarter of the planning horizon.
Section 325.204(c) requires that each covered bank must establish and
maintain a system of controls, oversight, and documentation, including
policies and procedures that describe the covered bank's stress test
practices and methodologies, and processes for updating such bank's
stress test practices. Section 325.205 sets forth the requirements for
stress test reports to be filed annually with the Corporation and the
Board in the time, manner and form specified by the Corporation.
Section 325.205(d) includes a written request for institutions to
request an extension of time to submit the stress test reports under
certain situations that have been identified by the Corporation.
Section 325.207 requires that a covered bank shall publish a summary of
the results of its annual stress tests. The summary must include a
description of the types of risks being included in the stress test, a
general description of the methodologies employed to estimate losses,
pre-provision net revenue, loss reserves, and changes in capital
positions over the planning horizon and aggregate losses, pre-provision
net revenue, loss reserves, net income, and pro forma capital levels
and capital ratios (including regulatory and any other capital ratios
specified by the Corporation) over the planning horizon, under each
scenario.
----------------------------------------------------------------------------------------------------------------
Number of Annual Hourly
respondents frequency estimate Total hours
----------------------------------------------------------------------------------------------------------------
Initial Paperwork Burden:
Initial Report.............................. 23 1 2,000 46,000
---------------------------------------------------------------
Total................................... 23 1 2,000 46,000
Ongoing Paperwork Burden:
Annual Report............................... 23 1 1,040 23,920
---------------------------------------------------------------
Total................................... 23 1 1,040 23,920
----------------------------------------------------------------------------------------------------------------
B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601, et seq. (``RFA''),
requires that each federal agency either certify that a proposed rule
would not, if adopted in final form, have a significant economic impact
on a substantial number of small entities or prepare an initial
regulatory flexibility analysis of the rule and publish the analysis
for comment.\2\ The proposed rule would apply only to state nonmember
banks and state savings associations with more than $10 billion in
total consolidated assets. Under regulations issued by the Small
Business Administration (``SBA''), a bank or other depository
institution is considered ``small'' if it has $175 million or less in
assets.\3\ As of December 31, 2010, there are approximately 2,685 small
state nonmember banks and state savings associations. Since the
proposed rule would apply only to state nonmember banks and state
savings associations with more than $10 billion in total consolidated
assets, the Corporation does not expect that the proposed rule will
directly affect a substantial number of small entities. It is hereby
certified that this rule will not have a significant economic impact on
a substantial number of small entities and therefore, a regulatory
flexibility analysis under the RFA is not required.
---------------------------------------------------------------------------
\2\ See 5 U.S.C. 603, 604, and 605.
\3\ 13 CFR 121.201.
---------------------------------------------------------------------------
C. Solicitation of Comments and Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338, 1471, 12 U.S.C. 4809) requires federal banking agencies to
use plain language in all proposed and final rules published after
January 1, 2000. The Corporation has sought to present the proposed
rule in a simple and straightforward manner and invites comment on how
to make the proposed rule easier to understand. For example:
Is the material organized to suit your needs? If not, how
could the rule be more clearly presented?
Are the requirements in the rule clearly stated? If not,
how could the rule be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would achieve that?
Is this section format adequate? If not, which of the
sections should be changed and how?
What other changes can the Corporation incorporate to make
the regulation easier to understand?
List of Subjects in 12 CFR Part 325
Administrative practice and procedure, Banks, Banking, Federal
Deposit Insurance Corporation, Reporting and recordkeeping
requirements, State savings associations, Stress tests.
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
The Corporation proposes to amend part 325 of chapter III of title
12 of the Code of Federal Regulations as follows:
PART 325--CAPITAL MAINTENANCE
1. The authority citation for part 325 is revised to read as
follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i),
[[Page 3171]]
1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233
(12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as
amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); 12 U.S.C. 5365(i).
2. Add subpart C to part 325 to read as follows:
Subpart C--Annual Stress Test
Sec.
325.201 Authority, purpose, applicability, and reservation of
authority.
325.202 Definitions.
325.203 Annual stress tests required.
325.204 Methodologies and practices.
325.205 Report to the FDIC of stress test results and related
information.
325.206 Supervisory review of stress tests and post-assessment
actions.
325.207 Publication of summary of results.
Subpart C--Annual Stress Test
Sec. 325.201 Authority, purpose, applicability, and reservation of
authority.
(a) Authority. This subpart is issued by the Federal Deposit
Insurance Corporation (the ``Corporation'' or ``FDIC'') under section
165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the ``Dodd-Frank Act'') (Pub. L. 111-203, 124 Stat. 1376, 1430-
1431, 12 U.S.C. 5365(i)(2)).
(b) Purpose. This subpart implements section 165(i)(2) of the Dodd
Frank Act (12 U.S.C. 5365(i)(2)), which requires the Corporation (in
coordination with the Board of Governors of the Federal Reserve System
(``Board'') and the Federal Insurance Office) to issue regulations
implementing the requirement that each covered bank supervised by the
Corporation with total consolidated assets of more than $10 billion
conduct annual stress tests.
(c) Applicability. (1) Except as otherwise provided in this
subpart, a bank that becomes a covered bank no less than 90 days before
September 30 of that calendar year is subject to the requirements of
this subpart.
(2) Initial applicability. A bank that is a covered bank on the
effective date of this subpart is subject to the requirements,
including timing of required submissions to the Corporation, of this
subpart.
(d) Reservation of authority. (1) Notwithstanding any other
provisions of this subpart, the Corporation may accelerate or extend
any deadline for stress testing, reporting or publication, or require
additional tests if the Corporation determines that such modification
is appropriate in light of the covered bank's activities, operations,
risk profile, or regulatory capital.
(2) If the Corporation determines that the stress testing
techniques and methodologies of a covered bank are deficient under
Sec. 325.204, the Corporation may determine that additional analytical
techniques and methodologies are appropriate for the covered bank to
use in identifying, measuring, and monitoring risks to its safety and
soundness and require it to implement such techniques and
methodologies.
(3) The Corporation reserves the authority to require a covered
bank to make additional publications beyond those required by this
subpart if the Corporation determines that such covered bank's
publication does not adequately address one or more material elements
of the stress test. Further, nothing in this subpart limits the
authority of the Corporation under any other provision of law or
regulation to take supervisory or enforcement action, including action
to address unsafe and unsound practices or conditions, or violations of
law or regulation.
Sec. 325.202 Definitions.
For purposes of this subpart--
(a) Covered bank means
(1) Any state nonmember bank or state savings association that has
more than $10 billion in total consolidated assets, as determined based
on the average of total consolidated assets as reported on the state
nonmember bank's four most recently-filed Consolidated Reports of
Condition and Income (Call Report), or on the state savings
association's four most recently-filed Thrift Financial Reports (TFRs).
(2) Any state nonmember bank or state savings association that
meets the requirements of paragraph (1) shall remain a covered bank for
purposes of this subpart unless and until the state nonmember bank has
$10 billion or less in total consolidated assets as determined based on
its four most recently-filed Call Reports, or the state savings
association has $10 billion or less in total consolidated assets as
determined based on each of its four most recently-filed TFRs.
(b) Planning horizon means the period over which the bank's stress
test projections will extend: specifically nine quarters.
(c) Scenarios are sets of economic and financial conditions used in
the covered banks' stress tests, including baseline, adverse, and
severely adverse.
(d) State nonmember bank and state savings association shall each
have the same respective meaning contained in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813).
(e) Stress test is a process used to assess the potential impact on
a covered bank of economic and financial conditions (scenarios) on the
consolidated earnings, losses, and capital of a covered bank over a set
planning horizon, taking into account the current condition of the
covered bank and the covered bank's risks, exposures, strategies, and
activities.
Sec. 325.203 Annual stress tests required.
(a)(1) Each covered bank shall complete an annual stress test of
itself based on data of the covered bank as of September 30 of that
calendar year.
(2) The stress test shall be conducted in accordance with this
section and the methodologies and practices described in section
325.204.
(b) Scenarios provided by the Corporation. In conducting its stress
tests under this section, each covered bank must use scenarios provided
by the Corporation that reflect a minimum of three sets of economic and
financial conditions, including a baseline, adverse, and severely
adverse scenario. In advance of these stress tests, the Corporation
will provide to all covered banks a description of the baseline,
adverse, and severely adverse scenarios that each covered bank shall
use to conduct its annual stress tests under this subpart.
Sec. 325.204 Methodologies and practices.
(a) Potential impact on capital.
(1) In conducting a stress test under Sec. 325.203, each covered
bank shall calculate how each of the following are impacted during each
quarter of the stress test planning horizon for each scenario:
(i) Potential losses, pre-provision net revenues, loan loss
reserves, and pro forma capital positions over the planning horizon;
and
(ii) Capital levels and capital ratios, including regulatory and
any other capital ratios specified by the Corporation.
(b) Planning horizon. Each covered bank must use a planning horizon
of at least nine quarters over which the impact of specified scenarios
would be assessed.
(c) Controls and oversight of stress testing processes.
(1) Each covered bank must establish and maintain a system of
controls, oversight, and documentation, including policies and
procedures, designed to ensure that the stress testing processes used
by the covered bank are effective in meeting the requirements in this
subpart. These policies and procedures must, at a minimum, describe the
covered bank's stress
[[Page 3172]]
testing practices and methodologies, validation, and use of stress
testing results, as well as processes for updating the covered bank's
stress testing practices consistent with relevant supervisory guidance.
(2) The board of directors and senior management of each covered
bank shall approve and annually review the controls, oversight, and
documentation, including policies and procedures of the covered bank
pursuant to this subpart.
Sec. 325.205 Report to the FDIC of stress test results and related
information.
(a) Report required for stress tests. On or before January 5 of
each year, each covered bank must report the results of the stress test
required under section 325.203 to the FDIC in accordance with paragraph
325.205(b) .
(b) Content of report for annual stress tests. Each covered bank
must file a report in the manner, in such form, and containing the
information established by the Corporation.
(c) Confidential treatment of information submitted. The
confidentiality of information submitted to the Corporation under this
subpart and related materials shall be determined in accordance with
applicable law including any available exemptions under the Freedom of
Information Act (5 U.S.C. 552(b)) and the FDIC's Rules and Regulations
regarding the Disclosure of Information (12 CFR Part 309).
(d) Extension. The Corporation may, in its discretion, and upon
request by a covered bank, extend the time period for compliance
established under paragraph 325.205(a) for up to an additional 60 days.
Sec. 325.206 Supervisory review of stress tests and post-assessment
actions.
(a) Each covered bank shall take the results of the stress tests
conducted under section 325.203 into account in making changes, as
appropriate, to: The covered bank's capital structure (including the
level and composition of capital); its exposures, concentrations, and
risk positions; any plans for recovery and resolution; and to improve
overall risk management.
Sec. 325.207 Publication of summary of results.
(a) Public disclosure of results required for stress tests of
covered banks. Within 90 days of the date required for submitting a
report under Sec. 325.205(a) for its required stress test under Sec.
325.203, a covered bank shall publicly disclose a summary of the
results of the stress tests required under Sec. 325.203.
(b) Information to be disclosed in the summary. The information
disclosed by each covered bank shall, at a minimum, include--
(1) A description of the types of risks being included in the
stress test;
(2) A general description of the methodologies employed to estimate
losses, pre-provision net revenue, loss reserves, and changes in
capital positions over the planning horizon;
(3) Aggregate losses, pre-provision net revenue, loss reserves, net
income, and pro forma capital levels and capital ratios (including
regulatory and any other capital ratios specified by the Corporation)
over the planning horizon under each scenario.
Dated at Washington, DC this 17th day of January, 2012.
By order of the Board of Directors.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2012-1135 Filed 1-20-12; 8:45 am]
BILLING CODE 6714-01-P