[Federal Register Volume 77, Number 15 (Tuesday, January 24, 2012)]
[Proposed Rules]
[Pages 3408-3415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1274]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 46
[Docket ID OCC-2011-0029]
RIN 1557-AD58
Annual Stress Test
AGENCY: Office of the Comptroller of the Currency (``OCC''), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This proposed rule would implement section 165(i) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank
Act'') which requires certain companies to conduct annual stress tests
pursuant to regulations prescribed by their respective primary
financial regulatory agencies. Specifically, this proposed rule would
require national banks and Federal savings associations with total
consolidated assets of more than $10 billion to conduct an annual
stress test as prescribed by this proposed rule. In addition to the
annual stress test requirement, such institutions would be subject to
certain reporting and disclosure requirements.
DATES: Comments must be received by March 26, 2012.
ADDRESSES: Please use the title ``Annual Stress Test'' to facilitate
the organization and distribution of the comments. You may submit
comments by any of the following methods:
Email: [email protected].
Mail: Office of the Comptroller of the Currency, 250 E
Street, SW., Mail Stop 2-3, Washington, DC 20219.
Fax: (202) 874-5274.
Hand Delivery/Courier: 250 E Street SW., Mail Stop 2-3,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket Number OCC-2011-0029'' in your comment. In general, OCC will
enter all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
[[Page 3409]]
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not enclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this notice by any of the following methods:
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 250 E Street SW., Washington, DC.
For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid
government-issued photo identification and to submit to security
screening in order to inspect and photocopy comments.
Docket: You may also view or request available background
documents and project summaries using the methods described above.
FOR FURTHER INFORMATION CONTACT: Robert Scavotto, Lead International
Expert, International Analysis and Banking Condition (202) 874-4943,
Tanya Smith, Lead Expert, Regulatory Capital and Operational Risk (202)
874-4464, Akhtarur Siddique, Deputy Director, Enterprise Risk Analysis
Division (202) 874-4665, Ron Shimabukuro, Senior Counsel, or Alexandra
Arney, Attorney, Legislative and Regulatory Activities Division (202)
874-6104, Office of the Comptroller of the Currency, 250 E Street SW.,
Washington, DC 20219.
SUPPLEMENTARY INFORMATION:
I. Background
Section 165(i) of the Dodd-Frank Act \1\ created two types of
stress testing requirements: stress tests conducted by the company and
stress tests conducted by the Board of Governors of the Federal Reserve
System (``Board''). Section 165(i)(2) requires certain financial
companies, including national banks and Federal savings associations,
to conduct stress tests and requires the primary financial regulatory
agency \2\ of those financial companies to issue regulations
implementing the stress test requirements. A national bank or Federal
savings association is subject to the stress test requirements if its
total consolidated assets are more than $10 billion. Under section
165(i)(2), a financial company is required to submit to the Board and
to its primary financial regulatory agency a report at such time, in
such form, and containing such information as the primary financial
regulatory agency may require.\3\ The primary financial regulatory
agency is required to define ``stress test,'' establish methodologies
for the conduct of the company-conducted stress test that must include
at least three different sets of conditions (baseline, adverse, and
severely adverse), establish the form and content of the institution's
report, and compel the institution to publish a summary of the results
of the Dodd-Frank institutional stress tests.\4\
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\1\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 12 U.S.C. 5301(12).
\3\ 12 U.S.C. 5365(i)(2)(B).
\4\ 12 U.S.C. 5365(i)(2)(C).
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In general, section 165 of the Dodd-Frank Act sets forth a number
of requirements and responsibilities for the Board related to
supervision and prudential standards for nonbank financial companies
and bank holding companies with total consolidated assets equal to or
greater than $50 billion. In addition to the company stress tests
required under section 165(i)(2), section 165(i)(1) requires the Board
to conduct annual analyses of nonbank financial companies supervised by
the Board and bank holding companies with total consolidated assets
equal to or greater than $50 billion to determine whether such
companies have the capital, on a total consolidated basis, necessary to
absorb losses as a result of adverse economic conditions.\5\ The Board
published a proposed rule implementing this supervisory stress testing
on January 5, 2012.\6\
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\5\ 12 U.S.C. 5365(i)(1)(A).
\6\ Enhanced Prudential Standards and Early Remediation
Requirements for Covered Companies, 77 FR 594, Jan. 5, 2012.
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II. Overview of the Proposed Rule
As required by section 165(i)(2), this proposed rule implements the
company-conducted stress test requirements for national banks and
Federal savings associations. Under this proposed rule, a national bank
or a Federal savings association with total consolidated assets of more
than $10 billion, defined as a ``covered institution,'' would be
required to conduct an annual stress test as prescribed by this
proposed rule. The OCC is developing this rule in coordination with the
Board and the Federal Insurance Office, as required by section
165(i)(2)(C). The Board and Federal Deposit Insurance Corporation
(``FDIC'') are planning to issue separate proposed rules with respect
to their supervised entities.\7\ For purposes of this rule, the
proposed rule defines a stress test as a process to assess the
potential impact of hypothetical economic conditions (``scenarios'') on
the capital of a covered institution over a set period (the ``planning
horizon''), taking into account the current condition of the covered
institution including its material risks, exposures, strategies, and
activities.
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\7\ The Board published its proposed rule on January 5. See 77
FR 594, Jan. 5, 2012. Certain of the Board's supervised entities,
i.e. those subject to the Board-conducted tests, will be required by
the Board to self-stress test more frequently, on a semi-annual
basis. 12 U.S.C. 5365(i)(2)(A). The FDIC rule has not been published
as of the publication of this proposed rule.
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A. The Purpose of Stress Tests
The OCC views the stress tests conducted by covered institutions
under the proposed rule as providing forward-looking information to
supervisors to assist in their overall assessments of a covered
institution's capital adequacy and to aid in identifying downside risks
and the potential impact of adverse outcomes on the covered
institution's capital adequacy. In addition, the OCC may use stress
tests to determine whether additional analytical techniques and
exercises are appropriate for a covered institution to employ in
identifying, measuring, and monitoring risks to the financial soundness
of the covered institution, and may require a covered institution to
implement such techniques and exercises in conducting its stress tests.
Further, these stress tests are expected to support ongoing improvement
in a covered institution's stress testing practices with respect to its
internal assessments of capital adequacy and overall capital planning.
The OCC expects that the annual stress tests required under the
proposed rule would be only one component of the broader stress testing
activities conducted by covered institutions. In this regard, the OCC
notes that the federal banking agencies have recently issued for public
comment proposed joint guidance on ``Stress Testing for Banking
Organizations with More Than $10 Billion in Total Consolidated
Assets.'' See 76 FR 35072 (June 15, 2011). These broader stress testing
activities should address the impact of a range of potentially adverse
outcomes across a set of risk types affecting aspects of the covered
institution's financial condition other than capital adequacy. In
addition, a full assessment of a covered institution's capital adequacy
must take into account a range of factors, including evaluation of its
[[Page 3410]]
capital planning processes, the governance over those processes,
regulatory capital measures, results of supervisory stress tests where
applicable, and market assessments.
B. Covered Institutions
1. National Banks and Federal Savings Associations
Under this proposed rule, a covered institution would include a
national bank or Federal savings association for which total
consolidated assets averaged over the four most recent consecutive
quarters exceeds $10 billion. A covered institution would be required
to conduct annual stress tests as prescribed by this proposed rule.
An institution is a covered institution on the effective date of
the final rule based upon the institution's total consolidated assets
averaged over the four consecutive quarters preceding the effective
date, as reported on the institution's regulatory condition reports for
those quarters. For national banks, the regulatory condition report is
the Consolidated Reports of Income and Condition (``Call Report'')
required under 12 U.S.C. 161; for Federal savings associations, the
regulatory condition report is the Thrift Financial Report.\8\ Unless
the OCC determines otherwise, a covered institution will remain subject
to the company-conducted stress tests under the proposed rule until its
total consolidated assets averaged over the four most recent
consecutive quarters, as reported on the institution's regulatory
condition reports for those quarters, are $10 billion or less.
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\8\ Beginning with the March 31, 2012 report date, savings
associations will be required to file the Consolidated Reports of
Condition and Income (Call Reports) instead of the Thrift Financial
Report. After that time, the regulatory condition report for both
national banks and savings associations will be the Call Report.
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An institution becomes a covered institution after the effective
date of the final rule based upon the average of the institution's
total consolidated assets over the four most recent consecutive
quarters, as reported on the institution's regulatory condition reports
for those quarters. The date on which such an institution becomes a
covered institution is the as-of date of the fourth consecutive
regulatory condition report that causes the institution's average total
consolidated assets for four consecutive quarters to exceed $10
billion. An institution that becomes a covered institution after the
effective date of the rule would be required to fully implement the
stress testing requirements of the rule, and conduct its first annual
stress test according to the annual cycle specified by the OCC in this
rule, in the calendar year following the calendar year in which the
institution becomes a covered institution.
For example, a national bank for which the four-quarter average of
total consolidated assets exceeded $10 billion on its June 2013 Call
Report (based on the average from its September 2012, December 2012,
March 2013, and June 2013 Call Reports) would become a covered
institution on June 30, 2013. The newly covered institution would be
required to fully implement the stress testing requirements of the rule
and conduct its first stress test in the testing cycle beginning in the
following calendar year, 2014. Because the stress tests under the
proposed rule will be undertaken annually and according to an OCC-
specified timeline that is uniform across all covered institutions, the
time between the date at which an institution becomes a covered
institution and the date at which the institution must conduct its
first stress test may be more than or less than one year, depending on
the specific quarter in which the institution becomes covered.
The OCC also may designate an institution as a covered institution
or exempt an otherwise-covered institution from certain, or all, of the
Dodd-Frank stress testing requirements based on the institution's level
of complexity, risk profile, or scope of operations. Additionally, the
OCC may accelerate or extend any specified deadline for stress testing,
reporting or publication of the stress test results, or require
additional stress tests, if the OCC determines that such modification
of a deadline or additional testing is appropriate in light of the
institution's activities, operations, risk profile, or regulatory
capital. With respect to the exercise of the reservation of authority
in this proposed rule, the OCC is considering adopting notice and
response procedures similar to those provided under 12 CFR 3.12.
Question 1. Is the proposed method of calculating total
consolidated assets, for purposes of determining when an institution
becomes a covered institution and ceases to be a covered institution,
appropriate?
Question 2. Does the proposed rule's requirement that a newly
covered institution run its first stress test in the year following the
calendar year in which the institution becomes a covered institution
provide sufficient time for an institution to fully implement the
stress testing requirements? Conversely, should a newly covered
institution be required to run its first stress test on a faster
timeline, for example by requiring an institution that becomes a
covered institution no less than 90 days before September 30 of a
calendar year to comply with the requirements of this proposed rule
beginning on September 30 of that calendar year?
2. Federal Branches or Agencies of a Foreign Bank Not Covered
While the requirement to conduct annual stress tests applies to all
national banks and Federal savings associations with total consolidated
assets of more than $10 billion, the OCC proposes not to apply the
annual stress test requirements of this proposed rule to Federal
branches or agencies of a foreign bank. The company stress test
provisions under section 165(i)(2) of the Dodd-Frank Act are by design
intended to assess capital adequacy, and since Federal branches and
agencies are not separately capitalized, the application of these
requirements to Federal branches and agencies would not be meaningful.
C. Stress Test Scenarios
Under the proposed rule each covered institution would be required
to conduct an annual stress test using covered institution financial
data as of September 30th of that year to assess the potential impact
of different scenarios on the capital of that institution and certain
related items over a forward-looking, nine-quarter planning horizon
(that is, through the December 31 reporting date of the second calendar
year following the year containing the September 30 as-of date), taking
into account all relevant exposures and activities. The OCC will
provide a minimum of three economic scenarios, reflecting baseline,
adverse, and severely adverse conditions, or such additional conditions
as the OCC determines appropriate, which the covered institution must
use for the stress test. The OCC anticipates that the annual stress
test scenarios will be revised as appropriate to ensure that each
scenario remains relevant under prevailing economic and industry
conditions.
As discussed in Section F on Process Overview, the OCC plans to
provide the annual stress test scenarios to covered institutions
approximately two months in advance of the time by which the
institution must report the results of its annual stress test. The OCC
believes that two months should be sufficient time to permit covered
institutions to ensure that staff, data, and other resources are
adequately prepared to carry out required stress tests, while also
ensuring that the set of conditions reflected in the scenarios remains
relevant.
The OCC plans to coordinate the development of the annual stress
test
[[Page 3411]]
scenarios on an interagency basis with the FDIC and the Board to ensure
consistent and comparable stress testing for all covered financial
institutions and to minimize regulatory burden. The OCC anticipates
issuing proposed guidance and procedures for scenario development for
comment at a later date. Absent specific supervisory concerns, the OCC
anticipates that the annual stress test scenarios will be identical for
all covered financial institutions. To the extent possible, the OCC
expects that the annual stress test scenarios that may result from the
interagency scenario development process may be similar to the
scenarios developed by the Board for the supervisory stress tests
conducted by the Board under section 165(i)(1).
Question 3. Should the OCC permit a covered institution to develop
and use its own scenarios for the annual stress tests required under
this part? If so, what guidance should the OCC provide on the covered
institution's scenario development, if any? What are the costs and
benefits of permitting a covered institution to use its own scenarios?
What are the costs and benefits of requiring a covered institution to
use OCC-provided scenarios?
Question 4. Assuming that the OCC provides the scenarios for the
annual stress tests required under this part, what level of detail
should be included in those scenarios? Should the scenarios just
address general macroeconomic factors or provide more specifics? For
example, should the OCC supplement the scenarios with market price and
rate ``shocks'' to address short-term volatility associated with
certain trading positions and trading-related exposures? If so, how
should such rate shocks be incorporated into the stress testing
framework?
D. Stress Test Methodologies and Practices
The proposed rule states that each covered institution would be
required to use the annual stress test scenarios provided by the OCC in
conducting its annual stress tests. Each covered institution must use a
planning horizon of at least nine quarters over which the impact of
specified scenarios would be assessed. The covered institution would be
required to calculate, for each quarter-end within the planning
horizon, estimates of revenues, potential losses, and loan loss
provisions that would result from the conditions specified in each
scenario. A covered institution also would be required to calculate,
for each quarter-end within the planning horizon, the potential impact
on its regulatory capital levels and ratios applicable to the
institution under 12 CFR part 3 or 12 CFR part 167, incorporating the
effects of any expected capital distributions over the planning
horizon. The applicable regulatory capital levels and ratios would
include, for national banks, Minimum Capital Ratios (12 CFR 3.6), Risk-
Based Capital Guidelines based on Basel I (Appendix A to part 3), Risk-
Based Capital Guidelines; Market Risk Adjustment (Appendix B to part
3), and Internal-Ratings-Based and Advanced Measurement Approaches
under Basel II (Appendix C to Part 3), and for federal savings
associations, Regulatory Capital Requirements (12 CFR part 167) and
Risk-Based Capital Requirements and Internal-Ratings-Based and Advanced
Measurement Approaches (Appendix C to part 167). A covered institution
would also be required to calculate the potential impact on any other
capital ratios specified by the OCC. The stress test must incorporate
maintenance by the institution of an allowance for loan losses that
would be appropriate for credit exposures throughout the planning
horizon.
The proposed rule also would require each covered institution 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 institution are effective
in meeting the requirements of the proposed rule. The covered
institution's policies and procedures must, at a minimum, outline the
covered institution's stress testing practices and methodologies and
processes for updating its stress testing practices consistent with
relevant supervisory guidance. The covered institution's board of
directors must approve and review the policies and procedures of the
covered institution, as frequently as economic conditions or the
condition of the institution may warrant, at least annually. The
covered institution's senior management must establish and maintain a
system of controls, oversight, and documentation designed to ensure
that the stress test processes satisfy the requirements under this
proposed rule.
Question 5. What are the anticipated costs on covered institutions,
and sources of those costs, associated with internal data collection
and developing methodologies for stress testing under the requirements
in the proposed rule?
E. Reporting and Disclosures
Section 165(i)(2)(B) requires a covered institution to submit a
report to the Board and to its primary financial regulatory agency at
such time, in such form, and containing such information as the primary
financial regulatory agency shall require. Section 165(i)(2)(C)(iv)
compels the primary financial regulatory agencies to require a covered
institution to publish a summary of its stress test results. This
proposed rule would implement the statutory reporting and disclosure
requirements. Specifically, the proposed rule requires that each
covered institution submit a report to the OCC and to the Board of the
results of the stress test by January 5. The exact form and contents of
this report will be the subject of a separate future proposal. At this
time, the OCC anticipates that the annual stress test report, and any
other information that the OCC may require to be provided on a
supplemental basis, will be confidential. The OCC plans to publish for
notice and comment both specific annual stress test reporting
requirements and related instructions in a separate proposed
information collection under the Paperwork Reduction Act.\9\
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\9\ 44 U.S.C. 3501-3521.
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Consistent with section 165(i)(2), the proposed rule also would
require each covered institution to publish a summary of the results of
its annual stress tests within 90 days of submitting its annual stress
test report to the OCC and the Board. At a minimum, the summary shall
include a description of the types of risks (such as credit default
losses and non-default credit losses by portfolio, trading losses, and
risks to non-interest revenue) included in the stress test, and
estimates of aggregate losses, net income, and pro forma capital levels
and capital ratios (including regulatory and any other capital ratios
specified by the OCC) over the planning horizon, under each scenario.
Summary results must be made readily accessible to the public, for
example, by publication on a covered institution's Web site. In order
to avoid duplicative regulatory requirements, the OCC is proposing to
permit disclosure of the summary of results by the parent bank holding
company or savings and loan holding company of a covered institution if
the parent holding company satisfactorily complies with the disclosure
requirements under the Board's Company-Run Stress Test rule.\10\
However, the OCC reserves the right to require additional disclosures
if the OCC believes that the disclosures at the holding company level
do not accurately capture the potential impact
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of the scenarios on the condition of the covered institution.
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\10\ Section 46.8 of the proposed rule includes citations to the
Board's Company-Run Stress Test proposed rule (proposed 12 CFR Part
252, Subpart G). 77 FR 594, Jan. 5, 2012. The Board's proposal has
not yet been finalized.
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Question 6. Is the proposed method of public disclosure
appropriate, and why? If not, what alternatives would be more
appropriate? Should additional disclosure be required, such as, for
example, pre-provision net revenue, allowance for loan losses, or a
description of the methodologies used by the covered institution? What
are your concerns with public disclosures, including the details of the
disclosure and qualitative information and the manner of disclosure?
How could these concerns be mitigated or addressed by the agencies
while still meeting the statutory mandate for public disclosure?
F. Process and Timing of Annual Stress Test
As discussed above, covered institutions will be subject to an
annual stress test cycle under this proposed rule. For illustration
purposes, Table 1--Process Overview of Annual Stress Test Cycles for
Covered Institutions sets out the OCC best estimate for key dates in
the annual stress test cycle under the proposed rule.
Table 1--Process Overview of Annual Stress Test Cycles for Covered
Institutions
[Using covered institution financial data as of September 30th]
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Key step Proposed timeframe
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1. OCC publishes scenarios for annual By mid-October.
stress tests.
2. Covered institutions conduct annual By January 5.
stress test and submit Annual Stress
Test Report to the OCC and the Board.
3. Covered institutions make required By early April.
public disclosures.
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As noted in Table 1, the annual stress test cycle consist of three
key events: (1) Publication of the stress test scenarios by the OCC,
(2) conducting of the stress test and submission of the Annual Stress
Test Report, and (3) publication of required disclosures. The OCC
recognizes that certain parent company structures may include one or
more subsidiary banks or savings associations, each with total
consolidated assets greater than $10 billion. The company-conducted
stress test requirements of section 165(i)(2) apply to the parent
company and to each subsidiary bank or savings association of the
covered company that has $10 billion or more in total consolidated
assets.
The OCC recognizes the possibility that different covered
institutions within a given parent institution may be required to
conduct stress tests using different scenarios, if the scenarios
required by their respective primary federal financial regulators are
different. In this regard, the OCC intends to coordinate with the Board
and the FDIC on the development of the three scenarios that will be
specified each year under these regulations. The OCC anticipates making
every effort to avoid differences in the scenarios required by each
primary federal financial regulator under the regulations implementing
section 165(i)(2), and understands the Board and the FDIC to be in
agreement.
When a covered institution comprises the bulk of the assets for a
given parent holding company, the inputs to the stress tests conducted
by that institution and the holding company, and the conclusions
reached, would be expected to be similar. For example, for a bank
holding company that is essentially a shell holding company with a
single national bank that has total consolidated assets of more than
$10 billion, the Board and the OCC would coordinate efforts and
communicate with the bank holding company and the bank on how to
adequately address their respective stress testing requirements while
avoiding duplication of effort. This may include consideration of
whether the parent holding company may produce one consolidated set of
stress tests when the inputs and results of the particular test will be
substantially similar. In other instances, there may be economically
meaningful differences in the vulnerability to economic stress of
separate covered institutions within the same parent organization. The
OCC anticipates addressing, on a case-by-case basis through the
supervisory process, instances in which it may be appropriate to modify
stress testing requirements for this part when there are multiple
covered institutions within a single parent organization.
Question 7. 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
timeframes? What specific alternatives exist to address these
challenges that still allow the OCC to meet its statutory requirements?
Please comment on the use of the September 30 ``as of'' date for
financial data, the January 5 reporting date, the deadline for public
disclosure, and the sufficiency of time for completion of the stress
test.
Question 8. Would an immediately effective date in a final rule
provide sufficient time for an institution that is covered at the
effective date of the rule to conduct its first annual stress test?
Question 9. Should the rule require a covered institution to take
into account the results of any stress tests conducted pursuant to the
rule in taking future actions, such as making changes to capital
structure, exposures, concentrations, risk positions, or recovery
plans, or generally improving overall risk management?
III. Request for Comments
In addition to the specifically enumerated questions in the
preamble, the OCC requests comment on all aspects of this proposed
rule. The OCC requests that, for the specifically enumerated questions,
commenters include the number of the question in their response to make
review of the comments more efficient.
IV. Regulatory Analysis
A. Paperwork Reduction Act
Request for Comment on Proposed Information Collection
In accordance with section 3512 of the Paperwork Reduction Act
(``PRA'') of 1995 (44 U.S.C. 3501-3521), the OCC 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 information collection
requirements contained in this notice of proposed rulemaking have been
submitted by the OCC to OMB for review and approval under section 3506
of the PRA and Sec. 1320.11 of OMB's implementing regulations (5 CFR
part 1320 et seq.). The information collection requirements are found
in Sec. Sec. 46.5-46.8.
Comments are invited on:
(a) Whether the collection of information is necessary for the
proper performance of the OCC's functions, including whether the
information has practical utility;
(b) The accuracy of the estimate 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 information collection on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or startup costs and costs of operation,
maintenance,
[[Page 3413]]
and purchase of services to provide information.
All comments will become a matter of public record. Comments should
be addressed to: Communications Division, Office of the Comptroller of
the Currency, Public Information Room, Mailstop 2-3, Attention: 1557-
NEW, 250 E Street SW., Washington, DC 20219. In addition, comments may
be sent by fax to (202) 874-5274, or by electronic mail to
[email protected]. You may personally inspect and photocopy
comments at the OCC, 250 E Street SW., Washington, DC 20219. For
security reasons, the OCC requires that visitors make an appointment to
inspect comments. You may do so by calling (202) 874-4700. Upon
arrival, visitors will be required to present valid government-issued
photo identification and submit to security screening in order to
inspect and photocopy comments.
Additionally, you should send a copy of your comments to the OMB
Desk Officer, by mail to U.S. Office of Management and Budget, 725 17th
Street NW., 10235, Washington, DC 20503, or by fax to 202-395-6974.
Proposed Information Collection
Title of Information Collection: Annual Stress Test.
Frequency of Response: Annually.
Affected Public: Businesses or other for-profit.
Respondents: National banks, Federal savings associations, and
Federal savings banks.
Description of Requirements:
Section 46.6(a) specifies the calculations of the potential impact
on capital that must be made during each quarter of a planning horizon.
Section 46.6(c) requires that each covered institution must establish
and maintain a system of controls, oversight, and documentation,
including policies and procedures that, at a minimum, describe the
covered institution's stress test practices and methodologies, and
processes for updating the covered institution's stress test practices.
The board of directors of the covered institution shall approve and
review the policies and procedures of the covered institution, as
frequently as economic conditions or the condition of the institution
may warrant, but no less than annually. The senior management of the
covered institution shall establish and maintain a system of controls,
oversight, and documentation designed to ensure that the stress test
processes satisfy the requirements in this part.
Section 46.7 provides that each covered institution shall report to
the OCC and to the Board annually the results of the stress test in the
time, manner and form specified by the OCC.
Section 46.8 requires that, within 90 days of the due date of the
report, a covered institution shall publish a summary of the results of
its annual stress tests on its Web site or in any other forum that is
reasonably accessible to the public. The summary must include a
description of the types of risks being included in the stress test and
estimates of aggregate losses, net income, and pro forma capital levels
and capital ratios (including regulatory and any other capital ratios
specified by the OCC) over the planning horizon, under each scenario.
Estimated PRA Burden:
Estimated Number of Respondents: 61.
Estimated Burden per Respondent: 1,040 hours.
Total Annual Burden: 63,440 hours.
B. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (``RFA''),
generally requires that, in connection with a notice of proposed
rulemaking, an agency prepare and make available for public comment an
initial regulatory flexibility analysis that describes the impact of a
proposed rule on small entities.\11\ The Small Business Administration
has defined ``small entities'' for banking purposes to include a bank
or savings association with $175 million or less in assets.\12\
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\11\ See 5 U.S.C. 603(a).
\12\ See 13 CFR 121.201.
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The proposed rule would apply only to national banks and Federal
savings associations with more than $10 billion in total consolidated
assets. No small banking organizations satisfy these criteria. No small
entities would be subject to this rule. Therefore, the OCC certifies
that the proposed rule would not, if promulgated, have a significant
economic impact on a substantial number of small entities.
C. Unfunded Mandates Reform Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law
104-4 (2 U.S.C. 1532) (``Unfunded Mandates Act''), requires that an
agency prepare a budgetary impact statement before promulgating any
rule likely to result in a Federal mandate that may result in the
expenditure by state, local, and tribal governments, in the aggregate,
or by the private sector of $100 million or more in any one year. If a
budgetary impact statement is required, section 205 of the Unfunded
Mandates Act also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule. The OCC has determined that this proposed rule will not result in
expenditures by state, local, and tribal governments, or by the private
sector, of $100 million or more in any one year. Accordingly, this
proposal is not subject to section 202 of the Unfunded Mandates Act.
D. Solicitation of Comments and Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act \13\ requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The OCC invites comment on how to make
the proposed rule easier to understand. For example:
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\13\ Public Law 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809.
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Is the material organized to suit your needs? If not, how
could the OCC present the rule more clearly?
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 agencies incorporate to make
the regulation easier to understand?
List of Subjects in Part 46
Banking, Banks, Capital, Disclosures, National banks,
Recordkeeping, Reporting, Risk, Stress test.
Authority and Issuance
For the reasons stated in the preamble, the OCC proposes to add
part 46 to Title 12, Chapter I of the Code of Federal Regulations to
read as follows:
PART 46--ANNUAL STRESS TEST
Sec.
46.1 Authority and purpose.
46.2 Definitions.
46.3 Applicability.
46.4 Reservation of authority.
46.5 Annual stress test.
46.6 Stress test methodologies and practices.
46.7 Report to the Office of the Comptroller of the Currency and the
Federal Reserve Board.
46.8 Publication.
[[Page 3414]]
Authority: 12 U.S.C. 93a; 12 U.S.C. 5365(i)(2).
Sec. 46.1 Authority and purpose.
(a) Authority. 12 U.S.C. 93a; 12 U.S.C. 5365(i)(2).
(b) Purpose. This part implements 12 U.S.C. 5365(i)(2), which
requires annual stress tests to be conducted by financial companies
with total consolidated assets of more than $10 billion and establishes
a definition of stress test, methodologies for conducting stress tests,
and reporting and disclosure requirements.
Sec. 46.2 Definitions.
For purposes of this part, the following definitions apply:
Board means the Board of Governors of the Federal Reserve System.
Covered institution means a national bank or Federal savings
association whose average total consolidated assets, calculated as
required under this part, exceeds $10 billion.
Federal savings association has the same meaning as in 12 U.S.C.
1813(b)(2).
Regulatory condition report means:
(a) For a Federal savings association, either the Thrift Financial
Report or the Consolidated Report of Condition and Income (Call
Report), as appropriate; and
(b) For a national bank, the Consolidated Report of Condition and
Income (Call Report).
Planning horizon means a set period of time over which the impact
of the scenarios is assessed.
Pre-provision net revenue means the sum of net interest income and
non-interest income less expenses before adjusting for loss provisions.
Scenario means a set of hypothetical economic conditions.
Stress test means a process to assess the potential impact of
scenarios on the capital of a covered institution over the planning
horizon, taking into account the covered institution's current
condition, material risks, exposures, strategies, and activities.
Sec. 46.3 Applicability.
(a) Scope. This part applies to a national bank or Federal savings
association that meets the definition of a ``covered institution.''
(b) Election to apply stress test requirements. Any national bank
or Federal savings association may elect to be a covered institution
and subject to the requirements of this section.
(c) Measurement of total consolidated assets for purpose of being
deemed a covered institution. An institution's total consolidated
assets are deemed to be more than $10 billion when its average total
consolidated assets over the four most recent consecutive quarters, as
reported on the institution's regulatory condition reports for those
four quarters, exceeds $10 billion.
(d) Institutions subject to stress testing requirements as of the
effective date. A national bank or Federal savings association that is
a covered institution shall be subject to this part on [the effective
date of the final rule] and will conduct its first stress test under
this part using financial statement data as of September 30, 2012, with
results reported as required under this part in January 2013.
(e) Institutions subject to stress testing requirements after
effective date. A national bank or Federal savings association that
qualifies as a covered institution after the effective date of this
part shall be subject to the requirements of this part in the next
calendar year after the calendar year containing the date upon which it
becomes a covered institution. The date upon which an institution
becomes a covered institution shall be the as-of date of the fourth
consecutive regulatory condition report that causes the institution's
average total consolidated assets for four consecutive quarters to
exceed $10 billion.
(f) Ceasing to be a covered institution. A covered institution
shall remain subject to this part until its average total consolidated
assets over the four most recent consecutive quarters, as defined in
this part, are $10 billion or less. The date upon which an institution
ceases to be a covered institution shall be the as-of date of the
fourth consecutive regulatory condition report that causes the
institution's four-quarter average to fall to $10 billion or less.
Sec. 46.4 Reservation of authority.
The OCC may require a national bank or Federal savings association
not otherwise subject to this part to comply with the requirements of
this part, or may exempt any covered institution from some or all of
the requirements of this part, if the OCC determines in writing that
the application or exemption of the requirements of this part is
appropriate in light of the institution's level of complexity, risk
profile, or scope of operations. Notwithstanding sections 46.3, 46.5,
46.7, and 46.8 the OCC may accelerate or extend any specified deadline
for stress testing, reporting or publication of the stress test
results, or require additional stress tests, if the OCC determines that
such modification of a deadline or additional testing is appropriate in
light of the institution's activities, operations, risk profile, or
regulatory capital. If the OCC determines that the stress testing
methodologies and practices of a covered institution are deficient
under section 46.6 of this part, the OCC may determine that additional
analytical techniques and exercises are appropriate for an institution
to use in identifying, measuring, and monitoring risks to the financial
soundness of the company, and require a covered institution to
implement such techniques and exercises in order to fulfill the
requirements of this part. The OCC reserves authority to require
covered institutions to make additional publication beyond that
specified in section 46.8 of this part if the OCC determines that the
publication does not adequately address one or more material elements
of the stress test.
Sec. 46.5 Annual stress test.
Each covered institution must complete an annual stress test in
accordance with the following requirements:
(a) Financial data. The stress test must use financial data of the
covered institution as of September 30 of that calendar year.
(b) Scenarios provided by the OCC. In conducting its stress tests
under this section, each covered institution must use scenarios
provided by the OCC 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 OCC will
provide to all covered institutions a description of the baseline,
adverse, and severely adverse scenarios that each covered institution
shall use to conduct its annual stress tests under this part.
(c) Methodologies and practices. The stress test shall be conducted
in accordance with the methodologies and practices described in section
46.6.
Sec. 46.6 Stress test methodologies and practices.
(a) Potential impact on capital. During each quarter of the
planning horizon, a covered institution shall calculate the following
for each economic scenario:
(1) Pre-provision net revenues, market and credit losses, and loan
loss reserves, and
(2) The potential impact on the covered institution's regulatory
capital levels and ratios applicable to the institution under 12 CFR
part 3, 12 CFR part 167, and any other capital ratios specified by the
OCC, incorporating the effects of any expected capital distributions
over the planning horizon and maintenance by the institution of an
[[Page 3415]]
allowance for loan losses appropriate for credit exposures throughout
the planning horizon.
(b) Planning horizon. Each covered institution must use a planning
horizon of at least nine quarters.
(c) Controls and oversight of stress test processes. (1) Each
covered institution must establish and maintain a system of controls,
oversight, and documentation, including policies and procedures,
designed to ensure that the stress test processes used by the covered
institution satisfy the requirements in this part. These policies and
procedures must, at a minimum, describe the covered institution's
stress test practices and methodologies, and processes for updating the
covered institution's stress test practices.
(2) The board of directors of the covered institution shall approve
and review the policies and procedures of the covered institution, as
frequently as economic conditions or the condition of the institution
may warrant, but no less than annually. The senior management of the
covered institution shall establish and maintain a system of controls,
oversight, and documentation designed to ensure that the stress test
processes satisfy the requirements in this part.
Sec. 46.7 Report to the Office of the Comptroller of the Currency
and the Federal Reserve Board.
On or before January 5, each covered institution shall report to
the OCC and to the Board the results of the stress test in the time,
manner and form specified by the OCC.
Sec. 46.8 Publication.
(a) Within ninety (90) days following the due date of the report
required under section 46.7 of this part, a covered institution shall
publish a summary of the results of its annual stress tests. The
summary may be published on the covered institution's Web site or in
any other forum that is reasonably accessible to the public. A covered
institution controlled by a bank holding company that is required to
conduct an annual company-run stress test under [INSERT CITATION TO 12
CFR PART 252 SUBPART G] will be deemed to have satisfied the
publication requirement of this section when the bank holding company
publicly discloses summary results of its annual stress test in
satisfaction of [INSERT CITATION TO 12 CFR 252.148], unless the OCC
determines that the disclosures at the holding company level do not
adequately capture the potential impact of the scenarios on the capital
of the covered institution.
(b) Information to be disclosed in the summary. The information
disclosed shall, at a minimum, include--
(1) A description of the types of risks being included in the
stress test; and
(2) Estimates of aggregate losses, net income, and pro forma
capital levels and capital ratios (including regulatory and any other
capital ratios specified by the OCC) over the planning horizon, under
each scenario.
Dated: January 18, 2012.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2012-1274 Filed 1-23-12; 8:45 am]
BILLING CODE 4810-33-P