[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Rules and Regulations]
[Pages 62417-62427]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25194]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 /
Rules and Regulations
[[Page 62417]]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 325
RIN 3064-AD91
Annual Stress Test
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Federal Deposit Insurance Corporation (the ``Corporation''
or ``FDIC'') is issuing a final rule that implements the requirements
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the
``Dodd-Frank Act'') regarding stress tests (``final rule''). 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 to conduct annual stress tests, report the results of such
stress tests to the Corporation and the Board of Governors of the
Federal Reserve System (``Board''), and publish a summary of the
results of the stress tests. The final rule requires large covered
banks to conduct annual stress tests beginning on the effective date of
this final rule. The Corporation, however, will delay implementation of
the annual stress test requirements under the final rule for
institutions with total consolidated assets of more than $10 billion
but less than $50 billion until September 30, 2013. The final rule
requirement for public disclosure of a summary of the stress testing
results for these institutions will be implemented starting with the
2014 stress test, with the disclosure occurring during the period
starting June 15 and ending June 30 of 2015.
DATES: This final rule is effective October 15, 2012.
FOR FURTHER INFORMATION CONTACT: George French, Deputy Director,
Policy, (202) 898-3929, Robert Burns, Associate Director, Mid-Tier Bank
Branch, (202) 898-3905, or Ryan Sheller, Senior Large Financial
Institutions Specialist, (202) 412-4861, Division of Risk Management
and Supervision; Mark G. Flanigan, Counsel, (202) 898-7426, Jason
Fincke, Senior Attorney, (202) 898-3659, Rachel Jones, Attorney, (202)
898-6858, 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
The Dodd-Frank Act was enacted on July 21, 2010.\1\ Section
165(i)(2) of the Dodd-Frank Act (``section 165(i)(2)'') requires the
Corporation, as a Federal primary financial regulatory agency, 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 to conduct annual stress tests.
Additionally, 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 covered banks must submit to the Corporation; and
(4) require covered banks to publish a summary of the results of the
required stress tests.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
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Section 165(i)(2)(C) requires the Corporation, in coordination with
the Board of Governors and the Federal Insurance Office, to issue
regulations implementing the stress testing requirements that are
consistent and comparable with the other Federal primary financial
regulatory agencies.\2\
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\2\ Under section 2(12) of the Dodd-Frank Act, the term
``Primary financial regulatory agency'' includes the federal banking
agencies, including the Corporation, the Board of Governors, and the
Office of the Comptroller of the Currency (``OCC''); the Securities
and Exchange Commission; the Commodity Futures Trading Commission;
and the Federal Housing Finance Agency. 12 U.S.C. 5301(12).
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On January 23, 2012, pursuant to section 165(i) of the Dodd-Frank
Act, the Corporation issued a notice of proposed rulemaking in the
Federal Register that proposed to require covered banks to conduct
annual stress tests (``NPR'' or ``proposed rule'').\3\ The Corporation
is now issuing a final rule implementing the requirements of section
165(i)(2) as proposed in the NPR, with certain modifications as
described further below.
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\3\ 77 FR 3166 (Jan. 23, 2012).
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II. Comments Received
A. Overview
The NPR solicited public comment on all aspects of the proposed
rule. The NPR's comment period ended on April 30, 2012, and resulted in
the FDIC receiving 18 comment letters. Comments were submitted by, or
on behalf of, individuals, banks and bank holding companies, consulting
firms, and banking and financial services industry trade groups and
associations. The comment letters generally supported the broader goals
of the NPR, but many expressed concerns with respect to certain aspects
of the proposed rule, as discussed in more detail below.
B. Agency Coordination
A number of commenters expressed concerns about the scope of the
proposed rule and the need for coordination between the agencies in
implementing the stress test requirements for various institutions.
These commenters generally suggested that the agencies should seek
comparability on their respective stress testing requirements and
resolve some of the key differences between their respective proposals
to ensure consistent and comparable stress testing for all covered
financial institutions and to minimize regulatory burden.
The Corporation understands and is sensitive to commenters'
concerns regarding the importance of issuing a consistent and
comparable set of final stress testing rules across the banking
agencies. The FDIC understands that there are a number of insured
depository institutions subject to the stress testing final rules that
may operate within organizational structures with regulated entities
that may be supervised by different federal banking
[[Page 62418]]
regulators. The FDIC has developed this rule in coordination with the
FRB and the Federal Insurance Office as required by section
165(i)(2)(C). Additionally, the FDIC has worked closely with the other
banking agencies to ensure the standards of the final rule are
consistent and comparable in the areas of: scope of application,
scenarios, data collection and reporting, and disclosure. The Board and
OCC have issued separate final stress test rules with respect to their
supervised entities.
C. Effective Date of Proposed Rule
The NPR sought public comment on the timing of the proposed rule,
both with respect to the proposed immediate effectiveness and the
proposed time period allotted for completion of the stress tests.
With respect to the proposed effective date, several commenters
recommended delayed effective dates based on the asset size of the
bank. One commenter suggested a delayed effective date because, due to
the complexity of the rule's stress testing requirements, regional and
community banks would require additional time to build and effectuate
the systems necessary to conduct testing. Another commenter noted that
community banks have not participated in stress tests and have not
experienced the supervisory expectations that accompany the stress
testing process and therefore need additional time to comply with the
proposed rule. Several commenters requested delaying the implementation
of the proposed rule for at least one year.
The FDIC recognizes that a number of state nonmember banks and
state savings associations are at different stages in developing their
stress testing frameworks. Certain institutions may need additional
time to fully develop their stress testing systems, processes, and
procedures, and to collect the information that the FDIC may require in
connection with these tests. After considering the comments, the FDIC
has decided to delay implementation of the final rule for institutions
with total consolidated assets of more than $10 billion but less than
$50 billion until September 30, 2013, to ensure that these institutions
have sufficient time to develop high-quality stress testing programs.
Furthermore, the FDIC has decided to delay the initial public
disclosure requirement for these institutions until the 2014 stress
test (with the public disclosure to be made in 2015).
Most banks with consolidated assets of $50 billion or more have
been involved in stress testing previously, including the 2009
Supervisory Capital Assessment Program (SCAP) and the Board's
Comprehensive Capital Analysis and Review (CCAR) stress tests, and
consequently have in place a framework necessary to conduct the stress
tests required by this rule. Given the size, complexity, and importance
of these covered banks to the safety and soundness of the United States
banking system, the FDIC believes it is appropriate for these covered
banks to commence stress testing as soon as possible. Consequently,
state nonmember banks and state savings associations with consolidated
total assets equal to or exceeding $50 billion will be required to
conduct their first annual stress tests under this final rule using
financial data as of September 30, 2012.
The FDIC is aware, however, that some state nonmember banks and
state savings associations with assets of $50 billion or more may not
be able or ready to conduct the annual stress test this year in a
manner that would yield meaningful results. For example, covered banks
that were not subject to SCAP and CCAR may need more time to develop
and implement a robust stress testing framework. Therefore, the FDIC is
reserving authority in the rule to permit these covered banks to delay
the application of the requirements under this final rule on a case-by-
case basis.
D. Timing of the Stress Test Requirements
The NPR sought public comment on the proposed time period allotted
for completion of the stress tests. A number of comments were received
expressing concern with respect to the proposed rule's timing for the
annual stress test. Several commenters noted that the proposed rule
would require covered banks to conduct stress tests during the busiest
time of year for many institutions. Furthermore, one commenter argued
that the narrow timeframe between the release of scenarios and the
submission of the required reports could present timing issues for
institutions, particularly smaller banks, in preparing year-end
information. Additionally, several commenters requested that the
Corporation provide flexibility with respect to when covered banks are
required to perform stress tests. For example, one commenter
recommended that covered banks be permitted to choose when they will
conduct stress testing throughout the year, and also suggested that the
Corporation should provide economic scenarios for the stress tests no
later than September 30 of each calendar year.
After consideration of the comments, the FDIC has decided to make
changes in the timeline in the final rule. The Corporation intends to
distribute the scenarios to all covered banks no later than November 15
of each year, which aligns the development and issuance of the
scenarios with the other agencies and which is approximately seven
weeks prior to the date by which an over $50 billion covered bank must
report the results of its annual stress test. The Corporation believes,
based on its supervisory experience, that over $50 billion covered
banks will have adequate time to carry out the required stress tests.
For the $10 billion to $50 billion covered banks, the final rule
extends the reporting date to March 31 of each year giving additional
time to these institutions to conduct stress tests and report the
results. The final rule also permits these institutions to report their
stress test results under the same timeframe as their parent holding
company.
The final rule states that a state nonmember bank or state savings
association that becomes a covered bank after the final rule's
effective date shall comply with the requirements of the final rule and
conduct its stress test beginning in the calendar year after the date
the state nonmember bank or state savings association becomes a covered
bank. This modification to the proposed rule is in response to
commenters' concerns that certain institutions have not previously been
subject to stress-testing requirements and may need additional time to
develop the systems and procedures, as well as information collection
processes necessary to conduct these tests.
E. Scenario Development
A number of the comments received by the Corporation raised
concerns with respect to the development and use of economic scenarios
within the proposed rule. For example, one commenter suggested that the
scenarios should be realistic and robust enough to illuminate potential
problems, and that, at a minimum, the ``severely adverse'' scenario
should be as adverse as conditions were during the recent financial
crisis. A trade association recommended that the scenarios address only
general macroeconomic factors for institutions with between $10 billion
and $50 billion in assets, while more complex institutions or those
that have significant trading positions should incorporate rate
``shocks'' into their stress tests. Another commenter requested that
the banking regulators
[[Page 62419]]
and the bank mutually determine stress testing criteria that are
tailored to a bank's specific business profile, including unique asset
mixes and operating profiles, in order to avoid the distortions that a
``one size fits all'' approach would create.
Several commenters requested that banks with small geographic
footprints be permitted to develop economic scenarios relevant to
banks' regional operations. One such commenter argued that the
requirements could become a costly ``check the box'' exercise if stress
scenarios are not relevant to banks with small geographic footprints.
The commenter also recommended that the Corporation provide guidance to
banks for developing their own scenarios, including reports on regional
economic outlooks.
A comment submitted jointly by a number of industry organizations
requested that the Corporation and other federal banking agencies
minimize the burden of the multiple and overlapping stress test
requirements by consistently using the same set of supervisory stress
scenarios and models for all stress-test requirements. The FDIC intends
to coordinate with other federal banking agencies on the development of
scenarios. To promote a consistent and transparent framework to support
scenario design, the banking agencies anticipate seeking comment on the
procedures to be used by the agencies in the development of the
scenarios. With regard to commenters' requests to use their own
internally generated scenarios, the FDIC believes that all covered
banks should use the same set of scenarios so that the results are more
directly comparable. However, to allow for unforeseen circumstances,
the FDIC reserves the authority to require a covered bank to use
different or additional scenarios that the FDIC deems appropriate.
F. Reporting
Commenters also expressed concerns about the required reports that
must be submitted to the Corporation under the proposed rule. For
example, one commenter suggested that the Corporation's expectations
for the required reports should be clear and simple enough so that
institutions, particularly smaller banks, do not have to rely on
vendors or third-party professionals to comply with the requirements.
A number of commenters suggested that it would be appropriate in
certain situations to allow a covered bank that is a subsidiary of a
bank holding company (that is itself subject to stress testing
requirements) to submit a single report for both the bank and the bank
holding company. One such commenter requested that the Corporation
provide more comprehensive guidance with respect to the standards by
which the company-run stress tests will be analyzed.
The FDIC recently proposed reporting templates for covered banks
with consolidated assets of $50 billion or more.\4\ The Dodd-Frank Act
stress testing reporting requirements apply to all covered banks, but
the FDIC recognizes that many covered banks with consolidated total
assets of $50 billion or more have been subject to stress testing
requirements under the Board's CCAR or Capital Plan Review (CapPR)
exercises. The FDIC also recognizes that these banks' stress tests will
be applied to more complex portfolios and therefore warrant a broader
set of reports to adequately capture the results of the company-run
stress tests. These reports will necessarily require more detail than
would be appropriate for smaller, less complex banks. Therefore, the
FDIC will propose more simplified and separate reporting templates for
institutions with total consolidated assets of more than $10 billion
but less than $50 billion than for covered banks with total
consolidated assets of $50 billion or more. The general expectations
for the proposed reporting requirements are discussed further below.
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\4\ 77 FR 52718 (Aug. 30, 2012).
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The FDIC reserves the authority to require a $10 billion to $50
billion covered bank to use the reporting template for larger banks.
The FDIC may also, on a case-by-case basis, require a covered bank to
report stress test results using a simpler format to be specified by
the FDIC.
G. Public Disclosure of Stress Test Results
Many of the comments received by the Corporation addressed issues
associated with the proposed rule's public disclosure requirement.
Several commenters expressed concern that the publication of detailed
stress test results could be misinterpreted by the general public which
could, in turn, undermine public confidence in banks. One such
commenter noted that the required public disclosure of results may be
used for comparison across institutions, suggesting that regulators run
the risk of creating an environment where banks present a conservative
bias where there is flexibility in adopting test inputs.
Several commenters requested additional clarity with respect to the
Corporation's expectations for the required summary public disclosure.
One commenter noted that the company-run stress tests would not be
standardized, and thus, comparison of results across various companies
may not be possible. This commenter urged the Corporation to provide
companies with a standardized template for disclosure that could enable
a better understanding of the stress test results by the capital
markets and the general public. Another commenter urged the Corporation
to require small banks to disclose only a description of the types of
risks being included in the stress test, a general description of the
methodologies employed, and the capital ratios at the end of the
planning horizon.
Two commenters recommended that the CCAR or CapPR disclosure
templates be used for disclosure of the results of the severely adverse
scenario for company-run stress tests, at least for covered banks with
consolidated assets of $50 billion or more. One of these commenters
supported not requiring the publication of summary results under the
adverse scenario. Several commenters suggested that covered banks
should not be required to disclose baseline stress test results or
other information that could be used to reverse-engineer earnings
guidance.
After careful consideration of the comments, the FDIC has decided
to make the following changes. First, the public disclosure requirement
will be delayed for an additional year for institutions with total
consolidated assets of more than $10 billion but less than $50 billion
so that these institutions will have additional time to develop robust
stress testing methodologies before they report publicly. Therefore,
these covered banks will conduct their required stress tests for the
first time in 2013, with the first disclosure of a summary of stress
test results occurring in 2015, based on the results of the 2014 stress
tests. Covered banks with total consolidated assets of $50 billion or
more that are subject to this final rule as of the effective date of
this final rule must conduct their first stress test this year, with
disclosure required in 2013.
Institutions that become $10 billion to $50 billion covered banks
after the effective date of the final rule would begin stress testing
in the calendar year after they become covered banks. This is a change
from the proposed rule, which would have required institutions to begin
stress testing in the same calendar year if they became covered banks
no less than 90 days before September 30 of that year. This change was
in response to comments that requested
[[Page 62420]]
that the Corporation's final rule be consistent with the OCC's and the
Board's final rules under Section 165(i).
Additionally, the final rule removes the requirement that covered
banks publicly disclose results under the baseline scenario and adverse
scenario. The FDIC agrees with the commenters that publicly disclosing
the above items under a baseline or adverse scenario could be construed
as long-term earnings forecasts.
H. Other Issues
In addition to the issues identified above, the Corporation
received a number of comments that addressed a wide range of other
topics associated with the proposed rule. A number of commenters
suggested establishing a threshold to determine when a covered bank
that is a subsidiary of an institution that is itself subject to
stress-testing requirements would be required to perform independent
stress tests and comply with the requirements of the proposed rule.
Commenters suggested that the proposed rule may create duplicative
efforts when a subsidiary covered bank comprises greater than 90
percent of its holding company's total consolidated assets. One of
these commenters suggested that in order to eliminate duplicate stress
testing, the Corporation should accept the CCAR and the Board of
Governors' Board FR Y-14A form submissions for annual stress tests of a
covered bank that comprises greater than 90 percent of its bank holding
company's total consolidated assets and that also serves as the lead
depository institution for the bank holding company covered by the CCAR
process.
Another commenter noted that the completion of the stress testing
and related supervisory evaluation process should not hinder or delay
covered banks' ability to take necessary strategic capital actions not
otherwise set forth in previously approved capital plans. One of the
comments received requested that the Corporation set forth a robust and
transparent process for responding to inquiries in a timely manner and
suggested that experienced examiners should offer instruction,
assistances, and feedback to facilitate the good faith efforts of
smaller banks to implement the proposed rule. This commenter also
suggested that the Corporation offer a dedicated email address that
banks could use to submit questions and receive answers in a timely
manner.
The FDIC has carefully considered the comments and has made
appropriate revisions to the final rule as described below.
III. The Final Rule
The Corporation is now issuing this final rule to implement the
requirements of section 165(i)(2) as proposed in the NPR, with certain
modifications, as discussed below. Under this final rule, FDIC-insured
state nonmember banks and FDIC-insured state-chartered savings
associations with total consolidated assets of more than $10 billion
would be required to conduct an annual stress test. The FDIC is
delaying the application of the annual stress test requirements by one
year for state nonmember banks and state-chartered savings associations
with consolidated assets of more than $10 billion but less than $50
billion.
A. The Purpose of the Annual Stress Test
The FDIC views the stress tests conducted under the final rule as
providing forward-looking information to supervisors to assist in their
overall assessments of a covered bank's capital adequacy and to aid in
identifying downside risks and the potential impact of adverse outcomes
on the covered bank. In addition, the FDIC may use stress tests to
determine whether additional analytical techniques and exercises are
appropriate for a covered bank to employ in identifying, measuring, and
monitoring risks to the financial soundness of the covered bank, and
may require a covered bank to implement such techniques and exercises
in conducting its stress tests. Further, these stress tests are
expected to support ongoing improvement in a covered bank's internal
assessments of capital adequacy and overall capital planning.
The FDIC expects that the annual stress tests required under the
final rule will be only one component of the broader stress testing
activities conducted by covered banks. In this regard, the FDIC notes
that the agencies have recently issued final joint guidance on ``Stress
Testing for Banking Organizations with More Than $10 Billion in Total
Consolidated Assets.'' \5\ 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 bank's
financial condition including, but not limited to, capital adequacy. In
addition, a full assessment of a covered bank's capital adequacy should
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.
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\5\ See 77 FR 29458 (May 17, 2012).
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B. Applicability
The final rule will apply to covered banks that are FDIC-insured
state nonmember banks and FDIC-insured state savings associations with
more than $10 billion in total consolidated assets. Covered banks will
be required conduct stress in accordance with the requirements of the
final rule. However, the final rule separates a ``covered bank'' into
two categories: a state nonmember bank or state savings association
that is either a $10 billion to $50 billion covered bank or an over $50
billion covered bank. The final rule defines a $10 billion to $50
billion covered bank as any state nonmember bank or state savings
association with average total consolidated assets that are greater
than $10 billion but less than $50 billion. The final rule defines an
over $50 billion covered bank as any state nonmember bank or state
savings association with average total consolidated assets that are not
less than $50 billion. The stress testing, reporting, and disclosure
requirements, and deadlines of the final rule differ depending on
whether the covered bank is a $10 billion to $50 billion covered bank
or an over $50 billion covered bank.
The FDIC recognizes that some covered bank subsidiaries may be
affiliated with larger institutions also subject to requirements for
stress testing, reporting, and disclosure. In such cases, it may be
less burdensome and more appropriate for the covered bank subsidiaries
to follow the timing requirements of their parent holding companies.
The final rule permits covered bank subsidiaries to choose to conduct
their stress tests using the same timeline requirements as their parent
holding companies.
A state nonmember bank or state savings association becomes a
covered bank for purposes of the final rule based on its total
consolidated assets averaged over each of the institution's four most
recent consecutive quarters as reported on its Call Reports. The date
on which a state nonmember bank or state savings association becomes a
covered bank is the as-of date of the fourth consecutive Call Report in
which its reported average total consolidated assets are greater than
$10 billion. Similarly, a covered bank will remained subject to the
stress testing requirements of the final rule until it has $10 billion
or less in total consolidated assets for each of the four most recent
consecutive quarters as reported in the covered
[[Page 62421]]
bank's four most recently filed Call Reports. Public comments requested
that the Corporation's final rule be consistent with the OCC's and the
Board's final rules under Section 165(i). Therefore, in order to
maintain consistency with the OCC's and the Board's final rules and to
provide clarity in the application of standards of coverage, the
Corporation will use the measure described in the final rule to
determine whether an institution meets the definition of a covered bank
and at which point a state nonmember bank or state savings association
ceases to be a covered bank.
The date by which a state nonmember bank or state savings
association must conduct its first annual stress test under this final
rule depends on its size category and whether it becomes a covered bank
before or after the effective date of this final rule. A state
nonmember bank or state savings association that is subject to this
final rule as of October 15, 2012 must conduct the annual stress test
under this final rule beginning this year if it is an over $50 billion
covered bank, whereas a $10 billion to $50 billion covered bank would
conduct its first annual stress test in 2013. Further, the final rule
requirement for public disclosure of a summary of the stress testing
results for a $10 billion to $50 billion covered bank will not occur
until the 2014 stress test.
A state nonmember bank or state savings association that becomes a
covered bank after October 15, 2012 would be required to conduct its
first annual stress test in the calendar year following the year in
which it becomes a covered bank. For example, a 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 bank on June 30, 2013, and would conduct their first
stress test in 2014.
C. Shell Holding Companies and Multi-Bank Holding Companies
When a covered bank 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. The FDIC expects to take this into
account in applying the requirements of this rule. For example, for a
holding company that is essentially a shell holding company with a
single state nonmember or state savings association that has total
consolidated assets of more than $10 billion, the Board and the FDIC
would coordinate efforts and communicate with the holding company and
the covered bank on how to adequately address their respective stress
testing requirements while avoiding duplication of effort.
The FDIC 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 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 FDIC
anticipates addressing, on a case-by-case basis through the supervisory
process, instances in which it may be appropriate to modify stress
testing requirements when there are multiple covered banks within a
single parent organization.
D. Scenarios
Under the final rule, each covered bank would be required to
conduct an annual stress test using its financial data as of September
30 of that year, unless the FDIC communicates, in the fourth quarter of
that year, a different required as-of date for any or all categories of
financial data. Additionally, the Corporation could accelerate or
extend any specified deadline for stress testing if the Corporation
determined that such modification is appropriate in light of the
institution's activities, level of complexity, scope of operations,
risk profile, or regulatory capital.
The stress test must assess the potential impact of different
scenarios on the capital of the covered bank 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 FDIC will provide a minimum of three economic scenarios,
(baseline, adverse, and severely adverse), or such additional scenarios
as the FDIC determines appropriate, no later than November 15, which
the covered bank must use for the stress test. While each scenario
includes the paths of a number of economic variables that are typically
considered in stress test models, the FDIC expects that covered banks
may use all or a subset of the economic variables provided, and may
extrapolate other variables (such as local economic variables) from the
paths of the economic variables provided, as appropriate, to conduct
the stress test.
The FDIC may require a covered bank to include one or more
additional scenarios in its stress test based on the institutions
activities, level of complexity, risk profiles, scope of operations and
regulatory capital, in addition to any other relevant factors. The FDIC
will notify the institution in writing that it will be required to
include one or more additional scenarios in its stress test, and the
notification will include a description of the scenario and the basis
for requiring the institution to include the scenario in its stress
test.
The FDIC has established provisions within the final rule that
apply to covered banks having significant trading activities. For those
covered banks, an additional trading and counterparty risk scenario may
be included as a component of their stress test scenarios. The FDIC
will select an as-of date between October 1 and December 1 of that
calendar year for the trading and counterparty risk scenario which will
be communicated to the covered bank no later than December 1. This
provision is necessary to allow the FDIC to tailor the scenarios and
other stress test requirements for those covered banks to ensure that
the stress tests provide a meaningful identification of downside risks
and assessment of the potential impact of adverse outcomes on the
covered bank's capital. Typically, the scenarios would include market
price and rate ``shocks'' consistent with historical or hypothetical
adverse market events.
The FDIC expects that the annual stress test scenarios will be
revised from time to time to ensure that each scenario remains relevant
under current economic and industry conditions. The FDIC will consult
closely with the Board and OCC on the development of the annual stress
test scenarios to ensure consistent and comparable stress tests for all
covered financial institutions and to minimize regulatory burden.
The FDIC expects to issue for comment proposed guidance and
procedures for scenario development at a later date.
E. Stress Test Methodologies and Practices
The final rule requires each covered bank to use the annual stress
test scenarios provided by the FDIC in conducting its annual stress
tests. Each covered bank must use a planning horizon of at least nine
quarters over which the impact of specified scenarios would be
assessed. The nine-quarter planning horizon would permit the covered
bank to make informed projections of its financial and capital
[[Page 62422]]
positions for a two-calendar-year period. The covered bank is required
to calculate, for each quarter-end within the planning horizon,
estimates of losses, pre-provision net revenues, net income, and
provision for loan and lease losses that result from the conditions
specified in each scenario. Such a covered bank also is required to
calculate, for each quarter-end within the planning horizon, the
potential impact on its capital levels and regulatory capital ratios
applicable to the institution under 12 CFR Part 325 (and any other
capital ratios specified by the Corporation), incorporating the effects
of any expected capital actions over the planning horizon.
The final rule also requires the senior management of 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 covered bank are
effective in meeting the requirements of the final rule. The covered
bank's policies and procedures must, at a minimum, outline the covered
bank's stress testing practices and methodologies, and processes for
validating and updating its stress testing practices consistent with
applicable laws, regulations and supervisory guidance.\6\ The covered
bank's board of directors (or a committee thereof) must approve and
review the policies and procedures of the stress testing processes as
frequently as economic conditions may warrant, but no less than
annually. The covered bank's board of directors and senior management
must receive a summary of the results of the annual stress test.
---------------------------------------------------------------------------
\6\ See Supervisory Guidance on Stress Testing for Banking
Organizations With More Than $10 Billion in Total Consolidated
Assets, 77 FR 29458 (May 17, 2012).
---------------------------------------------------------------------------
F. Reporting and Disclosures
Section 165(i)(2)(B) requires a covered bank to submit a report to
the Board and 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) mandates that
the primary financial regulatory agencies require a covered bank to
publish a summary of its stress test results.
The final rule requires that each over $50 billion covered bank
submit a report of the stress test results and documentation to the
FDIC and to the Board by January 5. The FDIC published for notice and
comment specific annual stress test reporting requirements for over $50
billion covered banks in a separate information collection under the
Paperwork Reduction Act (44 U.S.C. 3501-3521).\7\ The Corporation plans
to publish for comment separately the required report for covered banks
with total consolidated assets of more than $10 billion but less than
$50 billion. For $10 billion to $50 billion covered banks, the final
rule requires that each bank submit a report of the stress test results
to the FDIC and to the Board by March 31.
---------------------------------------------------------------------------
\7\ 77 FR 52718 (Aug. 30, 2012).
---------------------------------------------------------------------------
The confidentiality of information submitted to the Corporation
under the final rule will 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).
Based on information submitted by a covered bank in the required
report to the Corporation, as well as other relevant information, the
Corporation will conduct an analysis of the quality of the bank's
stress test processes and related results. The Corporation envisions
that feedback concerning such analysis will be provided to a covered
bank through the supervisory process. In addition, each covered bank
must consider the results of the stress tests conducted under the final
rule in the normal course of business including, but not limited to,
the banking organization's capital planning, assessment of capital
adequacy, and risk management practices. The Corporation may also
require other actions consistent with safety and soundness of the
covered bank.
Consistent with section 165(i)(2), the final rule also requires
each covered bank to publish a summary of the results of its annual
stress tests after submitting its annual stress test report to the FDIC
and the Board. Under the final rule, a $10 billion to $50 billion
covered bank must publish a summary of the results of its annual stress
test from the period beginning on June 15 and ending June 30 and an
over $50 billion covered bank must publish its summary disclosures from
the period beginning on March 15 and ending on March 31.
The timing of the disclosures in the final rule has changed from
the timing sequence proposed in the NPR. The proposed rule would have
required all disclosures to be made no later than April 5. The final
rule extends the disclosure due date for $10 billion to $50 billion
covered banks to June 30. Therefore, this final rule replaces the
specific disclosure due date with a 15-day period in which disclosures
must be made. This change ensures adequate time for review of stress
test results prior to disclosure.
The summary may be published on a covered bank's Web site or any
other forum that is reasonably accessible to the public. The required
information publicly disclosed by each covered bank for the severely
adverse scenario, at a minimum, includes:
i. A description of the types of risks being included in the stress
test;
ii. A summary description of the methodologies used in the stress
test;
iii. Estimates of aggregate losses, pre-provision net revenue, net
income, provision for loan and lease losses, capital ratios (including
regulatory and any other capital ratios specified by the FDIC); and
iv. An explanation of the most significant causes for the changes
in regulatory capital ratios, such as the amount of losses attributable
to a particular portfolio.
Covered banks that are consolidated subsidiaries of a bank holding
company or savings and loan holding company will be permitted to
publish abbreviated disclosures with the parent's summary and on the
same timeline as the parent holding company. These disclosures will
include a summary of changes in regulatory capital ratios of the
depository institution subsidiary over the planning horizon, including
an explanation of the most significant causes for changes in regulatory
capital ratios, such as the amount of losses attributable to a
particular portfolio. However, the FDIC reserves the right to require
additional disclosures if the FDIC believes that the disclosures at the
holding company level do not accurately capture the potential impact of
the scenarios on the condition of the covered bank.
G. Summary of Steps for Annual Stress Test
The table below describes the steps and timeframes for the annual
stress test for covered banks.
[[Page 62423]]
------------------------------------------------------------------------
Process Overview of Annual Stress Test (Using Data as of September 30th)
-------------------------------------------------------------------------
Timeframe for $10
Timeframe for over billion to $50
Step $50 billion billion covered
covered banks banks
------------------------------------------------------------------------
1. FDIC provides covered banks No later than No later than
with scenarios for annual November 15th. November 15th.
stress tests.
2. Covered banks submit required No later than No later than
regulatory reports to the FDIC January 5th. March 31st.\8\
on their stress tests.
3. Covered banks make required Between March 15th Between June 15th
public disclosures. and March 31st. and June 30th.
------------------------------------------------------------------------
H. Administrative Law Matters
---------------------------------------------------------------------------
\8\ A covered bank subsidiary may elect to report and issue its
required public disclosure on its parent bank holding company's or
savings and loan holding company's timeline.
---------------------------------------------------------------------------
Administrative Procedure Act
The final rule will be effective immediately upon publication in
the Federal Register. Section 553(d)(3) of the Administrative Procedure
Act (``APA'') provides that publication of a rule shall be made not
less than 30 days before its effective date, except ``* * * (3) as
otherwise provided by the agency for good cause found and published
with the rule.'' Consistent with section 553(d)(3) and for the reasons
discussed below, the FDIC finds good cause exists to publish this final
rule with an immediate effective date.\9\
---------------------------------------------------------------------------
\9\ 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------
The FDIC believes the final rule is necessary to address the
continuing exposure of the banking industry to potentially adverse
economic conditions. The FDIC expects that all covered banks should
have the capacity to understand their risks and the potential impact of
stressful events and circumstances on their financial condition. The
stress test requirements contained in the final rule will help covered
banks and the FDIC to better understand such banks' financial condition
in stressed environments, including the potential impact on covered
banks' capital adequacy. Further, stress tests serve as an ongoing risk
management tool that supports a covered bank's forward-looking
assessment of its risks and better equips such organizations to address
a range of adverse outcomes. As adverse economic conditions can occur
quickly, the process of stress testing needs to begin promptly.
Ensuring that covered banks are prepared for adverse economic
situations is essential for their health and the overall financial
stability of the economy. Accordingly, the FDIC finds good cause for
the final rule to take effect immediately upon publication in the
Federal Register.
Paperwork Reduction Act Analysis
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (``PRA'')
prohibits the Corporation from conducting or sponsoring, and
respondents are not required to respond to, an information collection
unless it displays a currently valid Office of Management and Budget
(``OMB'') control number. In accordance with the PRA, the Corporation
published notice of the proposed information collection for over $50
billion covered banks on August 30, 2012.\10\ Following the close of
the sixty-day comment period associated with the Corporation's proposed
information collection notice, the Corporation will review the public
comments and submit a proposed information collection to the OMB
director for approval. If approved, covered banks would then be subject
to the Corporation's stress test reporting requirements contained in
the final rule. Additionally, prior to the 2013 stress test, the
Corporation intends to publish in the Federal Register a proposed
information collection notice for $10 billion to $50 billion covered
banks.
---------------------------------------------------------------------------
\10\ 77 FR 52718 (Aug. 30, 2012).
---------------------------------------------------------------------------
Title of Information Collection: Annual Stress Test Reporting
Template and Documentation for Covered Banks under the Dodd-Frank Wall
Street Reform and Consumer Protection Act.
For over $50 billion covered banks, following the close of the
sixty-day comment period associated with the Corporation's proposed
information collection notice, the Corporation will submit its proposed
information collection to the OMB director for approval. For $10
billion to $50 billion covered banks, the Corporation will submit a
proposed information collection to OMB following the publication and
60-day comment period of a proposed information collection notice for
$10 billion to $50 billion covered banks.
OMB Number: 3064-0187.
Frequency of Response: Annually.
Affected Public: State nonmember banks and state savings
associations supervised by the Corporation with more than $10 billion
in total consolidated assets.
Estimated Total Burden (includes all covered banks):
The estimated burden for the reporting and disclosure requirements
is as follows:
----------------------------------------------------------------------------------------------------------------
Number of Annual Hourly
respondents frequency estimate Total hours
----------------------------------------------------------------------------------------------------------------
Initial Paperwork Burden:
Initial Report.............................. 25 1 2,000 50,000
---------------------------------------------------------------
Total................................... 25 1 2,000 50,000
----------------------------------------------------------------------------------------------------------------
Ongoing Paperwork Burden:
Annual Report............................... 25 1 1,040 26,000
---------------------------------------------------------------
Total................................... 25 1 1,040 26,000
----------------------------------------------------------------------------------------------------------------
Abstract: The information collection requirements are found in
sections 325.205, 325.206, and 325.207 of the final rule. These
requirements implement the stress testing and stress testing reporting
requirements set forth in Section 165(i) of the Dodd-Frank Act. Section
325.205(a) identifies the calculations of the potential impact on
[[Page 62424]]
capital that must be made during each quarter of the planning horizon.
Section 325.205(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, as well as processes for updating such
bank's stress test practices. Section 325.206 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 325.207 requires that a covered bank must
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 summary description of the methodologies used in
the stress test, and estimates of losses, pre-provision net revenue,
provision for loan and lease losses, net income and pro forma capital
ratios (including regulatory and any other capital ratios specified by
the FDIC) over the planning horizon, under the severely adverse
scenario.
Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act
(``RFA''),\11\ the regulatory flexibility analysis otherwise required
under section 604 of the RFA is not required if an agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities (defined for purposes of the RFA
to include banks with assets less than or equal to $175 million) \12\
and publishes its certification and a short, explanatory statement in
the Federal Register along with its rule. For the reasons provided
below, the FDIC certifies that the final rule does not have a
significant economic impact on a substantial number of small entities.
Since the final rule applies 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 final rule will
directly affect a substantial number of small entities. Accordingly, a
regulatory flexibility analysis is not required.
---------------------------------------------------------------------------
\11\ 5 U.S.C. 605(b).
\12\ 5 U.S.C. 601, et seq.
---------------------------------------------------------------------------
Plain Language
Section 722 of the Gramm-Leach-Bliley Act \13\ requires federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The Corporation sought to present the
proposed rule in a simple and straightforward manner and invited
comment on how to make the proposed rule easier to understand. The FDIC
received no comments on the use of plain language.
---------------------------------------------------------------------------
\13\ Public Law 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809
(1999).
---------------------------------------------------------------------------
Riegle Community Development and Regulatory Improvement Act
Section 302 of Riegle Community Development and Regulatory
Improvement Act (``RCDRIA'') generally requires that regulations
prescribed by federal banking agencies which impose additional
reporting, disclosures or other new requirements on insured depository
institutions take effect on the first day of a calendar quarter which
begins on or after the date on which the regulations are published in
final form unless an agency finds good cause that the regulations
should become effective sooner. The final rule will be effective
immediately upon publication in the Federal Register. The first day of
a calendar quarter which begins on or after the date on which the
regulations are published will be January 1, 2013. Accordingly, the
FDIC invokes the good cause exception to the publication requirement
because the final rule is necessary to address the continuing exposure
of the banking industry to potentially adverse economic factors. For
the same reasons discussed in support of the good cause waiver from the
30-day delayed effective date required by the APA, the FDIC finds that
good cause exists for an immediate effective date for the final rule.
Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget has determined that the final
rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Fairness Act of
1996 \14\ (``SBREFA''). As required by SBREFA, the FDIC will file the
appropriate reports with Congress and the Government Accountability
Office so that the final rule may be reviewed.
---------------------------------------------------------------------------
\14\ 5 U.S.C. 801, et seq.
---------------------------------------------------------------------------
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.
Authority and Issuance
The Corporation amends part 325 of chapter III of title 12 of the
Code of Federal Regulations as follows:
PART 325--CAPITAL MAINTENANCE
0
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), 1828(n),
1828(o), 1831o, 1831p-1, 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); 12 U.S.C. 5412(b)(2)(B).
0
2. Add subpart C to read as follows:
Subpart C--Annual Stress Test
Sec.
325.201 Authority, purpose, and reservation of authority.
325.202 Definitions.
325.203 Applicability.
325.204 Annual stress tests required.
325.205 Methodologies and practices.
325.206 Required reports of stress test results to the FDIC and the
Board of Governors of the Federal Reserve System.
325.207 Publication of stress test results.
Subpart C--Annual Stress Test
Sec. 325.201 Authority, purpose, and reservation of authority.
(a) Authority. This subpart is issued by the Federal Deposit
Insurance Corporation (the ``Corporation'' or ``FDIC'') under 12 U.S.C.
5365(i)(2), 12 U.S.C. 5412(b)(2)(B), 12 U.S.C. 1818, 12 U.S.C.
1819(a)(Tenth), 12 U.S.C. 1831o, and 12 U.S.C. 1831p-1.
(b) Purpose. This subpart implements 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 that require each covered bank to conduct
annual stress tests and establishes a definition of stress test,
methodologies for conducting stress tests, and reporting and disclosure
requirements.
(c) Reservation of authority. Notwithstanding any other provisions
of this subpart, the Corporation may modify some or all of the
requirements of this subpart.
(1) The Corporation may accelerate or extend any deadline for
stress testing, reporting, or publication of the stress test results.
(2) The Corporation may require different or additional tests not
otherwise required by this subpart or may require or permit different
or additional analytical techniques and methodologies, different or
additional scenarios (including components for the
[[Page 62425]]
scenarios), or different assumptions for the covered bank to use in
meeting the requirements of this subpart. In addition, the FDIC may
specify a different as-of date for any or all categories of financial
data used by the stress test.
(3) The Corporation may modify the reporting requirements of a
report under this subpart or may require additional reports. The
Corporation may modify the publication requirements of this subpart and
or may require different or additional publication disclosures.
(4) Factors considered: Any exercise of authority under this
section by the Corporation will be in writing and will consider the
activities, level of complexity, risk profile, scope of operations, and
the regulatory capital of the covered bank, in addition to any other
relevant factors.
(5) Notice and comment procedures: In exercising its authority to
require different or additional stress tests and different or
additional scenarios (including components for the scenarios) under
paragraph (c)(2) of this section, the Corporation will apply notice and
response procedures in the same manner and to the same extent as the
notice and response procedures in 12 CFR 325.6, as appropriate.
(6) 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) Adverse scenario means a set of conditions that affect the U.S.
economy or the financial condition of a covered bank that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(b) Average total consolidated assets means the average of the
covered bank's total consolidated assets, as reported on the covered
bank's Consolidated Report of Condition and Income (Call Report) for
the four most recent consecutive quarters. If the covered bank has not
filed a Call Report for each of the four most recent consecutive
quarters, the covered bank's average total consolidated assets means
the average of the covered bank's total consolidated assets, as
reported on the covered bank's Call Reports, for the most recent one or
more consecutive quarters. The date on which the state nonmember bank
or the state savings association becomes a covered bank will be the as-
of date of the most recent Call Report used in the calculation of the
average.
(c) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered bank, and that
reflect the consensus views of the economic and financial outlook.
(d) Covered bank means any state nonmember bank or state savings
association subject to the following categories:
(1) $10 billion to $50 billion covered bank. Any state nonmember
bank or state savings association with average total consolidated
assets calculated as required under this subpart that are greater than
$10 billion but less than $50 billion.
(2) Over $50 billion covered bank. Any state nonmember bank or
state savings association with average total consolidated assets
calculated as required under this subpart that are not less than $50
billion.
(e) Planning horizon means the period of at least nine quarters
over which the relevant projections extend.
(f) Pre-provision net revenue means the sum of net interest income
and non-interest income, less expenses, before adjusting for loss
provisions.
(g) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the covered bank on its Call
Report.
(h) Regulatory capital ratio means a capital ratio for which the
Corporation established minimum requirements by regulation or order,
including the leverage ratio and tier 1 and total risk-based capital
ratios applicable to that covered bank as calculated under the
Corporation's regulations.
(i) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered bank that the
Corporation annually determines are appropriate for use in the company-
run stress tests, including, but not limited to, baseline, adverse, and
severely adverse scenarios.
(j) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered bank and that
overall are more severe than those associated with the adverse scenario
and may include trading or other additional components.
(k) State nonmember bank and state savings association have the
same meanings as those terms are defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813).
(l) Stress test means the process to assess the potential impact of
scenarios on the consolidated earnings, losses, and capital of a
covered bank over the 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 Applicability.
(a) First stress test for covered banks subject to stress testing
requirements as of October 15, 2012.
(1) A $10 billion to $50 billion covered bank as of October 15,
2012 must conduct its first stress test under this subpart using
financial statement data as of September 30, 2013, and report the
results of its stress test on or before March 31, 2014.
(2) A $10 billion to $50 billion covered bank that is subject to
its first annual stress test pursuant to section 203(a)(1) of this
subpart must make its initial public disclosure in the period starting
June 15 and ending June 30 of 2015, by disclosing the results of a
stress test conducted in 2014, using financial statement data as of
September 30, 2014.
(3) A state nonmember bank or state savings association that is an
over $50 billion covered bank as of October 15, 2012, must conduct its
first stress test under this subpart using financial statement data as
of September 30, 2012, and report the results of its stress test on or
before January 5, 2013.
(b) Covered banks that become subject to stress testing
requirements after October 15, 2012. A state nonmember bank or state
savings association that becomes a covered bank after October 15, 2012
will conduct its first annual stress test under this subpart beginning
in the next calendar year after the date the state nonmember bank or
state savings association becomes a covered bank.
(c) Ceasing to be a covered bank or changing categories. (1) A
covered bank will remain subject to the stress test requirements based
on its applicable category unless and until total consolidated assets
of the covered bank falls below the relevant size threshold for each of
four consecutive quarters as reported on the covered bank's most recent
Call Reports. The calculation will be effective on the as-of date of
the fourth consecutive Call Report.
(2) Notwithstanding paragraph (c)(1) of this section, a state
nonmember bank or state savings association that migrates from a $10
billion to $50 billion covered bank to an over $50 billion covered bank
will be subject to the stress test requirements applicable to an over
$50 billion covered bank immediately as of the date the state nonmember
bank or state savings association satisfies the size threshold for an
over $50 billion covered bank.
(d) Covered bank subsidiaries of a bank holding company or savings
and
[[Page 62426]]
loan holding company subject to annual stress test requirements. (1)
Notwithstanding the requirements applicable to covered banks under this
section, a covered bank that is a consolidated subsidiary of a bank
holding company or savings and loan holding company that is required to
conduct an annual company-run stress test under applicable regulations
of the Board of Governors of the Federal Reserve System may elect to
conduct its stress test and report to the FDIC on the same timeline as
its parent bank holding company or savings and loan holding company.
(2) A covered bank that elects to conduct its stress test under
paragraph (d)(1) of this section will remain subject to the same
timeline requirements of its parent company until otherwise approved by
the FDIC.
Sec. 325.204 Annual stress tests required.
(a) General requirements. (1) $10 billion to $50 billion covered
bank. A $10 billion to $50 billion covered bank must conduct a stress
test on or before March 31 of each calendar year based on financial
data as of September 30 of the preceding calendar year.
(2) Over $50 billion covered bank. An over $50 billion covered bank
must conduct a stress test on or before January 5 of each calendar year
based on financial data as of September 30 of the preceding calendar
year.
(b) Scenarios provided by the Corporation. In conducting the stress
test under this subpart, each covered bank must use the scenarios
provided the Corporation. The scenarios provided by the Corporation
will reflect a minimum of three sets of economic and financial
conditions, including: Baseline, adverse, and severely adverse
scenarios. The Corporation will provide a description of the scenarios
required under this section to each covered bank no later than November
15 of that calendar year.
(c) Significant trading activities. The Corporation may require a
covered bank with significant trading activities, as determined by the
Corporation, to include a trading and counterparty component for the
scenarios used in its stress test. The trading and counterparty
position data used in this component of the scenarios will be as of a
date between October 1 and December 1 of that calendar year selected by
the Corporation and communicated to the covered bank no later than
December 1 of the calendar year.
Sec. 325.205 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
this subpart, during each quarter of the planning horizon, each covered
bank must estimate the following for each scenario required to be used:
(1) Pre-provision net revenues, losses, loan loss provisions and
net income; and
(2) The potential impact on the regulatory capital levels and
ratios applicable to the covered bank, and any other capital ratios
specified by the Corporation, incorporating the effects of any capital
action over the planning horizon and maintenance of an allowance for
loan losses appropriate for credit exposures throughout the planning
horizon.
(b) Controls and oversight of stress testing processes. (1) The
senior management of a covered bank must establish and maintain a
system of controls, oversight, and documentation, including policies
and procedures, that are designed to ensure that its stress test
processes satisfy the requirements in this subpart. These policies and
procedures must, at a minimum, describe the covered bank's stress test
practices and methodologies, and processes for validating and updating
the covered bank's stress test practices and methodologies consistent
with applicable laws, regulations, and supervisory guidance.
(2) The board of directors, or a committee thereof, of a covered
bank must approve and review the policies and procedures of the stress
testing processes as frequently as economic conditions or the condition
of the covered bank may warrant, but no less than annually. The board
of directors and senior management of the covered bank must receive a
summary of the results of the stress test.
(3) The board of directors and senior management of each covered
bank must consider the results of the stress tests in the normal course
of business, including but not limited to, the covered bank's capital
planning, assessment of capital adequacy, and risk management
practices.
Sec. 325.206 Required reports of stress test results to the FDIC and
the Board of Governors of the Federal Reserve System.
(a) Report required for annual stress test results--(1) $10 billion
to $50 billion covered bank. A $10 billion to $50 billion covered bank
must report to the FDIC and to the Board on or before March 31 the
results of the stress test in the manner and form specified by the
FDIC.
(2) Over $50 billion covered bank. An over $50 billion covered bank
must report to the FDIC and to the Board, on or before January 5, the
results of the stress test in the manner and form specified by the
FDIC.
(b) Content of reports. (1) The reports required under paragraph
(a) of this section must include under the baseline scenario, adverse
scenario, severely adverse scenario and any other scenario required by
the Corporation under this subpart, a description of the types of risks
being included in the stress test, a summary description of the
methodologies used in the stress test, and, for each quarter of the
planning horizon, estimates of aggregate losses, pre-provision net
revenue, provision for loan and lease losses, net income, and pro forma
capital ratios (including regulatory and any other capital ratios
specified by the FDIC). In addition, the report must include an
explanation of the most significant causes for the changes in
regulatory capital ratios and any other information required by the
Corporation.
(2) The description of aggregate losses and net income must include
the cumulative losses and cumulative net income over the planning
horizon, and the description of each regulatory capital ratio must
include the beginning value, ending value, and minimum value of each
ratio over the planning horizon.
(c) Confidential treatment of information submitted. The
confidentiality of information submitted to the Corporation under this
subpart and related materials will 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).
Sec. 325.207 Publication of stress test results.
(a) Publication date. (1) A $10 billion to $50 billion covered bank
must publish a summary of the results of its annual stress test in the
period starting June 15 and ending June 30.
(2) An over $50 billion covered bank must publish a summary of the
results of its annual stress tests in the period starting March 15 and
ending March 31.
(b) Publication method. The summary required under this section may
be published on the covered bank's Web site or in any other forum that
is reasonably accessible to the public. A covered bank that is a
consolidated subsidiary of a bank holding company or savings and loan
holding company that is required to conduct an annual company-run
stress test under applicable regulations of the Board of Governors of
the Federal Reserve
[[Page 62427]]
System will be deemed to have satisfied the public disclosure
requirements under this subpart if it publishes a summary of its stress
test results with its parent bank holding company's or savings and loan
holding company's summary of stress test results. Subsidiary covered
banks electing to satisfy their public disclosure requirement in this
manner must include a summary of changes in regulatory capital ratios
of such covered bank over the planning horizon, and an explanation of
the most significant causes for the changes in regulatory capital
ratios.
(c) Information to be disclosed in the summary. A covered bank must
disclose the following information regarding the severely adverse
scenario if it is not a consolidated subsidiary of a parent bank
holding company or savings and loan holding company that has elected to
make its disclosure under section 203(d):
(1) A description of the types of risks included in the stress
test;
(2) A summary description of the methodologies used in the stress
test;
(3) Estimates of aggregate losses, pre-provision net revenue,
provision for loan and lease losses, net income, and pro forma capital
ratios (including regulatory and any other capital ratios specified by
the FDIC); and
(4) An explanation of the most significant causes for the changes
in the regulatory capital ratios.
(d) Content of results. (1) The disclosure of aggregate losses,
pre-provision net revenue, provisions for loan and lease losses, and
net income under this section must be on a cumulative basis over the
planning horizon.
(2) The disclosure of regulatory capital ratios and any other
capital ratios specified by the Corporation under this section must
include the beginning value, ending value, and minimum value of each
ratio over the planning horizon.
Dated at Washington, DC, this 9th day of October, 2012.
By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. 2012-25194 Filed 10-12-12; 8:45 am]
BILLING CODE 6714-01-P