[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Rules and Regulations]
[Pages 59779-59791]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23618]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 252
[Docket No. R-1463; RIN 7100 AE-01]
Regulations Y and YY: Application of the Revised Capital
Framework to the Capital Plan and Stress Test Rules
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Interim final rule with request for comment.
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SUMMARY: The Board invites comment on an interim final rule that amends
the capital plan and stress test rules to require a bank holding
company with total consolidated assets of $50 billion or more to
estimate its tier 1 common ratio using the methodology currently in
effect in 2013 under the existing capital guidelines (not the rules as
revised on July 2, 2013). The interim final rule also clarifies when a
banking organization would estimate its minimum regulatory capital
ratios using the advanced approaches for a given capital plan and
stress test cycle and makes minor, technical changes to the capital
plan rule.
DATES: This rule is effective on September 30, 2013. Comments must be
received on or before November 25, 2013.
ADDRESSES: You may submit comments, identified by Docket R-1463 and RIN
No. 7100 AE 01, by any of the following methods:
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/apps/foia/proposedregs.aspx.
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.
Email: [email protected]. Include docket number in
the subject line of the message.
Facsimile: (202) 452-3819 or (202) 452-3102.
Mail: Robert deV. Frierson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/apps/foia/proposedregs.aspx as submitted,
unless modified for technical reasons. Accordingly, your comments will
not be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room MP-
500 of the Board's Martin Building (20th and C Streets NW.) between 9
a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Deputy Associate Director,
(202) 263-4833, Constance Horsley, Manager, (202) 452-5239, or Ann
McKeehan, Senior Supervisory Financial Analyst, (202) 973-6903,
Division of Banking Supervision and Regulation; Laurie Schaffer,
Associate General Counsel, (202) 452-2272, Ben McDonough, Senior
Counsel, (202) 452-2036, or Christine Graham, Senior Attorney, (202)
452-3005, Legal Division, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue NW., Washington, DC 20551.
Users of Telecommunication Device for Deaf (TDD) only, call (202) 263-
4869.
SUPPLEMENTARY INFORMATION:
I. Background
On July 2, 2013, the Board approved revised risk-based and leverage
capital requirements for banking organizations that implement the Basel
III regulatory capital reforms and certain changes required by the
Dodd-Frank Wall Street Reform and Consumer Protection Act (revised
capital framework).\1\ The revised capital framework introduces a new
common equity tier 1 capital ratio and supplementary leverage ratio,
raises the minimum tier 1 ratio and, for certain banking organizations,
leverage ratio, implements strict eligibility criteria for regulatory
capital instruments, and
[[Page 59780]]
introduces a standardized methodology for calculating risk-weighted
assets. The new minimum regulatory capital ratios and the eligibility
criteria for regulatory capital instruments will begin to take effect
as of January 1, 2014, subject to transition provisions, for banking
organizations that meet the criteria for the advanced approaches rule
(advanced approaches banking organizations).\2\ All other banking
organizations must begin to comply with the revised capital framework
beginning on January 1, 2015.
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\1\ See, Regulatory Capital Rules: Regulatory Capital,
Implementation of Basel III, Capital Adequacy, Transition
Provisions, Prompt Corrective Action, Standardized Approach for
Risk-weighted Assets, Market Discipline and Disclosure Requirements,
Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital
Rule (July 2, 2013), available at: http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm (revised capital framework).
\2\ A banking organization is subject to the advanced approaches
rule if it has consolidated assets greater than or equal to $250
billion, if it has total consolidated on-balance sheet foreign
exposures of at least $10 billion, or if it elects to apply the
advanced approaches rule.
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As the revised regulatory capital framework comes into effect,
banking organizations will be required to reflect the new capital rules
in their capital plans submitted under the Board's capital plan rule
and in their stress tests conducted under the Board's rules
implementing the stress test requirements of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
II. Capital Plan Rule
Pursuant to the Board's capital plan rule and Board's related
supervisory process, the Comprehensive Capital Analysis and Review
(CCAR), the Board assesses the internal capital planning process of a
bank holding company with total consolidated assets of $50 billion or
more (large bank holding company) and its ability to maintain
sufficient capital to continue its operations under expected and
stressful conditions.\3\ Under the capital plan rule, a large bank
holding company is required to submit an annual capital plan to the
Board that contains estimates of its minimum regulatory capital ratios
and its tier 1 common ratio under expected conditions and under a range
of stressed scenarios over a nine-quarter planning horizon (planning
horizon).\4\ A capital plan also must include a discussion of how the
large bank holding company will maintain a pro forma tier 1 common
ratio above 5 percent under expected conditions and stressed
scenarios.\5\
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\3\ 76 FR 74631 (Dec. 1, 2011) (codified at 12 CFR 225.8)
(capital plan rule).
\4\ See generally 12 CFR 225.8.
\5\ Id. at Sec. 225.8(d)(2)(i)(B).
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The tier 1 common ratio is a measure that the Federal Reserve has
used for supervisory purposes during and after the financial crisis,
including CCAR--it is not a minimum capital requirement.\6\ The capital
plan rule defines the tier 1 common ratio as the ratio of a bank
holding company's tier 1 common capital to its total risk-weighted
assets. Tier 1 common capital is defined as tier 1 capital less non-
common elements in tier 1 capital, including perpetual preferred stock
and related surplus, minority interest in subsidiaries, trust preferred
securities and mandatory convertible preferred securities.\7\ The 5
percent threshold reflected a supervisory assessment of the minimum
capital needed to provide a high level of confidence that a BHC can
continue to be a going concern throughout stressful conditions and on a
post-stress basis, based on an analysis of the historical distribution
of earnings by large banking organizations.\8\
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\6\ 76 FR 74631, 74636 (December 1, 2011).
\8\ Basel Committee on Banking Supervision, Calibrating
regulatory minimum capital requirements and capital buffers: A top-
down approach (October 2010), available at http://www.bis.org/publ/bcbs180.htm.
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The preamble to the capital plan rule noted that the Basel III
framework proposed by the Basel Committee on Bank Supervision includes
a different definition of tier 1 common capital and that the Board and
the other federal banking agencies continued to work on implementing
Basel III in the United States.\9\ The capital plan rule's definition
of ``tier 1 common ratio'' states that the definition will remain in
effect until the Board adopts an alternative tier 1 common ratio
definition as a minimum regulatory capital ratio.\10\
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\9\ 76 FR 74631, 74637 (December 1, 2011).
\10\ Id.at Sec. 225.8(c)(9).
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III. Stress Test Rules
The Board's stress test rules for large bank holding companies and
nonbank financial companies supervised by the Board establish a
framework for the Board to conduct annual supervisory stress tests to
evaluate whether these companies have the capital necessary to absorb
losses as a result of adverse economic conditions and require these
companies to conduct semi-annual company-run stress tests.\11\ Under
the supervisory stress tests, the Board uses data as of September 30 of
each year to assess a covered company's capital levels and regulatory
capital ratios and its tier 1 common ratio, over the nine-quarter
planning horizon of a given stress test cycle.\12\ Similarly, the
annual and semi-annual stress tests conducted by a covered company
require it to report, among other elements, its regulatory capital
ratios, including its tier 1 common ratio, for each quarter of a nine-
quarter planning horizon.\13\ The stress test rule defines the tier 1
common ratio by cross-reference to the capital plan rule, which, as
previously described, provides that the tier 1 common ratio is to
remain in effect until the Board adopts an alternative tier 1 common
ratio definition.\14\
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\11\ 77 FR 62378 (Oct. 12, 2012) (codified at 12 CFR part 252,
subparts F and G). The changes in this interim final rule will apply
to nonbank financial companies supervised by the Board after they
become subject to stress test requirements.
\12\ 12 CFR 252.134(a).
\13\ Id. at 252.146(a).
\14\ Id. at 252.132(q), 252.142(t).
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IV. Incorporating the Revised Capital Framework Into Capital Plan and
Stress Tests
Because the revised capital framework introduces a methodology for
computing a common equity tier 1 capital ratio and a new minimum common
equity tier 1 capital ratio, it is necessary to clarify how bank
holding companies should calculate their tier 1 common ratio for the
upcoming capital plan and stress test cycle.
With respect to a bank holding company's estimates of its
regulatory capital ratios and the applicable minimum capital
requirements, the bank holding company must project its regulatory
capital ratios and meet the minimum capital requirements for each
quarter of the planning horizon in accordance with the minimum capital
requirements that are in effect during that quarter. Accordingly, under
the revised capital framework, a bank holding company that is an
advanced approaches banking organization would be required to calculate
its common equity tier 1 capital ratio beginning in 2014, in accordance
with the transition period arrangements, and meet a 4.0 percent minimum
in 2014 and a 4.5 percent minimum in 2015. A bank holding company that
is not advanced approaches banking organizations would be required to
calculate its common equity tier 1 capital ratio beginning in 2015, in
accordance with the transition period arrangements, and meet a 4.5
percent minimum in 2015. A state member bank that is a subsidiary of a
bank holding company with total consolidated assets of $50 billion or
more will reflect the new capital rules in the same manner as its bank
holding company parent in projecting its capital for the upcoming
stress test cycle.
With respect to a bank holding company's estimates of the tier 1
common ratio, the bank holding company must use the definitions of tier
1 capital and total risk-weighted assets currently in effect in 2013
under the existing capital guidelines for each quarter of the planning
horizon, and not incorporate the new definition of
[[Page 59781]]
common equity tier 1 that is part of the revised capital framework that
will become effective in 2014 and 2015. Preserving the tier 1 common
ratio methodology maintains consistency with previous capital plan
cycles during the phase-in of the new common equity tier 1 capital
minimum requirement. Moreover, the new minimum common equity tier 1
capital ratio will be phased in over several years. Using the new
methodology with the lower first year phase-in minimum ratio for the
capital plan and stress test cycle that begins October 1, 2013, would
likely result in large bank holding companies being subject to a common
equity capital standard in the first quarters of the planning horizon
that is less stringent than the standard used in previous capital plan
and stress test cycles. Once the new minimum common equity tier 1
capital ratio reaches its permanent level of 4.5 percent in 2015, the
Board expects that the combination of changes in the methodology for
computing the common equity tier 1 ratio and the minimum level of 4.5
percent will be more stringent than the current capital plan tier 1
common ratio of 5.0 percent. Under the new common equity tier 1 capital
definition, most elements of accumulated other comprehensive income
(AOCI), such as gains and losses on available-for-sale debt securities,
will flow through to common equity, except in the case of non-advanced
approaches banking organizations that make an AOCI opt-out
election.\15\ In addition, more assets will be subject to deduction,
including investments in unconsolidated financial institutions and all
deferred tax assets that arise from operating losses and tax credit
carry forwards.
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\15\ See Revised capital framework, Sec. ------.22(b)(2).
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Table 1 illustrates the minimum common equity capital ratios to
which large bank holding companies will be subject in the capital plan
and stress test cycles that begin October 1, 2013.
Table 1--Common Equity Ratios Applicable to Large Bank Holding Companies in the Capital Plan and Stress Test Cycles That Begin October 1, 2013
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Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
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Advanced approaches bank Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C
holding companies. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%
CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of
4.0%. 4.0%. 4.0%. 4.0%. 4.5%. 4.5%. 4.5%. 4.5%.
Non-advanced approaches bank Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C
holding companies. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%
CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of
4.5%. 4.5%. 4.5%. 4.5%.
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Current T1C ratio: the ratio of a bank holding company's tier 1 common capital calculated using the definitions in place as of the effective date of the interim final rule (i.e., tier 1
capital as defined under Appendix A of 12 CFR part 225, less the non-common elements of tier 1 capital, over total risk-weighted assets as defined under Appendices A, E, and G of 12 CFR part
225).
CET1 ratio: a bank holding company's common equity tier 1 capital ratio as calculated under 12 CFR part 217, including the transition provisions of 12 CFR part Sec. 217.300, as applicable
within each quarter of the capital plan and stress test cycles that begin October 1, 2013.
V. Parallel Run Notification Date
In light of the issuance of the revised capital framework, the
Board is also providing clarity on when a banking organization would be
required to estimate its minimum regulatory capital ratios over the
planning horizon using the advanced approaches for a given capital
planning and stress testing cycle.
A bank holding company that is an advanced approaches banking
organization is required to use the advanced approaches to calculate
its minimum regulatory capital ratios if it has conducted a
satisfactory parallel run, which is defined as a period of no less than
four consecutive calendar quarters during which a banking organization
complies with certain qualification requirements of the advanced
approaches.\16\ Currently, all advanced approaches banking
organizations are in parallel run, but it is possible that firms could
complete a satisfactory parallel run in the near term and, as a result,
be required to calculate their regulatory capital ratios using the
advanced approaches Under the current capital plan rule and stress test
rule, an advanced approaches banking organization would be required to
estimate its capital ratios over the planning horizon using the
advanced approaches if the firm is notified any time before January 5,
which is the date on which a banking organization must submit its
capital plan and its stress test results to the Board.
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\16\ 12 CFR part 225, Appendix G, section 21(c).
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In order to provide additional notice to an advanced approaches
banking organization regarding when it must begin to estimate its
advanced approaches regulatory capital ratios under stressed conditions
in a given capital plan or stress test cycle, the interim final rule
provides that a bank holding company must be notified that it has
completed its parallel run by September 30 of a given year in order to
be required to estimate its capital ratios using the advanced
approaches for the capital plan or stress test cycle that begins on
October 1 of that year.
VI. Technical Changes
The interim final rule makes minor technical changes to the capital
plan rule. It clarifies that a covered company that has not filed the
FR Y-9C report for the four most recent consecutive quarters will
calculate its total consolidated assets as reported on the company's
available FR Y-9C reports for the most recent quarter or consecutive
quarters. It clarifies that the Board (or the Reserve Bank, with
concurrence of the Board) may extend the resubmission period for a
capital plan beyond an initial 60 day extension if the Board or Reserve
Bank determines that such longer period is appropriate.
The interim final rule modifies the capital plan rule to reflect
the Board's current practice of publicly disclosing its decision to
object or not object to a bank holding company's capital plan along
with a summary of the Board's analyses of that company. The rule
provides that any disclosure will occur by March 31 of each calendar
year, unless the Board determines that another date is appropriate.
With regard to the Board's review of bank holding companies' capital
plans, the Board expects the summary results largely will be similar to
the results disclosed in previous CCAR exercises, unless the Board
determines that different or
[[Page 59782]]
additional disclosures would be appropriate.
The interim final rule also corrects a typographical numbering
error and removes the clarification of the start of the stress test
cycle for the stress test cycle that began in 2012.
VII. Effective Date; Solicitation of Comments
This interim final rule is effective September 30, 2013. Pursuant
to the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B),
notice and comment are not required prior to the issuance of a final
rule if an agency, for good cause, finds that ``notice and public
procedure thereon are impracticable, unnecessary, or contrary to the
public interest.'' \17\ Similarly, a final rule may be published with
an immediate effective date if an agency finds good cause and publishes
such with the final rule.\18\
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\17\ 5 U.S.C. 553(b)(B).
\18\
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Consistent with section 553(b)(B) of the APA, the Board finds that
issuing this rule as an interim final rule is necessary to clarify how
a large bank holding company must incorporate the revised capital
framework adopted July 2, 2013, into its capital plan and stress tests
for purposes of the capital plan and stress test cycles that begin
October 1, 2013. This interim final rule also clarifies when a bank
holding company would be required to calculate its minimum regulatory
capital ratios using the advanced approaches for a given capital plan
and stress testing cycle. Obtaining notice and comment prior to issuing
the interim final rule would be impracticable and contrary to the
public interest. The capital rules were only recently revised and the
short effective date of those revisions provide good cause to publish
the interim final rule with an immediate effective date in order to
remove uncertainty about the standards in the capital plan rule and
reduce the burden of requiring firms to change their capital
calculations in advance of the effective date.
The approval by the Board of the revised capital framework in July,
2013, prompted a need to clarify how a large bank holding company would
incorporate these rules into its capital plan and stress tests for the
capital plan and stress test cycles that begin October 1, 2013. In
addition, the definition of ``tier 1 common ratio'' used in the capital
plan rule, and incorporated by cross reference in the stress test
rules, stated that the definition would remain in effect until the
Board had adopted an alternative tier 1 common ratio definition as a
minimum regulatory capital ratio.\19\ The approach taken in the interim
final rule is consistent with the Board's previous interpretations of
the capital plan and stress test rules.\20\ It also ensures that the
tier 1 common ratio is no less stringent than the ratio used in
previous cycles.
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\19\ Id.at Sec. 225.8(c)(9).
\20\ See Federal Reserve System Comprehensive Capital Analysis
and Review: Summary Instructions and Guidance (November 22, 2011),
available at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20111122d1.pdf.
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In addition, the interim final rule provides that a bank holding
company must be notified that it has completed its parallel run by
September 30 of a given year in order to be required to estimate its
capital ratios using the advanced approaches for that year's capital
plan or stress test cycle. This change provides clearer notice to an
advanced approaches banking organization so that it could anticipate
when it will be required to calculate its regulatory capital ratios
using the advanced approaches in a given capital plan or stress test
cycle.
Moreover, the interim final rule should not impose any incremental
burden on these firms. The interim final rule relieves burden on them
by clarifying the process for their upcoming capital plan submissions
and company-run stress tests and providing additional time to build
systems and processes necessary to effectively implement in a stress
test the regulatory capital requirements of the advanced approaches
rules.
Although notice and comment are not required prior to the effective
date of this interim final rule, the Board invites comment on all
aspects of this rulemaking and will revise this interim final rule if
necessary or appropriate in light of the comments received. The Board
is seeking comments on all aspects of the interim final rule. In
particular:
Question 1. What, if any, additional transitional arrangements
should the Board consider for future capital plan and stress test
cycles? Should the Board remove the capital plan's tier 1 common ratio
of 5.0 percent, or conversely, maintain the tier 1 common ratio of 5.0
percent, but require bank holding companies to calculate the ratio
using the more stringent definition of capital?
Question 2. What, if any, modifications should be made to the
advanced approaches notification date to better facilitate the timely
notification of advanced approaches banking organizations of their need
to use the advanced approaches in estimating their regulatory capital
ratios for the capital plan and stress test purposes?
VIII. Regulatory Analysis
A. Regulatory Flexibility Act Analysis
The Board has considered the potential impact of the interim final
rule on small companies in accordance with the Regulatory Flexibility
Act (5 U.S.C. 603(b)). Based on its analysis and for the reasons stated
below, the Board believes that the interim final rule will not have a
significant economic impact on a substantial number of small entities.
Nevertheless, the Board is publishing a regulatory flexibility
analysis.
For the reason discussed in the Supplementary Information above,
the agencies are issuing this interim final rule to clarify the
requirements for certain companies required to submit capital plans to
the Board on January 5, 2014, and conduct Dodd-Frank Act company run
stress tests in the stress test cycle that commences on October 1,
2013. Under regulations issued by the Small Business Administration
(``SBA''), a small entity includes a depository institution, bank
holding company, or savings and loan holding company with total assets
of $500 million or less (a small banking organization). The interim
final rule would apply to bank holding companies with total
consolidated asset of $50 billion or more and nonbank financial
companies supervised by the Board. Companies that would be subject to
the interim finale rule therefore substantially exceed the $500 million
total asset threshold at which a company is considered a small company
under SBA regulations. In light of the foregoing, the Board does not
believe that the interim final rule would have a significant economic
impact on a substantial number of small entities.
B. Solicitation of Comments on Use of Plain Language
Section 722 of the Gramm-Leach-Bliley Act required the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The Board invites comment on how to
make this interim final rule easier to understand. For example:
Has the Board organized the material to suit your needs?
If not, how could the rule be more clearly stated?
Are the requirements in the rule clearly stated? If not,
how could the rule be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation
[[Page 59783]]
easier to understand? If so, what changes would make the regulation
easier to understand?
Would more, but shorter, sections be better? If so, which
sections should be changed?
What else could the Board do to make the regulation easier
to understand?
C. Paperwork Reduction Act
This interim final rule references currently approved collections
of information under the Paperwork Reduction Act (44 U.S.C. 3501-3520)
provided for in the capital plan rules. This interim final rule does
not introduce any new collections of information nor does it
substantively modify the collections of information that Office of
Management and Budget (OMB) has approved. Therefore, no Paperwork
Reduction Act submissions to OMB are required.
List of Subjects
12 CFR Part 225
Administrative practice and procedure; Banks, banking; Capital
Planning; Holding companies; Reporting and recordkeeping requirements;
Securities, Stress Testing.
12 CFR Part 252
Administrative practice and procedure, Banks, Banking, Capital
Planning; Federal Reserve System, Holding companies, Reporting and
recordkeeping requirements, Securities, Stress Testing.
Authority and Issuance
For the reasons stated in the Supplementary Information, the Board
of Governors of the Federal Reserve System amends 12 CFR chapter II as
follows:
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
1. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
Subpart A--General Provisions
0
2. Revise Sec. 225.8 to read as follows:
Sec. 225.8 Capital planning.
(a) Purpose. This section establishes capital planning and prior
notice and approval requirements for capital distributions by certain
bank holding companies.
(b) Scope and effective date. (1) This section applies to every
top-tier bank holding company domiciled in the United States:
(i) With average total consolidated assets of $50 billion or more.
Average total consolidated assets means the average of the total
consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C for each of the four most recent
consecutive quarters, average total consolidated assets means the
average of the company's total consolidated assets, as reported on the
company's FR Y-9C, for the most recent quarter or consecutive quarters.
Average total consolidated assets are measured on the as-of date of the
most recent FR Y-9C used in the calculation of the average; or
(ii) That is subject to this section, in whole or in part, by order
of the Board based on the institution's size, level of complexity, risk
profile, scope of operations, or financial condition.
(2) Beginning on December 23, 2011, the provisions of this section
shall apply to any bank holding company that is subject to this section
pursuant to paragraph (b)(1), provided that:
(i) Until July 21, 2015, this section will not apply to any bank
holding company subsidiary of a foreign banking organization that is
currently relying on Supervision and Regulation Letter SR 01-01 issued
by the Board (as in effect on May 19, 2010, available at http://www.federalreserve.gov/boarddocs/srletters/2001/sr0101.htm); and
(ii) A bank holding company that becomes subject to this section
pursuant to paragraph (b)(1)(i) after the 5th of January of a calendar
year shall not be subject to the requirements of paragraphs (d)(1)(ii),
(d)(4), and (f)(1)(iii) of this section until January 1 of the next
calendar year.
(3) Notwithstanding any other requirement in this section, for a
given capital plan cycle (including the January 5 submission of a
capital plan under paragraph (d)(1) of this section and any
resubmission of the capital plan under paragraph (d)(4) of this section
during the capital plan cycle), a bank holding company's estimates of
its pro forma regulatory capital ratios and its pro forma tier 1 common
ratio over the planning horizon shall not include estimates using the
advanced approaches if the bank holding company is notified on or after
the first day of that capital plan cycle (October 1) that the bank
holding company is required to calculate its risk-based capital
requirements using the advanced approaches.
(4) Nothing in this section shall limit the authority of the
Federal Reserve to issue a capital directive or take any other
supervisory or enforcement action, including action to address unsafe
or unsound practices or conditions or violations of law.
(c) Definitions. For purposes of this section, the following
definitions apply:
(1) Advanced approaches means the risk-weighted assets calculation
methodologies at 12 CFR part 225, appendix G, and 12 CFR part 217,
subpart E, as applicable, and any successor regulation.
(2) Capital action means any issuance of a debt or equity capital
instrument, any capital distribution, and any similar action that the
Federal Reserve determines could impact a bank holding company's
consolidated capital.
(3) Capital distribution means a redemption or repurchase of any
debt or equity capital instrument, a payment of common or preferred
stock dividends, a payment that may be temporarily or permanently
suspended by the issuer on any instrument that is eligible for
inclusion in the numerator of any minimum regulatory capital ratio, and
any similar transaction that the Federal Reserve determines to be in
substance a distribution of capital.
(4) Capital plan means a written presentation of a bank holding
company's capital planning strategies and capital adequacy process that
includes the mandatory elements set forth in paragraph (d)(2) of this
section.
(5) Capital plan cycle means the period beginning on October 1 of a
calendar year and ending on September 30 of the following calendar
year.
(6) Capital policy means a bank holding company's written
assessment of the principles and guidelines used for capital planning,
capital issuance, usage and distributions, including internal capital
goals; the quantitative or qualitative guidelines for dividend and
stock repurchases; the strategies for addressing potential capital
shortfalls; and the internal governance procedures around capital
policy principles and guidelines.
(7) Minimum regulatory capital ratio means any minimum regulatory
capital ratio that the Federal Reserve may require of a bank holding
company, by regulation or order, including, as applicable, the bank
holding company's tier 1 and supplementary leverage ratios and common
equity tier 1, tier 1, and total risk-based capital ratios as
calculated under appendices A, D, E, and G to this part (12 CFR part
225) and
[[Page 59784]]
12 CFR part 217, as applicable, including the transition provisions at
12 CFR 217.1(f)(4) and 12 CFR 217.300, or any successor regulation.
(8) Planning horizon means the period of at least nine quarters,
beginning with the quarter preceding the quarter in which the bank
holding company submits its capital plan, over which the relevant
projections extend.
(9) Tier 1 capital has the same meaning as under appendix A to this
part or under 12 CFR part 217, as applicable, or any successor
regulation.
(10) Tier 1 common capital means tier 1 capital as defined under
appendix A to this part less the non-common elements of tier 1 capital,
including perpetual preferred stock and related surplus, minority
interest in subsidiaries, trust preferred securities and mandatory
convertible preferred securities.
(11) Tier 1 common ratio means the ratio of a bank holding
company's tier 1 common capital to total risk-weighted assets as
defined under appendices A and E to this part.
(d) General requirements--(1) Annual capital planning. (i) A bank
holding company must develop and maintain a capital plan.
(ii) A bank holding company must submit its complete capital plan
to the appropriate Reserve Bank and the Board each year by the 5th of
January, or such later date as directed by the Board or the appropriate
Reserve Bank, with concurrence of the Board.
(iii) The bank holding company's board of directors or a designated
committee thereof must at least annually and prior to submission of the
capital plan under paragraph (d)(1)(ii) of this section:
(A) Review the robustness of the bank holding company's process for
assessing capital adequacy,
(B) Ensure that any deficiencies in the bank holding company's
process for assessing capital adequacy are appropriately remedied; and
(C) Approve the bank holding company's capital plan.
(2) Mandatory elements of capital plan. A capital plan must contain
at least the following elements:
(i) An assessment of the expected uses and sources of capital over
the planning horizon that reflects the bank holding company's size,
complexity, risk profile, and scope of operations, assuming both
expected and stressful conditions, including:
(A) Estimates of projected revenues, losses, reserves, and pro
forma capital levels, including any minimum regulatory capital ratios
(for example, leverage, tier 1 risk-based, and total risk-based capital
ratios) and any additional capital measures deemed relevant by the bank
holding company, over the planning horizon under expected conditions
and under a range of stressed scenarios, including any scenarios
provided by the Federal Reserve and at least one stressed scenario
developed by the bank holding company appropriate to its business model
and portfolios;
(B) A calculation of the pro forma tier 1 common ratio over the
planning horizon under expected conditions and under a range of
stressed scenarios and discussion of how the company will maintain a
pro forma tier 1 common ratio above 5 percent under expected conditions
and the stressed scenarios required under paragraphs (d)(2)(i)(A) and
(ii) of this section;
(C) A discussion of the results of any stress test required by law
or regulation, and an explanation of how the capital plan takes these
results into account; and
(D) A description of all planned capital actions over the planning
horizon.
(ii) A detailed description of the bank holding company's process
for assessing capital adequacy, including:
(A) A discussion of how the bank holding company will, under
expected and stressful conditions, maintain capital commensurate with
its risks, maintain capital above the minimum regulatory capital ratios
and above a tier 1 common ratio of 5 percent, and serve as a source of
strength to its subsidiary depository institutions;
(B) A discussion of how the bank holding company will, under
expected and stressful conditions, maintain sufficient capital to
continue its operations by maintaining ready access to funding, meeting
its obligations to creditors and other counterparties, and continuing
to serve as a credit intermediary;
(iii) The bank holding company's capital policy; and
(iv) A discussion of any expected changes to the bank holding
company's business plan that are likely to have a material impact on
the firm's capital adequacy or liquidity.
(3) Data collection. Upon the request of the Board or appropriate
Reserve Bank, the bank holding company shall provide the Federal
Reserve with information regarding--
(i) The bank holding company's financial condition, including its
capital;
(ii) The bank holding company's structure;
(iii) Amount and risk characteristics of the bank holding company's
on- and off-balance sheet exposures, including exposures within the
bank holding company's trading account, other trading-related exposures
(such as counterparty-credit risk exposures) or other items sensitive
to changes in market factors, including, as appropriate, information
about the sensitivity of positions to changes in market rates and
prices;
(iv) The bank holding company's relevant policies and procedures,
including risk management policies and procedures;
(v) The bank holding company's liquidity profile and management;
and
(vi) Any other relevant qualitative or quantitative information
requested by the Board or the appropriate Reserve Bank to facilitate
review of the bank holding company's capital plan under this section.
(4) Re-submission of a capital plan. (i) A bank holding company
must update and re-submit its capital plan to the appropriate Reserve
Bank within 30 calendar days of the occurrence of one of the following
events:
(A) The bank holding company determines there has been or will be a
material change in the bank holding company's risk profile, financial
condition, or corporate structure since the bank holding company
adopted the capital plan;
(B) The Board or the appropriate Reserve Bank objects to the
capital plan; or
(C) The Board or the appropriate Reserve Bank, with concurrence of
the Board, directs the bank holding company in writing to revise and
resubmit its capital plan for any of the following reasons:
(1) The capital plan is incomplete or the capital plan, or the bank
holding company's internal capital adequacy process, contains material
weaknesses;
(2) There has been or will likely be a material change in the bank
holding company's risk profile (including a material change in its
business strategy or any risk exposure), financial condition, or
corporate structure;
(3) The stressed scenario(s) developed by the bank holding company
is not appropriate to its business model and portfolios, or changes in
financial markets or the macro-economic outlook that could have a
material impact on a bank holding company's risk profile and financial
condition require the use of updated scenarios; or
(4) The capital plan or the condition of the bank holding company
raise any of the issues described in paragraph (e)(2)(ii) of this
section.
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, may, at its discretion, extend the
[[Page 59785]]
30-day period in paragraph (d)(4)(i) of this section for up to an
additional 60 calendar days, or such longer period as the Board or the
appropriate Reserve Bank, with concurrence of the Board, determines
appropriate.
(iii) Any updated capital plan must satisfy all the requirements of
this section; however, a bank holding company may continue to rely on
information submitted as part of a previously submitted capital plan to
the extent that the information remains accurate and appropriate.
(e) Review of capital plans by the Federal Reserve; publication of
summary results--(1) Considerations and inputs. (i) The Board or the
appropriate Reserve Bank, with concurrence of the Board, will consider
the following factors in reviewing a bank holding company's capital
plan:
(A) The comprehensiveness of the capital plan, including the extent
to which the analysis underlying the capital plan captures and
addresses potential risks stemming from activities across the firm and
the company's capital policy;
(B) The reasonableness of the bank holding company's assumptions
and analysis underlying the capital plan and its methodologies for
reviewing the robustness of its capital adequacy process; and
(C) The bank holding company's ability to maintain capital above
each minimum regulatory capital ratio and above a tier 1 common ratio
of 5 percent on a pro forma basis under expected and stressful
conditions throughout the planning horizon, including but not limited
to any stressed scenarios required under paragraph (d)(2)(i)(A) and
(ii) of this section.
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, will also consider the following information in reviewing a
bank holding company's capital plan:
(A) Relevant supervisory information about the bank holding company
and its subsidiaries;
(B) The bank holding company's regulatory and financial reports, as
well as supporting data that would allow for an analysis of the bank
holding company's loss, revenue, and reserve projections;
(C) As applicable, the Federal Reserve's own pro forma estimates of
the firm's potential losses, revenues, reserves, and resulting capital
adequacy under expected and stressful conditions, including but not
limited to any stressed scenarios required under paragraph (d)(2)(i)(A)
and (ii) of this section, as well as the results of any stress tests
conducted by the bank holding company or the Federal Reserve; and
(D) Other information requested or required by the appropriate
Reserve Bank or the Board, as well as any other information relevant,
or related, to the bank holding company's capital adequacy.
(2) Federal Reserve action on a capital plan. (i) The Board or the
appropriate Reserve Bank, with concurrence of the Board, will object,
in whole or in part, to the capital plan or provide the bank holding
company with a notice of non-objection to the capital plan:
(A) By March 31 of the calendar year in which a capital plan was
submitted pursuant to paragraph (d)(1)(ii) of this section, and
(B) By the date that is 75 calendar days after the date on which a
capital plan was resubmitted pursuant to paragraph (d)(4) of this
section.
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, may object to a capital plan if it determines that:
(A) The bank holding company has material unresolved supervisory
issues, including but not limited to issues associated with its capital
adequacy process;
(B) The assumptions and analysis underlying the bank holding
company's capital plan, or the bank holding company's methodologies for
reviewing the robustness of its capital adequacy process, are not
reasonable or appropriate;
(C) The bank holding company has not demonstrated an ability to
maintain capital above each minimum regulatory capital ratio and above
a tier 1 common ratio of 5 percent, on a pro forma basis under expected
and stressful conditions throughout the planning horizon; or
(D) The bank holding company's capital planning process or proposed
capital distributions otherwise constitute an unsafe or unsound
practice, or would violate any law, regulation, Board order, directive,
or any condition imposed by, or written agreement with, the Board. In
determining whether a capital plan or any proposed capital distribution
would constitute an unsafe or unsound practice, the appropriate Reserve
Bank would consider whether the bank holding company is and would
remain in sound financial condition after giving effect to the capital
plan and all proposed capital distributions.
(iii) The Board or the appropriate Reserve Bank, with concurrence
of the Board, will notify the bank holding company in writing of the
reasons for a decision to object to a capital plan.
(iv) If the Board or the appropriate Reserve Bank, with concurrence
of the Board, objects to a capital plan and until such time as the
Board or the appropriate Reserve Bank, with concurrence of the Board,
issues a non-objection to the bank holding company's capital plan, the
bank holding company may not make any capital distribution, other than
those capital distributions with respect to which the Board or the
appropriate Reserve Bank has indicated in writing its non-objection.
(v) The Board may disclose publicly its decision to object or not
object to a bank holding company's capital plan under this section,
along with a summary of the Board's analyses of that company. Any
disclosure under this paragraph (e)(2)(v) will occur by March 31,
unless the Board determines that a later disclosure date is
appropriate.
(3) Request for reconsideration or hearing. Within 10 calendar days
of receipt of a notice of objection to a capital plan by the Board or
the appropriate Reserve Bank:
(i) A bank holding company may submit a written request to the
Board requesting reconsideration of the objection, including an
explanation of why reconsideration should be granted. Within 10
calendar days of receipt of the bank holding company's request, the
Board will notify the company of its decision to affirm or withdraw the
objection to the bank holding company's capital plan or a specific
capital distribution; or
(ii) As an alternative to paragraph (e)(3)(i) of this section, a
bank holding company may submit a written request to the Board for a
hearing. Any hearing shall follow the procedures described in paragraph
(f)(5)(ii) through (iii) of this section.
(f) Approval requirements for certain capital actions--(1)
Circumstances requiring approval. Notwithstanding a notice of non-
objection under paragraph (e)(2)(i) of this section a bank holding
company may not make a capital distribution under the following
circumstances, unless it receives approval from the Board or
appropriate Reserve Bank pursuant to paragraph (f)(4) of this section:
(i) After giving effect to the capital distribution, the bank
holding company would not meet a minimum regulatory capital ratio or a
tier 1 common ratio of at least 5 percent;
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, notifies the company in writing that the Federal Reserve has
determined that the capital distribution would result in a material
adverse change to the organization's capital or liquidity
[[Page 59786]]
structure or that the company's earnings were materially
underperforming projections;
(iii) Except as provided in paragraph (f)(2) of this section, the
dollar amount of the capital distribution will exceed the amount
described in the capital plan for which a non-objection was issued
under this section; or
(iv) The capital distribution would occur after the occurrence of
an event requiring resubmission under paragraphs (d)(4)(i)(A) and (C)
of this section and before the Federal Reserve acted on the resubmitted
capital plan.
(2) Exception for well capitalized bank holding companies. (i) A
bank holding company may make a capital distribution for which the
dollar amount exceeds the amount described in the capital plan for
which a non-objection was issued under this section if the following
conditions are satisfied:
(A) The bank holding company is, and after the capital distribution
would remain, well capitalized as defined in Sec. 225.2(r) of
Regulation Y (12 CFR 225.2(r));
(B) The bank holding company's performance and capital levels are,
and after the capital distribution would remain, consistent with its
projections under expected conditions as set forth in its capital plan
under this paragraph (d)(2)(i);
(C) The annual aggregate dollar amount of all capital distributions
(beginning on April 1 of a calendar year and ending on March 31 of the
following calendar year) would not exceed the total amounts described
in the company's capital plan for which the bank holding company
received a notice of non-objection by more than 1.00 percent multiplied
by the bank holding company's tier 1 capital, as reported to the
Federal Reserve on the bank holding company's first quarter FR Y-9C;
(D) The bank holding company provides the appropriate Reserve Bank
with notice 15 calendar days prior to a capital distribution that
includes the elements described in paragraph (f)(3) of this section;
and
(E) The Board or the appropriate Reserve Bank, with concurrence of
the Board, does not object to the transaction proposed in the notice.
In determining whether to object to the proposed transaction, the Board
or the appropriate Reserve Bank, with concurrence of the Board, shall
apply the criteria described in paragraph (f)(4)(iv) of this section.
(ii) The exception in this paragraph (f)(2) shall not apply if the
Board or the appropriate Reserve Bank notifies the bank holding company
in writing that it may not take advantage of this exception.
(3) Contents of request. (i) A request for a capital distribution
under this section shall be filed with the appropriate Reserve Bank and
the Board and shall contain the following information:
(A) The bank holding company's current capital plan or an
attestation that there have been no changes to the capital plan since
it was last submitted to the Federal Reserve;
(B) The purpose of the transaction;
(C) A description of the capital distribution, including for
redemptions or repurchases of securities, the gross consideration to be
paid and the terms and sources of funding for the transaction, and for
dividends, the amount of the dividend(s); and
(D) Any additional information requested by the Board or the
appropriate Reserve Bank (which may include, among other things, an
assessment of the bank holding company's capital adequacy under a
revised stress scenario provided by the Federal Reserve, a revised
capital plan, and supporting data).
(ii) Any request submitted with respect to a capital distribution
described in paragraph (f)(1)(i) of this section shall also include a
plan for restoring the bank holding company's capital to an amount
above a minimum level within 30 days and a rationale for why the
capital distribution would be appropriate.
(4) Approval of certain capital distributions. (i) A bank holding
company must obtain approval from the Board or the appropriate Reserve
Bank, with concurrence of the Board, before making a capital
distribution described in paragraph (f)(1) of this section.
(ii) A request for a capital distribution under this section must
be filed with the appropriate Reserve Bank and contain all the
information set forth in paragraph (f)(3) of this section.
(iii) The Board or the appropriate Reserve Bank, with concurrence
of the Board, will act on a request under this paragraph (f)(4) within
30 calendar days after the receipt of a complete request under
paragraph (f)(4)(ii) of this section. The Board or the appropriate
Reserve Bank may, at any time, request additional information that it
believes is necessary for its decision.
(iv) In acting on a request under this paragraph, the Board or
appropriate Reserve Bank will apply the considerations and principles
in paragraph (e) of this section. In addition, the Board or the
appropriate Reserve Bank may disapprove the transaction if the bank
holding company does not provide all of the information required to be
submitted under paragraphs (f)(3) and (f)(5)(iii) of this section.
(5) Disapproval and hearing. (i) The Board or the appropriate
Reserve Bank will notify the bank holding company in writing of the
reasons for a decision to disapprove any proposed capital distribution.
Within 10 calendar days after receipt of a disapproval by the Board,
the bank holding company may submit a written request for a hearing.
(ii) The Board will order a hearing within 10 calendar days of
receipt of the request if it finds that material facts are in dispute,
or if it otherwise appears appropriate. Any hearing conducted under
this paragraph shall be held in accordance with the Board's Rules of
Practice for Formal Hearings (12 CFR part 263).
(iii) At the conclusion of the hearing, the Board will by order
approve or disapprove the proposed capital distribution on the basis of
the record of the hearing.
PART 252--ENHANCED PRUDENTIAL STANDARDS (Regulation YY).
0
3. The authority citation for part 252 continues to read as follows:
Authority: 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
0
4. Subpart F to part 252 is revised to read as follows:
Subpart F--Supervisory Stress Test Requirements for Covered
Companies
Sec.
252.131 Authority and purpose.
252.132 Definitions.
252.133 Applicability
252.134 Annual analysis conducted by the Board.
252.135 Data and information required to be submitted in support of
the Board's analyses.
252.136 Review of the Board's analysis; publication of summary
results.
252.137 Use requirement.
Sec. 252.131 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements section 165(i)(1) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(1)), which requires the Board to conduct
annual analyses of nonbank financial companies supervised by the Board
and bank holding companies with $50 billion or more in total
consolidated assets to evaluate whether such companies have the
capital, on a total consolidated basis, necessary to absorb losses as a
result of adverse economic conditions.
[[Page 59787]]
Sec. 252.132 Definitions.
For purposes of this subpart F, the following definitions apply:
(a) Advanced approaches means the risk-weighted assets calculation
methodologies at 12 CFR part 225, appendix G, and 12 CFR part 217,
subpart E, as applicable, and any successor regulation.
(b) Adverse scenario means a set of conditions that affect the U.S.
economy or the financial condition of a covered company that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(c) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C for each of the four most recent
consecutive quarters, average total consolidated assets means the
average of the company's total consolidated assets, as reported on the
company's FR Y-9C, for the most recent quarter or consecutive quarters.
Average total consolidated assets are measured on the as-of date of the
most recent FR Y-9C used in the calculation of the average.
(d) Bank holding company has the same meaning as in Sec. 225.2(c)
of the Board's Regulation Y (12 CFR 225.2(c)).
(e) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered company and that
reflect the consensus views of the economic and financial outlook.
(f) Covered company means:
(1) A bank holding company (other than a foreign banking
organization) with average total consolidated assets of $50 billion or
more; and
(2) A nonbank financial company supervised by the Board.
(g) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(h) Foreign banking organization has the same meaning as in Sec.
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(i) Nonbank financial company supervised by the Board means a
nonbank financial company that the Financial Stability Oversight
Council has determined under section 113 of the Dodd-Frank Act (12
U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
(j) Planning horizon means the period of at least nine quarters,
beginning on the first day of a stress test cycle (on October 1) over
which the relevant projections extend.
(k) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(l) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the covered company on the FR Y-
9C.
(m) Regulatory capital ratio means a capital ratio for which the
Board established minimum requirements for the company by regulation or
order, including, as applicable, the company's tier 1 and supplementary
leverage ratios and common equity tier 1, tier 1, and total risk-based
capital ratios as calculated under appendices A, D, E, and G to this
part (12 CFR part 225) and 12 CFR part 217, as applicable, including
the transition provisions at 12 CFR 217.1(f)(4) and 12 CFR 217.300, or
any successor regulation.
(n) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board
annually determines are appropriate for use in the supervisory stress
tests, including, but not limited to, baseline, adverse, and severely
adverse scenarios.
(o) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that overall are more severe than those associated with the adverse
scenario and may include trading or other additional components.
(p) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year.
(q) Subsidiary has the same meaning as in Sec. 225.2(o) the
Board's Regulation Y (12 CFR 225.2).
(r) Tier 1 common ratio has the same meaning as in the Board's
Regulation Y (12 CFR 225.8).
Sec. 252.133 Applicability.
(a) Compliance date for bank holding companies that are covered
companies as of November 15, 2012--(1) In general. Except as provided
in paragraph (a)(2) or (3) of this section, a bank holding company that
is a covered company as of November 15, 2012, must comply with the
requirements of this subpart beginning with the stress test cycle that
commences on October 1, 2013, unless that time is extended by the Board
in writing.
(2) 2009 Supervisory Capital Assessment Program. A bank holding
company that participated in the 2009 Supervisory Capital Assessment
Program, or a successor to such a bank holding company, must comply
with the requirements of this subpart beginning with the stress test
cycle that commences on November 15, 2012, unless that time is extended
by the Board in writing.
(3) SR Letter 01-01. A U.S.-domiciled bank holding company that is
a covered company as of November 15, 2012, and is a subsidiary of a
foreign banking organization that is currently relying on Supervision
and Regulation Letter SR 01-01 issued by the Board (as in effect on May
19, 2010) must comply with the requirements of this subpart beginning
with the stress test cycle that commences on October 1, 2015, unless
that time is extended by the Board in writing.
(b) Compliance date for institutions that become covered companies
after November 15, 2012--(1) Bank holding companies. A bank holding
company that becomes a covered company after November 15, 2012, must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
the bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
(2) Nonbank financial companies supervised by the Board. A company
that becomes a nonbank financial company supervised by the Board must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
the company first becomes subject to the Board's minimum regulatory
capital requirements, unless the Board accelerates or extends the
compliance date.
(c) Ongoing application. A bank holding company that is a covered
company will remain subject to the requirements of this subpart unless
and until its total consolidated assets fall below $50 billion for each
of four consecutive quarters, as reported on the FR Y-9C. The
calculation will be effective on the as-of date of the fourth
consecutive FR Y-9C.
(d) Advanced approaches. Notwithstanding any other requirement in
this section, the Board's analysis of a covered company's capital in a
given stress test cycle will not include estimates using the advanced
approaches if the covered company is notified on or after the first day
of that stress test cycle (October 1) that the covered company is
required to calculate its risk-based capital
[[Page 59788]]
requirements using the advanced approaches.
Sec. 252.134 Annual analysis conducted by the Board.
(a) In general. (1) On an annual basis, the Board will conduct an
analysis of each covered company's capital, on a total consolidated
basis, taking into account all relevant exposures and activities of
that covered company, to evaluate the ability of the covered company to
absorb losses in specified economic and financial conditions.
(2) The analysis will include an assessment of the projected
losses, net income, and pro forma capital levels and regulatory capital
ratios, tier 1 common ratio, and other capital ratios for the covered
company and use such analytical techniques that the Board determines
are appropriate to identify, measure, and monitor risks of the covered
company that may affect the financial stability of the United States.
(3) In conducting the analyses, the Board will coordinate with the
appropriate primary financial regulatory agencies and the Federal
Insurance Office, as appropriate.
(b) Economic and financial scenarios related to the Board's
analysis. The Board will conduct its analysis under this section using
a minimum of three different scenarios, including a baseline scenario,
adverse scenario, and severely adverse scenario. The Board will notify
covered companies of the scenarios that the Board will apply to conduct
the analysis for each stress test cycle by no later than November 15 of
each year, except with respect to trading or any other components of
the scenarios and any additional scenarios that the Board will apply to
conduct the analysis, which will be communicated by no later than
December 1.
Sec. 252.135 Data and information required to be submitted in support
of the Board's analyses.
(a) Regular submissions. Each covered company must submit to the
Board such data, on a consolidated basis, that the Board determines is
necessary in order for the Board to derive the relevant pro forma
estimates of the covered company over the planning horizon under the
scenarios described in section 252.134(b).
(b) Additional submissions required by the Board. The Board may
require a covered company to submit any other information on a
consolidated basis that the Board deems necessary in order to:
(1) Ensure that the Board has sufficient information to conduct its
analysis under this subpart; and
(2) Project a company's pre-provision net revenue, losses,
provision for loan and lease losses, and net income; and, pro forma
capital levels, regulatory capital ratios, tier 1 common ratio, and any
other capital ratio specified by the Board under the scenarios
described in Sec. 252.134(b).
(c) Confidential treatment of information submitted. The
confidentiality of information submitted to the Board under this
subpart and related materials shall be determined in accordance with
the Freedom of Information Act (5 U.S.C. 552(b)) and the Board's Rules
Regarding Availability of Information (12 CFR part 261).
Sec. 252.136 Review of the Board's analysis; publication of summary
results.
(a) Review of results. Based on the results of the analysis
conducted under this subpart, the Board will conduct an evaluation to
determine whether the covered company has the capital, on a total
consolidated basis, necessary to absorb losses and continue its
operation by maintaining ready access to funding, meeting its
obligations to creditors and other counterparties, and continuing to
serve as a credit intermediary under baseline, adverse and severely
adverse scenarios, and any additional scenarios.
(b) Communication of results to covered companies. The Board will
convey to a covered company a summary of the results of the Board's
analyses of such covered company within a reasonable period of time,
but no later than March 31.
(c) Publication of results by the Board. By March 31 of each
calendar year, the Board will disclose a summary of the results of the
Board's analyses of a covered company.
Sec. 252.137 Use requirement.
(a) In general. The board of directors and senior management of
each covered company must consider the results of the analysis
conducted by the Board under this subpart, as appropriate:
(1) As part of the covered company's capital plan and capital
planning process, including when making changes to the covered
company's capital structure (including the level and composition of
capital);
(2) When assessing the covered company's exposures, concentrations,
and risk positions; and
(3) In the development or implementation of any plans of the
covered company for recovery or resolution.
(b) Resolution plan updates. Each covered company must update its
resolution plan as the Board determines appropriate, based on the
results of the Board's analyses of the covered company under this
subpart.
0
3. Subpart G to part 252 is revised to read as follows:
Subpart G--Company-Run Stress Test Requirements for Covered
Companies
Sec.
252.141 Authority and purpose.
252.142 Definitions.
252.143 Applicability.
252.144 Annual stress test.
252.145 Mid-cycle stress test.
252.146 Methodologies and practices.
252.147 Reports of stress test results.
252.148 Disclosure of stress test results.
Sec. 252.141 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a covered company to
conduct annual and semi-annual stress tests. This subpart also
establishes definitions of stress test and related terms, methodologies
for conducting stress tests, and reporting and disclosure requirements.
Sec. 252.142 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Advanced approaches means the risk-weighted assets calculation
methodologies at 12 CFR part 225, appendix G, and 12 CFR part 217,
subpart E, as applicable, and any successor regulation.
(b) Adverse scenario means a set of conditions that affect the U.S.
economy or the financial condition of a covered company that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(c) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C for each of the four most recent
consecutive quarters, average total consolidated assets means the
average of the company's total consolidated assets, as reported on the
company's FR Y-9C, for the most recent quarter or consecutive quarters.
Average total consolidated assets are measured on the as-of date of the
most recent FR Y-9C used in the calculation of the average.
(d) Bank holding company has the same meaning as in section
225.2(c) of the Board's Regulation Y (12 CFR 225.2(c)).
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(e) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered company and that
reflect the consensus views of the economic and financial outlook.
(f) Capital action has the same meaning as in section 225.8(c)(2)
of the Board's Regulation Y (12 CFR 225.8(c)(2)).
(g) Covered company means:
(1) A bank holding company (other than a foreign banking
organization) with average total consolidated assets of $50 billion or
more; and
(2) A nonbank financial company supervised by the Board.
(h) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(i) Foreign banking organization has the same meaning as in section
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(j) Nonbank financial company supervised by the Board means a
nonbank financial company that the Financial Stability Oversight
Council has determined under section 113 of the Dodd-Frank Act (12
U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
(k) Planning horizon means the period of at least nine quarters,
beginning on the first day of a stress test cycle (on October 1 or
April 1, as appropriate) over which the relevant projections extend.
(l) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(m) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the covered company on the FR Y-
9C.
(n) Regulatory capital ratio means a capital ratio for which the
Board established minimum requirements for the company by regulation or
order, including, as applicable, the company's tier 1 and supplementary
leverage ratios and common equity tier 1, tier 1, and total risk-based
capital ratios as calculated under appendices A, D, E, and G to this
part (12 CFR part 225) and 12 CFR part 217, as applicable, including
the transition provisions at 12 CFR 217.1(f)(4) and 12 CFR 217.300, or
any successor regulation.
(o) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board,
or with respect to the mid-cycle stress test required under section
252.145 of this subpart, the covered company, annually determines are
appropriate for use in the company-run stress tests, including, but not
limited to, baseline, adverse, and severely adverse scenarios.
(p) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that overall are more severe than those associated with the adverse
scenario and may include trading or other additional components.
(q) Stress test means a process to assess the potential impact of
scenarios on the consolidated earnings, losses, and capital of a
covered company over the planning horizon, taking into account its
current condition, risks, exposures, strategies, and activities.
(r) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year.
(s) Subsidiary has the same meaning as in section 225.2(o) the
Board's Regulation Y (12 CFR 225.2).
(t) Tier 1 common ratio has the same meaning as in section 225.8 of
the Board's Regulation Y (12 CFR 225.8).
Sec. 252.143 Applicability.
(a) Compliance date for bank holding companies that are covered
companies as of November 15, 2012--(1) In general. Except as provided
in paragraph (a)(2) or (3) of this section, a bank holding company that
is a covered company as of November 15, 2012, must comply with the
requirements of this subpart beginning with the stress test cycle
commencing on October 1, 2013, unless that time is extended by the
Board in writing.
(2) 2009 Supervisory Capital Assessment Program. A bank holding
company that participated in the 2009 Supervisory Capital Assessment
Program, or a successor to such a bank holding company, must comply
with the requirements of this subpart beginning with the stress test
cycle commencing on November 15, 2012, unless that time is extended by
the Board in writing.
(3) SR Letter 01-01. A U.S.-domiciled bank holding company that is
a covered company as of November 15, 2012, and is a subsidiary of a
foreign banking organization that is currently relying on Supervision
and Regulation Letter SR 01-01 issued by the Board (as in effect on May
19, 2010) must comply with the requirements of this subpart beginning
with the stress test cycle commencing on October 1, 2015, unless that
time is extended by the Board in writing.
(b) Compliance date for institutions that become covered companies
after November 15, 2012--(1) Bank holding companies. A bank holding
company that becomes a covered company after November 15, 2012, must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
the bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
(2) Nonbank financial companies supervised by the Board. A company
that becomes a nonbank financial company supervised by the Board must
comply with the requirements of this subpart beginning with the stress
test cycle that commences in the calendar year after the year in which
company first becomes subject to the Board's minimum regulatory capital
requirements, unless the Board accelerates or extends the compliance
date.
(c) Ongoing application. A bank holding company that is a covered
company will remain subject to the requirements of this subpart unless
and until its total consolidated assets fall below $50 billion for each
of four consecutive quarters, as reported on the FR Y-9C. The
calculation will be effective on the as-of date of the fourth
consecutive FR Y-9C.
(d) Advanced approaches. Notwithstanding any other requirement in
this section, for a given stress test cycle, a covered company's
estimates of its pro forma regulatory capital ratios and the estimate
of its pro forma tier 1 common ratio over the planning horizon shall
not include estimates using the advanced approaches if the company is
notified on or after the first day of that stress test cycle (October
1) that it is required to calculate its risk-based capital requirements
using the advanced approaches.
Sec. 252.144 Annual stress test.
(a) In general. A covered company must conduct an annual stress
test by January 5 during each stress test cycle based on data as of
September 30 of the preceding calendar year, unless the time or the as
of date is extended by the Board in writing.
(b) Scenarios provided by the Board--(1) In general. In conducting
a stress test under this section, a covered company must use the
scenarios provided by the Board. Except as provided in paragraphs
(b)(2) and (3) of this section, the Board will provide a description of
the scenarios to each covered company no later than November 15 of that
calendar year.
(2) Additional components. (i) The Board may require a covered
company with significant trading activity, as determined by the Board
and specified
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in the Capital Assessments and Stress Testing report (FR Y-14), to
include a trading and counterparty component in its adverse and
severely adverse scenarios in the stress test required by this section.
The data used in this component will be as of a date between October 1
and December 1 of that calendar year selected by the Board, and the
Board will communicate the as-of date and a description of the
component to the company no later than December 1 of the calendar year.
(ii) The Board may require a covered company to include one or more
additional components in its adverse and severely adverse scenarios in
the stress test required by this section based on the company's
financial condition, size, complexity, risk profile, scope of
operations, or activities, or risks to the U.S. economy.
(3) Additional scenarios. The Board may require a covered company
to use one or more additional scenarios in the stress test required by
this section based on the company's financial condition, size,
complexity, risk profile, scope of operations, or activities, or risks
to the U.S. economy.
(4) Notice and response. If the Board requires a covered company to
include one or more additional components in its adverse and severely
adverse scenarios under paragraph (b)(2)(ii) of this section or to use
one or more additional scenarios under paragraph (b)(3) of this
section, the Board will notify the company in writing no later than
September 30. The notification will include a general description of
the additional component(s) or additional scenario(s) and the basis for
requiring the company to include the additional component(s) or
additional scenario(s). Within 14 calendar days of receipt of a
notification under this paragraph, the covered company may request in
writing that the Board reconsider the requirement that the company
include the additional component(s) or additional scenario(s),
including an explanation as to why the reconsideration should be
granted. The Board will respond in writing within 14 calendar days of
receipt of the company's request. The Board will provide the covered
company with a description of any additional component(s) or additional
scenario(s) by December 1.
Sec. 252.145 Mid-cycle stress test.
(a) Mid-cycle stress test requirement. In addition to the stress
test required under section 252.144 of this subpart, a covered company
must conduct a stress test by July 5 during each stress test cycle
based on data as of March 31 of that calendar year, unless the time or
the as-of date is extended by the Board in writing.
(b) Scenarios related to mid-cycle stress tests--(1) In general. A
covered company must develop and employ a minimum of three scenarios,
including a baseline scenario, adverse scenario, and severely adverse
scenario, that are appropriate for its own risk profile and operations,
in conducting the stress test required by this section.
(2) Additional components. The Board may require a covered company
to include one or more additional components in its adverse and
severely adverse scenarios in the stress test required by this section
based on the company's financial condition, size, complexity, risk
profile, scope of operations, or activities, or risks to the U.S.
economy.
(3) Additional scenarios. The Board may require a covered company
to use one or more additional scenarios in the stress test required by
this section based on the company's financial condition, size,
complexity, risk profile, scope of operations, or activities, or risks
to the U.S. economy.
(4) Notice and response. If the Board requires a covered company to
include one or more additional components in its adverse and severely
adverse scenarios under paragraph (b)(2) of this section or one or more
additional scenarios under paragraph (b)(3) of this section, the Board
will notify the company in writing no later than March 31. The
notification will include a general description of the additional
component(s) or additional scenario(s) and the basis for requiring the
company to include the additional component(s) or additional
scenario(s). Within 14 calendar days of receipt of a notification under
this paragraph, the covered company may request in writing that the
Board reconsider the requirement that the company include the
additional component(s) or additional scenario(s), including an
explanation as to why the reconsideration should be granted. The Board
will respond in writing within 14 calendar days of receipt of the
company's request. The Board will provide the covered company with a
description of any additional component(s) or additional scenario(s) by
June 1.
Sec. 252.146 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
sections 252.144 and 252.145, for each quarter of the planning horizon,
a covered company must estimate the following for each scenario
required to be used:
(1) Losses, pre-provision net revenue, provision for loan and lease
losses, and net income; and
(2) The potential impact on pro forma regulatory capital levels and
pro forma capital ratios (including regulatory capital ratios, the tier
1 common ratio, and any other capital ratios specified by the Board),
incorporating the effects of any capital actions over the planning
horizon and maintenance of an allowance for loan losses appropriate for
credit exposures throughout the planning horizon.
(b) Assumptions regarding capital actions. In conducting a stress
test under Sec. Sec. 252.144 and 252.145, a covered company is
required to make the following assumptions regarding its capital
actions over the planning horizon--
(1) For the first quarter of the planning horizon, the covered
company must take into account its actual capital actions as of the end
of that quarter; and
(2) For each of the second through ninth quarters of the planning
horizon, the covered company must include in the projections of
capital:
(i) Common stock dividends equal to the quarterly average dollar
amount of common stock dividends that the company paid in the previous
year (that is, the first quarter of the planning horizon and the
preceding three calendar quarters);
(ii) Payments on any other instrument that is eligible for
inclusion in the numerator of a regulatory capital ratio equal to the
stated dividend, interest, or principal due on such instrument during
the quarter; and
(iii) An assumption of no redemption or repurchase of any capital
instrument that is eligible for inclusion in the numerator of a
regulatory capital ratio.
(c) Controls and oversight of stress testing processes--(1) In
general. The senior management of a covered company must establish and
maintain a system of controls, oversight, and documentation, including
policies and procedures, that are designed to ensure that its stress
testing processes are effective in meeting the requirements in this
subpart. These policies and procedures must, at a minimum, describe the
covered company's stress testing practices and methodologies, and
processes for validating and updating the company's stress test
practices and methodologies consistent with applicable laws,
regulations, and supervisory guidance. Policies of covered companies
must also describe processes for scenario development for the mid-cycle
stress test required under Sec. 252.145.
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(2) Oversight of stress testing processes. The board of directors,
or a committee thereof, of a covered company must approve and review
the policies and procedures of the stress testing processes as
frequently as economic conditions or the condition of the covered
company may warrant, but no less than annually. The board of directors
and senior management of the covered company must receive a summary of
the results of any stress test conducted under this subpart.
(3) Role of stress testing results. The board of directors and
senior management of each covered company must consider the results of
the analysis it conducts under this subpart, as appropriate:
(i) As part of the covered company's capital plan and capital
planning process, including when making changes to the covered
company's capital structure (including the level and composition of
capital);
(ii) When assessing the covered company's exposures,
concentrations, and risk positions; and
(iii) In the development or implementation of any plans of the
covered company for recovery or resolution.
Sec. 252.147 Reports of stress test results.
(a) Reports to the Board of stress test results. (1) A covered
company must report the results of the stress test required under Sec.
252.144 to the Board by January 5 of each calendar year in the manner
and form prescribed by the Board, unless that time is extended by the
Board in writing.
(2) A covered company must report the results of the stress test
required under Sec. 252.145 to the Board by July 5 of each calendar
year in the manner and form prescribed by the Board, unless that time
is extended by the Board in writing.
(b) Confidential treatment of information submitted. The
confidentiality of information submitted to the Board under this
subpart and related materials shall be determined in accordance with
applicable exemptions under the Freedom of Information Act (5 U.S.C.
552(b)) and the Board's Rules Regarding Availability of Information (12
CFR part 261).
Sec. 252.148 Disclosure of stress test results.
(a) Public disclosure of results--(1) In general. (i) A covered
company must disclose a summary of the results of the stress test
required under section 252.144 in the period beginning on March 15 and
ending on March 31, unless that time is extended by the Board in
writing.
(ii) A covered company must disclose a summary of the results of
the stress test required under Sec. 252.145 in the period beginning on
September 15 and ending on September 30, unless that time is extended
by the Board in writing.
(2) Disclosure method. The summary required under this section may
be disclosed on the Web site of a covered company, or in any other
forum that is reasonably accessible to the public.
(b) Summary of results. A covered company must disclose, at a
minimum, the following information regarding the severely adverse
scenario:
(1) A description of the types of risks included in the stress
test;
(2) A general description of the methodologies used in the stress
test, including those employed to estimate losses, revenues, provision
for loan and lease losses, and changes in capital positions over the
planning horizon;
(3) Estimates of--
(i) Pre-provision net revenue and other revenue;
(ii) Provision for loan and lease losses, realized losses or gains
on available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains;
(iii) Net income before taxes;
(iv) Loan losses (dollar amount and as a percentage of average
portfolio balance) in the aggregate and by subportfolio, including:
domestic closed-end first-lien mortgages; domestic junior lien
mortgages and home equity lines of credit; commercial and industrial
loans; commercial real estate loans; credit card exposures; other
consumer loans; and all other loans; and
(v) Pro forma regulatory capital ratios and the tier 1 common ratio
and any other capital ratios specified by the Board;
(4) An explanation of the most significant causes for the changes
in regulatory capital ratios and the tier 1 common ratio; and
(5) With respect to a stress test conducted pursuant to section
165(i)(2) of the Dodd-Frank Act by an insured depository institution
that is a subsidiary of the covered company and that is required to
disclose a summary of its stress tests results under applicable
regulations, changes in regulatory capital ratios and any other capital
ratios specified by the Board of the depository institution subsidiary
over the planning horizon, including an explanation of the most
significant causes for the changes in regulatory capital ratios.
(c) Content of results. (1) The following disclosures required
under paragraph (b) of this section must be on a cumulative basis over
the planning horizon:
(i) Pre-provision net revenue and other revenue;
(ii) Provision for loan and lease losses, realized losses/gains on
available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains;
(iii) Net income before taxes; and
(iv) Loan losses in the aggregate and by subportfolio.
(2) The disclosure of pro forma regulatory capital ratios, the tier
1 common ratio, and any other capital ratios specified by the Board
that is required under paragraph (b) of this section must include the
beginning value, ending value, and minimum value of each ratio over the
planning horizon.
By order of the Board of Governors of the Federal Reserve
System, September 24, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-23618 Filed 9-27-13; 8:45 am]
BILLING CODE 6210-01-P