[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Notices]
[Pages 59930-59934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-23727]
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FEDERAL RESERVE SYSTEM
Agency Information Collection Activities: Announcement of Board
Approval Under Delegated Authority and Submission to OMB
AGENCY: Board of Governors of the Federal Reserve System.
SUMMARY: Notice is hereby given of the final approval of proposed
information collections by the Board of Governors of the Federal
Reserve System (Board) under OMB delegated authority, as per 5 CFR
1320.16 (OMB Regulations on Controlling Paperwork Burdens on the
Public). Board-approved collections of information are incorporated
into the official OMB inventory of currently approved collections of
information. Copies of the Paperwork Reduction Act Submission,
supporting statement and approved collection of information instrument
are placed into OMB's public docket files. The Federal Reserve may not
conduct or sponsor, and the respondent is not required to respond to,
an information collection that has been extended, revised, or
implemented
[[Page 59931]]
on or after October 1, 1995, unless it displays a currently valid OMB
control number.
FOR FURTHER INFORMATION CONTACT: Federal Reserve Board Clearance
Officer--Cynthia Ayouch--Office of the Chief Data Officer, Board of
Governors of the Federal Reserve System, Washington, DC 20551, (202)
452-3829. Telecommunications Device for the Deaf (TDD) users may
contact (202) 263-4869, Board of Governors of the Federal Reserve
System, Washington, DC 20551.
OMB Desk Officer--Shagufta Ahmed--Office of Information and
Regulatory Affairs, Office of Management and Budget, New Executive
Office Building, Room 10235, 725 17th Street NW., Washington, DC 20503.
Final approval under OMB delegated authority of the implementation
of the following information collection:
Report title: Annual Company-Run Stress Test Projections.
Agency form number: FR Y-16.
OMB control number: 7100--to be assigned.
Frequency: Annual.
Reporters: Bank holding companies (BHCs), savings and loan holding
companies (SLHCs) \1\ with average total consolidated assets of greater
than $10 billion but less than $50 billion, and any affiliated or
unaffiliated state member bank (SMB) with average total consolidated
assets of more than $10 billion but less than $50 billion excluding SMB
subsidiaries of covered companies.\2\
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\1\ SLHCs would not be subject to Dodd-Frank annual company-run
stress testing requirements until the next calendar year after the
SLHCs become subject to regulatory capital requirements.
\2\ ``Covered companies'' are defined as BHCs with at least $50
billion in total assets and nonbank systemically important financial
institutions, subject to annual supervisory stress tests and semi-
annual company-run stress tests; ``other financial companies'' are
defined as BHCs with total consolidated assets over $10 billion but
less than $50 billion, SLHCs with assets over $10 billion, and
state-member banks with assets over $10 billion, subject to annual
company-run stress tests.
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Estimated annual reporting hours: 223,200 hours, one-time
implementation; 28,768 hours, ongoing.
Estimated average hours per response: 3,600 hours, one-time
implementation; 464 hours, ongoing.
Number of respondents \3\: BHCs, 43; SLHCs, 8; and SMBs, 11.
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\3\ Correction to the number of respondents noted in the initial
Federal Register notice: BHCs, 44; SLHCs, 8; and SMBs, 10.
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General description of report: This information collection is
authorized pursuant Section 165(i)(2) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act) that specifically
authorizes the Board to issue regulations implementing the annual
stress testing requirements for its supervised institutions. 12 U.S.C.
5365(i)(2)(C). More generally, with respect to BHCs, Section 5(c) of
the Bank Holding Company Act, 12 U.S.C. 1844(c), authorizes the Board
to require a BHC and any subsidiary ``to keep the Board informed as
to--(i) its financial condition, [and] systems for monitoring and
controlling financial and operating risks. . . .'' Section 9(6) of the
Federal Reserve Act, 12 U.S.C. 324, requires SMBs to make reports of
condition to their supervising Reserve Bank in such form and containing
such information as the Board may require. Finally, with respect to
SLHCs, under Section 312 of the Dodd-Frank Act, 12 U.S.C. 5412, the
Board succeeded to all powers and authorities of the OTS and its
Director, including the authority to require SLHCs to ``file . . . such
reports as may be required . . . in such form and for such periods as
the [agency] may prescribe.'' 12 U.S.C. 1467a(b)(2).
Obligation to Respond is Mandatory: Section 165(i)(2)(A) provides
that ``financial companies that have total consolidated assets [meeting
the asset thresholds] . . . and are regulated by a primary Federal
financial regulatory agency shall conduct annual stress tests.''
Section 165(i)(2)(B) provides that a company required to conduct annual
stress tests ``shall submit a report to the Board of Governors and to
its primary financial regulatory agency at such time, in such form, and
containing such information as the primary financial regulatory agency
shall require.'' 12 U.S.C. Sec. 5365(i)(2)(B).
Confidentiality: As noted under Section 165(i)(2)(C)(iv), companies
conducting annual stress tests under these provisions are ``require[d]
. . . to publish a summary of the results of the required stress
tests.'' 12 U.S.C. 5365(i)(2)(C)(iv). Regarding the information
collected by the Board, however, as such information will be collected
as part of the Board's supervisory process, it may be accorded
confidential treatment under Exemption 8 of the Freedom of Information
Act (FOIA), 5 U.S.C. 552(b)(8). This information also is the type of
confidential commercial and financial information that may be withheld
under Exemption 4 of FOIA, 5 U.S.C. 552(b)(4). As required information,
it may be withheld under Exemption 4 only if public disclosure could
result in substantial competitive harm to the submitting institution,
under National Parks & Conservation Ass'n v. Morton, 498 F.2d 765 (D.C.
Cir. 1974).
Abstract: In October 2012, the Federal Reserve Board approved two
final rules for capital stress testing requirements pursuant to the
Dodd-Frank Act. The final rules implemented the Dodd-Frank Act Stress
Testing (DFAST) requirements, one for ``covered companies'' and one for
``other financial companies.'' The Federal Deposit Insurance
Corporation (FDIC) \4\ and the Office of the Comptroller of the
Currency (OCC) \5\ also issued final rules for DFAST in October 2012
that are nearly identical to the requirements for ``other financial
companies'' issued by the Federal Reserve Board.
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\4\ October 15, 2012 (77 FR 62417).
\5\ October 9, 2012 (77 FR 61238).
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Current Actions: On March 15, 2013, Federal Reserve published a
notice in the Federal Register (78 FR 16502) requesting public comment
for 60 days on the implementation of the FR Y-16. The comment period
expired on May 14, 2013. The Federal Reserve received four comment
letters addressing the proposed implementation of this information
collection. The comments are summarized and addressed below.
Summary of Public Comments
The Federal Reserve received four comment letters on the proposed
implementation of the FR Y-16: two from financial holding companies,
one from a trade organization, and one from a modeling service
provider. Some general comments were received regarding the report
format, instructions, and the timing of implementation. In addition,
the commenters focused on specific data items proposed for collection
on the results schedules. In some cases, commenters compared the level
of detail required in the proposed FR Y-16 to the requirements of the
Capital Assessments and Stress Testing information collection (FR Y-
14A/Q/M; OMB No. 7100-0341) applicable to BHCs with $50 billion or more
in total assets.\6\ Lastly, one commenter asked for clarification
regarding whether to incorporate changes from the Federal Reserve's
revised approach to risk-based and leverage capital requirements for
banking organizations (Revised Approach) into their capital projections
under the supervisory scenarios.\7\
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\6\ The FR Y-16 reporting requirements are tailored to the $10-
$50 billion companies and require significantly less granular
reporting segmentation relative to the FR Y-14A Summary Schedule
that companies with greater than $50 billion in assets use to report
the results of their company-run stress tests.
\7\ http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm.
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As noted in the initial Federal Register notice, the Federal
Reserve, the OCC, and the FDIC (the agencies) each developed and
requested public
[[Page 59932]]
comment on nearly identical reporting forms \8\ to implement the
mandatory Dodd-Frank reporting requirements for the $10-$50 billion
companies. Accordingly, the Federal Reserve has continued to work
closely with these agencies in considering all public comments
received. The following is a detailed discussion of the comments
received.
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\8\ There are no material differences among the agencies'
proposed reporting forms.
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Detailed Discussion of Public Comments
A. General Comments
In order to ensure data consistency, the Federal Reserve proposed
to define or map the FR Y-16 reporting requirements to the mandatory
Consolidated Financial Statements for Holding Companies (FR Y-9C; OMB
No. 7100-0128) and the Consolidated Report of Condition and Income
(Call Report) (FFIEC 031/041; OMB No. 7100-0036) line items and
organize the data in a similar (but not identical) fashion to the FR Y-
9C or Call Report, wherever possible. Other reporting conventions, such
as technical reporting instructions, were also designed to be
consistent with the FR Y-9C or Call Report.
Two commenters indicated that many firms do not currently conduct
stress test exercises using the FR Y-9C or Call Report segmentation of
data and format. These commenters asserted that it would be a
significant challenge to map their current internal stress testing
processes to the FR Y-9C or Call Report format. Accordingly, these
commenters requested the Federal Reserve and the other agencies
consider further delaying implementation of their respective reporting
requirements and limiting the data submission requirements to only the
12 line items requested for each scenario in the proposed FR Y-16
summary schedule. Another commenter supported the FR Y-9C or Call
Report segmentation, asserting that using the proposed FR Y-16
segmentation and reporting format is consistent with its internal
approach to modeling.
The Federal Reserve believes that the proposed reporting forms and
timeframe would not place undue burden on institutions. Notably,
implementation of the stress test requirements has already been delayed
for the vast majority of $10-$50 billion companies.\9\ Furthermore, the
FR Y-16 report will follow the precedent established by the FR Y-14
with respect to utilizing the FR Y-9C reporting as the basis for data
segmentation requirements.
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\9\ October 12, 2012 (77 FR 62396)-(12 CFR 252.153, 252.157).
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The consistent application of data definitions is an overarching FR
Y-16 requirement in order to ensure that the Federal Reserve, the other
agencies, FR Y-16 report filers, and the public would be able to
interpret and understand the data sources and results, particularly
when mandatory company disclosure of the summary results under the
severely adverse scenario becomes effective in 2015. The existing FR Y-
9C and Call Report formats provide a format that is well-understood and
utilized by Federal Reserve and the industry. Using the FR Y-9C and
Call Report reporting format would also ensure a high level of
consistency for the data provided and would facilitate the assessment
of the results.
The Federal Reserve will utilize the proposed FR Y-16 reporting
segmentation of data based broadly on the FR Y-9C and Call Report data
segmentations and definitions as presented in the proposed reporting
form and instructions. Further, in order to ensure consistency between
the proposed FR Y-16 instructions and the instructions for the FR Y-9C
and Call Report, the Federal Reserve has revised the presentation
format of the proposed FR Y-16 to provide line-by-line instructions
consistent with the FR Y-9C and Call Report, wherever practical.
In addition, one commenter suggested the application of
generalized, bank-developed loss assumptions for immaterial portfolios.
The commenter noted that an immaterial portfolio exception is allowed
for firms with greater than $50 billion in assets for the FR Y-14
submissions and that this exception would reduce burden on $10-$50
billion companies. While the FR Y-14 Q/M for BHCs with $50 billion or
more in total assets allow for optional reporting of immaterial data
for certain schedules, these data are input data used by the Federal
Reserve to conduct supervisory stress tests. No materiality reporting
thresholds have been defined for the output data for company-run stress
tests for these larger companies.\10\ The Federal Reserve considered
the burden on institutions for internally calculating losses for
immaterial portfolios for the $10-$50 billion companies and determined
that providing a safe harbor that defines immaterial portfolios, where
no or little consideration of the risk of these portfolios is
undertaken, would be contrary to the purpose of a company-run stress
test and could unintentionally mask or cause institutions to
erroneously conclude that the aggregation of immaterial portfolios
would always pose little or no risk to an institution. Although stress
testing should be applied to all exposures, the same level of rigor and
analysis may not be necessary for lower-risk, immaterial
portfolios.\11\ For such portfolios, it may be appropriate for a
company to use a less sophisticated approach for its stress test
projections, assuming the results of that approach are conservative and
well-documented. Accordingly, the Federal Reserve notes that immaterial
portfolios should not be subject to an exemption from the FR Y-16. The
proposed interagency supervisory guidance on implementing Dodd-Frank
Act company-run stress tests for the $10-$50 billion companies offers
suggestions on appropriate methodologies for estimating losses and
revenues associated with immaterial portfolios.\12\
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\10\ If a BHC does not complete the schedules for immaterial
portfolios for the FR Y-14 Q/M collection of data to run supervisory
stress tests, the Federal Reserve assigns losses to the immaterial
portfolios in a manner consistent with the given scenario to produce
supervisory estimates.
\11\ Immaterial portfolios are defined as those that would not
present a consequential effect on capital adequacy under any of the
scenarios provided.
\12\ http://www.federalreserve.gov/newsevents/press/bcreg/20130730a.htm.
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B. Data Items--Results Schedule
Balance Sheet
One commenter requested reporting common stock, retained earnings,
surplus, and other equity components as a single line item. The
commenter asserted that separately reporting these four elements of
capital would add no value for the purposes of understanding projected
regulatory capital or tangible common equity. The Federal Reserve will
combine the aforementioned capital components into one line item to be
reported as ``equity capital.''
Two commenters stated that separating 1-4 family construction loans
from all other construction loans would require more detailed reporting
for the FR Y-16 than what is required for the larger firms that report
using the FR Y-14A. Segmentation of data is particularly relevant to
these smaller organizations since they have material concentrations in
this product type and a significant amount of the industry's losses
during the most recent economic downturn emanated from this product.
These data would provide necessary information for the institutions to
effectively manage risk and appropriately assess and plan for their
capital needs. Therefore, this reporting requirement is being
implemented as proposed.
[[Page 59933]]
One commenter stated that gathering available-for-sale (AFS) and
held-to-maturity (HTM) balances for U.S. government obligations and
obligations of government sponsored entities (GSE) would require more
detailed reporting for the FR Y-16 than what is required for the FR Y-
14A. Another commenter suggested separating GSE obligations from other
government obligations on the FR Y-16 balance sheet consistent with the
treatment on the FR Y-9C and Call Report income statement.
While the FR Y-14A collects only total AFS and HTM balances on the
balance sheet schedule, the FR Y-14 reporting series requires more
granular data than proposed for the FR Y-16 on government securities
and GSE exposures through other schedules within the report. In
addition, the reporting requirements for the FR Y-9C and Call Report
balance sheet require more detailed information on AFS and HTM GSE
obligations relative to the reporting requirements for the FR Y-16.
Further, the FR Y-14A also collects other than temporary impairment
(OTTI) at the Committee on Uniform Security Identification Procedures
level for GSE obligations that have associated OTTI losses, resulting
in significantly more granular reporting requirements in these
instances relative to the proposed FR Y-16 reporting requirements.
Accordingly, the Federal Reserve will implement as proposed the
reporting requirements related to AFS and HTM securities and for U.S.
government obligations and obligations of GSEs. This approach will
facilitate projections of net income and regulatory capital over the
planning horizon.
Several commenters stated that the level of detail required by the
balance sheet memoranda items were not informative or necessary to the
loss estimation process, or entailed more detail than what was required
by the FR Y-14A. Specific memoranda items that were cited by commenters
included troubled debt restructurings and loans secured by 1-4 family
residential properties in foreclosure. Based on this comment, the
Federal Reserve also evaluated the utility of another balance sheet
memoranda item: loans and leases guaranteed by either U.S. government
or GSE guarantees (i.e., non-FDIC loss sharing agreements). The Federal
Reserve agrees that these memoranda data items are already captured
within the FR Y-16 reporting requirements for loans and leases and that
eliminating these items from the reporting template would not affect an
institution's ability to project pre-provision net revenue, net income,
or regulatory capital in order to assess their capital needs under
stressed conditions. Accordingly, the Federal Reserve will eliminate
these three proposed supplemental balance sheet memoranda reporting
items.
One commenter requested combining retail and wholesale funding into
one line item for total funding, suggesting that separating these types
of deposits from one another would involve a disproportional amount of
work and would affect other company-run models, thereby adding
unnecessary complexity and burden.
The breakdown of deposits between retail and wholesale is
facilitated through the subsidiary bank Call Report data and the
proposed FR Y-16 instructions indicate that institutions should use the
Call Report segmentation definitions to project these line items. In
addition, retail and wholesale funding have historically reacted
differently under stressed economic conditions and projecting the
retail and wholesale deposit structure throughout the planning horizon
as proposed would provide useful information to the institutions and
the Federal Reserve with respect to how an institution internally
assesses capital adequacy, plans for their capital needs, and manages
risk. Therefore, the Federal Reserve will implement this reporting
requirement as proposed.
The same commenter noted that separately modeling average rates for
each type of deposit would also involve a significant amount of work
and potentially affect other company-run models. The commenter's
observation highlighted a departure in the FR Y-16 from the reporting
format and data segmentation used in the FR Y-9C and Call Report. The
Federal Reserve agrees that gathering data at a level of granularity in
order to calculate and project average rates under the three scenarios
for various asset and liability items (e.g., total loans, securities,
retail funding, wholesale funding, interest bearing deposits, trading
liabilities, and other liabilities) could involve a significant amount
of effort and could potentially affect other models that firms utilize.
Furthermore, the average rate information is not a necessary data input
to project losses, pre-provision net revenue, or capital. The
additional burden placed on institutions to calculate the projected
average rates could unnecessarily distract institutions from the
primary goal of the annual company-run stress test--to effectively
estimate the possible impact of an economic downturn on a firm's
capital position in order to plan for capital needs and identify and
manage risk. Therefore, the Federal Reserve will remove all proposed
average rate memoranda items from the balance sheet schedule of the FR
Y-16.
Income Statement
Two commenters requested eliminating the income statement memoranda
item for net gains (losses) on sales of other real estate owned (OREO).
One commenter noted that this element could effectively be combined
with forecasting of other OREO expenses. The other commenter stated
that the level of detail for this element is more granular than what is
required for the FR Y-14A report. Gains or losses on OREO are captured
in the pre-provision net revenue metrics worksheet of the FR Y-14A
schedule; therefore, this requirement would not be more burdensome for
the $10-$50 billion companies. Nevertheless, the Federal Reserve
acknowledges that gains and losses on OREO would already be captured
within the noninterest income statement memoranda item ``itemize and
describe amounts greater than 15% of noninterest income'' or in
``itemize and describe amounts greater than 15% of noninterest
expense'' when the amount meets the 15% threshold required by the
proposed FR Y-16. Therefore, the Federal Reserve will remove the
proposed line item segmentation for ``Net gains (losses) on sales of
other real estate owned'' memoranda item on the income statement as
this data item would be appropriately captured under another line item
when the gain or loss amount exceeds 15% of other income or expense.
C. Regulatory Capital
One commenter asked for clarification regarding the calculation and
reporting of regulatory capital and risk-weighted assets (RWAs), noting
the expectation that capital and RWA calculations and definitions would
change over the planning horizon as new rules are implemented
(specifically noting new definitions when the Federal Reserve's Revised
Approach is adopted). In addition, this commenter also requested
clarification on the calculation of tier 1 non-common capital elements
in the proposed reporting form.
Tier 1 common equity is not defined by regulation or rule for
institutions with total assets of less than $50 billion. Generally, a
$10-50 billion company should measure its regulatory capital levels and
regulatory capital ratios for each quarter in accordance with the rules
that would be in effect during that quarter. With the Revised Approach,
companies subject to the Federal Reserve's rules implementing Dodd-
Frank Act stress tests would need to
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measure their regulatory capital levels and regulatory capital ratios
for each quarter in accordance with the transition arrangements in the
Revised Approach.\13\ Thus, incorporating the Revised Approach into the
2014 stress test cycle would require $10-$50 billion companies to
transition estimated capital levels and ratios to the definitions from
the Revised Approach in their projection of the last four quarters of
the planning horizon.
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\13\ http://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm.
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Requiring $10-$50 billion companies to transition to the Revised
Approach during the planning horizon for the 2014 test and model
alternative capital calculations in the middle of the planning horizon
would add operational and regulatory complexity and increase the
potential or likelihood of erroneous calculations or assumptions. This
complexity and increased risk of error could distract a $10-$50 billion
company from focusing on conducting company-run stress tests that
capture salient risks to the company and provide a meaningful forward-
looking assessment for the purposes of assessing the company's capital
adequacy under various scenarios. Finally, as the $10-$50 billion
companies are not required to publicly disclose the results of the
stress tests conducted in the 2014 stress test cycle, the additional
burden of implementing the Revised Approach in the 2014 stress test
cycle will not provide the public with insight into a firm's capital
adequacy under hypothetical stressful circumstances.
For these reasons, the Federal Reserve has, in an interim final
rule, provided $10-$50 billion companies with a one-year delay in
incorporating the Revised Approach into their Dodd-Frank Act company-
run stress tests. Specifically, $10-$50 billion companies are not
required to incorporate the changes from the Revised Approach into
their company-run stress test conducted in the stress test cycle that
begins on October 1, 2013. Instead, $10-50 billion companies, as
described under the interim final rule, will be required to estimate
their pro forma capital levels and ratios over the planning horizon
using the capital rules in place as of the beginning of the 2014 stress
testing cycle on October 1, 2013.
There are three line items in the proposed FR Y-16 report that
would be specifically affected by the Revised Approach: tier 1 common
equity capital, non-common capital elements, and RWAs. Consistent with
the requirements of the proposed interim final rule, the Federal
Reserve will remove the tier 1 common and non-common capital line
items, and the associated equity ratios, from the Results Schedule for
the initial respondent panel that would be submitting a report for the
2014 stress test cycle. The Federal Reserve will provide information
regarding the capital and RWA calculations in the final instructions.
D. Technical Changes/Other Items
In response to a few technical (non-substantive) comments received,
some additional minor changes will be made in the final reporting form
and instructions. These changes include clarified reporting
instructions for income statement memoranda items; new detailed
technical reporting instructions and the elimination of the contact
information schedule as this information will be collected through the
Results Schedule cover sheet and the Federal Reserve data collection
application.
Board of Governors of the Federal Reserve System, September 24,
2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-23727 Filed 9-27-13; 8:45 am]
BILLING CODE 6210-01-P