[Federal Register Volume 79, Number 232 (Wednesday, December 3, 2014)]
[Notices]
[Pages 71768-71785]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28414]
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FEDERAL RESERVE SYSTEM
[Docket No. R-1503]
Application of Enhanced Prudential Standards and Reporting
Requirements to General Electric Capital Corporation
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Request for public comment on the application of enhanced
prudential standards and reporting requirements to General Electric
Capital Corporation.
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SUMMARY: Pursuant to section 165 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, the Board of Governors of the Federal
Reserve System (Board) is inviting public comment on the proposed
application of enhanced prudential standards to General Electric
Capital Corporation (GECC), a nonbank financial company that the
Financial Stability Oversight Council has determined should be
supervised by the Board. The Board has assessed the business model,
capital structure, risk profile, and systemic footprint of GECC to
determine how the enhanced prudential standards should apply, including
how to tailor application of the standards to the company. In light of
the substantial similarity of GECC's activities and risk profile to
that of a similarly-sized bank holding company, the Board is proposing
to apply enhanced prudential standards to GECC that are similar to
those that apply to large bank holding companies, including: (1)
Capital requirements; (2) capital-planning and stress-testing
requirements; (3) liquidity requirements; and (4) risk-management and
risk-committee requirements. The Board also is proposing to apply
certain additional enhanced prudential standards to GECC in light of
certain unique aspects related to GECC's activities, risk profile, and
structure, including additional independence requirements for GECC's
board of directors, restrictions on intercompany transactions between
GECC and General Electric Company, and leverage capital requirements
that are comparable to the standards that apply to the largest, most
systemic banking organizations. In addition, the Board is proposing to
require GECC to file certain reports with the Board that are similar to
the reports required of bank holding companies.
DATES: Comments must be submitted by February 2, 2015.
ADDRESSES: You may submit comments, identified by Docket No. R-1503, 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 R-
1503 in the subject line of the message.
FAX: (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/generalinfo/foia/ProposedRegs.cfm 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.; Washington, DC 20551) between 9:00 a.m. and 5:00 p.m. on
weekdays.
FOR FURTHER INFORMATION CONTACT: Ann Misback, Associate Director, (202)
452-3799, Jyoti Kohli, Senior Supervisory Financial Analyst, (202) 452-
2539, or Elizabeth MacDonald, Senior Supervisory Financial Analyst,
(202) 475-6316, Division of Banking Supervision and Regulation; or
Laurie Schaffer, Associate General Counsel, (202) 452-2277 or Jahad
Atieh, Attorney, (202) 452-3900, Legal Division.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Overview of GECC
III. Statutory Requirements for the Application of Enhanced
Prudential Standards to Nonbank Financial Companies Supervised by
the Board
A. Overview
B. GECC
IV. Proposed Enhanced Prudential Standards to Apply to GECC
A. Capital Requirements
B. Capital Planning Requirements
C. Stress-Testing requirements
D. Liquidity Requirements
E. Risk-Management and Risk-Committee Requirements
F. Other Prudential Standards: Restrictions on Intercompany
Transactions
G. Future Standards
V. Proposed Reporting Requirements
A. FR Y-6 Report
B. FR Y-10 Report
C. FR Y-9C and FR Y-9LP Reports
D. FR Y-11 and FR Y-11S Reports
E. FR 2314 and FR 2314S Reports
F. FR Y-14A, FR Y-14M, and FR Y-14Q Reports
G. FR Y-15 Report
H. FFIEC 009 and FFIEC 009a Reports
I. FFIEC 102
VI. Timing of Application
VII. Paperwork Reduction Act
VIII. Proposed Order
I. Introduction
Section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) directs the Board of Governors of the
Federal Reserve System (Board) to establish enhanced prudential
standards for bank holding companies with total consolidated assets of
$50 billion or more and nonbank financial companies that the Financial
Stability Oversight Council (Council) has determined should be
supervised by the Board (nonbank financial companies supervised by the
Board) in order to prevent or mitigate risks to U.S. financial
stability that could arise from the material financial distress or
failure, or ongoing activities of, these companies. The enhanced
prudential standards must include enhanced risk-based and leverage
capital requirements, liquidity requirements, risk-management and
[[Page 71769]]
risk-committee requirements, resolution-planning requirements, single-
counterparty credit limits, stress-test requirements, and a debt-to-
equity limit for companies that the Council has determined pose a grave
threat to the financial stability of the United States. Section 165
also permits the Board to establish additional enhanced prudential
standards that may include three enumerated standards--a contingent
capital requirement, an enhanced public disclosure requirement, a
short-term debt limit--and any ``other prudential standards'' that the
Board determines are ``appropriate.''
For bank holding companies and certain foreign banking
organizations, the Board has issued an integrated set of enhanced
prudential standards through a series of rulemakings, including the
Board's capital plan rule,\1\ stress testing rules,\2\ resolution plan
rule,\3\ and the Board's enhanced prudential standards rule under
Regulation YY.\4\ As part of the integrated enhanced prudential
standards applicable to the largest, most complex bank holding
companies, the Board also adopted enhanced liquidity requirements
through the liquidity coverage ratio (LCR) rule \5\ and adopted
enhanced leverage capital requirements through a supplementary leverage
ratio. Further, the Board issued an enhanced supplementary leverage
ratio for the most systemic bank holding companies.\6\ This integrated
set of standards is designed to result in a more stringent regulatory
regime for these companies to increase their resiliency and to mitigate
the risk that their failure or material financial distress could pose
to U.S. financial stability. The Board expects to issue additional
standards through future rulemakings.
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\1\ 12 CFR 225.8.
\2\ See 12 CFR part 252.
\3\ 12 CFR part 243. The Board's resolution plan rule applies by
its terms to all nonbank financial companies supervised by the
Board. 12 CFR part 243. Under these rules, nonbank financial
companies, such as GECC, are required to submit their first
resolution plan by July 1 following the date the company is
designated by the Council (provided the following July 1 occurs no
earlier than 270 days after the date on which the company is
designated). GECC submitted its first resolution plan on July 1,
2014. The public portion of GECC's resolution plan can be found on
the Board's Web site. See Board, General Electric Capital
Corporation Resolution Plan Public Section, available at: http://www.federalreserve.gov/bankinforeg/resolution-plans/ge-capital-1g-20140701.pdf.
\4\ See 79 FR 17240 (March 27, 2014).
\5\ 12 CFR part 249.
\6\ 12 CFR 217.10(a)(5), 217.11(c).
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In considering the application of enhanced prudential standards to
nonbank financial companies supervised by the Board, the Board intends
to thoroughly assess the business model, capital structure, risk
profile, and systemic footprint of a designated company to determine
how the enhanced prudential standards would apply.\7\ Consistent with
this approach, the Board is considering the application of enhanced
prudential standards to General Electric Capital Corporation (GECC), a
company that has been designated by the Council for Board
supervision.\8\ In light of the substantial similarity of GECC's
activities and risk profile to that of a similarly-sized bank holding
company, the Board is proposing to apply enhanced prudential standards
to GECC that are similar to those that apply to large bank holding
companies. As described in greater detail below, the Board is proposing
to apply: (1) Capital requirements; (2) capital-planning and stress-
testing requirements; (3) liquidity requirements; and (4) risk-
management and risk-committee requirements. The Board is also proposing
to apply certain additional enhanced prudential standards to GECC in
light of certain unique aspects related to GECC's activities, risk
profile, and structure, including additional independence requirements
for GECC's board of directors, restrictions on intercompany
transactions between GECC and General Electric Company (GE), and
leverage capital requirements that are comparable to the standards that
apply to the largest, most systemic banking organizations. In addition,
the Board is proposing to require GECC to file certain reports with the
Board that are similar to the reports required of bank holding
companies.
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\7\ See 79 FR 17240, 17245 (March 27, 2014).
\8\ At the time the Board issued its proposal to apply enhanced
prudential standards to bank holding companies and foreign banking
organizations with total consolidated assets of $50 billion or more,
the Council had not made any final determinations regarding
designation of a nonbank financial company. After the close of the
comment period for the proposed rules, the Council made a final
determination that material financial distress at GECC could pose a
threat to U.S. financial stability and that the company should be
subject to Board supervision and enhanced prudential standards.
Financial Stability Oversight Council, Basis of the Financial
Stability Oversight Council's Final Determination Regarding General
Electric Capital Corporation, Inc. (GECC Determination) (July 8,
2013), available at: http://www.treasury.gov/initiatives/fsoc/designations/Documents/Basis%20of%20Final%20Determination%20Regarding%20General%20Electric%20Capital%20Corporation,%20Inc.pdf.
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The Board is inviting public comment on the appropriateness of the
proposed enhanced prudential standards that would apply to GECC and on
the Board's proposed tailoring of the enhanced prudential standards.
The Board believes that it is appropriate to seek public comment on the
application of enhanced prudential standards to nonbank financial
companies supervised by the Board in order to provide transparency
regarding the regulation and supervision of these companies. The public
comment process will provide nonbank financial companies supervised by
the Board and interested members of the public with the opportunity to
comment, and will help guide the Board in future application of
enhanced prudential standards to other nonbank financial companies.
II. Overview of GECC
On July 8, 2013, the Council determined that GECC should be
supervised by the Board and subject to enhanced prudential standards.
As required by section 113(d) of the Dodd-Frank Act, the Council
conducted an annual evaluation of its determination to designate GECC
for Board supervision and determined not to rescind that determination
on July 31, 2014.
GECC, a wholly owned subsidiary of GE, is one of the largest
depository institution holding companies in the United States by
assets, with approximately $514 billion in total assets as of September
30, 2014.\9\ GECC engages primarily in collateralized lending to
middle-market commercial firms and consumers. Approximately 82 percent
of GECC's net income in 2013 was derived from its commercial and
consumer lending businesses. In its commercial lending operations, GECC
focuses primarily on lending and leasing to middle market companies and
offers secured commercial loans, equipment financing, and other
financial services to companies across a wide range of industries. In
its consumer operations, GECC offers European mortgages, auto loans,
debt consolidation, private mortgage insurance, and credit cards. GECC
is also the largest provider of private label credit cards in the
United States. GECC is taking steps to reduce its consumer lending
business and focus on businesses that align more closely with GE's
commercial and industrial operations. GECC engages in some activities
that are not permitted for a bank holding company or a savings and loan
holding company.\10\ These activities comprise less than 10 percent of
GECC's balance sheet and consist of
[[Page 71770]]
equity investments in nonfinancial companies, such as power companies.
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\9\ GECC contributed approximately 51 percent of GE's net
earnings in 2013.
\10\ GECC is a grandfathered unitary savings and loan holding
company under section 10(c)(9)(A) of HOLA and is therefore exempt
from the activity and investment restrictions under HOLA. 12 U.S.C.
1467a(c)(9)(A).
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Like many large bank holding companies, GECC borrows in the
wholesale funding markets. For example, GECC is a large issuer of
commercial paper and long-term debt to wholesale counterparties, and
uses securitizations of loans and finance receivables as a significant
source of funding. Moreover, GECC holds a large portfolio of on-balance
sheet financial assets that is comparable to those of the largest bank
holding companies, including a large portfolio of investment securities
and commercial and consumer loans. Likewise, similar to the largest,
most complex banking organizations, GECC makes significant use of
derivatives to hedge interest rate risk, foreign exchange risk, and
other financial risks.
GE and GECC are savings and loan holding companies by virtue of
their control of Synchrony Bank, a federal savings association, and are
subject to consolidated supervision by the Board. Synchrony Bank,
GECC's largest insured depository institution subsidiary, had
approximately $46 billion in total assets and $33 billion in total
deposits as of September 30, 2014. Synchrony Bank specializes in
consumer lending and consumer deposit products.\11\ GECC also has an
insured Utah-chartered industrial loan company, GE Capital Bank, which
had approximately $20 billion in total assets and $16 billion in total
deposits as of September 30, 2014, and specializes in commercial
lending and consumer deposit products (other than demand deposit
products).\12\
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\11\ In July 2014, GECC commenced a public offering of
approximately 15 percent of the shares of Synchrony Financial, a
company that conducts GECC's consumer financing activities and that
controls Synchrony Bank. GECC has indicated that it will divest the
remaining 85 percent of Synchrony Financial in the near future.
\12\ Under section 2(c)(2) of the Bank Holding Company Act (BHC
Act), certain industrial loan companies, such as GE Capital Bank,
are not included within the definition of ``bank'' under the BHC
Act. Therefore, any company controlling such an industrial loan
company is not a bank holding company subject to the BHC Act. See 12
U.S.C. 1841(c)(2)(H).
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III. Statutory Requirements for the Application of Enhanced Prudential
Standards to Nonbank Financial Companies Supervised by the Board
A. Overview
As the prudential regulator for nonbank financial companies
designated by the Council, the Board is charged with establishing
enhanced prudential standards to prevent or mitigate risks to the
financial stability of the United States that may arise from the
material financial distress or failure of such companies. These
obligations include helping to ensure the safe and sound operations of
the company.\13\ In prescribing enhanced prudential standards required
by section 165 of the Dodd-Frank Act, section 165(a)(2) permits the
Board to tailor the enhanced prudential standards among companies on an
individual basis, taking into consideration their ``capital structure,
riskiness, complexity, financial activities (including the financial
activities of their subsidiaries), size, and any other risk-related
factors that the Board . . . deems appropriate.'' \14\ In addition,
under section 165(b)(1), the Board is required to take into account
differences among bank holding companies covered by section 165 and
nonbank financial companies supervised by the Board, based on statutory
considerations.\15\
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\13\ The Board has examination, reporting, and enforcement
authority over nonbank financial companies that includes takings
actions to ensure the safety and soundness of the nonbank financial
company. 12 U.S.C. 5361(b), 5362.
\14\ 12 U.S.C. 5365(a)(2).
\15\ See 12 U.S.C. 5365(b)(3).
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The factors the Board must consider include: (i) The factors
described in sections 113(a) and (b) of the Dodd-Frank Act (12 U.S.C.
5313(a) and (b)); (ii) whether the company owns an insured depository
institution; (iii) nonfinancial activities and affiliations of the
company; and (iv) any other risk-related factors that the Board
determines appropriate.\16\ The Board must, as appropriate, adapt the
required standards in light of any predominant line of business of a
nonbank financial company, including activities for which particular
standards may not be appropriate.\17\ Section 165(b)(3) also requires
the Board, to the extent possible, to ensure that small changes in the
factors listed in sections 113(a) and 113(b) of the Dodd-Frank Act
would not result in sharp, discontinuous changes in the enhanced
prudential standards established by the Board under section
165(b)(1).\18\ The statute also directs the Board to take into account
any recommendations made by the Council pursuant to its authority under
section 115 of the Dodd-Frank Act.\19\
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\16\ 12 U.S.C. 5365(b)(3)(A).
\17\ 12 U.S.C. 5365(b)(3)(D).
\18\ 12 U.S.C. 5365(b)(3)(B).
\19\ 12 U.S.C. 5365(b)(3)(C).
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B. GECC
The Board has thoroughly assessed the business model, capital
structure, risk profile, and systemic footprint of GECC and has
considered the factors set forth in sections 165(a)(2) and 165(b)(3) of
the Dodd-Frank Act in proposing the enhanced prudential standards that
would apply to GECC. This assessment indicates that GECC's activities
and risk profile are similar to those of large bank holding companies,
and that enhanced prudential standards similar to those that apply to
large bank holding companies would be appropriate.
1. Factors Described in Sections 113(a) and (b) of the Dodd-Frank Act
Section 113(a) provides a list of ten factors \20\ that the Council
is required to consider in determining whether a nonbank financial
company should be supervised by the Board, in addition to any other
risk-related factor the Council deems appropriate. The factors include
leverage, off-balance sheet exposures, interconnectedness with
significant financial counterparties, the nature, scope, size, scale
and mix of activities, degree of regulation, and liabilities. In
considering these factors the Board notes that, similar to the largest
bank holding companies, GECC is a significant participant in the global
economy and financial markets, is interconnected to financial
intermediaries through its financing activities and its funding model,
and is a significant source of credit in the United States. Moreover,
GECC's leverage; off-balance sheet exposures; funding and risk profile;
asset composition; and the nature, scope, size, scale, concentration,
interconnectedness, and mix of its activities are substantially similar
to those of many large bank holding companies. As noted above, like
many of the largest bank holding companies, GECC's activities focus
primarily on
[[Page 71771]]
lending and leasing to commercial companies and on consumer financing
and deposit products. Moreover, similar to many large bank holding
companies, GECC borrows in the wholesale funding markets by issuing
commercial paper and long-term debt to wholesale counterparties, and
makes significant use of derivatives to hedge interest rate risk,
foreign exchange risk, and other financial risks. GECC also holds a
large portfolio of on-balance sheet financial assets, such as
investment securities and commercial and consumer loans, which is
comparable to those of the largest bank holding companies. In terms of
the degree to which a company is already regulated, the Board notes
that GECC is a savings and loan holding company subject to prudential
supervision by the Board, but that sections 165 and 166 do not apply by
their terms to savings and loan holding companies with $50 billion or
more in total consolidated assets, such as GECC, as they apply to bank
holding companies.
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\20\ With respect to a domestic nonbank financial company
supervised by the Board, the factors include: (A) The extent of the
leverage of the company; (B) the extent and nature of the off-
balance-sheet exposures of the company; (C) the extent and nature of
the transactions and relationships of the company with other
significant nonbank financial companies and significant bank holding
companies; (D) the importance of the company as a source of credit
for households, businesses, and State and local governments and as a
source of liquidity for the United States financial system; (E) the
importance of the company as a source of credit for low-income,
minority, or underserved communities, and the impact that the
failure of such company would have on the availability of credit in
such communities; (F) the extent to which assets are managed rather
than owned by the company, and the extent to which ownership of
assets under management is diffuse; (G) the nature, scope, size,
scale, concentration, interconnectedness, and mix of the activities
of the company; (H) the degree to which the company is already
regulated by one or more primary financial regulatory agencies; (I)
the amount and nature of the financial assets of the company; (J)
the amount and types of the liabilities of the company, including
the degree of reliance on short-term funding; and (K) any other
risk-related factors that the Council deems appropriate.
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Due to the substantial similarity between the activities and risk
profile of the largest bank holding companies and GECC as described
above, the Board is proposing to apply enhanced prudential standards to
GECC that are similar to those that would apply to a large bank holding
company. Similar to the standards imposed on the largest bank holding
companies, the proposed standards are designed to ensure the continued
resiliency of GECC during periods of material financial distress, so
that the company would be in a position to continue to meet its
obligations to its creditors and counterparties, as well as to continue
to serve as a financial intermediary during a period of financial and
economic stress.
2. Control of an Insured Depository Institution
GECC controls two insured depository institutions that offer
traditional banking products to both consumer and commercial
customers.\21\ Similar to the insured depository institutions of large
bank holding companies, GECC's subsidiary insured depository
institutions serve as a source of funding and as a source of credit for
a portion of its lending activities. As such, GECC's control of
subsidiary insured depository institutions supports application of the
enhanced prudential standards to the company in a manner that is
similar to how those standards apply to large bank holding companies.
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\21\ As discussed above, GECC is in the process of divesting
Synchrony Bank. Nevertheless, following this divestiture, GECC will
continue to control GE Capital Bank.
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3. Nonfinancial Activities and Affiliations of the Company
The vast majority (approximately 82 percent) of GECC's activities,
such as lending and leasing activities, are those that a bank holding
company may engage in under sections 4(c) and 4(k) of the BHC Act, and
are similar to those in which the largest bank holding companies
engage. The remaining portion of GECC's activities are generally
limited to those that are permissible for savings and loan holding
companies under the Home Owners' Loan Act (HOLA).\22\ As noted, only a
small portion of GECC's activities (less than 10 percent) are those
that would be impermissible for a bank holding company under the BHC
Act or for a savings and loan holding company under HOLA. These
activities are typically limited to equity investments in certain
nonfinancial companies. Accordingly, as the large majority of GECC's
activities are similar to those of a bank holding company, the Board
believes that it is appropriate to apply prudential standards to GECC
that are comparable to those that would apply to a large bank holding
company.
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\22\ GECC is a grandfathered unitary savings and loan holding
company under section 10(c)(9)(A) of HOLA and is therefore exempt
from the activity and investment restrictions under HOLA. 12 U.S.C.
1467a(c)(9)(A).
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4. Any Other Risk-Related Factors That the Board Determines Appropriate
In addition to the factors required under sections 113 and 165 of
the Dodd-Frank Act, the Board is permitted to take any other risk-
related factors into consideration in the development of the proposed
enhanced prudential standards for GECC. As noted, GECC is a wholly
owned subsidiary of GE. The Board believes that the enhanced prudential
standards applied to GECC should take into account GECC's particular
circumstances as a lower-tier designated nonbank financial company. The
Council, in making the determination to designate GECC, focused on the
adverse effect on the financial stability of the United States that
could arise from material financial distress at GECC. The Council found
that GECC itself is an entity predominantly engaged in financial
activities, is a significant participant in the global economy and
financial markets, and is interconnected to financial intermediaries
through its financing activities and its funding model. Because the
Board's regulation of GECC as a nonbank financial company designated
for its supervision must focus on the financial stability implications
of potential financial distress at GECC, it is prudent to address the
effect of any conflicts of interest that may arise in interactions with
GE and its affiliates, including the possibility that such conflicts
could have an adverse effect on the financial condition of GECC.
Accordingly, the Board is proposing to require GECC to meet certain
enhanced prudential standards designed to ensure the safe and sound
operations of GECC and to address the potential for conflict with GE
and its affiliates. As further discussed below, the Board's proposed
enhanced prudential standards would require GECC to have 25 percent or
two members, whichever is greater, of its board of directors to be
independent of GE's and GECC's management and GE's board of directors.
The Board is also proposing to impose a requirement that transactions
between GECC and GE be conducted on market terms.
Due to the substantial similarity in the business model, capital
structure, and risk profile between GECC and large bank holding
companies, the Board is not proposing to consider other risk-related
factors in the adoption of enhanced prudential standards for GECC.
Nevertheless, consistent with its authority as the prudential
supervisor of designated nonbank financial companies, the Board expects
to continue to monitor and assess GECC's activities and risk profile,
and, in accordance with the requirements of sections 113 and 165 of the
Dodd-Frank Act, to take into account any additional factors or
considerations, as necessary, in the adoption of future standards, or
in the future tailoring of any imposed standards.
1. What other factors, if any, should the Board take into consideration
when proposing to apply enhanced prudential standards to GECC, or in
tailoring the standards to GECC?
5. Tailoring of Proposed Prudential Standards
As noted, section 165 permits the Board to tailor the application
of enhanced prudential standards to companies covered under section 165
based on certain unique characteristics of the company. Although the
majority of the enhanced prudential standards the Board is proposing to
adopt are identical to those that apply to large bank holding
companies, the Board is proposing to tailor certain of the proposed
standards, in light of certain characteristics unique to GECC. For
example, in developing the proposed capital requirements, the Board has
taken into consideration the fact that
[[Page 71772]]
GECC has not previously been subject to regulatory capital requirements
and has not developed the infrastructure and systems required to begin
calculating its capital ratios under the Board's advanced approaches
risk-based capital requirements (advanced approaches rule). Thus,
although GECC would meet the relevant asset threshold for application
of the advanced approaches rule, the Board is not proposing to require
GECC to calculate its capital ratios using the advanced approaches
rule. In addition, in light of the Council's determination that
material financial distress at GECC could pose a threat to U.S.
financial stability, the Board is proposing to impose leverage capital
requirements on GECC that are comparable to the standards that apply to
the largest, most systemic banking organizations.
Finally, the Board notes that many of the proposed standards,
including the risk-management requirements, liquidity risk-management,
and liquidity stress-testing requirements of Regulation YY; and
capital-planning and stress-testing requirements require the covered
company to tailor its compliance framework based on the size,
complexity, structure, risk profile, and activities of the
organization. Thus, the Board would expect that, in implementing the
enhanced prudential standards, GECC would tailor its compliance
framework to suit the company's complexity, structure, risk profile,
and activities. Accordingly, the Board believes that the proposed
enhanced prudential standards discussed below adequately reflect these
unique characteristics of GECC.
2. Should the Board consider tailoring any of the other proposed
enhanced prudential standards in light of GECC's business model,
capital structure, and risk profile?
IV. Proposed Enhanced Prudential Standards To Apply to GECC
A. Capital Requirements
The Board has long held the view that a bank holding company
generally should hold capital that is commensurate with its risk
profile and activities, so that the firm can meet its obligations to
creditors and other counterparties, as well as continue to serve as a
financial intermediary through periods of financial and economic
stress.\23\ In July 2013, the Board issued a final rule implementing
regulatory capital reforms reflecting agreements reached by the Basel
Committee on Banking Supervision (Basel Committee) in ``Basel III: A
Global Regulatory Framework for More Resilient Banks and Banking
Systems'' (Basel III) \24\ and certain changes required by the Dodd-
Frank Act (revised capital framework).\25\ The revised capital
framework introduced a new minimum common equity tier 1 risk-based
capital ratio of 4.5 percent, raised the minimum tier 1 risk-based
capital ratio from 4 percent to 6 percent, introduced a common equity
tier 1 capital conservation buffer of 2.5 percent of risk-weighted
assets, required all banking organizations to meet a 4 percent minimum
leverage ratio (the generally-applicable leverage ratio), implemented
stricter eligibility criteria for regulatory capital instruments, and
introduced a new standardized methodology for calculating risk-weighted
assets. Because these regulatory capital reforms only apply generally
to top-tier savings and loan holding companies, GECC is not subject to
the revised capital framework.\26\ In addition, the revised capital
framework would not apply to GE because it substantially engages in
commercial activities.
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\23\ See Supervision and Regulation Letter 12-17, Consolidated
Supervision Framework for Large Financial Institutions (December 12,
2012), available at: http://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm; 12 CFR part 217; 12 CFR 225.8; Supervision and
Regulation Letter 99-18, Assessing Capital Adequacy in Relation to
Risk at Large Banking Organizations and Others with Complex Risk
Profiles (July 1, 1999), available at: http://www.federalreserve.gov/boarddocs/srletters/1999/SR9918.HTM.
\24\ Basel III was published in December 2010 and revised in
June 2011. See Basel Committee, Basel III: A global framework for
more resilient banks and banking systems (December 2010), available
at: http://www.bis.org/publ/bcbs189.pdf.
\25\ See 78 FR 62018 (October 11, 2013). The revised capital
framework also reorganized the Board's capital adequacy guidelines
into a harmonized, codified set of rules, located at 12 CFR part
217. The requirements of 12 CFR part 217 came into effect on January
1, 2014, for bank holding companies subject to the advanced
approaches rule, and as of January 1, 2015 for all other bank
holding companies.
\26\ 12 CFR 217.2.
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As noted above, the Council has determined that GECC's material
financial distress could pose a threat to U.S. financial stability.
Section 165 provides that the enhanced prudential standards for nonbank
financial companies must include risk-based capital requirements and
leverage limits that ``are more stringent than the standards and
requirements applicable to nonbank financial companies and bank holding
companies that do not present similar risks to the financial stability
of the United States'' unless the Board, in consultation with the
Council, ``determines that such requirements are not appropriate for a
company subject to more stringent prudential standards because of the
activities of such company . . . or structure.'' \27\ Because GECC's
activities and balance sheet are substantially similar to those of a
large bank holding company, the Board's revised capital framework is
appropriate for GECC and will appropriately reflect risks from GECC's
activities, balance sheet, and funding profile. Accordingly, other than
as described below, the Board is proposing to require GECC to comply
with the regulatory capital framework applicable to a large bank
holding company including the minimum common equity tier 1, tier 1, and
total risk-based capital ratios, the minimum generally-applicable
leverage ratio, and any restrictions on distributions or discretionary
bonus payments associated with the capital conservation buffer,
beginning July 1, 2015, consistent with any transition periods in the
revised capital framework.
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\27\ 12 U.S.C. 5365.
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In addition to the generally applicable capital adequacy
requirements described above, the Board's revised capital framework
contains measures applicable to the largest, most interconnected bank
holding companies. For bank holding companies with $250 billion or more
in total consolidated assets or $10 billion or more in on-balance-sheet
foreign exposures (advanced approaches banking organizations), these
include the advanced approaches rule, a supplementary leverage ratio of
tier 1 capital to total leverage exposure of 3 percent, a requirement
to include accumulated other comprehensive income (AOCI) in tier 1
capital, and restrictions on distributions and discretionary bonus
payments associated with the countercyclical capital buffer. A bank
holding company with more than $700 billion in total consolidated
assets or $10 trillion in assets under custody also is required to
maintain a buffer of at least 2 percent above the minimum supplementary
leverage capital requirement of 3 percent, an enhanced supplementary
leverage ratio (eSLR), in order to avoid restrictions on capital
distributions and discretionary bonus payments to executive
officers.\28\
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\28\ See 79 FR 24528 (May 1, 2014).
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The Board is not proposing to require GECC to calculate its capital
ratios using the advanced approaches rule. The advanced approaches rule
requires the development of models for calculating advanced approaches
risk-weighted assets, and can require a lengthy parallel run period of
no less than four
[[Page 71773]]
consecutive calendar quarters during which the institution must submit
its models for supervisory approval. While GECC exceeds the threshold
for application of the requirements that apply to advanced approaches
banking organizations, GECC has not previously been subject to
regulatory capital requirements and has not developed the
infrastructure and systems required to begin calculating its capital
ratios under the advanced approaches rule. Moreover, because GECC will
need time to build and implement the internal systems and
infrastructure required to comply with other requirements of the
Board's order imposing enhanced prudential standards, the Board is not
proposing to require GECC to develop the models required to comply with
the advanced approaches rule. Rather, the Board is proposing to apply
the standardized risk-based capital rules, leverage rules, and capital
planning and supervisory stress-testing requirements to GECC.
However, the Board is proposing to require GECC to comply with
other requirements that apply to advanced approaches banking
organizations, including restrictions on distributions and
discretionary bonus payments associated with the countercyclical
capital buffer, a minimum supplementary leverage ratio of 3 percent,
and the requirement to include AOCI in regulatory capital. These are
aspects of the revised capital framework that are appropriate for the
largest, most interconnected banking organizations and therefore apply
to advanced approaches banking organizations, but are not part of the
advanced approaches rule. The proposed application of these
requirements to GECC will ensure that GECC holds sufficient capital to
withstand financial stress, mitigating its risk to U.S. financial
stability. Application of these requirements to GECC would not require
GECC to develop models for complying with the advanced approaches rule,
would not require completion of a successful parallel run as
contemplated in the advanced approaches rule, and would not require the
allocation of significant additional operational resources.
As noted above, the Board, as the prudential regulator of nonbank
financial companies designated by the Council, is obligated to impose
standards that are designed to maintain the safety and soundness of
GECC in order to mitigate the risk of material financial distress at
GECC. The Board is also proposing to require GECC to comply with the
eSLR, which is designed to minimize leverage at banking organizations
that pose substantial systemic risk, thereby strengthening the ability
of such organizations to remain a going concern during times of
economic stress and minimizing the likelihood that problems at these
organizations would contribute to financial instability. The Board
believes that the maintenance of a strong base of capital by the most
systemic U.S. banking organizations and GECC is particularly important
because capital shortfalls at these institutions have the potential to
result in significant adverse economic consequences and to contribute
to systemic distress. While GECC's total consolidated assets are below
the asset thresholds for bank holding companies that are subject to the
eSLR ($700 billion in total consolidated assets or $10 trillion in
assets under custody), the Board has analyzed GECC's size, scope of
operations, activities, and systemic importance, and, in light of the
Council's determination that material financial distress at GECC could
pose a threat to U.S. financial stability, is proposing to require GECC
to comply with the restrictions on distributions and discretionary
bonuses associated with the eSLR.\29\
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\29\ The restrictions that apply to insured depository
institution subsidiaries of companies covered under the eSLR would
not apply to GECC's depository institution subsidiaries without
action by the appropriate Federal banking agency supervising
Synchrony Bank and GE Capital Bank.
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The Board is required under section 165 to establish enhanced risk-
based and leverage capital requirements for nonbank financial companies
supervised by the Board and large bank holding companies that ``are
more stringent than the standards applicable to nonbank financial
companies and bank holding companies that do not present similar risks
to the financial stability of the United States.'' \30\ For the largest
banking organizations, the Board notes that the Financial Stability
Board has established a framework to identify global and domestic
systemically important banks \31\ (G-SIBs and D-SIBs, respectively)
that are subject to the Basel Committee's enhanced supervisory
framework, which includes enhanced capital surcharges.\32\ At this
time, the Board is not proposing to categorize GECC as a G-SIB or a D-
SIB, or proposing to automatically subject GECC to all of the same
standards that apply to the largest, most systemic U.S. banking
organizations. With respect to any future requirements, the Board will
analyze GECC's size, scope of operations, activities, and systemic
importance to determine whether the proposed standard is appropriate in
light of these characteristics of the company. For example, the Board
expects to seek comment on additional enhancements to the risk-based
capital rules for largest, most systemic bank holding companies in the
future, and will consider whether applying similar enhancements to the
risk-based capital rules to GECC is appropriate after considering
GECC's size, scope of operations, activities, and systemic importance.
The Board would seek comment on any additional proposed enhancements.
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\30\ 12 U.S.C. 5365.
\31\ Financial Stability Board, Reducing the moral hazard posed
by systemically important financial institutions, FSB
Recommendations and Time Lines (October 20, 2010), available at:
http://www.financialstabilityboard.org/publications/r_101111a.pdf;
Financial Stability Board, Extending the G-SIFI Framework to
domestic systemically important banks (April 16, 2012), available
at: http://www.financialstabilityboard.org/publications/r_120420b.pdf.
\32\ Basel Committee, Global systemically important banks:
updated assessment methodology and the higher loss absorbency
requirement (July 2013), available at: http://www.bis.org/publ/bcbs255.pdf; Basel Committee, A framework for dealing with domestic
systemically important banks (October 2012), available at: https://www.bis.org/publ/bcbs233.pdf.
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3. Due to the similarity in structure and activities of GECC with that
of a bank holding company, the Board has proposed to apply capital
standards to GECC that are generally consistent with the requirements
imposed on a large bank holding company. Should the Board consider
altering any of the proposed capital requirements that it is
considering applying to GECC?
4. Should the Board consider applying any additional capital standards
to GECC?
B. Capital Planning Requirements
1. Capital Plan Rule
The recent financial crisis highlighted a need for large bank
holding companies to incorporate into their capital planning forward-
looking assessments of capital adequacy under stressed conditions. The
crisis also underscored the importance of strong internal capital
planning practices and processes among large bank holding companies.
The Board issued the capital plan rule to build upon the Board's
existing supervisory expectation that large bank holding companies have
robust systems and processes that incorporate forward-looking
projections of revenue and losses to monitor and maintain their
internal capital adequacy. By helping to ensure that the largest bank
holding companies have sufficient capital to withstand significant
stress and to continue to operate, capital plan
[[Page 71774]]
reviews also help the Board meet its macro-prudential supervisory
objective of helping to ensure that the financial system as a whole can
continue to function under stressed conditions.
The capital plan rule requires each bank holding company with $50
billion or more in total consolidated assets to submit an annual
capital plan to the Board describing its planned capital actions and
demonstrating its ability to meet a 5 percent tier 1 common capital
ratio and maintain capital ratios above the Board's minimum regulatory
capital ratios under both baseline and stressed conditions over a
forward-looking planning horizon.\33\ A capital plan must also include
an assessment of a bank holding company's sources and uses of capital
reflecting the size, complexity, risk profile, and scope of operations
of the company, assuming both expected and stressed conditions.
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\33\ 12 CFR 225.8.
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Under the capital plan rule, the Board annually evaluates a large
bank holding company's capital adequacy and capital planning practices
and the comprehensiveness of the capital plan, including the strength
of the underlying analysis. The Comprehensive Capital Analysis and
Review (CCAR) is the Board's supervisory process for reviewing capital
plans submitted by bank holding companies under the capital plan rule.
As part of CCAR, the Board conducts a quantitative assessment of each
large bank holding company's capital adequacy under an assumption of
stressed conditions and conducts a qualitative assessments of the
company's internal capital planning practices, each of which can
provide a basis on which the Board may object to a company's capital
plan. If the Board objects to a bank holding company's capital plan,
the company may not make any capital distribution other than those
approved in writing by the Board or the appropriate Reserve Bank. A
bank holding company that receives an objection may submit a revised
capital plan for review by the Board.
The Federal Reserve conducts its quantitative assessment of a large
bank holding company's capital plan based on the supervisory stress
test conducted under the Board's rules implementing the stress tests
required under the Dodd-Frank Act, discussed below, combined with the
bank holding company's planned capital actions under the baseline
scenario. This assessment helps determine whether a bank holding
company would be capable of meeting supervisory expectations for its
regulatory capital ratios even if stressed conditions emerge and the
company does not reduce planned capital distributions.
In the CCAR qualitative assessment, the Board evaluates each large
bank holding company's risk-identification, risk-measurement, and risk-
management practices supporting the capital planning process, including
estimation practices used to produce stressed loss, revenue, and
capital ratios, as well as the governance and controls around these
practices. In reviewing the company's capital plan, the Board considers
the comprehensiveness of the capital plan, the reasonableness of the
company's assumptions and analysis underlying the capital plan, and the
company's methodologies for reviewing the robustness of its capital
adequacy process. The Board may object to a capital plan based on
deficiencies in a bank holding company's capital planning processes,
even if the company maintained regulatory capital ratios above minimum
requirements throughout the planning horizon under stressed scenarios.
2. Proposed Capital Planning Requirements To Be Applied to GECC
To ensure that GECC continues to maintain sufficient capital and
has internal processes for assessing its capital adequacy that
appropriately account for the company's risks, the Board is proposing
to require GECC to comply with the Board's capital plan rule, 12 CFR
225.8, and to submit a capital plan for the capital plan cycle
beginning January 1, 2016.
As described above, GECC's activities, risk profile, and balance
sheet are similar to those of large bank holding companies.
Accordingly, requiring GECC to comply with the Board's capital plan
rule as if it were a bank holding company will ensure that GECC holds
capital that is commensurate with its risk profile and activities, can
meet its obligations to creditors and other counterparties, and can
continue to serve as a financial intermediary through periods of
financial and economic stress.\34\
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\34\ See Supervision and Regulation Letter 12-17, Consolidated
Supervision Framework for Large Financial Institutions (December 12,
2012), available at: http://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm; 12 CFR part 217; 12 CFR 225.8; Supervision and
Regulation Letter 99-18, Assessing Capital Adequacy in Relation to
Risk at Large Banking Organizations and Others with Complex Risk
Profiles (July 1, 1999), available at: http://www.federalreserve.gov/boarddocs/srletters/1999/SR9918.HTM.
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The Board recognizes that unlike domestic bank holding companies,
GECC is an intermediate holding company of a larger, publicly traded
company. The Board's capital plan rule will help ensure that GECC
manages its capital, and any capital distributions to its parent, in a
manner that is commensurate with its risks and consistent with its
safety and soundness through the Federal Reserve's review and non-
objection to GECC's capital plan.\35\ As discussed above, the capital
plan rule will act as a counterweight to pressures that a company may
face to make capital distributions during a period of economic stress
helping to mitigate the risk of material financial distress at GECC.
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\35\ GECC will not be the only intermediate holding company
subject to the capital plan rule and CCAR. Notably, some U.S. bank
holding company subsidiaries of foreign banking organizations
participate in CCAR. In addition, under the Board's intermediate
holding company rule, all foreign banking organizations with $50
billion or more in U.S. non-branch assets will be required to form a
U.S. intermediate holding company that will be subject to the
capital plan rule. See Subpart O to 12 CFR 252.
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The Board recognizes that GECC likely will need time to build and
implement the internal systems necessary to fully meet the requirements
of the capital plan rule and the CCAR process. Accordingly, for GECC's
first capital plan cycle, which would begin on January 1, 2016, the
Board's quantitative assessment of GECC's capital plan will not be
based on supervisory stress test estimates conducted under the Board's
stress test rules, as described below.\36\ Instead, the Board intends
to conduct a more limited quantitative assessment of GECC's capital
plan based on GECC's own stress scenario and any scenarios provided by
the Board and a qualitative assessment of GECC's capital planning
processes and supporting practices. This approach would be consistent
with the capital plan review (CapPR) process that the Board used to
evaluate the initial capital plan submissions of bank holding companies
that were subject to the capital plan rule but that did not participate
in the 2009 Supervisory Capital Assessment Program.
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\36\ See Subpart E to 12 CFR part 252.
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The Board also expects to communicate to GECC the Board's
expectations on capital planning practices and capital adequacy
processes in connection with its first capital plan submission.
Although the Board's stress test and capital plan rules establish
requirements for all banking organizations that are subject to the
rules, the Board is tailoring its expectations for companies of
different sizes, scope of operations, activities, and systemic
importance. Notably, the Board has significantly heightened supervisory
expectations for the largest and most complex bank holding companies
[[Page 71775]]
regarding all aspects of capital planning and expects these bank
holding companies to have capital planning practices that incorporate
existing leading practices.\37\ The Board would expect to tailor its
supervisory expectations for GECC to account for any material
differences between the company and large bank holding companies.
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\37\ Board, Capital Planning at Large Bank Holding Companies:
Supervisory Expectations and Range of Current Practice at pg. 3
(August 19, 2013), available at: http://www.federalreserve.gov/bankinforeg/bcreg20130819a1.pdf.
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5. Should the Board consider applying any additional capital planning
requirements to GECC?
C. Stress-Testing Requirements
1. Dodd-Frank Act Stress-Tests Rule
Section 165 of the Dodd-Frank Act requires the Board to conduct
annual supervisory stress tests of bank holding companies with total
consolidated assets of $50 billion or more and nonbank financial
companies supervised by the Board and also requires the Board to issue
regulations that require those companies to conduct company-run stress
tests semi-annually. In 2012, the Board, in coordination with the
Federal Deposit Insurance Corporation, the Office of the Comptroller of
the Currency, and the Federal Insurance Office adopted stress testing
rules under section 165(i) for large bank holding companies and nonbank
financial companies (stress test rule).\38\ The stress test rule
establishes a framework for the Board to conduct annual supervisory
stress tests and requires these companies to conduct semi-annual
company-run stress tests.\39\
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\38\ 77 FR 62378 (Oct. 12, 2012); Subparts E and F to 12 CFR
part 252.
\39\ 77 FR 62378 (Oct. 12, 2012); Subparts E and F to 12 CFR
part 252.
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The stress tests conducted under the Board's stress test rule are
complementary to the Board's review of a large bank holding company's
capital plan in CCAR. These stress tests use stylized scenarios and
capital action assumptions specified in the stress testing rules to
calculate the post-stress capital ratios, while the CCAR post-stress
capital ratios use the bank holding company's planned capital actions
in the baseline scenario. The capital action assumptions in the Board's
stress test rules are intended to make the results of the stress tests
more comparable across institutions, which enhances the quality of the
required public disclosure of the stress-testing results. There is no
post-stress minimum capital ratio requirement for the stress tests
required under the stress test rule.
As noted, under the stress test rule, large bank holding companies
are also subject to mid-cycle stress tests, in which companies design
their own stress scenarios based on the definitions in the Board's
stress test rules. For both the annual and mid-cycle company-run stress
tests, large bank holding companies must disclose the results of their
company-run stress test conducted under the severely adverse scenario.
2. Proposed Stress-Testing Requirements To Be Applied to GECC
The Board is proposing to require GECC to comply with the stress-
testing requirements applicable to bank holding companies with $50
billion or more in total consolidated assets under the stress test rule
(subparts E and F of Regulation YY) in the stress-testing cycle that
would commence on January 1, 2017.\40\ Similar to the proposed
application of the capital plan rule to GECC, the Board is proposing to
apply the Board's stress test rule to GECC in the same manner as it
currently applies to large bank holding companies due to the similarity
in activities, risk profile, and balance sheet between GECC and large
bank holding companies. In addition, because the Board's supervisory
stress tests under its stress test rule are conducted on the basis of
standardized scenarios and capital assumptions, any supervisory stress
testing of GECC would provide a horizontal assessment of GECC's capital
adequacy compared with that of large bank holding companies that have
comparable activities, risk profiles, and balance sheets. Moreover, the
company-run stress testing requirements under the Board's stress test
rule will ensure that GECC develops the necessary systems and processes
to evaluate its capital adequacy on an ongoing basis.
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\40\ Subparts E and F to 12 CFR part 252.
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Subjecting GECC to the stress testing requirements in the stress
testing cycle beginning on January 1, 2017, would allow GECC the time
to develop appropriate systems and processes to conduct the stress
tests and to provide the data and other information that the Board
would require in connection with these tests. This approach would be
consistent with the approach taken by the Board for bank holding
companies with $50 billion or more in total consolidated assets that
did not participate in the Supervisory Capital Assessment Program. The
Board delayed application of the stress-testing requirements for these
companies in order to provide them additional time to develop
appropriate systems and to gather relevant information to comply with
the stress-testing requirements.
The Board expects to communicate to GECC any further expectation
the Board may have regarding the company-run stress tests conducted
under the stress test rule. Requiring GECC's compliance with the stress
test rule beginning on January 1, 2017, would also allow the Board
adequate time to collect data from GECC to further assess its
activities and risk profile to help the Board appropriately tailor the
stress testing requirements based on GECC's systemic footprint, which
may include additional components or scenarios.
6. Should the Board consider applying any additional stress testing
requirements to GECC?
7. Should the Board consider an alternate time frame for GECC's
compliance with the stress testing requirements? If so, why?
D. Liquidity Requirements
Section 165(b) of the Dodd-Frank Act directs the Board to adopt
enhanced liquidity requirements for bank holding companies with total
consolidated assets of $50 billion or more and nonbank financial
companies supervised by the Board.\41\ Liquidity is measured by a
company's capacity to efficiently meet its expected and unexpected cash
outflows and collateral needs at a reasonable cost without adversely
affecting the daily operations or the financial condition of the
company. The financial crisis of 2008-2009 illustrated that liquidity
can evaporate quickly and cause severe stress in the financial markets,
and demonstrated that even solvent financial companies may experience
material financial distress if they do not manage their liquidity in a
prudent manner. Through recent rulemakings and guidance, the Board has
established quantitative liquidity requirements and liquidity risk-
management standards in order to ensure financial companies' resiliency
during periods of financial market stress.
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\41\ 12 U.S.C. 5365(b)(1)(A)(ii).
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1. LCR
On September 3, 2014, the Board adopted a final rule that
implements a quantitative liquidity requirement consistent with the LCR
standard established by the Basel Committee.\42\ The requirement is
designed to promote the short-term resilience of the liquidity risk
profile of internationally active
[[Page 71776]]
banking organizations, thereby improving the banking sector's ability
to absorb shocks arising from financial and economic stress, and to
further improve the measurement and management of liquidity risk. The
LCR standard establishes a quantitative minimum LCR that requires a
company subject to the rule to maintain an amount of high-quality
liquid assets (HQLA) (the numerator of the ratio) that is no less than
100 percent of its total net cash outflows over a prospective 30
calendar-day period (the denominator of the ratio).\43\ The ability to
rapidly monetize such high-quality liquid assets enables a covered
company to meet its liquidity needs during an acute short-term
liquidity stress scenario.
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\42\ 79 FR 61440 (October 10, 2014); 12 CFR part 249.
\43\ Under the LCR standard, certain categories of assets may
qualify as eligible HQLA and may contribute to the HQLA amount if
they are unencumbered by liens and other restrictions on transfer
and can therefore be converted quickly into cash without reasonably
expecting to incur losses in excess of the applicable LCR haircuts
during a stress period. A covered company's total net cash outflow
amount is determined under the final rule by applying outflow and
inflow rates, which reflect certain standardized stressed
assumptions, against the balances of a covered company's funding
sources, obligations, transactions, and assets over a prospective 30
calendar-day period. Inflows are limited to 75 percent of outflows,
to ensure that covered companies are maintaining sufficient on-
balance-sheet liquidity and are not overly reliant on inflows, which
may not materialize in a period of stress.
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The Board did not apply the LCR standard to nonbank financial
companies in the final LCR rule. Rather, similar to the approach the
Board followed in the adoption of Regulation YY, the Board indicated
that, following designation of a nonbank financial company for
supervision by the Board, the Board would thoroughly assess the
business model, capital structure, and risk profile of the designated
company to determine how the LCR standard should apply, and if
appropriate, would tailor application of the standards by order or
regulation to that nonbank financial company or to a category of
nonbank financial companies.
2. Regulation YY
The liquidity requirements in Regulation YY require bank holding
companies with total consolidated assets of $50 billion or more to
comply with liquidity risk-management requirements (covered bank
holding company), conduct internal liquidity stress tests, and hold a
buffer of highly-liquid assets that is sufficient to meet the company's
projected net stressed cash-flow need over a 30-day period based on the
results of such stress tests.\44\
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\44\ 12 CFR 252.34, 252.35.
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The liquidity risk-management requirements of Regulation YY include
requirements that the board of directors of the bank holding company
approve an acceptable level of liquidity risk that the bank holding
company may assume in connection with its operating strategies
(liquidity risk tolerance), receive and review information from senior
management regarding the company's compliance with the established
liquidity risk tolerance, and approve and periodically review liquidity
risk-management strategies, policies, and procedures established by
senior management.\45\ Regulation YY requires senior management of a
covered bank holding company to establish and implement liquidity risk-
management strategies, policies, and procedures, approved by the
company's board of directors; review and approve new products and
business lines; and evaluate liquidity costs, benefits and risks
related to new business lines and products. In addition, Regulation YY
requires a covered bank holding company to establish and maintain
procedures for monitoring collateral, legal entity, and intraday
liquidity risks, and requires an independent review of a covered bank
holding company's liquidity risk-management processes and its liquidity
stress-testing processes and assumptions.
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\45\ 12 CFR 252.34(a).
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Regulation YY requires covered bank holding companies to produce
comprehensive cash-flow projections at least monthly that project cash
flows arising from assets, liabilities, and off-balance sheet
exposures, over short-term and long-term horizons.\46\ In addition,
covered bank holding companies must establish and maintain a
contingency funding plan that sets forth strategies for addressing
liquidity and funding needs during liquidity stress events.\47\ The
contingency funding plan must be approved by the bank holding company's
risk committee and must include procedures to monitor emerging
liquidity stress events.
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\46\ 12 CFR 252.34(e).
\47\ 12 CFR 252.34(f).
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Regulation YY also requires a covered bank holding company to
conduct monthly internal liquidity stress tests, and to maintain a
buffer of highly liquid assets based on the results of the stress
tests. The liquidity stress test requirements are based on firm-
specific stress scenarios and assumptions tailored to the specific
products and risk profile of the company. In conducting these liquidity
stress tests, the firm must use a minimum of three stress scenarios
designed by the firm (market, idiosyncratic or combination) and a
minimum of three time horizons (30, 60, 90 day period).\48\
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\48\ 12 CFR 252.35.
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Regulation YY's liquidity requirements are designed to complement
the requirements of the LCR, as described above. Regulation YY's
internal liquidity stress-test requirements provide a view of an
individual firm under multiple scenarios and include assumptions
tailored to the specific products and risk profile of the company and
the idiosyncratic aspects of the firm's liquidity profile, while the
standardized measure of liquidity adequacy under the LCR is designed to
facilitate a transparent assessment of a covered bank holding company's
liquidity position under a standard stress scenario and facilitates
comparison across firms.
3. Supervisory Guidance
Regulation YY builds on the Board's supervisory framework for
liquidity, including guidance set forth in the Board's Supervision and
Regulation (SR) letter 10-6, Interagency Policy Statement on Funding
and Liquidity Risk Management, issued in March 2010.\49\ SR 10-6
reiterates the process that institutions should follow to appropriately
identify, measure, monitor, and control their funding and liquidity
risk. In particular, the guidance re-emphasizes the importance of cash-
flow projections, diversified funding sources, stress testing, a
cushion of liquid assets, and a formal well-developed contingency
funding plan as primary tools for measuring and managing liquidity
risk. The guidance also explains the expectation that institutions
manage liquidity risk using processes and systems that are commensurate
with the institution's complexity, risk profile, and scope of
operations.
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\49\ SR letter 10-6 incorporated the Basel Committee's
``Principles for Sound Liquidity Risk Management and Supervision.''
Basel Committee, Principles for Sound Liquidity Risk Management and
Supervision (September 2008), available at: http://www.bis.org/publ/bcbs144.htm. See also Supervision and Regulation Letter SR 10-6,
Interagency Policy Statement on Funding and Liquidity Risk
Management, 75 FR 13656 (March 17, 2010), available at: http://www.federalreserve.gov/boarddocs/srletters/2010/sr1006.pdf.
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4. Application to GECC
In designating GECC as a nonbank financial company that should be
subject to Board supervision, the Council noted that:
If GECC were unable to access funding markets, GECC could either
reduce its
[[Page 71777]]
provision of credit or be forced to sell assets quickly to fund its
operations and meet its obligations. If GECC had to rapidly
liquidate assets, the impact could drive down asset prices and cause
balance sheet losses for other large financial firms on a scale
similar to those that could be caused by asset sales by some of the
largest U.S. BHCs. The resulting capital losses across financial
firms, particularly during a time of general economic distress,
could exacerbate the stresses on the financial system and economy by
forcing other firms to sell assets and draw on their credit lines to
meet liquidity pressures. If GECC were unable to access funding
markets, there could be a reduction in credit availability, which
could lead to a broader reduction in economic activity.\50\
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\50\ See GECC Determination at 2.
In order to promote the short-term resilience of GECC, improve its
ability to withstand financial and economic stress, and to mitigate the
potential adverse effects on other financial firms and markets, the
Board is proposing to require GECC to manage its liquidity in a manner
that is comparable to a bank holding company subject to the LCR
standard, Regulation YY, and the Board's supervisory guidance.\51\
GECC, like a large bank holding company, is primarily a lender and
lessor to commercial entities and consumers, and is substantially
involved in the provision of credit in the United States. Similar to
large bank holding companies, GECC is also an active participant in the
capital markets and relies on wholesale funding, such as commercial
paper held by institutional investors and committed lines of credit
provided by large commercial banks, exposing the company to liquidity
risks.
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\51\ 12 CFR 252.34, 252.35.
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Therefore, to ensure that GECC has sufficient liquidity to meet
outflows during a period of significant financial stress, and given the
similarities between its operations and risk with those of large bank
holding companies, the Board is proposing to apply the LCR standard
under 12 CFR part 249 that would apply to advanced approaches banking
organizations, without change, to GECC beginning July 1, 2015. GECC
would be subject to the same transition periods and compliance
timelines as all other advanced approaches banking organizations that
do not have $700 billion in total consolidated assets or $10 trillion
in assets under custody, including the temporary monthly LCR
calculation until July 1, 2016, and the requirement to maintain an LCR
of 80 percent from July 1, 2015 to December 31, 2015, an LCR of 90
percent from January 1, 2016 to December 31, 2016, and an LCR of 100
percent thereafter.\52\
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\52\ 12 CFR 249.50(b).
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The standardized requirements of the LCR would allow for horizontal
comparisons between GECC and other companies with similar balance
sheets and risk profiles. Because the LCR applies outflow and inflow
rates that are based on a covered bank holding company's particular
risk profile and activities, the LCR requirements would be tailored to
GECC's activities, balance sheet, and risk profile, and would help
ensure that GECC holds sufficient HQLA to meet the expected outflows
for such activities over a 30 calendar-day period.\53\
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\53\ As indicated in the preamble to final LCR rulemaking, the
Board anticipates separately seeking comment upon proposed
regulatory reporting requirements and instructions pertaining to the
LCR. 79 FR 61440, 61445 (October 10, 2014). The Board expects those
reporting requirements and instructions to apply to any nonbank
financial company supervised by the Board to which the Board has
required by rule or order to comply with the LCR.
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To complement the LCR requirements, the Board believes that the
individualized liquidity risk-management requirements established in
Regulation YY for bank holding companies with $50 billion or more in
total consolidated assets are appropriate for GECC, and is proposing to
apply them, without change, to GECC beginning July 1, 2015.\54\ The
firm-specific liquidity risk management and stress testing requirements
of Regulation YY would help ensure that GECC develops the necessary
compliance infrastructure to evaluate the liquidity risk profile of its
operations on a continuing basis. The liquidity risk management and
stress testing requirements of Regulation YY require the covered bank
holding company to tailor its compliance framework to the particular
size, complexity, structure, risk profile, and activities of the
organization. Thus, in implementing these requirements, GECC would be
expected to tailor its compliance framework to suit the company's
structure. Finally, the Board is also proposing to apply SR 10-6,
Interagency Policy Statement on Funding and Liquidity Risk Management,
and would require GECC to comply with the expectations outlined in this
letter by July 1, 2015.
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\54\ 12 CFR 252.34, 35.
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8. Are there other liquidity standards that the Board should consider
applying to GECC, and if so, what are they?
9. Should the Board consider tailoring the proposed liquidity
requirements to GECC? If so, which of the requirements should the Board
consider tailoring based on GECC's activities, balance sheet and risk
profile?
E. Risk-Management and Risk-Committee Requirements
Sound enterprise-wide risk management by large financial companies
reduces the likelihood of their material distress or failure and thus
promotes financial stability. During the recent financial crisis, a
number of companies that experienced material financial distress or
failure had significant deficiencies in key areas of risk management.
Senior managers at successful companies were actively involved in risk
management, including determining the company's overall risk
preferences and creating the incentives and controls to induce
employees to abide by those preferences. The boards of directors of
these successful companies were actively involved in determining the
company's risk tolerance. Successful risk management also depends on
senior managers having access to adaptive management information
systems to identify and assess risks based on a range of dynamic
measures and assumptions.
1. Section 165 and Regulation YY
Section 165(b)(1)(A) of the Dodd-Frank Act requires the Board to
establish enhanced risk-management requirements for bank holding
companies with total consolidated assets of $50 billion or more and
nonbank financial companies supervised by the Board.\55\ In addition,
section 165(h) directs the Board to issue regulations requiring
publicly traded bank holding companies with total consolidated assets
of $10 billion or more and publicly traded nonbank financial companies
to establish risk committees.\56\ Section 165(h) requires the risk
committee to be responsible for the oversight of the enterprise-wide
risk-management practices of the company, to have such number of
independent directors as the Board determines appropriate, and to
include at least one risk-management expert with experience in
identifying, assessing, and
[[Page 71778]]
managing risk exposures of large, complex firms.\57\
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\55\ 12 U.S.C. 5365(b)(1)(A).
\56\ 12 U.S.C. 5365(h).
\57\ Under Regulation YY, publicly traded is defined to mean
``an instrument that is traded on . . . [a]ny exchange registered
with the U.S. Securities and Exchange Commission as a national
securities exchange under section 6 of the Securities Exchange Act
of 1934 (15 U.S.C. 78f).'' 12 CFR 252.2(p) (emphasis added).
Although GECC does not have publicly traded shares of common equity,
the company has debt securities that are publicly traded on the New
York Stock Exchange under section 12(b) of the Securities Exchange
Act of 1934. The Board is proposing to impose the requirements of
Regulation YY and the additional risk management standards discussed
below under its authority in section 165(h) to impose risk committee
and risk management standards and its authority under section
165(b)(1)(B)(iv) to impose other standards that the Board determines
are appropriate. 12 U.S.C. 5365(b)(1)(B)(iv).
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Under the Board's Regulation YY, the Board requires all bank
holding companies with $50 billion or more in total consolidated assets
to establish a risk committee that: Is an independent committee of the
company's board of directors; is chaired by an independent director;
and includes at least one member who has experience in identifying,
assessing and managing risk exposures of large, complex financial
firms.\58\ The risk committee is required to approve and periodically
review the risk-management policies of the bank holding company's
global operations, oversee the operation of the bank holding company's
global risk-management framework, and oversee the bank holding
company's compliance with the liquidity risk-management requirements of
Regulation YY.\59\ In addition, a covered bank holding company is
required to appoint a chief risk officer with experience in
identifying, assessing, and managing risk exposures of large, complex
financial firms, and who has responsibility for establishing
enterprise-wide risk limits for the company and monitoring compliance
with such limits.\60\ The chief risk officer is also required to
develop policies and procedures to ensure the implementation of, and
compliance with, the risk management framework. The chief risk officer
must be compensated in a manner that is consistent with the provision
of an objective assessment of the company's risks, must report directly
to both the risk committee and chief executive officer of the company,
and must report risk-management deficiencies and emerging risks to the
risk committee.
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\58\ 12 CFR 252.33(a)(3), (4).
\59\ 12 CFR 252.33(a).
\60\ 12 CFR 252.33(b).
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Under Regulation YY, each covered bank holding company is required
to establish a global risk-management framework that is commensurate
with the company's structure, risk profile, complexity, activities, and
size.\61\ The risk-management framework is required to include policies
and procedures for the establishment of risk-management governance and
risk-control infrastructure of the company's global operations. In
addition, the risk-management framework must include processes and
systems for identifying and reporting risk-management deficiencies in
an effective and timely manner, must establish managerial and employee
responsibilities for risk management, must ensure the independence of
the risk-management function, and integrate risk management and
associated controls with management goals and its compensation
structure for the global operations of the company.\62\
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\61\ 12 CFR 252.33(a)(2).
\62\ Id.
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2. Proposed Risk-Management Standards To Be Applied to GECC
The Board is proposing to require GECC to adopt a risk-management
framework that is consistent with the supervisory expectations
established for bank holding companies of a similar size because of the
similarities between GECC's activities, risk profile, and balance sheet
to that of a large bank holding company. Specifically, the Board is
proposing to apply the risk-management standards under the Board's
Regulation YY to GECC beginning July 1, 2015.\63\ The adoption of sound
risk-management principles by GECC will reduce the likelihood of
material distress or failure of GECC and thus promote financial
stability.
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\63\ 12 CFR 252.33.
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The risk-management standards of the Board's Regulation YY require
a covered bank holding company to tailor its compliance framework to
the particular size, complexity, structure, risk profile, and
activities of the organization. Thus, in implementing these
requirements, GECC would be expected to tailor its risk-management
framework to suit the company's structure. The Board understands that
GE has established a dedicated risk committee that oversees the risk
management of GE and GECC. However, the Board believes that, consistent
with the designation of GECC as a nonbank financial company, GECC's
risk-management framework should have a dedicated risk committee at the
company that is solely responsible for the oversight of GECC's risk
management.
In addition to the proposed application of the risk-management
standards under section 252.33 of the Board's Regulation YY, the Board
is proposing to apply additional risk-management requirements that are
tailored to reflect GECC's structure as an intermediate holding company
of a larger, publicly traded company. As GECC is a subsidiary of a
larger, publicly traded company, the Board believes that it is
necessary to ensure that GECC's board of directors includes members who
are independent of GE so that their attention is focused on the
business operations and safety and soundness of GECC itself, apart from
the needs of its parent GE. These directors also must be independent of
GECC's management to provide views apart from management.
In particular, the Board is proposing to require that, beginning
July 1, 2015, the board of directors of GECC have the greater of 25
percent or two directors that are independent of GE's and GECC's
management and GE's board of directors and that one of these directors
serve as the chair of GECC's risk committee established under
Regulation YY.\64\ Under the proposed order, GECC would be required to
maintain, at a minimum, two directors on its board of directors who are
independent of GE's and GECC's management and GE's board of directors.
One of these directors would be required to chair GECC's risk committee
established under Regulation YY. In addition, pursuant to Regulation
YY, GECC would be required to maintain at least one director with
expertise in ``identifying, assessing, and managing risk exposures of
large, complex financial firms'' on its risk committee.\65\ This
director may be one of the independent directors required by the
proposed order. The Board invites comment on whether the proposed
additional GECC governance requirements are appropriate to address the
status of GECC as an intermediate holding company and the potential
conflict of interests in the relationship between GE and GECC.
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\64\ 12 CFR 252.33(a)(4).
\65\ Id.
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Finally, in addition to the risk management standards discussed
above, the Board would continue to require GECC to observe the Board's
existing risk-management guidance and supervisory expectations for
nonbank financial companies supervised by the Board.\66\
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\66\ See Supervision and Regulation Letter SR 12-17,
Consolidated Supervision Framework for Large Financial Institutions
(December 17, 2012), available at: http://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm.
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[[Page 71779]]
10. In addition to the requirements discussed above, should the Board
consider imposing any additional corporate governance requirements on
GECC? For example, should the Board consider requiring that additional
directors be independent of GE, GECC, or both?
11. Should the Board require GECC to establish independent committees
of its board of directors, such as an audit or compensation committee?
12. Should the Board consider requiring additional directors on GECC's
board of directors to have experience in identifying, assessing and
managing risk exposures of large, complex financial firms?
F. Other Prudential Standards: Restrictions on Intercompany
Transactions
Section 165(b)(1)(B) allows the Board to establish additional
enhanced prudential standards for nonbank financial companies and bank
holding companies with assets of $50 billion or more, including three
enumerated standards--a contingent capital requirement, enhanced public
disclosures, and short-term debt limit--and any ``other prudential
standards'' that the Board determines are ``appropriate.'' \67\ With
respect to the three enumerated standards, the Board is currently
considering whether it would be appropriate to develop such standards
for bank holding companies and nonbank financial companies. During this
process, the Board will consider whether it will be appropriate to
apply such standards to GECC based on its profile, structure,
activities, and risks.
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\67\ 12 U.S.C. 5365(b)(1)(B).
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The Board is proposing to apply as an enhanced prudential standard
certain restrictions on GECC's transactions with affiliated entities
that are not under GECC's control. Like the risk-management standards
proposed to be applied to GECC, the Board believes that it is
appropriate to apply enhanced prudential standards to GECC that address
the potential for conflicts of interest with GE and its affiliates, and
to address the possibility of any such conflicts on the financial
condition of GECC. Specifically, the Board is proposing to require GECC
to comply with restrictions on transactions with affiliated entities in
order to address the effect of any conflicts of interest that may arise
in interactions between GECC and GE and its affiliates. Specifically,
beginning on July 1, 2015, the Board is proposing to apply the
requirements of section 23B of the Federal Reserve Act and the
corresponding provisions of Regulation W (subpart F of 12 CFR part 223)
to transactions between GECC (or any of its subsidiaries) with any
affiliate (as defined in the Federal Reserve Act and Regulation W), as
if GECC (or any of its subsidiaries) were a ``member bank'' and GE (or
any of its subsidiaries other than GECC and subsidiaries of GECC) were
an ``affiliate.'' \68\
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\68\ 12 U.S.C. 371c-1; subpart F to 12 CFR part 223.
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As noted above, the Board, as the prudential regulator of nonbank
financial companies designated by the Council for its supervision, is
required to establish enhanced prudential standards that are designed
to prevent or mitigate risks to the financial stability of the United
States from the material financial distress or failure of such
companies. Section 23B of the Federal Reserve Act is designed to
protect the safety and soundness of insured depository institutions by
ensuring that an insured depository institution is not engaging in
transactions with affiliates that are on terms that are unfavorable to
the depository institution. The application of section 23B of the
Federal Reserve Act to transactions between GECC and GE and its
affiliates is designed to enhance the safety and soundness of GECC and
to reduce the risk of material financial distress at GECC by ensuring
that GECC is not engaging in transactions with affiliates on terms that
are unfavorable to GECC and those that would not have been required,
but for the affiliation between the companies.
13. In applying the restrictions of section 23B and the corresponding
requirements of Regulation W to transactions between GECC and its
subsidiaries with any affiliates, are there any transactions or
entities that should be exempted from the restrictions?
14. Are there other enhanced prudential standards that the Board should
consider applying to GECC? Specifically, are there other restrictions
on transactions between GECC and its affiliates that would be
appropriate?
G. Future Standards
With respect to the remaining standards required under section 165
of the Dodd-Frank Act, the Board is continuing to develop standards
that are designed to further mitigate the risks to the financial
stability of the United States presented by large banking organizations
and nonbank financial companies supervised by the Board. For example,
the Board's initial proposed rules to implement the requirements of
section 165 and 166 of the Dodd-Frank Act included single-counterparty
credit limits and early remediation requirements for the companies
covered under sections 165 and 166 of the Dodd-Frank Act. The Board is
working to further develop these requirements and will be considering
the tailoring of these requirements to nonbank financial companies
supervised by the Board.\69\ As the Board develops additional standards
related to capital, liquidity, risk management, or other standards, for
bank holding companies and savings and loan holding companies, the
Board will consider the applicability of these standards to GECC.
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\69\ With respect to single-counterparty credit limits, the
Board participated in the Basel Committee's initiative to develop a
similar large exposure regime for global banks and intends to take
into account this effort in implementing the single-counterparty
credit limits under the Dodd-Frank Act. With respect to the early
remediation framework, the Board is considering how to reflect the
revised capital framework as well as how to address other issues
presented by commenters.
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V. Proposed Reporting Requirements
Section 161(a) of the Dodd-Frank Act \70\ authorizes the Board to
require a nonbank financial company supervised by the Board, and any
subsidiary thereof, to submit reports to the Board related to: (1) The
financial condition of the company or subsidiary, systems of the
company or subsidiary for monitoring and controlling financial,
operating, and other risks, and the extent to which the activities and
operations of the company or subsidiary pose a threat to the financial
stability of the United States; and (2) compliance by the company or
subsidiary with the requirements of Title I of the Dodd-Frank Act,
which includes the enhanced prudential standards to which nonbank
financial companies are subject.
---------------------------------------------------------------------------
\70\ 12 U.S.C. 5361(a).
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Pursuant to this authority, the Board is proposing to require GECC
to file the following reports: \71\ (i) The FR Y-6 report (Annual
Report of Holding Companies); (ii) the FR Y-10 report
[[Page 71780]]
(Report of Changes in Organizational Structure); (iii) the FR Y-9C
report (Consolidated Financial Statements for Holding Companies) and FR
Y-9LP report (Parent Company Only Financial Statements for Large
Holding Companies); (iv) the FR Y-11 report and FR Y-11S report
(Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding
Companies); (v) the FR 2314 report and FR 2314S report (Financial
Statements of Foreign Subsidiaries of U.S. Banking Organizations); (vi)
the FR Y-14A, FR Y-14M, and FR Y-14Q reports (Capital Assessments and
Stress Testing) (together, the FR Y-14 series reporting forms); (vii)
the FR Y-15 report (Banking Organization Systemic Risk Report); (viii)
the FFIEC 009 report (Country Exposure Report) and FFIEC 009a report
(the Country Exposure Information Report); and (ix) the FFIEC 102
report (Market Risk Regulatory Report for Institutions Subject to the
Market Risk Capital Rule), if the market risk capital rule becomes
applicable to GECC. The Board intends to confer with GECC to identify
any report schedules that may not be necessary for GECC to provide
based on its profile, structure, activities, risks, or other
characteristics and to determine an appropriate phase-in period for
report submission by GECC. Other than the FR Y-14 series reporting
forms, discussed below, the Board is proposing that, beginning July 1,
2015, GECC would be required to file each of these reports in
accordance with the timelines set forth in their respective reporting
instructions.
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\71\ GECC is a savings and loan holding company supervised by
the Board. So long as GECC remains a savings and loan holding
company, GECC continues to be subject to all reporting requirements
applicable to a savings and loan holding company. Consistent with
section 161(a)(2) of the Dodd-Frank Act, the Board intends to confer
with GECC as to whether the information requested in the required
reports may be available from other sources, and, to the extent any
reporting requirements overlap, GECC will not be subjected to
duplicative reporting requirements as both a savings and loan
holding company and a nonbank financial company supervised by the
Board. 12 U.S.C. 5361(a)(2). The reporting requirements under the
proposed order would continue to apply to GECC as a nonbank
financial company in the event that GECC ceases to be a savings and
loan holding company and ceases to be subject to the reporting
requirements applicable to savings and loan holding companies.
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Because the FR Y-14A reporting form relates to the Board's capital
planning and stress testing requirements, the Board expects that it
would require GECC to file its first FR Y-14A submission on April 5,
2016, to report its first capital plan. The Board expects GECC would be
required to submit its first FR Y-14Q and Y-14M reports as of one
calendar year before the as-of date of its first supervisory and
company-run stress test under the Board's stress test rules.
A. FR Y-6 Report
The FR Y-6 (Annual Report of Holding Companies) is an annual
information collection currently submitted by top-tier bank holding
companies, savings and loan holding companies, securities holding
companies, and non-qualifying foreign banking organizations. It
collects financial data, an organization chart, verification of
domestic branch data, and information about certain shareholders.
With respect to GECC, the Board expects to use this information, in
conjunction with the information collected through the FR Y-10 report,
to monitor the financial condition and the activities of GECC. This
information will also be used by the Board to monitor the extent to
which the activities and operations of GECC pose a threat to the
financial stability of the United States and GECC's compliance with the
requirements of Title I of the Dodd-Frank Act, the enhanced prudential
standards that are imposed on GECC, and other relevant law. In
addition, this information will be used to capture the legal entity
structure of GECC. The Board also expects to use this information,
combined with the information collected through the FR Y-9C, FR Y-9LP,
FR Y-10, FR Y-11, FR Y-11S, FR 2314, and FR 2314S reports, to monitor
intercompany transactions and changes in GECC's legal entity structure
over time.
B. FR Y-10 Report
The FR Y-10 (Report of Changes in Organizational Structure) is an
event-generated information collection currently submitted by top-tier
bank holding companies; savings and loan holding companies; state
member banks unaffiliated with a bank holding company or a foreign
banking organization; Edge and agreement corporations that are not
controlled by a state member bank, a domestic bank holding company, or
a foreign banking organization; and nationally chartered banks that are
not controlled by a bank holding company or a foreign banking
organization (with regard to their foreign investments only), to
capture changes in their regulated investments and activities. The
Board uses this information to ensure that these firms' activities are
conducted in a safe and sound manner. The data also provide the Board
with information integral to monitoring compliance with the BHC Act,
the Gramm-Leach-Bliley Act, the Federal Reserve Act, the International
Banking Act, the Sarbanes-Oxley Act, the Board's Regulation Y, the
Board's Regulation K, the Board's Regulation LL, and HOLA.
The information in this report, in conjunction with the information
in the FR Y-6, will be used to capture the legal entity structure of
GECC. As noted above, the FR Y-6 and FR Y-10 reports are the only
detailed sources of information on the structure of these top-tier
firms. This information will also be used by the Board to monitor the
extent to which the activities and operations of GECC pose a threat to
the financial stability of the United States and GECC's compliance with
the requirements of Title I of the Dodd-Frank Act, the enhanced
prudential standards that are imposed on GECC, and other relevant law.
In addition, this information will be used to capture the legal entity
structure of GECC. The Board also expects to use this information,
combined with the information collected through the FR Y-9C, FR Y-9LP,
FR Y-10, FR Y-11, FR Y-11S, FR 2314, and FR 2314S reports, to monitor
intercompany transactions and changes in GECC's legal entity structure
over time.
C. FR Y-9C and FR Y-9LP Reports
The FR Y-9C (Consolidated Financial Statements for Holding
Companies) and FR Y-9LP (Parent Company Only Financial Statements for
Large Holding Companies) reports are standardized financial statements
currently submitted by bank holding companies, savings and loan holding
companies, and securities holding companies on a quarterly basis. The
FR Y-9C consists of standardized financial statements and collects
consolidated data from these entities. The FR Y-9LP collects basic
financial data from domestic bank holding companies, savings and loan
holding companies, and securities holding companies on a consolidated,
parent-only basis in the form of a balance sheet, an income statement,
and supporting schedules relating to investments, cash flow, and
certain memoranda items. Financial information from these reports is
used to assess and monitor the financial condition of holding company
organizations, which may include parent, bank, and nonbank entities.
This information also is used to detect emerging financial problems, to
review performance and conduct pre-inspection analysis, to monitor and
evaluate capital adequacy, to evaluate mergers and acquisitions, and to
analyze the overall financial condition of bank holding companies,
savings and loan holding companies, and securities holding companies,
to ensure safe and sound operations.
With respect to GECC, the Board expects to use the data to monitor
the financial condition of the company and subsidiaries and assess the
systems of the company and subsidiaries for monitoring and controlling
financial, operating, and other risks. This information also may be
used to analyze the extent to which the activities and operations of
the company or subsidiaries pose a threat to the financial stability of
the United States and to monitor GECC's compliance with Title I of the
Dodd-Frank Act, the enhanced prudential standards that are imposed on
GECC, and other relevant law. The standardized format of these
[[Page 71781]]
reports allows for the consistent assessment of financial condition
across all firms that are required to report under these forms. The
level of detail provided within the supporting schedules of these
reports is not available through public financial filings or alternate
sources.
D. FR Y-11 and FR Y-11S Reports
The FR Y-11 and FR Y-11S (Financial Statements of U.S. Nonbank
Subsidiaries of U.S. Holding Companies) reports collect financial
information for individual non-functionally regulated U.S. nonbank
subsidiaries of domestic bank holding companies, savings and loan
holding companies, and securities holding companies. This report
consists of a balance sheet and income statement; information on
changes in equity capital, changes in the allowance for loan and lease
losses, off-balance-sheet items, and loans; and a memoranda section.
Top-tier bank holding companies, savings and loan holding companies,
and securities holding companies file the FR Y-11 and FR Y-11S reports
on a quarterly or annual basis according to filing criteria. The
information obtained through the FR Y-11 and FR Y-11S reports is used
with other bank holding companies, savings and loan holding companies,
and securities holding companies data to assess the condition of firms
that are engaged in nonbanking activities and to monitor the volume,
nature, and condition of their nonbanking operations.
With respect to GECC, the Board expects to use this information, in
conjunction with the information collected through the FR 2314 and FR
2314S reports, to assess the financial condition of U.S. nonbanking
entities within GECC and to monitor their activities. This information
also may be used to monitor the financial condition of subsidiaries of
GECC and to assess the systems of the company for monitoring and
controlling financial, operating, and other risks. This information may
further be used to analyze the extent to which the activities and
operations of GECC or its subsidiaries pose a threat to the financial
stability of the United States and to monitor GECC's compliance with
Title I of the Dodd-Frank Act, the enhanced prudential standards that
are imposed on GECC, and other relevant law. In addition, the
information collected through the FR Y-11, FR Y-11S, FR 2314, and FR
2314 reports serves to identify material legal entities.
E. FR 2314 and FR 2314S Reports
The FR 2314 and FR 2314S (Financial Statements of Foreign
Subsidiaries of U.S. Banking Organizations) reports collect financial
information for non-functionally regulated direct or indirect foreign
subsidiaries of U.S. state member banks, Edge and agreement
corporations, bank holding companies, and savings and loan holding
companies. The FR 2314 and FR 2314S reports consist of a balance sheet
and income statement; information on changes in equity capital, changes
in the allowance for loan and lease losses, off-balance-sheet items,
and loans; and a memoranda section. Holding companies file this report
on a quarterly or annual basis according to filing criteria. The data
is used to identify current and potential problems at the foreign
subsidiaries of U.S. parent companies, to monitor the activities of
U.S. banking organizations in specific countries, and to develop a
better understanding of activities within the industry, in general, and
of individual institutions, in particular. The FR 2314 and FR 2314S
reports are the only source of comprehensive and systematic data on the
assets, liabilities, and earnings of the foreign bank and nonbank
subsidiaries of U.S. state member banks, holding companies, and Edge
Act and agreement corporations.
With respect to GECC, the Board expects to use this information, in
conjunction with the information collected through the FR Y-11 and FR
Y-11S reports, to assess the financial condition of foreign
subsidiaries of GECC and to monitor their activities. This information
may be used to assess the systems of GECC and its foreign subsidiaries
for monitoring and controlling financial, operating, and other risks.
This information also may be used to analyze the extent to which the
activities and operations of the foreign subsidiaries pose a threat to
the financial stability of the United States and to monitor compliance
with Title I of the Dodd-Frank Act, the enhanced prudential standards
that are imposed on GECC, and other relevant law. The information
collected through the FR Y-11, FR Y-11S, FR 2314, and FR 2314S reports
will allow the Board to develop a better understanding of the
activities of GECC and its subsidiaries in specific countries, and to
develop a better understanding of the activities conducted within the
industries in which GECC operates.
F. FR Y-14A, FR Y-14M, and FR Y-14Q Reports
Submitted as part of the Board's CCAR and stress testing processes,
the FR Y-14A, FR Y-14M, and FR Y-14Q (Capital Assessments and Stress
Testing) reports collect detailed financial information from top-tier
bank holding companies (other than foreign banking organizations) with
$50 billion or more in total consolidated assets, as determined based
on: (i) The average of the bank holding company's total consolidated
assets in the four most recent quarters as reported quarterly on the
bank holding company's FR Y-9C reports; or (ii) the average of the bank
holding company's total consolidated assets in the most recent
consecutive quarters as reported quarterly on the bank holding
company's FR Y-9C reports, if those bank holding companies have not
filed an FR Y-9C report for each of the most recent four quarters.
The FR Y-14A report is an annual collection of these bank holding
companies' quantitative projections of balance sheet, income, losses,
and capital across a range of macroeconomic scenarios and qualitative
information on methodologies used to develop internal projections of
capital across scenarios, with certain projections and information
collected on a semi-annual basis. The FR Y-14M report is a monthly
submission that comprises three loan- and portfolio-level collections
of data concerning domestic residential mortgages, domestic home equity
loan and home equity lines of credit, and domestic credit card loans,
and one detailed address-matching collection to supplement two of the
loan- and portfolio-level collections. The FR Y-14Q report is a
quarterly collection of granular data on these bank holding companies'
various asset classes and pre-provision net revenue for the reporting
period, including information pertaining to securities, retail loans,
wholesale loans, mortgage servicing rights, regulatory capital
instruments, operational risk, and trading, private equity, and other
fair-value assets. Collectively, the Y-14 data is used to assess the
capital adequacy of large bank holding companies using forward-looking
projections of revenue and losses, and to support supervisory stress
test models and continuous monitoring efforts.
With respect to GECC, the Board expects to use this information to
assess GECC's internal assessments of its capital adequacy under a
stressed scenario, and to conduct the Federal Reserve's supervisory
stress tests that
[[Page 71782]]
assess GECC's ability to withstand stress in a manner consistent with
bank holding companies subject to the Board's capital plan and stress
testing rules. In addition, this information will be used to support
ongoing monitoring of changes in GECC's risk profile and composition.
The Board would require GECC to file its first FR Y-14A submission
on April 5, 2016, as part of its capital plan. In addition, the Board
would require GECC to submit its first FR Y-14Q and Y-14M reports as of
one calendar year before the as of date of its first supervisory and
company-run stress test under the Board's stress test rules, which
would be as of December 31, 2015, under this proposal.
G. FR Y-15 Report
The FR Y-15 (Banking Organization Systemic Risk Report) report
collects consolidated systemic risk data from bank holding companies
with total consolidated assets of $50 billion or more and the U.S.
operations or large foreign banking organizations. The data items
collected in this report mirror those developed by the Basel Committee
to assess the global systemic importance of banks. The Board uses the
information collected annually through the FR Y-15 report to: (i)
Facilitate the future implementation of the capital surcharge on global
systemically-significant banking organizations through regulation; (ii)
identify institutions that may be domestic systemically-significant
banking organizations under a future framework; (iii) analyze the
systemic risk implications of proposed mergers and acquisitions; and
(iv) monitor, on an ongoing basis, the systemic risk profile of the
institutions that are subject to enhanced prudential standards under
section 165 of the Dodd-Frank Act.\72\
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\72\ 12 U.S.C. 5365.
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If applied to GECC, the Board expects to use this data to assess
and monitor GECC's systemic risk profile and its global systemic
importance, as well as its ongoing compliance with Title I of the Dodd-
Frank Act, the enhanced prudential standards that are imposed on GECC,
and other relevant law.
H. FFIEC 009 and FFIEC 009a Reports
The Federal Financial Institutions Examination Council (FFIEC) is a
formal interagency body empowered to prescribe uniform principles,
standards, and report forms for the federal examination of financial
institutions by the Board, the FDIC, the National Credit Union
Administration, the OCC, and the Consumer Financial Protection Bureau
and to make recommendations to promote uniformity in the supervision of
financial institutions. The FFIEC 009 (Country Exposure Report) and
FFIEC 009a (the Country Exposure Information Report) reports are
quarterly information collections currently submitted by U.S.
commercial banks and bank holding companies holding with $30 million or
more in claims on residents of foreign countries. The FFIEC 009
collects detailed information on the distribution, by country, of
claims on foreigners held by U.S. banks and bank holding companies. The
FFIEC 009a is a supplement to the FFIEC 009 that provides specific
information about the reporting institutions' exposures in particular
countries.
The FFIEC 009 report consists of four schedules that collect
information concerning: (1) Claims on the firm on the basis of the
country of residence of the borrower (except claims from the fair value
of derivative contracts); (2) the reporting firm's claims on an
ultimate-risk basis with additional details related to those claims;
(3) the firm's foreign-office liabilities; and (4) the firm's off-
balance-sheet exposures from commitments, guarantees, and credit
derivatives. The information collected is used to determine the
presence of credit and related risks, including transfer and country
risk. The FFIEC 009a is filed if exposures to a country exceed 1
percent of total assets or 20 percent of capital at the reporting
institution and requires that the respondent also furnish a list of
countries in which exposures were between 0.75 percent and one percent
of total assets or between 15 and 20 percent of capital.
With respect to GECC, the Board expects to use this information to
assess GECC's credit and related risks. Specifically, the information
collected on the FFIEC 009 report and the FFIEC 009a report provides
additional information on counterparties, the type of claim being
reported, and credit derivative exposure. The information also provides
details on a limited number of risk mitigants to help provide context
for currently reported gross exposure numbers. This information may be
used to analyze the extent to which GECC's credit exposures pose a
threat to the financial stability of the United States. The information
collected through the FFIEC 009 report and the FFIEC 009a report will
allow the Board to develop a better understanding of GECC's exposures
in specific countries, and to monitor trends in exposures to foreign
creditors.
I. FFIEC 102
The proposed FFIEC 102 reporting form is designed to implement the
reporting requirements for institutions that are subject to the federal
banking agencies' market risk capital rule under the revised capital
framework.\73\ The proposed reports would be quarterly information
collections used to assess the reasonableness and accuracy of a market
risk institution's calculation of its minimum capital requirements
under the market risk capital rule and to evaluate such an
institution's capital in relation to its risks.
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\73\ See Subpart F to 12 CFR 217.
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The market risk information collected in the FFIEC 102 is designed
to: (a) Permit the federal banking agencies to monitor the market risk
profile of and evaluate the impact and competitive implications of the
market risk capital rule on individual market risk institutions and the
industry as a whole; (b) provide the most current statistical data
available to identify areas of market risk on which to focus for onsite
and offsite examinations; (c) allow the federal banking agencies to
assess and monitor the levels and components of each reporting
institution's risk-based capital requirements for market risk and the
adequacy of the institution's capital under the market risk capital
rule; and (d) assist market risk institutions to implement and validate
the market risk framework.
Although GECC would not currently be subject to the Board's market
risk capital rule because it does not meet the applicable aggregate
trading assets and trading liabilities thresholds, the proposed order
would require GECC to submit the FFIEC 102 should GECC become subject
to the Board's market risk capital rule.\74\ The information collected
on the FFIEC 102 would allow the Board to monitor GECC's market risk
profile and the adequacy of GECC's capital under the market risk
capital rule should it become applicable.
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\74\ The Board's market risk capital rule applies to any state
member bank, bank holding company, or savings and loan holding
company with aggregate trading assets and trading liabilities (as
reporting on the applicable Call Report, for a state member bank, or
FR Y-9C, for a bank holding company or savings and loan holding
company, as applicable) equal to: (i) 10 percent or more of the
quarter-end total assets as reported on the most recent regulatory
report; or (ii) $1 billion or more. 12 CFR 217.201(b). As of
September 30, 2014, GECC had approximately $229 million in aggregate
trading assets and trading liabilities.
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VI. Timing of Application
In general, the Board is proposing to require GECC to begin
complying with the proposed enhanced prudential standards beginning
July 1, 2015, except
[[Page 71783]]
for the Board's capital planning and stress testing rules, which the
Board has proposed will apply to GECC beginning on the next capital
planning and stress testing cycle beginning January 1, 2016, and
January 1, 2017, respectively. However, regardless of the transition
period for application of the enhanced prudential standards, GECC will
continue to be subject to the Board's examination and oversight
authority, and any other prudential requirements imposed under
HOLA.\75\
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\75\ 12 U.S.C. 1467a, 5361.
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15. Should the Board consider providing a longer transition period for
any of the standards that it has proposed to apply to GECC?
VII. Paperwork Reduction Act
Certain provisions of the Board's proposed order contain
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In
accordance with the requirements of the PRA, the Board may not conduct
or sponsor, and a respondent is not required to respond to, an
information collection unless it displays a currently valid Office of
Management and Budget (OMB) control number. The Board reviewed the
proposed order under the authority delegated to the Board by OMB.
The proposed order contains reporting requirements subject to the
PRA and would require GECC to submit the following reporting forms in
the same manner as a bank holding company:
(1) Country Exposure Report and Country Exposure Information Report
(FFIEC 009 and FFIEC 009a; OMB No. 7100-0035);
(2) Proposed Market Risk Regulatory Report for Institutions Subject
to the Market Risk Capital Rule (FFIEC 102; OMB No. to be obtained)
(See the initial Federal Register notice (79 FR 52108) published on
September 2, 2014.);
(3) Financial Statements of Foreign Subsidiaries of U.S. Banking
Organizations; and Abbreviated Financial Statements of Foreign
Subsidiaries of U.S. Banking Organizations (FR 2314; and FR 2314S OMB
No. 7100-0073);
(4) Annual Report of Holding Companies (FR Y-6; OMB No. 7100-0297);
(5) Consolidated Financial Statements for Holding Companies (FR Y-
9C; OMB No. 7100-0128);
(6) Parent Company Only Financial Statements for Large Holding
Companies (FR Y-9LP; OMB No. 7100-0128);
(7) Report of Changes in Organizational Structure (FR Y-10; OMB No.
7100-0297);
(8) Financial Statements of U.S. Nonbank Subsidiaries of U.S.
Holding Companies; and Abbreviated Financial Statements of U.S. Nonbank
Subsidiaries of U.S. Holding Companies (FR Y-11; and FR Y-11S OMB No.
7100-0244);
(9) Capital Assessments and Stress Testing (FR Y-14A; FR Y-14M; and
FR Y-14Q OMB No. 7100-0341); and
(10) Banking Organization Systemic Risk Report (FR Y-15; OMB No.
7100-0352).
The proposed order contains reporting, recordkeeping, or disclosure
requirements subject to the PRA and would require GECC to comply with
the following information collections in the same manner as a bank
holding company:
(1) Funding and Liquidity Risk Management Guidance (FR 4198; OMB
No. 7100-0326). See the Enhanced Prudential Standards for Bank Holding
Companies and Foreign Banking Organizations final rule (79 FR 17239)
published on March 27, 2014.
(2) Risk-Based Capital Standards: Advanced Capital Adequacy
Framework Information Collection (FR 4200; OMB No. 7100-0313). See the
Regulatory Capital Rules final rule (78 FR 62017) published on October
11, 2013, and the Regulatory Capital Rules final rule (79 FR 57725)
published on September 26, 2014.
(3) Risk-Based Capital Guidelines: Market Risk (FR 4201; OMB No.
7100-0314). See the Regulatory Capital Rules final rule (78 FR 62017)
published on October 11, 2013.
(4) Recordkeeping and Reporting Requirements Associated with
Regulation Y (Capital Plans) (Reg Y-13; OMB No. 7100-0342). See the
Capital Plans final rule (76 FR 74631) published on December 1, 2011,
the Supervisory and Company-Run Stress Test Requirements for Covered
Companies final rule (77 FR 62377) published on October 12, 2012, and
the Capital Plan and Stress Test Rules final rule (79 FR 64025)
published on October 27, 2014.
(5) Reporting and Recordkeeping Requirements Associated with
Regulation WW (Liquidity Coverage Ratio: Liquidity Risk Measurement,
Standards, and Monitoring) (Reg WW; OMB No. to be obtained). See the
Liquidity Coverage Ratio final rule (79 FR 61439) published on October
10, 2014.
(6) Reporting, Recordkeeping, and Disclosure Requirements
Associated with Regulation YY (Enhanced Prudential Standards) (Reg YY;
OMB No. 7100-0350). See the Supervisory and Company-Run Stress Test
Requirements for Covered Companies final rule (77 FR 62377) published
on October 12, 2012, and the Enhanced Prudential Standards for Bank
Holding Companies and Foreign Banking Organizations final rule (79 FR
17239) published on March 27, 2014.
Comments are invited on:
(a) Whether the proposed collections of information are necessary
for the proper performance of the Federal Reserve's functions,
including whether the information has practical utility;
(b) The accuracy of the Federal Reserve's estimates of the burden
of the proposed information collections, including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the
information to be collected;
(d) Ways to minimize the burden of the information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on
aspects of this proposed order that may affect reporting,
recordkeeping, or disclosure requirements and burden estimates should
be sent to the addresses listed in the ADDRESSES section above. A copy
of the comments may also be submitted to the OMB desk officer: By mail
to Office of Information and Regulatory Affairs, Office of Management
and Budget, New Executive Office Building, Room 10235, 725 17th Street
NW., Washington, DC 20503 or by facsimile to 202-395-6974, Attention,
Federal Reserve Desk Officer.
VIII. Proposed Order
FEDERAL RESERVE SYSTEM
General Electric Capital Corporation, Inc.
Norwalk, Connecticut
Order Imposing Enhanced Prudential Standards and Reporting Requirements
Pursuant to section 165 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act), the Board of Governors of the
Federal Reserve System (Board) is required to apply enhanced prudential
standards to General Electric Capital Corporation (GECC), a nonbank
financial company that the Financial Stability Oversight Council has
determined should be supervised by the Board (nonbank
[[Page 71784]]
financial company supervised by the Board).
After consideration of all of the relevant factors set forth in
sections 165(a) and 165(b) of the Dodd-Frank Act, for the reasons set
forth in the preamble to this order, the Board is applying the
following enhanced prudential standards and reporting requirements to
GECC that the Board has tailored, where appropriate, in light of those
factors.
Capital Requirements
Beginning on July 1, 2015, GECC shall comply with the Board's
capital framework, set forth in 12 CFR part 217,\1\ as if GECC were a
bank holding company that is an ``advanced approaches Board-regulated
institution'' and a ``covered BHC,'' each as defined under 12 CFR
217.2, provided, however, that notwithstanding 12 CFR 217.100(b), GECC
will not be required to comply with subpart E of 12 CFR part 217 or to
calculate an advanced measure for market risk.\2\
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\1\ 12 CFR part 217.
\2\ 12 CFR 217.204.
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Capital Planning
GECC shall comply with the capital plan rule set forth in 12 CFR
225.8 as a nonbank financial company supervised by the Board, pursuant
to 12 CFR 225.8(b)(1)(iv), and shall submit a capital plan for the
capital plan cycle beginning on January 1, 2016.\3\
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\3\ 12 CFR 225.8.
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Stress Testing
GECC shall comply with the stress testing requirements set forth in
subparts E and F of Regulation YY (12 CFR part 252, subparts E and F)
as a nonbank financial company supervised by the Board, pursuant to 12
CFR 252.43(a)(1)(iii) and 12 CFR 252.53(a)(1)(iii), beginning with the
stress testing cycle beginning on January 1, 2017.\4\
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\4\ Subparts E and F of 12 CFR part 252.
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Liquidity Requirements
1. Beginning on July 1, 2015, GECC shall comply with the liquidity
requirements, set forth in sections 252.34 and 252.35 of the Board's
Regulation YY, as though it were a bank holding company with $50
billion or more in total consolidated assets.\5\
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\5\ 12 CFR 252.34, 252.35.
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2. Beginning on July 1, 2015, GECC shall comply with the liquidity
coverage ratio (LCR) standard, set forth in 12 CFR part 249, as a
covered nonbank company, pursuant to 12 CFR 249.1(b)(1)(iv) and 12 CFR
249.3, subject to the transition periods set forth under 12 CFR
249.50(b).\6\
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\6\ 12 CFR part 249.
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3. Beginning on July 1, 2015, GECC shall comply with the Board's
supervisory guidance on principles of sound liquidity risk management,
as set forth in the Board's Supervision and Regulation letter 10-6,
``Interagency Policy Statement on Funding and Liquidity Risk
Management,'' issued in March 2010.\7\
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\7\ Board of Governors of the Federal Reserve System, Division
of Banking Supervision and Regulation (2010), ``Interagency Policy
Statement on Funding and Liquidity Risk Management,'' Supervision
and Regulation Letter SR 10-6 (March 17); 75 FR 13656 (March 22,
2010); available at: http://www.federalreserve.gov/boarddocs/srletters/2010/sr1006.pdf.
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Risk Management
1. Beginning on July 1, 2015, GECC shall comply with the risk-
management standards under section 252.33 of the Board's Regulation YY
as though it were a bank holding company with $50 billion or more in
total consolidated assets.\8\
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\8\ 12 CFR 252.33.
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a. In addition, beginning on July 1, 2015, GECC is required to
maintain a board of directors that has the greater of 25 percent of
directors or two directors who are independent of General Electric
Company's management and board of directors and GECC's management, one
of whom may satisfy the independent director requirement under section
252.33(a)(4) of Regulation YY; and
b. GECC shall ensure that the chair of the risk committee
established at GECC pursuant to Regulation YY is among the directors
who are independent of General Electric Company's management and board
of directors and GECC's management.\9\
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\9\ 12 CFR 252.33(a).
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2. GECC shall continue to comply with the Board's existing risk-
management guidance and supervisory expectations applicable to nonbank
financial companies supervised by the Board.\10\
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\10\ See Board of Governors of the Federal Reserve System,
Division of Banking Supervision and Regulation (2012),
``Consolidated Supervision Framework for Large Financial
Institutions,'' Supervision and Regulation Letter SR 12-17 (December
17), available at: http://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm.
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Restrictions on Intercompany Transactions
Beginning on July 1, 2015, all transactions between GECC (or any of
its subsidiaries) and GE (or any of its subsidiaries other than GECC or
subsidiaries of GECC) shall be subject to the requirements of section
23B of the Federal Reserve Act and the corresponding provisions of
Regulation W (subpart F of 12 CFR part 223) as if GECC (or any of its
subsidiaries) were a ``member bank'' and GE (or any of its subsidiaries
other than GECC and subsidiaries of GECC) were an ``affiliate'' as
defined in section 23B of the Federal Reserve Act and Regulation W.\11\
However, this restriction would not apply to transactions between GECC
and any person the proceeds of which are used for the benefit of, or
transferred to, an affiliate, which would otherwise be a covered
transaction under section 23A(a)(2) of the Federal Reserve Act and
section 223.16 of Regulation W.\12\
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\11\ 12 U.S.C. 371c-1; subpart F of 12 CFR part 223.
\12\ 12 U.S.C. 371c(a)(2); 12 CFR 223.16.
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Future Standards
Nothing herein limits the Board's authority to impose additional
enhanced prudential standards to apply to GECC in the future.
Reporting Requirements
1. Beginning on July 1, 2015, pursuant to section 161(a) of the
Dodd-Frank Act,\13\ GECC shall file the following reports with the
Board:
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\13\ 12 U.S.C. 5361(a).
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a. FFIEC 102 report (Market Risk Regulatory Report for Institutions
Subject to the Market Risk Capital Rule); \14\
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\14\ GECC shall become subject to the FFIEC 102 report in the
event the company meets the aggregate trading assets and trading
liabilities threshold for application of the Board's market risk
capital rule. 12 CFR 217.201(b).
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b. FFIEC 009 report (Country Exposure Report) and FFIEC 009a report
(Country Exposure Information Report);
c. FR Y-6 report (Annual Report of Holding Companies);
d. FR Y-10 report (Report of Changes in Organizational Structure);
e. FR Y-9C report (Consolidated Financial Statements for Holding
Companies) and FR Y-9LP report (Parent Company Only Financial
Statements for Large Holding Companies);
f. FR Y-11 and FR Y-11S reports (Financial Statements of U.S.
Nonbank Subsidiaries of U.S. Holding Companies);
g. FR 2314 and FR 2314S reports (Financial Statements of Foreign
Subsidiaries of U.S. Banking Organizations);
h. FR Y-14A, FR Y-14M, and FR Y-14Q reports (Capital Assessments
and Stress Testing); and
i. FR Y-15 report (Banking Organization Systemic Risk Report).
2. Other than the FR Y-14A, FR Y-14M, and FR Y-14Q reports, GECC
[[Page 71785]]
shall file each of the reports in accordance with the timelines set
forth in the applicable instructions to each reporting form.
3. GECC shall submit its first FR Y-14A report on April 5, 2016, in
connection with its first submission under the capital plan rule (12
CFR 225.8).
4. GECC shall submit its first FR Y-14Q and FR Y-14M reports one
calendar year before the as of date of its first supervisory and
company-run stress test under the Board's stress testing requirements
under Regulation YY (12 CFR part 252, subparts E and F).
5. The Board intends to confer with GECC to determine whether GECC
should modify any reporting schedules that may not be necessary for
GECC to provide, based on its profile, structure, activities, risks, or
other characteristics.
By order of the Board of Governors of the Federal Reserve
System, November 25, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-28414 Filed 12-2-14; 8:45 am]
BILLING CODE 6210-01-P