[Federal Register Volume 79, Number 232 (Wednesday, December 3, 2014)]
[Rules and Regulations]
[Pages 71630-71634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28420]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 46
[Docket ID OCC-2014-0015]
RIN 1557-AD85
Annual Stress Test--Schedule Shift and Adjustments to Regulatory
Capital Projections
AGENCY: Office of the Comptroller of the Currency, Treasury.
ACTION: Final rule.
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SUMMARY: On July 1, 2014, the Office of the Comptroller of the Currency
(OCC) proposed to adjust the timing of the annual stress testing cycle
and to clarify the method used to calculate regulatory capital in the
stress tests (proposed rule). The OCC is now adopting the proposed rule
as final (final rule). The final rule shifts the dates of the annual
stress testing cycle by approximately three months. The final rule also
provides that covered institutions will not have to calculate their
risk-weighted assets using the internal ratings-based and advanced
measurement approaches until the stress testing cycle beginning on
January 1, 2016.
DATES: The rule is effective January 2, 2015.
FOR FURTHER INFORMATION CONTACT: Robert Scavotto, Deputy Director,
International Analysis and Banking Condition, (202) 649-5477; William
Russell, National Bank Examiner, Large Bank Supervision, (202) 649-
7157; Kari Falkenborg, National Bank Examiner, Midsize and Community
Bank Supervision, (202) 649-6831; Ron Shimabukuro, Senior Counsel, or
Henry Barkhausen, Attorney, Legislative and Regulatory Activities
Division, (202) 649-5490; for persons who are deaf or hard of hearing,
TTY, (202) 649-5597.
SUPPLEMENTARY INFORMATION:
I. Introduction and Background
Section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'') requires the federal banking
agencies to issue regulations requiring financial companies with more
than $10 billion in assets to conduct annual stress tests (``company-
run stress tests''). In October 2012, the OCC, the Board of Governors
of the Federal Reserve System (``Board''), and the Federal Deposit
Insurance Corporation issued rules implementing the company-run stress
tests required by the Dodd-Frank Act. Under these rules, the OCC
distributes
[[Page 71631]]
stress scenarios by November 15 \1\ to covered institutions. Covered
institutions use their financial position as of September 30 (``as of
date'') and must make projections that estimate their financial
position under the different stress scenarios. Covered institutions
with $50 billion or more in assets must submit the results of their
stress tests by January 5. Covered institutions with $50 billion or
more are required to publish a summary of their stress test results
between March 15 and March 31. Covered institutions with between $10
and $50 billion in assets are required to submit their stress test
results to the OCC by March 31 and publish a summary of their results
between June 15 and June 30.
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\1\ These scenarios provided by the OCC reflect a minimum of
three sets of economic and financial conditions, including baseline,
adverse, and severely adverse scenarios.
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II. Description of the Final Rule
A. Shift in Stress Testing Cycle
The proposed rule would have shifted the dates of the stress
testing cycle by approximately three months.\2\ The proposed rule would
have relieved covered institutions with $50 billion or more in assets
of the obligation to complete their stress testing submissions by
January 5, a time of year when these institutions have other year-end
obligations.
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\2\ 79 FR 37231 (July 1, 2014).
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Under the proposed rule, covered institutions with $50 billion or
more in assets would have been required to submit the results of their
company-run stress tests to the OCC by April 7 \3\ and would have been
required to disclose stress test results between June 15 and July 15.
However, within this disclosure period a covered institution that is a
consolidated subsidiary of a bank holding company or savings and loan
holding company subject to supervisory stress tests conducted by the
Board pursuant to 12 CFR part 252 could not disclose its results until
the Board has published the supervisory stress test results of the
covered institution's parent holding company. In addition, if the Board
publishes the supervisory stress test results of the covered
institution's parent holding company prior to June 15, then such
covered institution could satisfy its publication requirement either
through actual publication by the covered institution or through
publication by the parent holding company pursuant to 12 CFR 46.8(b).
Under the proposed rule, covered institutions with between $10 and $50
billion in assets would have been required to submit the results of
their company-run stress tests to the OCC by July 31 and publish those
results between October 15 and October 31.
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\3\ Under the final rule the reporting deadline has been changed
to April 5.
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The OCC received four comments on the proposed rule from banking
organizations and trade associations. The commenters supported the
proposed schedule shift and recommended that the OCC adopt the schedule
shift earlier than proposed (adopting the schedule shift for the stress
test cycle beginning October 1, 2014 instead of 2015, as proposed).
Commenters argued that the current January 5 submission deadline has
been challenging because of other year-end financial reporting
obligations. The OCC recognizes these concerns and believes that
covered institutions should conduct these tests at a time when they are
better able to manage their resources. However, adopting the schedule
shift one year earlier than proposed would disrupt planning for the
stress testing schedule beginning October 1, 2014. Accordingly, under
the final rule the schedule shift will take effect in the subsequent
stress testing cycle, which will begin January 1, 2016.
The following table summarizes the changes made by the final rule.
Table 1--Revised Annual Stress Test Timeline for Covered Institutions
With $50 Billion or More in Assets
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Action required Current rule Final rule
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``As of'' Date for Financial September 30...... December 31.
Data Used by Stress Test.
Distribution of Stress Scenarios By November 15.... By February 15.
in OCC.
Submission of Stress Test By January 5...... By April 5.
Results.
Disclosure of Results Summary... Between March 15 Between June 15
and March 31. and July 15
except no earlier
than Board
publication of
the supervisory
stress test
results of the
bank holding
company.
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Table 2--Revised Annual Stress Test Timeline for Covered Institutions
With Between $10 and $50 Billion in Assets
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Action required Current rule Proposed rule
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``As of'' Date for Financial September 30...... December 31.
Data Used in Stress Test.
Distribution of Stress Scenarios By November 15.... By February 15.
by OCC.
Submission of Stress Test By March 31....... By July 31.
Results.
Disclosure of Results Summary... Between June 15 Between October 15
and June 30. and October 31.
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All covered institutions with between $10 and $50 billion in assets
will be required to submit the results of their company-run stress
tests to the OCC by July 31 and publish those results between October
15 and October 31. Covered institutions with $50 billion or more will
be required to submit the results of their company-run stress tests to
the OCC by April 5 and publish those results between June 15 and July
15. The April 5 reporting deadline for covered institutions with $50
billion or more in assets is a minor change from the April 7 deadline
proposed in the proposed rule. The final rule also adopts the
provisions in the proposed rule that prohibit a covered institution
that is a consolidated subsidiary of a bank holding company or savings
and loan holding company supervised by the
[[Page 71632]]
Board from disclosing its results until the Board has published the
supervisory stress test results of the covered institution's parent
holding company.
With respect to covered institutions with assets between $10 and
$50 billion, pursuant to 12 CFR 46.3(e) a covered institution may elect
to conduct its stress test under the stress test requirements
applicable to a covered institution with assets of $50 billion or more.
In that case we note that the covered institution also would be subject
to the disclosure requirements applicable to covered institutions with
$50 billion or more in assets.
One commenter requested that the OCC release the stress test
scenarios earlier than February 15 to give covered institutions more
time to prepare their stress test submissions. Under the final rule,
the OCC will provide the scenarios ``no later than'' February 15. The
OCC recognizes the need for covered institutions to have adequate time
to complete their submissions and will attempt to distribute the
scenarios as early as possible.
Two commenters requested that the OCC reduce the stress test
planning horizon from nine quarters to eight quarters. Under the
current stress testing rule covered institutions are required to make
stress test projections over a planning horizon lasting nine quarters.
The OCC believes that the nine-quarter planning horizon results in an
actual planning horizon of eight quarters, as the first quarter of the
horizon is contemporaneous with the quarter in which the covered
institution submits its stress test results. As such, in order to
maintain a two-year stress test planning horizon, the final rule
maintains the nine-quarter requirement. The OCC will consider the
appropriate length of the planning horizon in light of future
experience with stress testing.
The proposed rule would also have amended the applicability
provisions in Sec. 46.3 of the Annual Stress Test rule to reflect the
changed timeline. Currently, a national bank or Federal savings
association that becomes a covered institution must conduct its first
annual stress test beginning in the next calendar year after the date
the national bank or Federal savings association becomes a covered
institution. Under the new stress testing timeline, if this
applicability provision were left unchanged and a national bank or
Federal savings association became a covered institution as of
September 30 of a given year, the institution would be required to
conduct its first stress test in the stress testing cycle beginning the
following January 1, three months after becoming a covered institution.
The current Annual Stress Test rule provides a minimum of nine months
between the date on which a national bank or Federal savings
association becomes a covered institution and the start date of the
stress testing cycle in which the covered institution must conduct it
first stress test. To preserve the nine-month minimum the proposed rule
would have established a March 31 cutoff date. A national bank or
Federal savings association that becomes a covered institution on or
before March 31 of a given year would be required to conduct its first
stress test in the next calendar year. For example, a national bank or
Federal savings association that becomes a covered institution on March
31, 2015 would be required to conduct its first stress test in the
stress testing cycle beginning January 1, 2016. A national bank or
Federal savings association that becomes a covered institution after
March 31 of a given year would be required to conduct its first stress
test in the second calendar year after the date the national bank or
Federal savings association becomes a covered institution. For example,
a national bank or Federal savings association that becomes a covered
institution on June 30, 2015 would be required to conduct its first
stress test in the stress testing cycle beginning January 1, 2017. The
OCC received no comments on this aspect of the proposed rule and is
adopting the proposed changes as final.
B. Clarification on the Use of Basel III Advanced Approaches
On October 11, 2013, the OCC published revised risk-based and
leverage capital rules that implement the Basel III framework.\4\ In
light of the issuance of the revised capital rules, the proposed rule
would have clarified when covered institutions would be required to
estimate their minimum regulatory capital ratios over the stress-test
planning horizon using the Basel III advanced approaches methodology.
The current OCC stress testing rule requires covered institutions to
estimate the impact of stress scenarios on the covered institution's
regulatory capital levels and ratios applicable to the covered
institution under 12 CFR part 3 (for national banks) or part 167 (for
Federal savings associations), as applicable, and any other capital
ratios specified by the OCC.\5\ A national bank or Federal savings
association that is an advanced approaches banking organization is
required to use the advanced approaches to calculate its minimum
regulatory capital ratios if it has conducted a satisfactory parallel
run.\6\ The proposed rule would have provided that covered institutions
are not required to calculate their risk-weighted assets using the
advanced approaches in their stress testing projections until the
stress testing cycle beginning on January 1, 2016--even if an
organization has previously exited parallel run.
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\4\ 78 FR 62018.
\5\ 12 CFR 46.6(a)(2).
\6\ A satisfactory parallel run is defined as a period of no
less than four consecutive calendar quarters during which a banking
organization complies with certain qualification requirements. 12
CFR 3.21(c).
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On February 14, 2014, the OCC announced that certain national banks
had completed a successful parallel run. Given the operational
complexity associated with incorporating the advanced approaches into
the stress testing process, the proposed rule would have clarified that
incorporating the advanced approaches into stress testing would be
deferred for one stress testing cycle. The transition period will
provide the OCC with sufficient time to integrate the advanced
approaches into its stress testing examination processes and to provide
guidance to advanced approaches banking organizations regarding
supervisory expectations on the use of the advanced approaches in
stress testing projections. The OCC received no comments on this aspect
of the proposed rule and is adopting it as final.
III. Regulatory Analysis
Paperwork Reduction Act
Under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501-3520), the
OCC may not conduct or sponsor, and a person is not required to respond
to, an information collection unless the information collection
displays a valid Office of Management and Budget (OMB) control number.
The final rule amends 12 CFR part 46, which has an approved information
collection under the PRA (OMB Control No. 1557-0311). The amendments do
not introduce any new collections of information, nor do they amend 12
CFR part 46 in a way that modifies the collection of information that
OMB has approved. Therefore, this final rule does not require a PRA
submission to OMB.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires generally that, in connection with a final rule, an agency
prepare a regulatory flexibility analysis that describes the impact of
a proposed rule on small entities (defined by the Small Business
Administration for purposes of the RFA to include
[[Page 71633]]
banking entities with total assets of $550 million or less). However,
the regulatory flexibility analysis otherwise required under the RFA is
not required if an agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities
and publishes its certification and a brief explanatory statement in
the Federal Register together with the rule.
As discussed in the SUPPLEMENTARY INFORMATION above, the modified
dates of the annual stress test cycle will only affect institutions
with more than $10 billion in total assets. As such, pursuant to
section 605(b) of the RFA, the OCC certifies that this final rule will
not have a significant economic impact on a substantial number of small
entities because no small national banks or Federal savings
associations will be affected by the final rule. Accordingly, a
regulatory flexibility analysis is not required.
Unfunded Mandates Reform Act
The OCC has analyzed the final rule under the factors in the
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the final rule includes a Federal
mandate that may result in the expenditure by State, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted annually for inflation). The
OCC has determined that this final rule will not result in expenditures
by State, local, and tribal governments, or the private sector, of $100
million or more in any one year. Accordingly, this final rule is not
subject to section 202 of the Unfunded Mandates Act (2 U.S.C. 1532).
Plain Language
Section 722 of the Gramm-Leach-Bliley Act requires the OCC to use
plain language in all proposed and final rules published after January
1, 2000. The OCC has sought to present the final rule in a simple and
straightforward manner. The OCC did not receive any comment on its use
of plain language.
List of Subjects in 12 CFR Part 46
Banking, Banks, Capital, Disclosures, National banks,
Recordkeeping, Risk, Savings associations, Stress test.
Authority and Issuance
For the reasons set forth in the preamble, the OCC amends 12 CFR
part 46 as follows:
PART 46--ANNUAL STRESS TEST
0
1. The authority citation for part 46 is revised to read as follows:
Authority: 12 U.S.C. 93a; 1463(a)(2); 5365(i)(2); and
5412(b)(2)(B).
0
2. Section 46.3 is amended by revising paragraph (c) to read as
follows:
Sec. 46.3 Applicability.
* * * * *
(c) Covered institutions that become subject to stress testing
requirements under revised Annual Stress Test schedule. A national bank
or Federal savings association that becomes a covered institution, as
defined in Sec. 46.2, after March 31, 2014 and on or before March 31,
2015 shall conduct it first annual stress test in the stress test
beginning January 1, 2016. A national bank or Federal savings
association that becomes a covered institution on or before March 31 of
a given year (after 2014) shall conduct its first annual stress test
under this part in the next calendar year after the date the national
bank or Federal savings association becomes a covered institution. A
national bank or Federal savings association that becomes a covered
institution after March 31 of a given year (after 2014) shall conduct
its first annual stress test under this part in the second calendar
year after the date the national bank or Federal savings association
becomes a covered institution.
* * * * *
0
3. Section 46.5 is amended by revising paragraphs (a) through (c) to
read as follows:
Sec. 46.5 Annual stress test.
* * * * *
(a) Financial data. A covered institution must use financial data
as of September 30 (for the stress test beginning October 1, 2014) or
December 31 (for the stress test beginning January 1, 2016, and all
stress tests thereafter) of that calendar year.
(b) Scenarios provided by the OCC. In conducting the stress test
under this part, each covered institution must use the scenarios
provided by the OCC. The scenarios provided by the OCC will reflect a
minimum of three sets of economic and financial conditions, including
baseline, adverse, and severely adverse scenarios. The OCC will provide
a description of the scenarios required to be used by each covered
institution no later than November 15 (for the stress test beginning
October 1, 2014) or February 15 (for the stress test beginning January
1, 2016, and all stress tests thereafter) of that calendar year.
(c) Significant trading activities. The OCC may require a covered
institution with significant trading activities, as determined by the
OCC, to include trading and counterparty components in its adverse and
severely adverse scenarios. The trading and counterparty position data
to be used in this component will be as of a date between October 1 and
December 1 (for the stress test beginning October 1, 2014) or between
January 1 and March 1 (for the stress test beginning January 1, 2016,
and all stress tests thereafter) of that calendar year that will be
selected by the OCC and communicated to the covered institution no
later than December 1 (for the stress test beginning October 1, 2014)
or March 1 (for the stress test beginning January 1, 2016, and all
stress tests thereafter) of the calendar year.
* * * * *
0
4. Section 46.6 is amended by revising paragraph (a)(2) to read as
follows:
Sec. 46.6 Stress test methodologies and practices.
(a) * * *
(2) The potential impact on the covered institution's regulatory
capital levels and ratios applicable to the covered institution under
12 CFR part 3 or part 167, as applicable, and any other capital ratios
specified by the OCC, incorporating the effects of any capital actions
over the planning horizon and maintenance by the covered institution of
an allowance for loan losses appropriate for credit exposures
throughout the planning horizon. Until December 31, 2015, or such other
date specified by the OCC, a covered institution is not required to
calculate its risk-based capital requirements using the internal
ratings-based and advanced measurement approaches as set forth in 12
CFR part 3, subpart E.
* * * * *
0
5. Section 46.7 is amended by revising paragraphs (a) and (b) to read
as follows:
Sec. 46.7 Reports to the Office of the Comptroller of the Currency
and the Federal Reserve Board.
(a) $10 to $50 billion covered institution. A $10 to $50 billion
covered institution must report to the OCC and to the Board of
Governors of the Federal Reserve System, on or before March 31 (for the
stress test beginning October 1, 2014) and on or before July 31 (for
the stress test beginning January 1, 2016, and all stress tests
thereafter), the results of the stress test in the manner and form
specified by the OCC.
(b) Over $50 billion covered institution. An over $50 billion
covered institution must report to the OCC and to the Board of
Governors of the Federal Reserve System, on or before January 5 (for
the stress test beginning October 1,
[[Page 71634]]
2014) and on or before April 5 (for the stress test beginning January
1, 2016, and all stress tests thereafter), the results of the stress
test in the manner and form specified by the OCC.
* * * * *
0
6. Section 46.8 is amended by revising paragraphs (a)(1) and (2) to
read as follows:
Sec. 46.8 Publication of disclosures.
(a) Publication date--(1) Over $50 billion covered institution. (i)
Prior to January 1, 2016, an over $50 billion covered institution must
publish a summary of the results of its annual stress test in the
period starting March 15 and ending March 31 (for the stress test cycle
beginning October 1, 2014).
(ii) Effective January 1, 2016, an over $50 billion covered
institution must publish a summary of the results of its annual stress
test in the period starting June 15 and ending July 15 (for the stress
test cycle beginning January 1, 2016, and for all stress tests
thereafter) provided:
(A) Unless the OCC determines otherwise, if the over $50 billion
covered institution is a consolidated subsidiary of a bank holding
company or savings and loan holding company subject to supervisory
stress tests conducted by the Board of Governors of the Federal Reserve
System pursuant to 12 CFR part 252, then within the June 15 to July 15
period such covered institution may not publish the required summary of
its annual stress test earlier than the date that the Board of
Governors of the Federal Reserve System publishes the supervisory
stress test results of the covered bank's parent holding company.
(B) If the Board of Governors of the Federal Reserve System
publishes the supervisory stress test results of the covered
institution's parent holding company prior to June 15, then such
covered institution may publish its stress test results prior to June
15, but no later than July 15, through actual publication by the
covered institution or through publication by the parent holding
company pursuant to paragraph (b) of this section.
(2) $10 to $50 billion covered institution. (i) Prior to January 1,
2016, a $10 to $50 billion covered institution must publish a summary
of the results of its annual stress test in the period starting June 15
and ending June 30 (for the stress test cycle beginning October 1,
2014).
(ii) Effective January 1, 2016, a $10 to $50 billion covered
institution must publish a summary of the results of its annual stress
test in the period starting October 15 and ending October 31 (for the
stress test cycle beginning January 1, 2016, and for all stress tests
thereafter).
* * * * *
Dated: November 19, 2014.
Thomas J. Curry,
Comptroller of the Currency.
[FR Doc. 2014-28420 Filed 12-2-14; 8:45 am]
BILLING CODE 4810-33-P