[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9958-9960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02583]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
Agency Information Collection Activities: Information Collection
Renewal; Comment Request; Capital Adequacy Standards
AGENCY: Office of the Comptroller of the Currency (OCC), Treasury.
ACTION: Notice and request for comment.
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SUMMARY: The OCC, as part of its continuing effort to reduce paperwork
and respondent burden, invites the general public and other Federal
agencies to take this opportunity to comment on a continuing
information collection as required by the Paperwork Reduction Act of
1995 (PRA).
In accordance with the requirements of the PRA, the OCC may not
conduct or sponsor, and the 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 OCC is soliciting comment concerning renewal of its information
collection titled ``Capital Adequacy Standards.''
DATES: Comments must be submitted on or before April 10, 2017.
ADDRESSES: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments by
email, if possible. Comments may be sent to: Legislative and Regulatory
Activities Division, Office of the Comptroller of the Currency,
Attention: 1557-0318, 400 7th Street SW., Suite 3E-218, mail stop 9W-
11, Washington, DC 20219. In addition, comments may be sent by fax to
(571) 465-4326 or by electronic mail to [email protected]. You may
personally inspect and photocopy comments at the OCC, 400 7th Street
SW., Washington, DC 20219. For security reasons, the OCC requires that
visitors make an appointment to inspect comments. You may do so by
calling (202) 649-6700 or, for persons who are deaf or hard of hearing,
TTY, (202) 649-5597. Upon arrival, visitors will be required to present
valid government-issued photo identification and submit to security
screening in order to inspect and photocopy comments.
All comments received, including attachments and other supporting
materials, are part of the public record and subject to public
disclosure. Do not include any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure.
FOR FURTHER INFORMATION CONTACT: Shaquita Merritt, OCC Clearance
Officer, (202) 649-5490 or, for persons who are deaf or hard of
hearing, TTY, (202) 649-5597, Legislative and Regulatory Activities
Division, Office of the Comptroller of the Currency, 400 7th Street
SW., Washington, DC 20219.
SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal
agencies must obtain approval from OMB for each collection of
information that they conduct or sponsor. ``Collection of information''
is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) to include agency
requests or requirements that members of the public submit reports,
keep records, or provide information to a third party. Section
3506(c)(2)(A) of title 44 requires Federal agencies to provide a 60-day
notice in the Federal Register concerning each proposed collection of
information, including each proposed extension of an existing
collection of information, before submitting the collection to OMB for
approval. To comply with this requirement, the OCC is publishing notice
of the renewal of the collection of information set forth in this
document.
Title: Capital Adequacy Standards.
OMB Control No.: 1557-0318.
Frequency of Response: On occasion.
Affected Public: Business or other for-profit.
Section-by-Section-Analysis
Twelve CFR part 3 sets forth the OCC's minimum capital requirements
and overall capital adequacy standards for national banks and Federal
savings associations (institutions).
Section 3.3(c) allows for the recognition of netting across
multiple types of transactions or agreements if an institution obtains
a written legal opinion verifying the validity and enforceability of
the agreement under certain circumstances and maintains sufficient
written documentation of this legal review.
Section 3.22(h)(2)(iii)(A) permits the use of a conservative
estimate of the amount of an institution's investment in its own
capital or the capital of unconsolidated financial institutions held
through the index security with prior approval by the OCC.
Section 3.35(b)(3)(i)(A) requires, for a cleared transaction with a
qualified central counterparty (QCCP), that a client bank apply a risk
weight of two percent, provided that the collateral posted by the bank
to the QCCP is subject to certain arrangements and the client bank has
conducted a sufficient legal review (and maintains sufficient written
documentation of the legal review) to conclude with a well-founded
basis that the arrangements, in the event of a legal challenge, would
be found to be legal, valid, binding, and enforceable under the law of
the relevant jurisdictions.
Section 3.37(c)(4)(i)(E), regarding collateralized transactions,
requires that an institution have policies and procedures in place
describing how it determines the period of significant financial stress
used to calculate its own internal estimates for haircuts and be able
to provide empirical support for the period used.
Section 3.41(b)(3) which sets forth operational requirements for
securitization exposures, allows an institution to recognize for risk-
based capital purposes, in the case of synthetic securitizations, a
credit risk mitigant to hedge underlying exposures if certain
conditions are met, including a requirement that the institution obtain
a well-reasoned opinion from legal counsel that confirms the
enforceability of the credit risk mitigant in all relevant
jurisdictions.
Section 3.41(c)(2)(i) requires that an institution demonstrate its
comprehensive understanding of a
[[Page 9959]]
securitization exposure by conducting and documenting an analysis of
the risk characteristics of each securitization exposure prior to its
acquisition, taking into account a number of specified considerations.
If an institution provides non-contractual support to a
securitization, Sec. 3.42(e)(2) requires the institution to publicly
disclose that it has provided implicit support to a securitization and
the risk-based capital impact to the bank of providing such implicit
support.
Section 3.62 sets forth disclosure requirements related to the
capital requirements of an institution. These requirements apply to an
institution with total consolidated assets of $50 billion or more that
is not a consolidated subsidiary of an entity that is itself subject to
Basel III disclosures. Section 3.62(a) requires quarterly disclosure of
information in the applicable tables in section 3.63 and, if a
significant change occurs, such that the most recent reported amounts
are no longer reflective of the institution's capital adequacy and risk
profile, Sec. 3.62(a) requires the institution to disclose as soon as
practicable thereafter, a brief discussion of the change and its likely
impact. Section 3.62(a) permits annual disclosure of qualitative
information that typically does not change each quarter, provided that
any significant changes are disclosed in the interim. Section 3.62(b)
requires that an institution have a formal disclosure policy approved
by the board of directors that addresses its approach for determining
the disclosures it makes. The policy must address the associated
internal controls and disclosure controls and procedures. Section
3.62(c) permits an institution to disclose more general information
about certain subjects if the institution concludes that the specific
commercial or financial information required to be disclosed under
Sec. 3.62 is exempt from disclosure under the Freedom of Information
Act (5 U.S.C. 552), and the institution provides the reason the
specific items of information have not been disclosed.
Section 3.63 sets forth the specific disclosure requirements for a
non-advanced approaches institution with total consolidated assets of
$50 billion or more that is not a consolidated subsidiary of an entity
that is itself subject to Basel III disclosure requirements. Section
3.63(a) requires those institutions to make the disclosures in Tables 1
through 10 to Sec. 3.63 and in Sec. 3.63(b) for each of the last
three years beginning on the effective date of the rule. Section
3.63(b) requires quarterly disclosure of an institution's common equity
tier 1 capital, additional tier 1 capital, tier 2 capital, tier 1 and
total capital ratios, including the regulatory capital elements and all
the regulatory adjustments and deductions needed to calculate the
numerator of such ratios; total risk-weighted assets, including the
different regulatory adjustments and deductions needed to calculate
total risk-weighted assets; regulatory capital ratios during any
transition periods, including a description of all the regulatory
capital elements and all regulatory adjustments and deductions needed
to calculate the numerator and denominator of each capital ratio during
any transition period; and a reconciliation of regulatory capital
elements as they relate to its balance sheet in any audited
consolidated financial statements. Tables 1 through 10 to Sec. 3.63
set forth qualitative and/or quantitative requirements for scope of
application, capital structure, capital adequacy, capital conservation
buffer, credit risk, counterparty credit risk-related exposures, credit
risk mitigation, securitizations, equities not subject to Subpart F
(Market Risk requirements) of the rule, and interest rate risk for non-
trading activities.
Section 3.121 requires an institution subject to the advanced
approaches risk-based capital requirements to adopt a written
implementation plan to address how it will comply with the advanced
capital adequacy framework's qualification requirements and also
develop and maintain a comprehensive and sound planning and governance
process to oversee the implementation efforts described in the plan.
Section 3.122 further requires these institutions to: Develop processes
for assessing capital adequacy in relation to an organization's risk
profile; establish and maintain internal risk rating and segmentation
systems for wholesale and retail risk exposures, including
comprehensive risk parameter quantification processes and processes for
annual reviews and analyses of reference data to determine their
relevance; document their processes for identifying, measuring,
monitoring, controlling, and internally reporting operational risk;
verify the accurate and timely reporting of risk-based capital
requirements; and monitor, validate, and refine their advanced systems.
Section 3.123 sets forth ongoing qualification requirements that
require an institution to notify the OCC of any material change to an
advance system and to establish and submit to the OCC a plan for
returning to compliance with the qualification requirements.
Section 3.124 requires an institution to submit to the OCC, within
90 days of consummating a merger or acquisition, an implementation plan
for using its advanced systems for the merged or acquired company.
Section 3.132(b)(2)(iii)(A) addresses counterparty credit risk of
repo-style transactions, eligible margin loans, and over-the-counter
(OTC) derivative contracts, and internal estimates for haircuts. With
the prior written approval of the OCC, an institution may calculate
haircuts using its own internal estimates of the volatilities of market
prices and foreign exchange rates. The section requires institutions to
satisfy certain minimum quantitative standards in order to receive OCC
approval to use its own internal estimates.
Section 3.132(b)(3) covers counterparty credit risk of repo-style
transactions, eligible margin loans, and OTC derivative contracts, and
simple Value-at-Risk (VaR) methodology. With the prior written approval
of the OCC, an institution may estimate exposure at default (EAD) for a
netting set using a VaR model that meets certain requirements.
Section 3.132(d)(1) permits the use of the internal models
methodology (IMM) to determine EAD for counterparty credit risk for
derivative contracts with prior written approval from the OCC. Section
3.132(d)(1)(iii) permits the use of the internal models methodology for
derivative contracts, eligible margin loans, and repo-style
transactions subject to a qualifying cross-product netting agreement
with prior written approval from the OCC.
Section 3.132(d)(2)(iv) addresses counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative
contracts, and risk-weighted assets using IMM. Under the IMM, an
institution uses an internal model to estimate the expected exposure
(EE) for a netting set and then calculates EAD based on that EE. An
institution must calculate two EEs and two EADs (one stressed and one
unstressed) for each netting as outlined in this section. An
institution may use a conservative measure of EAD subject to prior
written approval of the OCC.
Section 3.132(d)(3)(vi) addresses counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative
contracts. To obtain OCC approval to calculate the distributions of
exposures upon which the EAD calculation is based, an institution must
demonstrate to the satisfaction of the OCC that it has been using for
at least one year an internal model that broadly meets the minimum
standards, with which the institution
[[Page 9960]]
must maintain compliance. The institution must have procedures to
identify, monitor, and control wrong-way risk throughout the life of an
exposure and they must include stress testing and scenario analysis.
Section 3.132(d)(3)(viii) addresses counterparty credit risk of
repo-style transactions, eligible margin loans, and OTC derivative
contracts. When estimating model parameters based on a stress period,
an institution must use at least three years of historical data that
include a period of stress to the credit default spreads of the
institution's counterparties. The institution must review the data set
and update the data as necessary, particularly for any material changes
in its counterparties. The institution must demonstrate at least
quarterly that the stress period coincides with increased credit
default swap (CDS) or other credit spreads of the institution's
counterparties. The institution must have procedures to evaluate the
effectiveness of its stress calibration that include a process for
using benchmark portfolios that are vulnerable to the same risk factors
as the institution's portfolio. The OCC may require the institution to
modify its stress calibration to better reflect actual historic losses
of the portfolio.
Section 3.132(d)(3)(ix), regarding counterparty credit risk of
repo-style transactions, eligible margin loans, and OTC derivative
contracts, requires that an institution must subject its internal model
to an initial validation and annual model review process that includes
consideration of whether the inputs and risk factors, as well as the
model outputs, are appropriate. This section requires institutions to
have a backtesting program for its model that includes a process by
which unacceptable model performance will be determined and remedied.
Section 3.132(d)(3)(x), regarding counterparty credit risk of repo-
style transactions, eligible margin loans, and OTC derivative
contracts, provides that an institution must have policies for the
measurement, management, and control of collateral and margin amounts.
Section 3.132(d)(3)(xi), concerning counterparty credit risk of
repo-style transactions, eligible margin loans, and OTC derivative
contracts, states that an institution must have a comprehensive stress
testing program that captures all credit exposures to counterparties,
and incorporates stress testing of principal market risk factors and
creditworthiness of counterparties.
Section 3.141 relates to operational criteria for recognizing the
transfer of risk in connection with a securitization. Section
3.141(b)(3) requires an institution to obtain a well-reasoned legal
opinion confirming the enforceability of the credit risk mitigant in
all relevant jurisdictions in order to recognize the transference of
risk in connection with a synthetic securitization. An institution must
demonstrate its comprehensive understanding of a securitization
exposure under Sec. 3.141(c)(2) for each securitization exposure by
conducting an analysis of the risk characteristics of a securitization
exposure prior to acquiring the exposure and document such analysis
within three business days after acquiring the exposure. Sections
3.141(c)(2)(i) and (ii) require that institutions, on an on-going basis
(at least quarterly), evaluate, review, and update as appropriate the
analysis required under this section for each securitization exposure.
Section 3.142(h)(2), regarding the capital treatment for
securitization exposures, requires an institution to disclose publicly
if it has provided implicit support to a securitization and the
regulatory capital impact to the institution of providing such implicit
support.
Section 3.153(b), outlining the Internal Models Approach (IMA) for
calculating risk-weighted assets for equity exposures, specifies that
an institution must receive prior written approval from the OCC before
it can use IMA.
Section 3.172 specifies that each advanced approaches institution
that has completed the parallel run process must publicly disclose its
total and tier 1 risk-based capital ratios and their components.
Section 3.173 addresses disclosures by an advanced approaches
institution that is not a consolidated subsidiary of an equity that is
subject to the Basel III disclosure requirements. An advanced
approaches institution that is subject to the disclosure requirements
must make the disclosures described in Tables 1 through 12. The
institution must make these disclosures publicly available for each of
the last three years (that is, twelve quarters) or such shorter period
beginning on the effective date of this subpart E.
The tables to Sec. 3.173 require qualitative and quantitative
public disclosures for capital structure, capital adequacy, capital
conservation and countercyclical buffers, credit risk, securitization,
operational risk, equities not subject to the market risk capital
requirements, and interest rate risk for non-trading activities.
Burden Estimates:
Estimated Number of Respondents: 1,365.
Estimated Total Annual Burden Hours: 240,711.
Comments submitted in response to this notice will be summarized
and included in the request for OMB approval. All comments will become
a matter of public record. Comments are invited on:
(a) Whether the collections of information are necessary for the
proper performance of the OCC's functions, including whether the
information has practical utility;
(b) The accuracy of the OCC's estimates of the burden of the
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; and
(d) Ways to minimize the burden of information collections on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Dated: February 1, 2017.
Karen Solomon,
Deputy Chief Counsel, Office of the Comptroller of the Currency.
[FR Doc. 2017-02583 Filed 2-7-17; 8:45 am]
BILLING CODE 4810-33-P