Capital Plans, 74631-74648 [2011-30665]

Download as PDF Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations https://www.nrc.gov/reading-rm/ adams.html. From this page, the public can gain entry into ADAMS, which provides text and image files of the NRC’s public documents. If you do not have access to ADAMS or if there are problems in accessing the documents located in ADAMS, contact the NRC’s PDR reference staff at 1–(800) 397–4209, (301) 415–4737, or by email to pdr.resource@nrc.gov. The regulatory guide is available in ADAMS under Accession Number ML102510626. The regulatory analysis may be found in ADAMS under Accession Number ML102510560. • Federal Rulemaking Web Site: Public comments and supporting materials related to this regulatory guide can be found at https:// www.regulations.gov by searching on Docket ID NRC–2008–0122. Regulatory guides are not copyrighted, and Commission approval is not required to reproduce them. FOR FURTHER INFORMATION CONTACT: Edward O’Donnell, Regulatory Guide Development Branch, Division of Engineering, Office of Nuclear Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001; telephone: (301) 251– 7455, email: Edward.ODonnell@nrc.gov. SUPPLEMENTARY INFORMATION: available in ADAMS under Accession Number ML102520241. I. Introduction Dated at Rockville, Maryland, this 21st day of November 2011. For the Nuclear Regulatory Commission. Thomas H. Boyce, Chief, Regulatory Guide Development Branch, Division of Engineering, Office of Nuclear Regulatory Research. emcdonald on DSK5VPTVN1PROD with RULES The NRC is issuing a new guide in the agency’s ‘‘Regulatory Guide’’ series. This series was developed to describe and make available to the public information such as methods that are acceptable to the NRC staff for implementing specific parts of the agency’s regulations, techniques that the staff uses in evaluating specific problems or postulated accidents, and data that the staff needs in its review of applications for permits and licenses. This guide describes a method that the NRC staff considers acceptable to implement the requirements in Title 10, Section 50.54(q), of the Code of Federal Regulations (10 CFR) part 50, ‘‘Domestic Licensing of Production and Utilization Facilities.’’ Requirements in 10 CFR 50.54(q)), ‘‘Conditions of Licenses,’’ relate to emergency preparedness and specifically to making changes to emergency response plans. II. Further Information Draft Guide (DG)–1237 was published in the Federal Register on May 18, 2009 (74 FR 23220), for a 60 day public comment period. The public comment period closed on August 3, 2009. Public comments on DG–1237 and the staff responses to the public comments are VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 III. Backfitting and Issue Finality This regulatory guide provides the NRC’s first guidance on compliance with the revised provisions of 10 CFR 50.54(q). This regulation was recently published in the Federal Register (76 FR 72560; November 23, 2011) and will become effective on December 23, 2011. Licensees must implement the amended 10 CFR 50.54(q) by January 23, 2012. The statement of considerations for the final rule that amended 10 CFR 50.54(q) discussed compliance with applicable backfitting provisions (76 FR 72560; November 23, 2011 at Page 72594). The first issuance of guidance on a new rule does not constitute backfitting, inasmuch as the guidance must be consistent with the regulatory requirements in the new rule and the backfitting considerations applicable to the new rule must, as a matter of logic, also be applicable to this newly-issued guidance. Therefore, issuance of this new regulatory guide does not constitute issuance of ‘‘new’’ guidance within the meaning of the definition of ‘‘backfitting’’ in 10 CFR 50.109(a)(1), nor does the issuance of this new regulatory guide, by itself, constitute an action inconsistent with any of the issue finality provisions in 10 CFR part 52. [FR Doc. 2011–30902 Filed 11–30–11; 8:45 am] BILLING CODE 7590–01–P FEDERAL RESERVE SYSTEM 12 CFR Part 225 [Regulation Y; Docket No. R–1425] RIN 7100–AD 77 Capital Plans Board of Governors of the Federal Reserve System (Board). ACTION: Final rule. AGENCY: The Board is adopting amendments to Regulation Y to require large bank holding companies to submit capital plans to the Federal Reserve on an annual basis and to require such bank holding companies to obtain approval from the Federal Reserve under certain circumstances before making a capital distribution. This rule applies only to bank holding companies SUMMARY: PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 74631 with $50 billion or more of total consolidated assets. DATES: The final rule will become effective on December 30, 2011. FOR FURTHER INFORMATION CONTACT: Benjamin W. McDonough, Senior Counsel, (202) 452–2036, April C. Snyder, Senior Counsel, (202) 452– 3099, or Christine E. Graham, Senior Attorney, (202) 452–3005, Legal Division; Timothy P. Clark, Senior Advisor, (202) 452–5264, Michael Foley, Senior Associate Director, (202) 452– 6420, Anna Lee Hewko, Assistant Director, (202) 530–6260, or Thomas R. Boemio, Manager, (202) 452–2982, Division of Banking Supervision and Regulation, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) only, call (202) 263–4869. SUPPLEMENTARY INFORMATION: Table of Contents I. Background II. Overview of Comments III. Scope IV. Capital Planning A. Annual Capital Planning Requirement B. Mandatory Elements of a Capital Plan C. Data Submissions D. Federal Reserve Review of a Capital Plan E. Federal Reserve Action on a Capital Plan F. Federal Reserve Objection to a Capital Plan G. Re-submission of a Capital Plan V. Approval Requirements A. General Requirements B. Contents of Request for Approval and Procedures for Review VI. Conforming Changes to Section 225.4(b) of Regulation Y VII. Administrative Law Matters A. Regulatory Flexibility Act B. Paperwork Reduction Act I. Background On June 17, 2011, the Board published a proposal in the Federal Register to require large bank holding companies to submit capital plans to the Federal Reserve on an annual basis and to require such bank holding companies to provide prior notice to the Federal Reserve under certain circumstances before making a capital distribution (the proposed rule or NPR).1 The public comment period on the proposed rule closed on August 5, 2011. The Board is adopting the rule in final form with certain modifications that are discussed below (final rule).2 The final rule 1 76 FR 35351 (June 17, 2011). amendments to Regulation Y are codified at 12 CFR 225.8. As discussed in section VI of this preamble, the rule also makes conforming changes to section 225.4(b) of Regulation Y (12 CFR 225.4(b)). 2 The E:\FR\FM\01DER1.SGM 01DER1 74632 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations emcdonald on DSK5VPTVN1PROD with RULES applies only to bank holding companies with $50 billion or more of total consolidated assets. During the years leading up to the recent financial crisis, many bank holding companies made significant distributions of capital, in the form of stock repurchases and dividends, without due consideration of the effects that a prolonged economic downturn could have on their capital adequacy and ability to continue to operate and remain credit intermediaries during times of economic and financial stress. The final rule is intended to address such practices, building upon the Federal Reserve’s existing supervisory expectation that large bank holding companies have robust systems and processes that incorporate forwardlooking projections of revenue and losses to monitor and maintain their internal capital adequacy.3 The Federal Reserve has long held the view that bank holding companies generally should operate with capital positions well above the minimum regulatory capital ratios, with the amount of capital held commensurate with the bank holding company’s risk profile.4 Bank holding companies should have internal processes for assessing their capital adequacy that reflect a full understanding of their risks and ensure that they hold capital corresponding to those risks to maintain overall capital adequacy.5 Bank holding companies that are subject to the Board’s advanced approaches risk-based capital requirements must satisfy specific requirements relating to their internal capital adequacy processes in order to use the advanced approaches to calculate their minimum risk-based capital requirements.6 As part of their fiduciary responsibilities to a bank holding company, the board of directors and senior management bear the primary responsibility for developing, implementing, and monitoring a bank holding company’s capital planning strategies and internal capital adequacy process. The final rule does not 3 See SR letter 09–4 (Revised March 27, 2009), available at https://www.federalreserve.gov/ boarddocs/srletters/2009/SR0904.htm; see also Revised Temporary Addendum to SR letter 09–4 (November 17, 2010) (SR 09–4), available at https://www.federalreserve.gov/newsevents/press/ bcreg/bcreg20101117b1.pdf. 4 See 12 CFR part 225, Appendix A; see also SR letter 99–18 (July 1, 1999), available at https:// www.federalreserve.gov/boarddocs/srletters/1999/ SR9918.HTM. 5 See SR 09–4. 6 See 12 CFR part 225, Appendix G, section 22(a); see also, Supervisory Guidance: Supervisory Review Process of Capital Adequacy (Pillar 2) Related to the Implementation of the Basel II Advanced Capital Framework, 73 FR 44620 (July 31, 2008). VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 diminish that responsibility. Rather, the final rule is designed to (i) establish common minimum supervisory standards for such strategies and processes for certain large bank holding companies; (ii) describe how boards of directors and senior management of these bank holding companies should communicate the strategies and processes, including any material changes thereto, to the Federal Reserve; and (iii) provide the Federal Reserve with an opportunity to review large bank holding companies’ proposed capital distributions under certain circumstances. In the Board’s view, the analytical techniques and other requirements set forth in the final rule are necessary to identify, measure, and monitor risks to the financial stability of the United States.7 An elevated capital planning standard for large bank holding companies is appropriate because of the heightened risk they pose to the financial system and the importance of capital in mitigating these risks.8 Under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the Board is required to impose enhanced prudential standards on large bank holding companies, including stress testing requirements; enhanced capital, leverage, liquidity, and risk management requirements; and a requirement to establish a risk committee.9 The Board expects that large bank holding companies will reflect these enhanced prudential standards, including the results of any required stress tests, in their capital planning strategies and internal capital adequacy processes. The Dodd-Frank Act also requires the Board to implement early remediation requirements on large bank holding companies under which a large bank holding company experiencing financial 7 See section 165(i)(1)(B)(iii) of Public Law 111– 203, 124 Stat. 1376 (2010) (Dodd-Frank Act); 12 U.S.C. 5365(i)(1)(B)(iii). 8 Currently, savings and loan holding companies are not subject to minimum regulatory capital ratio requirements. As discussed in the Board’s Notice of Intent To Apply Certain Supervisory Guidance to Savings and Loan Holding Companies, the Board is considering applying to savings and loan holding companies the same consolidated risk-based and leverage capital requirements as bank holding companies to the extent reasonable and feasible taking into consideration the unique characteristics of savings and loan holding companies and the requirements of Home Owners’ Loan Act. See 76 FR 22662, 22665 (April 22, 2011). The Board may extend the capital plan rule’s requirements to savings and loan holding companies at such time as the Board applies minimum regulatory capital ratio requirements to them. 9 See generally section 165 of the Dodd Frank Act; 12 U.S.C. 5365. One commenter expressed support for enhanced capital and leverage requirements. PO 00000 Frm 00008 Fmt 4700 Sfmt 4700 distress must take specific remedial actions in order to minimize the probability that the company will become insolvent and minimize the potential harm of such insolvency to the United States.10 These early remediation requirements must impose limitations on capital distributions in the initial stages of financial decline and increase in stringency as the financial condition of the company declines.11 Depending on a large bank holding company’s financial condition, early remediation requirements imposed under the Dodd-Frank Act may result in limitations on a company’s capital distributions in addition to the requirements that are imposed by the final rule. II. Overview of Comments The Board received 16 comments on the proposed rule. Commenters included financial trade associations, bank holding companies, policy institutions, and individuals. Commenters generally expressed support for the proposed rule. Several commenters recommended one or more changes to specific provisions of the proposed rule. For instance, many commenters provided suggestions on the timeframe under which the Federal Reserve would review and act on a bank holding company’s capital plan. Commenters asked for more information related to the data submissions that accompany the capital plan submission. In addition, many of the commenters asked for clarification on the content of the capital plans and provided views on the standards under which the Federal Reserve could object to capital plans. Other commenters provided suggestions on whether firms should be able to make capital distributions not specified in their capital plans without providing prior notice to the Federal Reserve and how such a standard should be crafted. In addition, three commenters raised issues that would be relevant to savings and loan holding companies should the final rule’s requirements extend to these institutions at a future date. In developing this final rule, the Board has carefully considered the comments received on the proposed rule. In response to these comments, the Board has clarified the requirements of the rule and modified the proposed rule in certain respects. For example, the Board has— • Clarified in the preamble that a notice of a non-objection to a capital 10 See section 166 of the Dodd-Frank Act; 12 U.S.C. 5366. 11 Id. E:\FR\FM\01DER1.SGM 01DER1 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations plan will extend through the first quarter of the subsequent year; • Clarified in the preamble that large bank holding companies will remain subject to SR letter 09–4, which provides guidance regarding capital distributions; • Revised the final rule to provide that, if the Federal Reserve objects to a bank holding company’s capital plan, the bank holding company may not make any capital distribution (other than a capital distribution with respect to which the Federal Reserve did not object) until such time as the Federal Reserve issues a non-objection to the company’s capital plan; and • Added a limited exception that permits well capitalized large bank holding companies that are performing in accordance with baseline projections to make modest capital distributions in excess of the amount described in the company’s capital plan under certain circumstances. In addition, in response to commenters’ requests for additional guidance on the data collection, the Federal Reserve has published a detailed description of the data that it intends to collect for supervisory purposes and to support the review of capital plans in a separate Federal Register notice.12 These changes, as well as the Board’s other responses to the comments received, are discussed in greater detail below. III. Scope The final rule applies to every top-tier bank holding company domiciled in the United States that has $50 billion or more in total consolidated assets (large bank holding companies).13 As of September 30, 2011, there were approximately 34 large bank holding companies. The Board notes that the asset threshold of $50 billion is consistent with the threshold established by section 165 of the DoddFrank Act relating to enhanced supervision and prudential standards for certain bank holding companies.14 emcdonald on DSK5VPTVN1PROD with RULES 12 76 FR 55288 (September 7, 2011). 13 Thus, the final rule will not apply to a foreign bank or foreign banking organization that is itself a bank holding company or treated as a bank holding company pursuant to section 8(a) of the International Banking Act of 1978 (12 U.S.C. 3106(a)), but generally will apply to any U.S.domiciled bank holding company subsidiary of the foreign bank or foreign banking organization that meets the final rule’s size threshold. 14 See section 165(a) of the Dodd-Frank Act; 12 U.S.C. 5365(a). The Dodd-Frank Act provides that the Board may, upon the recommendation of the Financial Stability Oversight Council, increase the $50 billion asset threshold for the application of the resolution plan, concentration limit, and credit VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 The Board received a comment suggesting that the $50 billion asset threshold be measured over a fourquarter period in order to minimize the likelihood that temporary asset fluctuations would trigger the rule’s application. In response to this comment, the Board has amended the proposal to measure ‘‘total consolidated assets’’ as the average of a company’s total consolidated assets over the previous four calendar quarters, as reflected on the bank holding company’s Consolidated Financial Statements for Bank Holding Companies (FR Y–9C). This calculation will be effective as of the due date of the bank holding company’s most recent FR Y– 9C. The final rule also applies to any institution that the Board determines, by order, shall be subject in whole or in part to the rule’s requirements based on the institution’s size, level of complexity, risk profile, scope of operations, or financial condition. The final rule provides that a bank holding company that becomes subject to the final rule by operation of the asset threshold after the 5th of January of a calendar year will not be subject until January 1 of the next calendar year to the final rule’s requirement to file a capital plan with the Federal Reserve, resubmit a capital plan under certain circumstances, or to obtain prior approval of capital distributions in excess of those described in the firm’s capital plan. Consistent with the phase-in period for the imposition of minimum riskbased and leverage capital requirements established in section 171 of the DoddFrank Act, until July 21, 2015, the final rule does not apply to any bank holding company subsidiary of a foreign banking organization that is currently relying on Supervision and Regulation Letter SR 01–01 issued by the Board of Governors (as in effect on May 19, 2010).15 Several commenters suggested that the Board grant a transition period to large bank holding companies that did not participate in the 2011 Comprehensive Capital Analysis and Review (CCAR). One commenter further suggested that, during the transition period, this set of large bank holding companies (non-CCAR firms) participate exposure report requirements. See 12 U.S.C. 5365(a)(2)(B). 15 Under Supervision and Regulation Letter SR 01–01, as a general matter, a U.S. bank holding company that is owned and controlled by a foreign bank that is a financial holding company that the Board has determined to be well-capitalized and well-managed is not required to comply with the Board’s capital adequacy guidelines. See SR letter 01–01 (January 5, 2001), available at https:// www.federalreserve.gov/boarddocs/srletters/2001/ sr0101.htm. PO 00000 Frm 00009 Fmt 4700 Sfmt 4700 74633 in a capital planning exercise where they would submit data templates and conduct stress testing, but would not be subject to the other requirements of the rule, including the prior notice requirements. The Board has carefully considered these comments and has decided not to provide for a formal transition period for non-CCAR firms. Thus, all large bank holding companies will be required to submit capital plans in January 2012 and will generally be subject to the rule’s requirements. The Board notes that the final rule is designed to be flexible enough to accommodate bank holding companies of varying degrees of complexity and to adjust to changing conditions over time. The level of detail and analysis expected in a capital plan will vary based on the large bank holding company’s size, complexity, risk profile, and scope of operations. Moreover, the Federal Reserve will work with nonCCAR firms to communicate the review process and the information requirements of the rule. The Board understands that nonCCAR firms may need additional time to build and implement the internal systems necessary to satisfy the data collection requirements required with respect to stress scenarios provided by the Board. Thus, for purposes of the Federal Reserve’s evaluation of capital plans due January 5, 2012, non-CCAR firms will not be required to submit the complete set of data templates required of the CCAR firms. Instead, as discussed in section IV.C. of the preamble, some non-CCAR firms may be asked to submit limited, summary information to the Federal Reserve about their projections of revenues and losses. Finally, three commenters raised issues that would be relevant to savings and loan holding companies should the final rule’s requirements extend to these institutions at a future date. If the Board decides to extend the final rule to savings and loan holding companies through separate rulemaking or by order, it intends to take these comments into account. IV. Capital Planning A. Annual Capital Planning Requirement The final rule requires a large bank holding company to develop and maintain a capital plan. At least annually, the bank holding company’s board of directors or a designated committee thereof is required to review the robustness 16 of the holding 16 The proposed rule would have required a bank holding company’s board of directors or designated E:\FR\FM\01DER1.SGM Continued 01DER1 74634 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations emcdonald on DSK5VPTVN1PROD with RULES company’s process for assessing capital adequacy, ensure that any deficiencies in the firm’s process for assessing capital adequacy are appropriately remedied, and approve the bank holding company’s capital plan.17 Robustness of a large bank holding company’s capital adequacy process should be evaluated based on the following elements: (i) A sound risk management infrastructure that supports the identification, measurement, and assessment of all material enterpriselevel risks arising from the exposures and business activities of the bank holding company; (ii) An effective process for translating risk measures into estimates of potential loss over a range of adverse scenarios and environments—using multiple, complementary loss forecasting methodologies—and for aggregating those estimated losses across the bank holding company; 18 (iii) A clear definition of available capital resources and an effective process for forecasting available capital resources (including any forecasted revenues) over the same range of adverse scenarios and environments used for loss forecasting; (iv) A process for considering the impact of loss and resource estimates on capital adequacy, in line with the bank holding company’s stated goals for the level and composition of capital, and taking into account any limitations of the company’s capital adequacy process and its components; (v) A process, supported by the bank holding company’s capital policy, to use its assessments of the impact of loss and resource estimates on capital adequacy to make key decisions regarding the current level and composition of capital, specific capital actions, and capital contingency plans as they affect capital adequacy; (vi) Robust internal controls governing capital adequacy process components, including sufficient committee to review the ‘‘effectiveness’’ of the holding company’s process for assessing internal capital adequacy. In response to comments that this requirement was unclear, the Board has replaced the term ‘‘effectiveness’’ with the term ‘‘robustness’’ and provided guidance on how robustness should be evaluated. 17 As part of this review, the board of directors should consider any remaining uncertainties, limitations, and assumptions associated with the bank holding company’s capital adequacy process. 18 While a company should use multiple, complementary loss forecasting methodologies in its process for assessing capital adequacy (see section 225.8(d)(2)(ii) of the final rule), a company is not required to use multiple methodologies when estimating the expected uses and sources of capital for purposes of section 225.8(d)(2)(i) of the final rule. VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 documentation; change control; model validation and independent review; and audit testing; and (vii) Effective board and senior management oversight of the bank holding company’s capital adequacy process, including periodic review of capital goals, assessment of the appropriateness of adverse scenarios considered in capital planning, regular review of any limitations and uncertainties in the process, and approval of planned capital actions. Under the proposed rule, a large bank holding company would have been required to submit its capital plan by January 5th. Commenters provided suggestions on the proposed deadline. One commenter expressed the concern that a large bank holding company will be required to rely on tentative fourth quarter financial statements in developing its capital plan and suggested that the deadline be pushed to later in the first quarter. Another commenter suggested that the Board adopt a rolling submission process to permit firms to align capital plan submission with internal capital planning process. As discussed below, these concerns were motivated in part by the concern that the timing of the capital plan submission and review interrupted firms’ ability to make capital distributions in the first quarter. The Board has addressed these concerns to a degree by clarifying in the preamble that, for a capital plan submitted in the first quarter, a non-objection would cover the four-quarter period commencing with the second quarter and extend through the first quarter of the following year. For a capital plan resubmitted after the first quarter, a nonobjection would extend through the first quarter of the subsequent year. As further discussed below, the Board has decided to maintain the proposed submission date of January 5th for capital plans. Doing so will permit review of capital plans within the first quarter, thus minimizing to the greatest extent possible the potential to disrupt a large bank holding company’s ability to make capital distributions in subsequent quarters of that year. In addition, a single submission date ensures that firms are finalizing their capital plans based on the same quarter’s data, which permits the Board to perform a cross-firm comparison of capital plans based on the same scenarios and to determine whether to object to firms’ capital plans based on consistent scenarios. PO 00000 Frm 00010 Fmt 4700 Sfmt 4700 B. Mandatory Elements of a Capital Plan Consistent with the NPR, the final rule defines a capital plan as a written presentation of a large bank holding company’s capital planning strategies and capital adequacy process that includes certain mandatory elements. These mandatory elements are organized into four main components: (i) An assessment of the expected uses and sources of capital over the planning horizon (at least nine quarters, beginning with the quarter preceding the quarter in which the bank holding company submits its capital plan) that reflects the bank holding company’s size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions; (ii) A detailed description of the bank holding company’s process for assessing capital adequacy; (iii) The bank holding company’s capital policy; and (iv) A discussion of any expected changes to the bank holding company’s business plan that are likely to have a material impact on the firm’s capital adequacy or liquidity. The mandatory elements under each component are described below. While the final rule reflects a different organizational structure than the proposed rule, the elements are substantively the same.19 19 The proposed rule defined a ‘‘capital plan’’ as ‘‘a written presentation of a bank holding company’s capital planning strategies and capital adequacy processes that includes: (i) An assessment of the expected uses and sources of capital over a nine-quarter forward-looking planning period (beginning with the quarter preceding the quarter in which the bank holding company submits its capital plan) that reflects the bank holding company’s size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions, (ii) a detailed description of the bank holding company’s processes for assessing capital adequacy, and (iii) an analysis of the effectiveness of these processes.’’ Section 225.8(d)(2) of the proposed rule set forth additional mandatory elements of a capital plan. The final rule simplifies the organization by locating all of the required elements of a capital plan in one place. The final rule defines a ‘‘capital plan’’ as ‘‘written presentation of a bank holding company’s capital planning strategies and capital adequacy processes that includes the mandatory elements set forth in [section 225.8(d)(2) of the final rule].’’ Section 225.8(d)(2) of the final rule sets forth the comprehensive list of elements required to be included in a firm’s capital plan, including elements of the definition of a ‘‘capital plan’’ in the proposed rule. The final rule does not require a capital plan to include an analysis of the effectiveness of the large bank holding company’s processes for assessing capital adequacy. As described in section IV.A of this preamble, the board of directors of a large bank holding company is required to assess the robustness of the bank holding company’s capital plan at least annually. In light of the Board’s supervisory review of this assessment, the Board will not require a large bank holding company to include a separate analysis in its capital plan. E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations These mandatory elements of a capital plan are consistent with the Federal Reserve’s existing supervisory practice with respect to the information that it expects large bank holding companies to include in a capital plan for internal planning purposes. A large bank holding company should include in its capital plan other information and analysis that it determines is relevant to its capital planning strategies and internal capital adequacy process. The level of detail and analysis expected in a capital plan will vary based on the large bank holding company’s size, complexity, risk profile, and scope of operations. Thus, for example, a large bank holding company that has extensive credit exposures to commercial real estate but very limited trading activities will be expected to have robust systems in place to identify and monitor its commercial real estate exposures, but its systems related to trading activities will not need to be as sophisticated or extensive. In contrast, a large bank holding company with extensive exposure to a variety of risk exposures, including both retail and wholesale exposures, as well as significant trading activities and international operations, will be expected to have an integrated system for measuring and aggregating all of these risk exposures. One commenter requested that the Board clarify that the capital planning process should focus on the consolidated organization. The Board confirms that the capital planning process should focus on the consolidated organization, but should also provide for the specific capital needs of material subsidiaries consistent with the large bank holding company’s obligations to serve as a source of strength to its subsidiary depository institutions. Another commenter requested that the Federal Reserve recognize that bank holding companies that are whollyowned subsidiaries of foreign banking organizations have different capital planning goals than publicly-traded domestic bank holding companies. In particular, capital planning by these institutions should take into account the financial condition of their parent foreign bank and/or developments in the parent foreign bank’s home country. The Board recognizes that the capital planning considerations will be different for domestic subsidiaries of foreign banking organizations than for publicly traded domestic bank holding companies and expects that the capital plans of such domestic subsidiaries will reflect these differences. VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 1. Assessment of the Expected Uses and Sources of Capital Over the Planning Horizon That Reflects the Large Bank Holding Company’s Size, Complexity, Risk Profile, and Scope of Operations, Assuming Both Expected and Stressful Conditions The first component of a large bank holding company’s capital plan is an assessment of the expected uses and sources of capital over the planning horizon, assuming both expected and stressful conditions. This assessment must contain the following elements: (1) Estimates of projected revenues, losses, reserves, and pro forma capital levels, including any minimum regulatory capital ratios (for example, leverage, tier 1 risk-based, and total riskbased capital ratios) and any additional capital measures deemed relevant by the bank holding company, over the planning horizon under expected conditions and under a range of stressed scenarios, including any scenarios provided by the Federal Reserve and at least one stressed scenario developed by the bank holding company appropriate to its business model and portfolios; 20 (2) A calculation of the pro forma tier 1 common ratio over the planning horizon under expected conditions and under a range of stressed scenarios and discussion of how the company will maintain a pro forma tier 1 common ratio above 5 percent under the stressed scenarios required by the final rule; (3) a discussion of the results of any stress test required by law or regulation, and an explanation of how the capital plan takes these results into account; and (4) a description of all planned capital actions over the planning horizon. a. Stress Scenarios In assessing its expected uses and sources of capital over the planning horizon, a large bank holding company must estimate projected revenues, losses, reserves, and pro forma capital levels under expected conditions and under a range of stressed scenarios, including any scenarios provided by the Federal Reserve. Several commenters asked that the Board provide more guidance on these stressed scenarios and to provide the scenarios to a bank 20 Whereas the proposed rule required a large bank holding company to conduct a probabilistic assessment of the likelihood of the bank holding company-developed scenario, the Board has not included it as a mandatory element in the final rule because it does not believe that such a probabilistic assessment will assist the bank holding company’s board of directors in determining the robustness of a capital plan in all circumstances. The Board has also provided additional guidance on its expectations in regard to the bank holding company-developed scenarios. PO 00000 Frm 00011 Fmt 4700 Sfmt 4700 74635 holding company well before the company’s capital plan is due. Because the Board expects that the stressed scenarios will change over time and in order for the scenarios to reflect current data, the Board intends to provide the stressed scenarios to a firm at least several weeks before the capital plans are due. Other commenters requested guidance on the relationship between these stressed scenarios and the scenarios that the Board is required to provide under section 165(i) of the Dodd-Frank Act. The Board expects that the stress scenarios that it provides under the final rule will be consistent with the stress scenarios it will provide to firms for stress tests they conduct under section 165 of the Dodd-Frank Act. In addition, the Board confirms that stress testing should be conducted in accordance with any applicable supervisory guidance. One commenter suggested that the Board design stress scenarios based on extreme yet plausible conditions that are administered simultaneously across multiple banks. Generally, the Board expects that the stressed scenarios will consist of forecasts of key economic and financial variables consistent with a stressful environment. In calibrating the severity of a stress scenario, the Federal Reserve will target a severe scenario that is not outside the range of possibilities. There are multiple quantitative and qualitative approaches to achieve this level of target severity, described below. One approach involves the construction of a baseline forecast from a large-scale macroeconomic model and identification of a scenario that would have a specific probabilistic likelihood given the baseline forecast. For example, a scenario may be constructed that has a 5 percent chance of occurring, conditional on the baseline outlook. While many scenarios would be equally likely using this ‘‘probabilistic approach’’ there are a variety of statistical approaches (together with some judgment) that help to select an appropriate scenario from this set. However, given that the probabilities of macroeconomic events can only be imprecisely estimated, and that many macroeconomic models tend to underestimate the true probabilities of stressful economic outcomes, such an approach may not, by itself, be wellsuited to scenario design. An alternative approach assumes that the future path of the U.S. economy would follow the path experienced during post-war recessions. For example, of the 9 recessions since 1957, the average increase in the unemployment rate was 2.4 percentage points and the average peak-to-trough E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES 74636 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations decline in GDP was 2.2 percent; the stress scenario could thus be designed to match these changes, or one could select from among scenarios that were worse than the average one. While this ‘‘recession approach’’ is transparent and straightforward to implement, it may not account for the underlying state of the economy at the time the stress test is conducted. The same shocks may lead to better or worse macroeconomic performance at a particular point in time depending on the scope for monetary or fiscal policy to offset the shocks or other factors. The ‘‘recession approach’’ may be augmented with a macroeconomic model to take into account the effect of current conditions on macroeconomic performance. Another approach augments the scenario generated by either the ‘‘probabilistic approach’’ or ‘‘recession approach’’ with one or more particularly salient risks facing the economy or the financial system. As an example, while the more adverse macroeconomic scenario used in the 2009 Supervisory Capital Assessment Program (SCAP) was designed to capture a generally stressful macroeconomic environment, it also assumed an unprecedented 30 percent fall in house prices in 2009– 2010, in part because of the important role that house prices had played in the macro-financial stress over the previous few years and expectations that house price declines would continue to be a salient risk facing the economy and the banking system. The stress scenarios will provide forecasts for a number of macroeconomic variables. In SCAP, the Federal Reserve defined the macro scenarios by providing forecasts for three variables: GDP, unemployment and house prices. In CCAR, the Federal Reserve defined the macroeconomic scenarios using nine variables: GDP, the consumer price index, disposable personal income, the unemployment rate, the three-month T-bill rate, the 10year Treasury rate, the rate on triple-B rated corporate bonds, the value of a broad index of U.S. stock prices, and house prices. Going forward, the Federal Reserve will likely modestly increase the number of variables used to define the scenarios. In particular, it will likely increase the number of U.S. macroeconomic indicators, as well as variables summarizing global macroeconomic conditions and exchange rates. In increasing the number of variables, the Federal Reserve intends to balance the benefits of additional precision to the scenarios with the cost of increased complexity. Measuring the effects of the scenarios on a firm’s trading exposures requires VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 the consideration of additional variables. Evaluating the profit and loss sensitivity of a firm’s trading portfolio in response to an adverse market shock requires defining a large set of specific factors for which macroeconomic models can give only limited guidance (e.g., the Libor-overnight indexed swap rate spread). In the SCAP and CCAR, the Federal Reserve used financial market shocks consistent with what actually occurred from the end of June 2008 to year-end 2008, a period of severe financial dislocation. In the future, as the financial products traded by firms evolve, the trading scenario will likely rely less on a particular historical episode, and be guided more by a statistical framework based on historical experience, or hypothetical assumptions, reflecting salient risks facing the financial system. However, the trading book shock will not be inconsistent with the environment and circumstances characterized by the general macroeconomic scenario that is used. The Board intends that a large bank holding company will integrate into its capital plan, as one part of the underlying analysis, the results of the company-run stress tests conducted under section 165 of the Dodd-Frank Act, when implemented, and the Federal Reserve will consider the results of those stress tests in its evaluation of that bank holding company’s capital plan.21 However, the Board does not expect that the results of stress tests conducted under the Dodd-Frank Act alone will be sufficient to address all relevant adverse outcomes that should be covered in a satisfactory capital plan for purposes of the final rule. The bank holding company-designed stress scenario should reflect an individual company’s unique vulnerabilities to factors that affect its firm-wide activities and risk exposures, including macroeconomic, market-wide, and firmspecific events. b. Minimum Regulatory Capital Ratios and 5 Percent Tier 1 Common Ratio The following discussion provides more detail on the requirement that a company calculate pro forma capital levels, including any minimum regulatory capital ratios, and its pro forma tier 1 common ratio over the planning horizon under expected and stressful conditions. The final rule defines minimum regulatory capital 21 See section 165(i)(1) and (2) of the Dodd-Frank Act; 12 U.S.C. 5365(i)(1) and (2). In reviewing stress test results of U.S. subsidiaries of foreign banking organizations, the Federal Reserve intends to take into account any stress tests applicable to the foreign consolidated group. PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 ratios as any minimum regulatory capital ratio that the Federal Reserve may require of a large bank holding company, by regulation or order, including the bank holding company’s leverage ratio and tier 1 and total riskbased capital ratios as calculated under Appendices A, D, E, and G to this part 225 (12 CFR part 225, Appendices A, D, E, and G), or any successor regulation. In the future, the Board may propose to modify, or add to, the existing minimum regulatory capital requirements. In addition to the requirements discussed above, under the proposed rule, until January 1, 2016, a large bank holding company would have been required to calculate its pro forma tier 1 common ratio under expected and stressful conditions and discuss in its capital plan how the bank holding company will maintain a pro forma tier 1 common ratio above 5 percent under those conditions throughout the planning horizon. This level reflects a supervisory assessment of the minimum capital needed to be a going concern throughout stressful conditions and on a post-stress basis, based on an analysis of the historical distribution of earnings by large banking organizations. For purposes of this requirement, a large bank holding company’s tier 1 common ratio means the ratio of a large bank holding company’s tier 1 common capital to its total risk-weighted assets. Tier 1 common capital is calculated as tier 1 capital less non-common elements in tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities.22 Tier 1 capital has the same meaning as under Appendix A to Regulation Y, or any successor regulation, and total riskweighted assets has the same meaning as under Appendices A, E, and G of Regulation Y, or any successor regulation.23 This definition of tier 1 common capital is consistent with the definition that the Federal Reserve has used for supervisory purposes, including in CCAR. The Basel III framework proposed by the Basel Committee on Bank Supervision includes a different definition of tier 1 common capital.24 In recognition of the fact that the Board 22 Specifically, non-common elements will include the following items captured in the FR Y– 9C: Schedule HC, line item 23 net of Schedule HC– R, line item 5; and Schedule HC–R, line items 6a, 6b, and 6c. 23 See 12 CFR part 225, Appendices A, E, and G. 24 See Basel Committee on Banking Supervision, Basel III: A global framework for more resilient banks and banking systems (December 2010), available at https://www.bis.org/publ/bcbs189.pdf. E:\FR\FM\01DER1.SGM 01DER1 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations and the other federal banking agencies continue to work on implementing Basel III in the United States, the Board is requiring a large bank holding company to demonstrate how it will maintain a minimum tier 1 common ratio above 5 percent under stressful conditions using the Board’s existing supervisory definition of tier 1 common capital. The Board will work with the other federal banking agencies to implement Basel III and to propose a Basel III tier 1 common capital ratio as a new minimum regulatory capital ratio. The existing supervisory definition of tier 1 common capital will remain in force under the final capital plan rule until the Board adopts the Basel III tier 1 common ratio, which the Board remains strongly committed to implement. emcdonald on DSK5VPTVN1PROD with RULES c. Planned Capital Actions In its assessment of the uses and sources of capital, a large bank holding company’s capital plan must describe all planned capital actions over the planning horizon. The final rule defines a capital action as any issuance of a debt or equity capital instrument, capital distribution, and any similar action that the Federal Reserve determines could impact a large bank holding company’s consolidated capital. A capital distribution is defined as a redemption or repurchase of any debt or equity capital instrument, a payment of common or preferred stock dividends, a payment that may be temporarily or permanently suspended by the issuer on any instrument that is eligible for inclusion in the numerator of any minimum regulatory capital ratio, and any similar transaction that the Federal Reserve determines to be in substance a distribution of capital.25 One commenter requested that the Board permit a capital plan to specify alternative uses of capital. The Board believes that the effects on a bank holding company’s capital adequacy may vary significantly depending on the nature of a capital distribution and thus has not changed the requirement that a capital plan must include a description of all planned capital actions over the planning horizon. 2. Description of the Bank Holding Company’s Process for Assessing Capital Adequacy The second component of a large bank holding company’s plan is a description of the bank holding company’s process 25 For example, this definition includes payments on trust preferred securities, but does not include payments on subordinated debt that could not be temporarily or permanently suspended by the issuer under the terms of the instrument. VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 for assessing capital adequacy. This description must contain the following elements: (1) A discussion of how the bank holding company will, under expected and stressful conditions, maintain capital commensurate with its risks, maintain capital above the minimum regulatory capital ratios and above a tier 1 common ratio of 5 percent, and serve as a source of strength to its subsidiary depository institutions; and (2) A discussion of how the bank holding company will, under expected and stressful conditions, maintain sufficient capital to continue its operations by maintaining ready access to funding, meeting its obligations to creditors and other counterparties, and continuing to serve as a credit intermediary. One commenter requested that the Board clarify that bank holding companies subject to an internal capital adequacy assessment process (ICAAP) requirement under the Federal Reserve’s advanced approaches rules would be able to combine components of their ICAAP with their capital plan submissions and submit them on the capital plan timeline. ICAAP would constitute an internal capital adequacy process for purposes of the final rule, and bank holding companies that have a satisfactory ICAAP generally would be considered to have a satisfactory internal capital adequacy process for purposes of the final rule. Moreover, the description of the bank holding company’s process for assessing capital adequacy may be presented in a document separate from the capital plan. Like other elements of a large bank holding company’s capital plan, this description must be submitted to the Federal Reserve on an annual basis and must describe any changes to the bank holding company’s capital planning process and any new analyses supporting changes to this process. 3. Capital Policy The third component of a large bank holding company’s plan is its capital policy. A capital policy is defined as the bank holding company’s written assessment of the principles and guidelines used for capital planning, capital issuance, usage and distributions, including internal capital goals; the quantitative or qualitative guidelines for dividend and stock repurchases; the strategies for addressing potential capital shortfalls; and the internal governance procedures around capital policy principles and guidelines. A large bank holding company should be able to demonstrate that achieving its stated internal capital PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 74637 goals will allow it to maintain ready access to funding, meet its obligations to creditors and other counterparties, and continue to serve as a credit intermediary during and after the impact of the stressed scenarios included in its capital plan over the planning horizon.26 Similarly, a large bank holding company’s capital policy should reflect strategies for addressing potential capital shortfalls, such as by reducing or eliminating capital distributions, raising additional capital, or preserving its existing capital, to support circumstances where the economic outlook has deteriorated, the bank holding company has underestimated its risks, or the bank holding company’s performance has not met its expectations. 4. Discussion of Any Expected Changes to the Bank Holding Company’s Business Plan That Are Likely To Have a Material Impact on the Firm’s Capital Adequacy or Liquidity The fourth element of a large bank holding company’s capital plan is a discussion of any expected changes to the bank holding company’s business plan that are likely to have a material impact on the firm’s capital adequacy or liquidity. For example, the capital plan should reflect any expected material effects of new lines of business or activities on the bank holding company’s capital adequacy or liquidity, including revenue and losses. C. Data Submissions In connection with its submission of a capital plan to the Federal Reserve, a large bank holding company is required to provide certain data to the Federal Reserve. To the greatest extent possible, the data templates, and any other data requests, are designed to minimize burden on the bank holding company and to avoid duplication, particularly in light of potential new reporting requirements arising from the DoddFrank Act. Data required by the Federal Reserve may include, but are not limited to, information regarding the bank holding company’s financial condition, structure, assets, risk exposure, policies and procedures, liquidity, and management. Commenters requested that the Board provide more guidance on the nature and scope of the data requirements and 26 In addition, each bank holding company should ensure that its internal capital goals reflect any relevant minimum regulatory capital ratio levels, any higher levels of regulatory capital ratios (above regulatory minimums), and any additional capital measures that, when maintained, will allow the bank holding company to continue its operations. E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES 74638 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations to provide any data templates at the time that the final rule becomes effective. Commenters also asked that the Federal Reserve be mindful to avoid duplicative data requests. In response to these comments, the Board has published a separate notice in the Federal Register that clarifies the nature and scope of the data requirements on the large bank holding companies firms that participated in CCAR, including the data templates, and is soliciting public comments on this information collection.27 Commenters suggested that companies be given additional time to develop technology and processes to the extent strict compliance with a data request would result in undue burden or expense. The Board understands that non-CCAR firms are less likely to have technology and processes relevant for the specific data collection than the bank holding companies that participated in CCAR, and thus only large bank holding companies that previously participated in CCAR will be required to provide the complete set of data templates in connection with the submission of the capital plan due on January 5, 2012. In connection with this capital plan submission, non-CCAR firms may be required to submit certain limited, summary information under the baseline and stress scenarios, which may include income, balance sheet, capital, and revenue information by asset class. Going forward, the Federal Reserve will require a more complete set of data from non-CCAR firms to support their future capital plan submissions. In addition, the Board recognizes that non-CCAR firms have not had the benefit of receiving the supervisory review and feedback provided in the CCAR and Supervisory Capital Assessment Program. The Federal Reserve is engaging in extensive dialogue with these non-CCAR firms to communicate its expectations on capital planning and capital policies. In addition, commenters requested that the Board provide additional information regarding the security controls and processes the Board and the Reserve Banks have in place to safeguard data. The Board and Reserve Banks have internal controls and processes in place to help to ensure the integrity of confidential and proprietary data. In addition, the Board follows the National Institute of Standards and Technology guidance and adheres to Federal Information Security Management Act compliance for all the 27 76 FR 55288 (September 7, 2011). VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 information collections and storage where sensitive data are concerned.28 One commenter suggested that capital plans, non-objections or objections to capital plans, requests for reconsideration, approvals or rejections of any such requests, prior notice filings, and results of stressed scenarios be treated as confidential supervisory information. The confidentiality of information submitted to the Board under the final rule and related materials shall be determined in accordance with applicable exemptions under the Freedom of Information Act (5 U.S.C. 552) and the Board’s Rules Regarding Availability of Information (12 CFR part 261). D. Federal Reserve Review of a Capital Plan The final rule provides that the Federal Reserve will consider the following factors in reviewing a large bank holding company’s capital plan: (i) The comprehensiveness of the capital plan, including the extent to which the analysis underlying the capital plan captures and addresses potential risks stemming from activities across the firm and the company’s capital policy; (ii) The reasonableness of the bank holding company’s assumptions and analysis underlying the capital plan and its methodologies for reviewing the robustness of its capital adequacy process; and (iii) The bank holding company’s ability to maintain capital above each minimum regulatory capital ratio and above a tier 1 common ratio of 5 percent on a pro forma basis under expected and stressful conditions throughout the planning horizon, including but not limited to any stressed scenarios required under the final rule. The Federal Reserve will also consider the following information in reviewing a large bank holding company’s capital plan: (i) Relevant supervisory information about the bank holding company and its subsidiaries; (ii) The bank holding company’s regulatory and financial reports, as well as supporting data that will allow for an analysis of the bank holding company’s loss, revenue, and reserve projections; (iii) As applicable, the Federal Reserve’s own pro forma estimates of the firm’s potential losses, revenues, reserves, and resulting capital adequacy under expected and stressful conditions, including but not limited to any stressed 28 See generally National Institute of Standards and Technology, https://csrc.nist.gov/; 44 U.S.C. 3541, et seq. PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 scenarios required under the final rule, as well as the results of any stress tests conducted by the bank holding company or the Federal Reserve; and (iv) Other information requested or required by the Federal Reserve, as well as any other information relevant, or related, to the bank holding company’s capital adequacy. A commenter suggested that the Federal Reserve recognize the significance of consultation and coordination with appropriate home country supervisory authorities to the capital planning and review process. The Federal Reserve intends to continue consultation and coordination with home country supervisors in evaluating compliance with prudential standards. E. Federal Reserve Action on a Capital Plan Nearly all commenters expressed the concern that the timing of the capital plan submission and review will interrupt the ability of bank holding companies to make capital distributions in the first quarter. Commenters proposed several alternatives, including a rolling submission process to allow greater flexibility and both earlier and later submission due dates to address blackout periods under the federal securities laws. In response to these commenters, the Board has adjusted the period over which a non-objection applies. For a capital plan submitted in the first quarter, a non-objection would cover the four-quarter period commencing with the second quarter. For a capital plan resubmitted after the first quarter, a nonobjection would extend through the first quarter of the subsequent year. This change is intended to permit bank holding companies to continue to engage in planned capital actions throughout the first quarter of the calendar year while their capital plans are under review. In the final rule, a large bank holding company is required to submit a complete annual capital plan by January 5 of each calendar year. The Federal Reserve will object by March 31 to the capital plan, in whole or in part, or provide the large bank holding company with a notice of non-objection. With respect to a large bank holding company that submits its 2012 capital plan on a timely basis in January 2012, the Federal Reserve commits to respond by March 15, 2012, in order to give the bank holding company adequate opportunity to make adjustments to its capital distributions in the first quarter of 2012. This timeframe is intended to balance the Federal Reserve’s interest in having E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations adequate time to review a capital plan with the bank holding company’s interest in a process that does not unduly interfere with the ability of its board of directors and senior management to take appropriate capital actions. For example, if a firm submitted a capital plan to the Federal Reserve on a timely basis in January 2012, the Federal Reserve would provide a response by no later than March 15, 2012. The Federal Reserve’s nonobjection to that capital plan would extend through the first quarter of 2013, meaning that the firm could continue to make capital distributions during the first quarter of 2013 in accordance with the capital plan it submitted in 2012. If the firm submitted its 2013 capital plan on a timely basis in January 2013, the firm would be notified by March 31, 2013, whether or not the Federal Reserve had any objection to its 2013 capital plan. If the Federal Reserve did not object to the firm’s 2013 capital plan, the firm could begin making capital distributions under that capital plan in the second quarter of 2013. Thus, for this hypothetical firm, the Federal Reserve’s review of its capital plan should not delay the bank holding company’s ability to pay dividends or take other capital actions while awaiting a response from the Federal Reserve. Commenters also suggested that the Board make appropriate transitional arrangements so that bank holding companies are not unnecessarily prevented from making capital distributions in the period between the effective date of the final rule and the first date on which a large bank holding company would be permitted to make capital distributions pursuant to its initial capital plan. Large bank holding companies remain subject to the SR letter 09–4. SR letter 09–4 states that a banking organization should consult with the Federal Reserve before making certain capital distributions. 29 In addition, SR letter 09–4 states that a banking organization should hold capital commensurate with its overall risk profile and that a banking organization should include a full understanding of its risks in its assessment of capital adequacy and ensure that it holds capital corresponding to those risks to maintain overall capital adequacy.30 With respect to the period between the effective date of the final rule and the date on which capital distributions would be permitted pursuant to a bank holding company’s initial capital plan, bank holding companies that 29 See supra note 3. F. Federal Reserve Objection to a Capital Plan As under the NPR, the final rule provides that the Federal Reserve may object to a capital plan, in whole or in part, if: (i) The Federal Reserve determines that the bank holding company has material unresolved supervisory issues, including but not limited to issues associated with its capital adequacy process; (ii) The assumptions and analysis underlying the bank holding company’s capital plan, or the bank holding company’s methodologies for reviewing the robustness of its capital adequacy process, are not reasonable or appropriate; (iii) The bank holding company has not demonstrated an ability to maintain capital above each minimum regulatory capital ratio or above a tier 1 common ratio of 5 percent on a pro forma basis 31 Id. 30 Id. VerDate Mar<15>2010 participated in CCAR will continue to be subject to Revised Temporary Addendum to SR letter 09–4 until the firms receive a notice of objection or non-objection from the Federal Reserve with respect to the capital plan due January 5, 2012.31 Thus, the Board expects such firms would not increase their capital distributions above the amount described in an approved capital plan, which may include an updated and resubmitted capital plan. Non-CCAR firms—which are subject to SR letter 09–4 but not the Revised Temporary Addendum to SR letter 09– 4—may make capital distributions before receiving a response from the Federal Reserve with respect to their capital plans due January 5, 2012, but are expected to consult with their appropriate Reserve Bank before increasing capital distributions.32 The Board recognizes that certain bank holding companies may have to align their internal capital planning processes with the required dates for capital plan submission. However, the Board believes that the timeframes set forth in the final rule balance the Federal Reserve’s interest in performing a cross-firm comparison of capital plans based on the same scenarios with the bank holding company’s interest in minimizing disruptions to firms’ capital planning processes. In order to adhere to the schedule set forth in the final rule, the Federal Reserve may require bank holding companies to submit data templates and other required information several weeks before complete capital plans are due. 32 Id. 17:21 Nov 30, 2011 Jkt 226001 PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 74639 under expected and stressful conditions throughout the planning horizon; or (iv) The bank holding company’s capital planning process or proposed capital distributions otherwise constitute an unsafe or unsound practice, or would violate any law, regulation, Board order, directive, or any condition imposed by, or written agreement with, the Board. In determining whether a capital plan or proposed capital distributions would constitute an unsafe or unsound practice, the Federal Reserve will consider whether the bank holding company is and will remain in sound financial condition after giving effect to the capital plan and all proposed capital distributions. The Federal Reserve received general comments on the grounds for objection. One commenter suggested that the Federal Reserve not substitute its judgment regarding capital distributions for the board of directors’ judgment. As noted above, the Board believes that the board of directors and senior management of a large bank holding company bear the primary responsibility for developing, implementing, and monitoring the bank holding company’s capital planning strategies and internal capital adequacy process. The Federal Reserve’s review of capital plans is intended to ensure that large bank holding companies have sufficient capital to weather stressful economic conditions and help to mitigate any systemic risks posed by the firms. In this manner, the Board intends to strike a balance between maintaining the board of directors and senior management’s primary responsibility in capital planning and ensuring that these firms have sufficient capital to operate in a manner that is safe and sound and does not pose material risk to the financial system. The Federal Reserve intends to review capital plans on a firm-by-firm basis in accordance with the regulatory standards set forth in the final rule. When evaluating capital adequacy and reviewing banks’ estimates of capital adequacy, the Federal Reserve may consider macroprudential factors, including financial stability, in determining whether the assumptions and analysis underlying the bank holding company’s capital plan, or the bank holding company’s methodologies for assessing its capital adequacy, are reasonable or appropriate. Commenters also had several comments on the use of material unresolved supervisory issues as grounds for objection. For example, commenters requested that the Board confirm that not every ‘‘matter requiring E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES 74640 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations attention’’ will constitute a ‘‘material unresolved supervisory issue.’’ Commenters also suggested that supervisory issues unlikely to have a material impact on a large bank holding company’s capital position, liquidity, or financial results should not be grounds for objecting to a proposed capital plan. Under the final rule, not every ‘‘matter requiring attention’’ will constitute a ‘‘material unresolved supervisory issue’’; rather, the Federal Reserve will review supervisory issues on a case-by-case basis. The Federal Reserve generally expects an institution to correct such deficiencies before making any significant capital distributions. The Federal Reserve will notify the bank holding company in writing of the reasons for a decision to object to a capital plan. The Federal Reserve will communicate the basis for the objection when it notifies the firm of the objection. Within ten calendar days of receipt of a notice of objection, the bank holding company may submit a written request for reconsideration of the objection, including an explanation of why reconsideration should be granted. Within ten calendar days of receipt of the bank holding company’s request, the Board will notify the company of its decision to affirm or withdraw the objection to the bank holding company’s capital plan. Under the final rule, the period in which a large bank holding company is permitted to submit a written request for reconsideration was increased from five days to ten days in response to a commenter request. The Board had initially proposed the five-day period to permit adequate processing time with respect to dividend proposals before the end of the first quarter. The commenter suggested giving a large bank holding company the ability to respond within ten days would not necessarily interfere with that process. The final rule provides that the Federal Reserve will respond to a request for reconsideration within ten days of receipt. With respect to a capital plan submitted on a timely basis in January 2012, a large bank holding company that chooses to submit a written request for reconsideration not later than ten days before quarter-end will receive a response before the end of the quarter. With respect to a capital plan submitted on a timely basis in future years, the timing of a written request for reconsideration would not constrain a large bank holding company’s ability to make capital distributions in the first quarter. Under the final rule, as an alternative to requesting reconsideration of the Federal Reserve’s objection to a capital VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 plan, a large bank holding company may instead choose to request a hearing. The hearing procedures would be the same as those that apply following the Federal Reserve’s disapproval of a capital distribution. These procedures are discussed in section V.B. of this preamble. To the extent that the Federal Reserve objects to a capital plan and to the capital actions described therein, and until such time as the Federal Reserve determines that the bank holding company’s capital plan satisfies the factors provided in the final rule, the bank holding company generally may not make any capital distribution, other than as provided below. G. Re-Submission of a Capital Plan A large bank holding company is required to update and re-submit its capital plan to the Federal Reserve within 30 calendar days after the occurrence of one of the following events: (i) The bank holding company determines there has been or will be a material change in the bank holding company’s risk profile (including a material change in its business strategy or any material risk exposures), financial condition, or corporate structure since the bank holding company adopted the capital plan; 33 (ii) The Federal Reserve objects to the capital plan; or (iii) The Federal Reserve directs the bank holding company in writing to revise and resubmit its capital plan for any of the following reasons: 34 (1) The capital plan is incomplete or the capital plan, or the bank holding company’s internal capital adequacy process, contains material weaknesses; (2) There has been or will likely be a material change in the bank holding company’s risk profile (including a material change in its business strategy or any risk exposure), financial condition, or corporate structure; (3) The stressed scenario(s) developed by the bank holding company is not appropriate to its business model and portfolios, or changes in financial markets or the macro-economic outlook that could have a material impact on the bank holding company’s risk profile and 33 For purposes of determining whether a change in its risk profile is material, a bank holding company will be required to consider a variety of risks, including credit, market, operational, liquidity, and interest rate risks. 34 At the request of a commenter, the Board clarifies that a bank holding company is not required to file a new full capital plan under section 225.8(d)(4)(i)(A) if the Federal Reserve has required that an updated plan be filed under section 225.8(d)(4)(i)(C). PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 financial condition require the use of updated scenarios; or (4) The capital plan or the condition of the bank holding company raise any issues to which the Federal Reserve could object to in its review of a capital plan. While the final rule reflects a different organizational structure than the proposed rule, the requirements for resubmission are substantively the same.35 Commenters asked for more guidance on the first condition for resubmission, which requires a large bank holding company to resubmit its capital plan if the bank holding company determines there has been or will be a material change in the bank holding company’s risk profile, financial condition, or corporate structure since the bank holding company adopted the capital plan. For example, resubmission may be required if the financial performance of the bank holding company is substantially worse than anticipated in its initial capital plan, or if the company engages in a significant acquisition. In addition, one commenter requested that the Board limit a ‘‘material change’’ requiring a large bank holding company to resubmit its capital plan to one that would adversely affect the bank holding company’s financial condition and capital position. The final rule leaves the decision to resubmit based on ‘‘a material change in the bank holding company’s risk profile’’ to the bank holding company in the first instance. In addition, the Federal Reserve may notify the bank holding company in writing that the Federal Reserve had determined that a material change in the company’s risk profile, financial condition, or corporate structure had occurred or was likely to occur. One commenter suggested that the criteria for plan resubmission should focus only on events that occurred after the date that the Federal Reserve issued its non-objection. The Federal Reserve generally does not intend to reevaluate a firm’s capital plan to which it has issued a non-objection, but reserves the right to determine that such a capital plan was incomplete or the scenarios used in the capital plan were not sufficiently stressed based on new information or changed circumstances. The Federal Reserve may extend the 30-day period for resubmission for up to an additional 60 calendar days. The 35 In the proposed rule, section 225.8(d)(1)(iv) imposed the resubmission requirement and section 225.8(e)(4) set forth additional grounds for resubmission. The final rule simplifies the organization by locating all of the resubmission provisions in section 225.8(d)(4). E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations Board considered a commenter’s suggestion that the timing of a resubmission should depend on the nature of the triggering event. Under the final rule, the Federal Reserve may exercise its authority to extend the 30day period to provide for a longer resubmission period as necessary to adjust for the nature of the triggering event. Under the final rule, a large bank holding company is only required to resubmit those portions of its capital plan that have changed. To the extent that information contained in an initial capital plan were still considered accurate and appropriate, the bank holding company would be able to continue to rely on this information for purposes of any revised or updated plan, provided that the bank holding company provides an explanation of how the information should be considered in the light of any new capital actions or changes in the bank holding company’s risk profile or strategy. One commenter suggested that a large bank holding company be able to comply with the resubmission requirement by updating portions of the plan affected by the change or providing an informational supplement to the plan describing its change and its impact. The Board expects that bank holding companies will be able to incorporate by reference portions of their previously filed capital plan to the extent those portions were unaffected by the change requiring resubmission, and that an informational supplement may be appropriate depending on the nature of the revisions. However, in cases in which a large bank holding company anticipates undertaking a significant acquisition of a financial company, the Federal Reserve expects that nearly all of a company’s capital plan will be affected. Furthermore, to the extent that the firm elects to develop new stressed scenarios or must incorporate new stressed scenarios provided by the Federal Reserve into its capital plan, the bank holding company should resubmit all portions of the capital plan affected by those new stressed scenarios. Another commenter suggested that the criteria for the issuance of a nonobjection to a revised and resubmitted capital plan focus on whether the plan addresses the deficiencies identified in the Federal Reserve’s objection to the capital plan. Under the final rule, the Federal Reserve intends to focus on whether the plan addresses deficiencies identified in the objection, but will consider all aspects of a company’s capital adequacy in connection with a resubmission. In conducting this VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 review, the Federal Reserve will apply the same standards that would apply to the review of an initial capital plan. Another commenter requested that capital plan resubmissions be responded to within 15 days, subject to a 15-day extension. The final rule provides that the Federal Reserve will respond to a resubmitted capital plan within 75 days of its resubmission. However, the Federal Reserve intends to respond to a resubmitted capital plan in a shorter time period if possible. The length of the review period will depend on the materiality of the issues raised in the resubmission. V. Approval Requirements A. General Requirements The proposed rule would have required a large bank holding company to notify the Federal Reserve before making a capital distribution if the Federal Reserve objected to the bank holding company’s capital plan and that objection was still outstanding.36 The Board is modifying this requirement in the final rule. The final rule provides that, if the Federal Reserve objects to a capital plan and until such time as the Federal Reserve issues a non-objection to the bank holding company’s capital plan, the bank holding company may not make any capital distribution, other than those capital distributions with respect to which the Federal Reserve has indicated its non-objection. This prohibition would remain in place until the Federal Reserve issued a nonobjection to the bank holding company’s capital plan. The change in the final rule is intended to avoid confusion on the part of a large bank holding company that has received an objection to its capital plan regarding whether it would be able to make a capital distribution. Under the final rule, consistent with the proposed rule, the Federal Reserve will evaluate a capital distribution using the same standards it uses to evaluate a capital plan; thus, the Federal Reserve would expect to disapprove a capital distribution request by a large bank holding company that had received an objection to its capital plan until the company had corrected the deficiencies that led to the objection to the plan. As discussed in section IV.G. of this preamble, the final rule provides a process for bank holding companies to resubmit their capital plans to the 36 Notwithstanding this requirement, prior notice would not have been required under the NPR with respect to specific capital distributions described in a company’s capital plan that the Federal Reserve did not object to, unless other circumstances required prior notice. PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 74641 Federal Reserve and for the Federal Reserve to evaluate the re-submitted capital plans. If the Federal Reserve provides its non-objection to a resubmitted capital plan, the bank holding company generally may thereafter make capital distributions consistent with the resubmitted capital plan. In addition, there may be circumstances where the Federal Reserve objects to some but not all of a large bank holding company’s proposed capital distributions as described in its capital plan. For example, the Federal Reserve may object to a large bank holding company’s proposed payments of dividends on common stock, but notify the company that the Federal Reserve does not object to payments on its preferred stock. Unless changed circumstances would require approval of a capital distribution as described below, the bank holding company in this example may make payments on its preferred stock. The proposed rule provided circumstances where prior notice would be required for a capital distribution in circumstances where the Federal Reserve had provided a non-objection to a capital plan. The Board is modifying that requirement to require a large bank holding company to obtain the Federal Reserve’s prior approval with respect to these capital distributions under the process set forth in the final rule. The Federal Reserve expects that a large bank holding company would apply the same rigorous capital planning process that it used to develop its capital plan to its evaluation of capital distributions that would cause the company to fall below its minimum capital requirements, capital distributions that are above the amount described in its capital plan, and capital distributions that follow a change in circumstances. Similarly, the Federal Reserve will need significant information to evaluate these types of proposed capital distributions. Accordingly, the Board believes that a prior approval process would be a more appropriate mechanism to evaluate these capital distributions. Under the final rule, a large bank holding company generally will need to obtain prior approval from the Federal Reserve before making capital distributions if: (i) After giving effect to the capital distribution, the bank holding company will not meet a minimum regulatory capital ratio or a tier 1 common ratio of at least 5 percent; (ii) The Federal Reserve notifies the company that the Federal Reserve has determined that the capital distribution will result in a material adverse change to the organization’s capital or liquidity E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES 74642 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations structure or that the company’s earnings were materially underperforming projections; (iii) The dollar amount of the capital distribution will exceed the amount described in the capital plan to which the Federal Reserve had issued a nonobjection; or (iv) The capital distribution will occur during a period in which the Federal Reserve is reviewing, or has requested resubmission of, the bank holding company’s capital plan.37 Commenters requested that the Board provide clarity on a large bank holding company’s ability to make capital distributions in the following two periods: (1) During the period beginning when a large bank holding company resubmits its capital plan and the plan is under review by the Federal Reserve, and (2) during the first quarter of a calendar year if a large bank holding company receives an objection to its capital plan for the upcoming planning period, but where the Federal Reserve had previously issued a nonobjection to capital distributions in the current quarter and planning period based on a prior capital plan. In the first case, the answer depends on whether the Federal Reserve has objected to the bank holding company’s capital plan. If the Federal Reserve has objected to the capital plan, the bank holding company may not make any capital distribution, except for any distribution to which the Federal Reserve did not object. If the Federal Reserve has not objected to the capital plan and the resubmission is required because of a change in circumstances, the bank holding company must obtain the Federal Reserve’s approval before making a capital distribution. In the second case, during the first quarter of a calendar year, a large bank holding company may make a capital distribution to which the Federal Reserve did not object, unless the final rule would otherwise require the company to obtain approval of the capital distribution or the Federal Reserve has otherwise notified the company that it may not make the distribution.38 For instance, assuming the criteria for resubmission of a capital plan have not been triggered, if the Federal Reserve issued a non-objection to a firm’s capital plan through the first quarter of Year 2 but objected to the capital plan submitted by that firm for the second quarter of Year 2 through the first quarter of Year 3, that firm would 37 The Board clarified in the final rule that prior notice is required during the period when the Board has requested resubmission, but the bank holding company has not yet resubmitted its capital plan. 38 See section 225.8(e)(2)(iv) of Regulation Y. VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 still be able to make all planned capital distributions in the first quarter of Year 2, unless the Federal Reserve specifically objected to any remaining first quarter distributions. Several commenters suggested that the Board adopt an exception to the prior notice requirements that permits a large bank holding company to increase its capital distributions to take advantage of changes in market conditions. The Board has adopted a modification to the rule to provide a limited exception to the prior approval requirements if: (A) The bank holding company is, and after the capital distribution would remain, well capitalized as defined in section 225.2(r) of Regulation Y (12 CFR 225.2(r)); (B) The bank holding company’s performance and capital levels are, and after the capital distribution would remain, consistent with the projections under expected conditions set forth in its capital plan; (C) The annual aggregate dollar amount of all capital distributions (beginning on April 1 of a calendar year and ending on March 31 of the following calendar year) would not exceed the total amounts described in the company’s capital plan for which the bank holding company received a notice of non-objection by more than 1.00 percent multiplied by the bank holding company’s tier 1 capital, as reported to the Federal Reserve on the bank holding company’s first quarter FR Y–9C; (D) The bank holding company provides the appropriate Reserve Bank with notice 15 calendar days prior to a capital distribution that includes the elements described in section V.B. of this preamble, and (E) The Federal Reserve does not object to the transaction proposed in the notice. In determining whether to object to the proposed transaction, the Federal Reserve will apply the criteria under which it reviews requests related to proposed capital distributions that require Federal Reserve approval. The Federal Reserve may notify the bank holding company in writing that it may not take advantage of this exception. Examples of factors that the Federal Reserve would consider in notifying a large bank holding company that it may not take advantage of the exception include, but are not limited to, the bank holding company’s risk profile and its actual financial performance relative to baseline projections in its capital plan. PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 B. Contents of Request for Approval and Procedures for Review Under the final rule, a large bank holding company that requests approval of a capital distribution to the Federal Reserve must include the following information in its request: (i) The capital plan to which the Federal Reserve had previously issued a non-objection or an attestation that there have been no changes to the capital plan; (ii) The purpose of the transaction; (iii) A description of the capital distribution, including for redemptions or repurchases of securities, the gross consideration to be paid and the terms and sources of funding for the transaction, and for dividends, the amount of the dividend(s); and (iv) Any additional information requested by the Federal Reserve (which may include, among other information, an assessment of the bank holding company’s capital adequacy under a revised stress scenario provided by the Federal Reserve, a revised capital plan, and supporting data). In addition, any request submitted for a capital distribution where the bank holding company would not meet a minimum regulatory capital ratio or a tier 1 common ratio of at least five percent after giving effect to the distribution must also include a plan for restoring the bank holding company’s capital to an amount above a minimum level within 30 days and a rationale for why the capital distribution would be appropriate. The Federal Reserve will act on a request for prior approval within 30 calendar days after the receipt of a request that contains all of the information set forth above.39 If the Federal Reserve requests that the bank holding company provide an assessment of its capital adequacy under a revised stress scenario, the Federal Reserve will not consider the 30-day period to begin until the bank holding company provides the requested information. The final rule provides that the Board will notify the bank holding company in writing of the reasons for a decision to disapprove any proposed capital distribution. In reviewing a request under this section, the Federal Reserve will apply the considerations and principles under which it evaluates 39 As noted above, bank holding companies that qualify for the exception to the prior approval requirement need to provide 15 days prior notice of a qualifying capital distribution. Because the final rule provides the Federal Reserve with discretion to act on a shorter timeframe, the final rule does not include the proposed rule’s provision permitting the Federal Reserve to shorten the 30day period. E:\FR\FM\01DER1.SGM 01DER1 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations capital plans. In addition, the Board may disapprove the transaction if the bank holding company does not provide the information required to be submitted. Within 10 calendar days of receipt of a disapproval, the bank holding company could submit a written request for a hearing. If the bank holding company requested a hearing, the Board will order a hearing within 10 calendar days of receipt of the request if it finds that material facts are in dispute, or if it otherwise appears appropriate. Any hearing conducted will be held in accordance with the Board’s Rules of Practice for Formal Hearings (12 CFR part 263). At the conclusion of any hearing, the Board will by order approve or disapprove the proposed capital action on the basis of the record of the hearing. VI. Conforming Amendments To Section 225.4(b) of Regulation Y In addition to the capital planning and approval requirements discussed above, the Board is making conforming changes to section 225.4(b) of Regulation Y, which currently requires prior notice to the Federal Reserve of certain purchases and redemptions of a bank holding company’s equity securities.40 Because such approval of certain capital distributions will be separately required in the rule at section 225.8 of Regulation Y, the Board is amending section 225.4(b) to provide that section 225.4(b) shall not apply to any bank holding company that is subject to section 225.8. VII. Administrative Law Matters emcdonald on DSK5VPTVN1PROD with RULES A. Regulatory Flexibility Act The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), generally requires that an agency prepare and make available for public comment an initial regulatory flexibility analysis in connection with a notice of proposed rulemaking.41 The regulatory flexibility analysis otherwise required under section 604 of 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 (defined for purposes of the RFA to include banks and bank holding companies with assets less than or equal to $175 million) and publishes its certification and a short, explanatory statement in the Federal Register along with its rule. As of December 31, 2010, there were approximately 4,493 small bank holding companies. 40 See 41 See 12 CFR 225.4(b). 5 U.S.C. 603(a). VerDate Mar<15>2010 17:21 Nov 30, 2011 The agencies solicited public comment on the rule in a notice of proposed rulemaking. The agencies did not receive any comments regarding burden to small banking organizations. As discussed above, the final rule applies to every top-tier bank holding company domiciled in the United States with $50 billion or more in total consolidated assets. Bank holding companies that are subject to the final rule therefore substantially exceed the $175 million asset threshold at which a banking entity would qualify as a small bank holding company, and the final rule will not apply to any small bank holding company for purposes of the RFA. The Board does not believe that the proposed rule duplicates, overlaps, or conflicts with any other Federal rules. In light of the foregoing, the Board does not believe that the final rule would have a significant economic impact on a substantial number of small entities. B. Paperwork Reduction Act In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.), the Board 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 Board reviewed the final rule under the authority delegated to the Board by OMB. The OMB control number for this information collection is 7100–0342. The Board received 16 comment letters, none of which specifically addressed the PRA analysis. Commenters did however requested that the Board provide more guidance on the nature and scope of the data requirements (as required by 225.8(d)(3)(i)–(vi)) and to provide any data templates at the time the final rule becomes effective. Commenters also asked that the Federal Reserve be mindful to avoid duplicative data requests. In response to these comments, the Board has published a separate Federal Register notice that clarifies the nature and scope of the data requirements, including the data templates, and solicited public comments on this information collection (Capital Assessments and Stress Testing; FR Y–14A/Q; OMB No. 7100–0341).42 In doing so, the Board is removing the majority of the burden for the data reporting requirements found in 225.8(d)(3) from the information collection associated with this rule and 42 76 FR 55288 (September 7, 2011). The comment period ended on November 7, 2011. Jkt 226001 PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 74643 accounting for this burden under the new FR Y–14A/Q information collection. Title of Information Collection: Recordkeeping and Reporting Requirements Associated with Regulation Y (Capital Plans) (Reg Y–13). Frequency of Response: Recordkeeping requirements, annually. Reporting requirements, varied—the capital plan exercise would be done at least annually, capital plan resubmissions and prior approval requirements would be event-generated. Affected Public: The final rule applies to every top-tier bank holding company domiciled in the United States that has $50 billion or more in total consolidated assets (large U.S. bank holding companies). As of September 30, 2011, there were approximately 34 large U.S. bank holding companies. General Description of Information Collection: This information collection is mandatory and the recordkeeping requirement to maintain the Capital Plan is in effect until either a bank holding company is no longer operational or until further notice by the Board. Section 616(a) of the Dodd-Frank Act amended section 5(b) of the Bank Holding Company Act (BHC Act) (12 U.S.C. 1844(b)) to specifically authorize the Board to issue regulations and orders relating to capital requirements for bank holding companies. The Board is also authorized to collect and require reports from bank holding companies pursuant to section 5(c) of the BHC Act (12 U.S.C. 1844(c)). Additionally, the Board’s rulemaking authority for the information collection requirements associated with Reg Y–13 is found in sections 908 and 910 of the International Lending Supervision Act, as amended (12 U.S.C. 3907 and 3909). Additional support for Reg Y–13 is found in sections 165 and 166 of the Dodd-Frank Act (12 U.S.C. 5365 and 5366). The capital plan information submitted by the covered bank holding company would consist of confidential and proprietary modeling information and highly sensitive business plans, such as acquisition plans submitted to the Federal Reserve for approval. Therefore, it appears the information would be subject to withholding under exemption 4 of the Freedom of Information Act (5 U.S.C. 552(b)(4)). Abstract: Section 225.8(d)(1)(i) will require a bank holding company to develop and maintain an initial capital plan. The level of detail and analysis expected in a capital plan would vary based on the bank holding company’s size, complexity, risk profile, scope of operations, and the effectiveness of its E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES 74644 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations processes for assessing capital adequacy. Section 225.8(d)(2) provides the list of mandatory elements to be included in the capital plan. Section 225.8(d)(1)(ii) will require a bank holding company to submit its complete capital plan to the appropriate Reserve Bank and the Board each year by the 5th of January, or such later date as directed by the appropriate Reserve Bank after consultation with the Board. Section 225.8(d)(1)(iii) will require the bank holding company’s board of directors or a designated committee to review and approve the bank holding company’s capital plan prior to its submission to the appropriate Federal Reserve Bank under section 225.8(d)(1)(ii). In connection with submissions of capital plans to the Federal Reserve, bank holding companies would be required pursuant to section 225.8(d)(3) to provide certain data to the Federal Reserve. Data templates, and any other data requests, would be designed to minimize burden on the bank holding company and to avoid duplication. Data required by the Federal Reserve could include, but would not be limited to, information regarding the bank holding company’s financial condition, structure, assets, risk exposure, policies and procedures, liquidity, and management. In addition, section 225.8(d)(4) would require the bank holding company to update and resubmit its capital plan within 30 days of the occurrence of certain events. Within 10 calendar days of receipt of a notice of objection by the Board of the bank holding company’s capital plan, pursuant to section 225.8(e)(3), the bank holding company may submit a written request for reconsideration or hearing, including an explanation of why reconsideration should be granted. In certain circumstances, large bank holding companies would be required, pursuant to section 225.8(f)(1), to obtain approval from the Federal Reserve before making capital distributions.43 As listed in section 225.8(f)(3), such an approval request would be required to contain the following information: the bank holding company’s current capital plan or an attestation that there have been no changes to its current capital plan; the purpose of the transaction; a description of the capital action, including for redemptions or repurchases of securities, the gross consideration to be paid and the terms and sources of funding for the 43 The final rule provides an exception to the prior approval requirements section 225.8(f)(2) for an institution that is well capitalized and meets certain other requirements. VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 transaction, and for dividends, the amount of the dividend(s); and any additional information requested by the appropriate Reserve Bank or Board, which may include, among other information, an assessment of the bank holding company’s capital adequacy under a revised stress scenario provided by the Federal Reserve, a revised capital plan, and supporting data. Under section 225.8(f)(5), if the Federal Reserve disapproves of a bank holding company’s capital distribution, the bank holding company within 10 calendar days of receipt of a notice of disapproval by the Board may submit a written request for a hearing. Number of Respondents: 34 (19 CCAR firms and 15 non-CCAR firms). Estimated Burden per Response l.8(d)(1)(i) and (ii) Recordkeeping and Reporting, 12,000 hours l.8(d)(1)(iii) Recordkeeping, 100 hours l.8(d)(3)(i)–(vi) CCAR firm Reporting, 100 hours l.8(d)(3)(i)–(vi) Non-CCAR firm Reporting, 1,000 hours l.8(d)(4) Reporting, 100 hours l.8(e)(3)(i) Reporting, 16 hours l.8(f)(1), (2) and (3) Reporting, 3,400 hours l.8(f)(5) Reporting, 16 hours Total Estimated Annual Burden: 432,764 hours. The Board has a continuing interest in the public’s opinions of collections of information. At any time, comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, may be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets NW., Washington, DC 20551; and to the Office of Management and Budget, Paperwork Reduction Project (7100–0342), Washington, DC 20503. List of Subjects in 12 CFR Part 225 Administrative Practice and Procedure, Banks, Banking, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Securities. 12 CFR Chapter II Authority and Issuance For the reasons stated in the preamble, the Board of Governors of the Federal Reserve System amends subpart A of part 225 of chapter II of title 12 of the Code of Federal Regulations as follows: Frm 00020 Fmt 4700 1. The authority citation for part 225 continues to read as follows: ■ Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331–3351, 3906, 3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805. Subpart A—General Provisions 2. Section 225.4 is amended by adding paragraph (b)(7): ■ § 225.4 Corporate practices. * Estimated Burden PO 00000 PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y) Sfmt 4700 * * * * (b) * * * (7) Exception for certain bank holding companies. This section 225.4(b) shall not apply to any bank holding company that is subject to § 225.8 of Regulation Y (12 CFR 225.8). * * * * * ■ 3. Add § 225.8 to read as follows: § 225.8 Capital planning. (a) Purpose. This section establishes capital planning and prior notice and approval requirements for capital distributions by certain bank holding companies. (b) Scope and effective date. (1) This section applies to every top-tier bank holding company domiciled in the United States: (i) With total consolidated assets greater than or equal to $50 billion computed on the basis of the average of the company’s total consolidated assets over the course of the previous four calendar quarters, as reflected on the bank holding company’s consolidated financial statement for bank holding companies (FR Y–9C (the calculation shall be effective as of the due date of the bank holding company’s most recent FR Y–9C required to be filed under 12 CFR 225.5(b))); or (ii) That is subject to this section, in whole or in part, by order of the Board based on the institution’s size, level of complexity, risk profile, scope of operations, or financial condition. (2) Beginning on December 30, 2011, the provisions of this section shall apply to any bank holding company that is subject to this section pursuant to paragraph (b)(1) of this section, provided that: (i) Until July 21, 2015, this section will not apply to any bank holding company subsidiary of a foreign banking organization that is currently relying on Supervision and Regulation Letter SR 01–01 issued by the Board (as in effect on May 19, 2010); and E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations (ii) A bank holding company that becomes subject to this section pursuant to paragraph (b)(1)(i) of this section after the 5th of January of a calendar year shall not be subject to the requirements of paragraphs (d)(1)(ii), (d)(4), and (f)(1)(iii) of this section until January 1 of the next calendar year. (3) Nothing in this section shall limit the authority of the Federal Reserve to issue a capital directive or take any other supervisory or enforcement action, including action to address unsafe or unsound practices or conditions or violations of law. (c) Definitions. For purposes of this section, the following definitions apply: (1) Capital action means any issuance of a debt or equity capital instrument, any capital distribution, and any similar action that the Federal Reserve determines could impact a bank holding company’s consolidated capital. (2) Capital distribution means a redemption or repurchase of any debt or equity capital instrument, a payment of common or preferred stock dividends, a payment that may be temporarily or permanently suspended by the issuer on any instrument that is eligible for inclusion in the numerator of any minimum regulatory capital ratio, and any similar transaction that the Federal Reserve determines to be in substance a distribution of capital. (3) Capital plan means a written presentation of a bank holding company’s capital planning strategies and capital adequacy process that includes the mandatory elements set forth in paragraph (d)(2) of this section. (4) Capital policy means a bank holding company’s written assessment of the principles and guidelines used for capital planning, capital issuance, usage and distributions, including internal capital goals; the quantitative or qualitative guidelines for dividend and stock repurchases; the strategies for addressing potential capital shortfalls; and the internal governance procedures around capital policy principles and guidelines. (5) Minimum regulatory capital ratio means any minimum regulatory capital ratio that the Federal Reserve may require of a bank holding company, by regulation or order, including the bank holding company’s leverage ratio and tier 1 and total risk-based capital ratios as calculated under Appendices A, D, E, and G to this part (12 CFR part 225), or any successor regulation. (6) Planning horizon means the period of at least nine quarters, beginning with the quarter preceding the quarter in which the bank holding company submits its capital plan, over which the relevant projections extend. VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 (7) Tier 1 capital has the same meaning as under Appendix A to this part or any successor regulation. (8) Tier 1 common capital means tier 1 capital less the non-common elements of tier 1 capital, including perpetual preferred stock and related surplus, minority interest in subsidiaries, trust preferred securities and mandatory convertible preferred securities. (9) Tier 1 common ratio means the ratio of a bank holding company’s tier 1 common capital to total risk-weighted assets. This definition will remain in effect until the Board adopts an alternative tier 1 common ratio definition as a minimum regulatory capital ratio. (10) Total risk-weighted assets has the same meaning as under Appendices A, E, and G to this part, or any successor regulation. (d) General requirements—(1) Annual capital planning. (i) A bank holding company must develop and maintain a capital plan. (ii) A bank holding company must submit its complete capital plan to the appropriate Reserve Bank and the Board each year by the 5th of January, or such later date as directed by the Board or the appropriate Reserve Bank, after consultation with the Board. (iii) The bank holding company’s board of directors or a designated committee thereof must at least annually and prior to submission of the capital plan under paragraph (d)(1)(ii) of this section: (A) Review the robustness of the bank holding company’s process for assessing capital adequacy, (B) Ensure that any deficiencies in the bank holding company’s process for assessing capital adequacy are appropriately remedied; and (C) Approve the bank holding company’s capital plan. (2) Mandatory elements of capital plan. A capital plan must contain at least the following elements: (i) An assessment of the expected uses and sources of capital over the planning horizon that reflects the bank holding company’s size, complexity, risk profile, and scope of operations, assuming both expected and stressful conditions, including: (A) Estimates of projected revenues, losses, reserves, and pro forma capital levels, including any minimum regulatory capital ratios (for example, leverage, tier 1 risk-based, and total riskbased capital ratios) and any additional capital measures deemed relevant by the bank holding company, over the planning horizon under expected conditions and under a range of stressed scenarios, including any scenarios PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 74645 provided by the Federal Reserve and at least one stressed scenario developed by the bank holding company appropriate to its business model and portfolios; (B) A calculation of the pro forma tier 1 common ratio over the planning horizon under expected conditions and under a range of stressed scenarios and discussion of how the company will maintain a pro forma tier 1 common ratio above 5 percent under expected conditions and the stressed scenarios required under paragraphs (d)(2)(i)(A) and (ii) of this section; (C) A discussion of the results of any stress test required by law or regulation, and an explanation of how the capital plan takes these results into account; and (D) A description of all planned capital actions over the planning horizon. (ii) A detailed description of the bank holding company’s process for assessing capital adequacy, including: (A) A discussion of how the bank holding company will, under expected and stressful conditions, maintain capital commensurate with its risks, maintain capital above the minimum regulatory capital ratios and above a tier 1 common ratio of 5 percent, and serve as a source of strength to its subsidiary depository institutions; (B) A discussion of how the bank holding company will, under expected and stressful conditions, maintain sufficient capital to continue its operations by maintaining ready access to funding, meeting its obligations to creditors and other counterparties, and continuing to serve as a credit intermediary; (iii) The bank holding company’s capital policy; and (iv) A discussion of any expected changes to the bank holding company’s business plan that are likely to have a material impact on the firm’s capital adequacy or liquidity. (3) Data collection. Upon the request of the Board or appropriate Reserve Bank, the bank holding company shall provide the Federal Reserve with information regarding— (i) The bank holding company’s financial condition, including its capital; (ii) The bank holding company’s structure; (iii) Amount and risk characteristics of the bank holding company’s on- and off-balance sheet exposures, including exposures within the bank holding company’s trading account, other trading-related exposures (such as counterparty-credit risk exposures) or other items sensitive to changes in market factors, including, as E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES 74646 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations appropriate, information about the sensitivity of positions to changes in market rates and prices; (iv) The bank holding company’s relevant policies and procedures, including risk management policies and procedures; (v) The bank holding company’s liquidity profile and management; and (vi) Any other relevant qualitative or quantitative information requested by the Board or the appropriate Reserve Bank to facilitate review of the bank holding company’s capital plan under this section. (4) Re-submission of a capital plan. (i) A bank holding company must update and re-submit its capital plan to the appropriate Reserve Bank within 30 calendar days of the occurrence of one of the following events: (A) The bank holding company determines there has been or will be a material change in the bank holding company’s risk profile, financial condition, or corporate structure since the bank holding company adopted the capital plan; (B) The Board or the appropriate Reserve Bank objects to the capital plan; or (C) The Board or the appropriate Reserve Bank, after consultation with the Board, directs the bank holding company in writing to revise and resubmit its capital plan for any of the following reasons: (1) The capital plan is incomplete or the capital plan, or the bank holding company’s internal capital adequacy process, contains material weaknesses; (2) There has been or will likely be a material change in the bank holding company’s risk profile (including a material change in its business strategy or any risk exposure), financial condition, or corporate structure; (3) The stressed scenario(s) developed by the bank holding company is not appropriate to its business model and portfolios, or changes in financial markets or the macro-economic outlook that could have a material impact on a bank holding company’s risk profile and financial condition require the use of updated scenarios; or (4) The capital plan or the condition of the bank holding company raise any of the issues described in paragraph (e)(2)(ii) of this section. (ii) The Board or the appropriate Reserve Bank, after consultation with the Board, may, at its discretion, extend the 30-day period in paragraph (d)(4)(i) of this section for up to an additional 60 calendar days. (iii) Any updated capital plan must satisfy all the requirements of this section; however, a bank holding VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 company may continue to rely on information submitted as part of a previously submitted capital plan to the extent that the information remains accurate and appropriate. (e) Review of capital plans by the Federal Reserve—(1) Considerations and inputs. (i) The Board or the appropriate Reserve Bank, after consultation with the Board, will consider the following factors in reviewing a bank holding company’s capital plan: (A) The comprehensiveness of the capital plan, including the extent to which the analysis underlying the capital plan captures and addresses potential risks stemming from activities across the firm and the company’s capital policy; (B) The reasonableness of the bank holding company’s assumptions and analysis underlying the capital plan and its methodologies for reviewing the robustness of its capital adequacy process; and (C) The bank holding company’s ability to maintain capital above each minimum regulatory capital ratio and above a tier 1 common ratio of 5 percent on a pro forma basis under expected and stressful conditions throughout the planning horizon, including but not limited to any stressed scenarios required under paragraphs (d)(2)(i)(A) and (ii) of this section. (ii) The Board or the appropriate Reserve Bank, after consultation with the Board, will also consider the following information in reviewing a bank holding company’s capital plan: (A) Relevant supervisory information about the bank holding company and its subsidiaries; (B) The bank holding company’s regulatory and financial reports, as well as supporting data that would allow for an analysis of the bank holding company’s loss, revenue, and reserve projections; (C) As applicable, the Federal Reserve’s own pro forma estimates of the firm’s potential losses, revenues, reserves, and resulting capital adequacy under expected and stressful conditions, including but not limited to any stressed scenarios required under paragraphs (d)(2)(i)(A) and (ii) of this section, as well as the results of any stress tests conducted by the bank holding company or the Federal Reserve; and (D) Other information requested or required by the appropriate Reserve Bank or the Board, as well as any other information relevant, or related, to the bank holding company’s capital adequacy. (2) Federal Reserve action on a capital plan. (i) The Board or the appropriate PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 Reserve Bank, after consultation with the Board, will object, in whole or in part, to the capital plan or provide the bank holding company with a notice of non-objection to the capital plan: (A) By March 31 of the calendar year in which a capital plan was submitted pursuant to paragraph (d)(1)(ii) of this section, and (B) By the date that is 75 calendar days after the date on which a capital plan was resubmitted pursuant to paragraph (d)(4) of this section. (ii) The Board or the appropriate Reserve Bank, after consultation with the Board, may object to a capital plan if it determines that: (A) The bank holding company has material unresolved supervisory issues, including but not limited to issues associated with its capital adequacy process; (B) The assumptions and analysis underlying the bank holding company’s capital plan, or the bank holding company’s methodologies for reviewing the robustness of its capital adequacy process, are not reasonable or appropriate; (C) The bank holding company has not demonstrated an ability to maintain capital above each minimum regulatory capital ratio and above a tier 1 common ratio of 5 percent, on a pro forma basis under expected and stressful conditions throughout the planning horizon; or (D) The bank holding company’s capital planning process or proposed capital distributions otherwise constitute an unsafe or unsound practice, or would violate any law, regulation, Board order, directive, or any condition imposed by, or written agreement with, the Board. In determining whether a capital plan or any proposed capital distribution would constitute an unsafe or unsound practice, the appropriate Reserve Bank would consider whether the bank holding company is and would remain in sound financial condition after giving effect to the capital plan and all proposed capital distributions. (iii) The Board or the appropriate Reserve Bank, after consultation with the Board, will notify the bank holding company in writing of the reasons for a decision to object to a capital plan. (iv) If the Board or the appropriate Reserve Bank, after consultation with the Board, objects to a capital plan and until such time as the Board or the appropriate Reserve Bank, after consultation with the Board, issues a non-objection to the bank holding company’s capital plan, the bank holding company may not make any capital distribution, other than those capital distributions with respect to E:\FR\FM\01DER1.SGM 01DER1 emcdonald on DSK5VPTVN1PROD with RULES Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations which the Board or the appropriate Reserve Bank has indicated in writing its non-objection. (3) Request for reconsideration or hearing. Within 10 calendar days of receipt of a notice of objection to a capital plan by the Board or the appropriate Reserve Bank: (i) A bank holding company may submit a written request to the Board requesting reconsideration of the objection, including an explanation of why reconsideration should be granted. Within 10 calendar days of receipt of the bank holding company’s request, the Board will notify the company of its decision to affirm or withdraw the objection to the bank holding company’s capital plan or a specific capital distribution; or (ii) As an alternative to paragraph (e)(3)(i) of this section, a bank holding company may submit a written request to the Board for a hearing. Any hearing shall follow the procedures described in paragraph (f)(5)(ii)–(iii) of this section. (f) Approval requirements for certain capital actions—(1) Circumstances requiring approval. Notwithstanding a notice of non-objection under paragraph (e)(2)(i) of this section a bank holding company may not make a capital distribution under the following circumstances, unless it receives approval from the Board or appropriate Reserve Bank pursuant to paragraph (f)(4) of this section: (i) After giving effect to the capital distribution, the bank holding company would not meet a minimum regulatory capital ratio or a tier 1 common ratio of at least 5 percent; (ii) The Board or the appropriate Reserve Bank, after consultation with the Board, notifies the company in writing that the Federal Reserve has determined that the capital distribution would result in a material adverse change to the organization’s capital or liquidity structure or that the company’s earnings were materially underperforming projections; (iii) Except as provided in paragraph (f)(2) of this section, the dollar amount of the capital distribution will exceed the amount described in the capital plan for which a non-objection was issued under this section; or (iv) The capital distribution would occur after the occurrence of an event requiring resubmission under paragraphs (d)(4)(A) and (C) of this section and before the Federal Reserve acted on the resubmitted capital plan. (2) Exception for well capitalized bank holding companies. (i) A bank holding company may make a capital distribution for which the dollar amount exceeds the amount described in the VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 capital plan for which a non-objection was issued under this section if the following conditions are satisfied: (A) The bank holding company is, and after the capital distribution would remain, well capitalized as defined in § 225.2(r) of Regulation Y (12 CFR 225.2(r)); (B) The bank holding company’s performance and capital levels are, and after the capital distribution would remain, consistent with its projections under expected conditions as set forth in its capital plan under paragraph (d)(2)(i) of this section; (C) The annual aggregate dollar amount of all capital distributions (beginning on April 1 of a calendar year and ending on March 31 of the following calendar year) would not exceed the total amounts described in the company’s capital plan for which the bank holding company received a notice of non-objection by more than 1.00 percent multiplied by the bank holding company’s tier 1 capital, as reported to the Federal Reserve on the bank holding company’s first quarter FR Y–9C; (D) The bank holding company provides the appropriate Reserve Bank with notice 15 calendar days prior to a capital distribution that includes the elements described in paragraph (f)(3) of this section; and (E) The Board or the appropriate Reserve Bank, after consultation with the Board, does not object to the transaction proposed in the notice. In determining whether to object to the proposed transaction, the Board or the appropriate Reserve Bank, after consultation with the Board, shall apply the criteria described in paragraph (f)(4)(iv) of this section. (ii) The exception in this paragraph (f)(2) shall not apply if the Board or the appropriate Reserve Bank notifies the bank holding company in writing that it may not take advantage of this exception. (3) Contents of request. (i) A request for a capital distribution under this section shall be filed with the appropriate Reserve Bank and the Board and shall contain the following information: (A) The bank holding company’s current capital plan or an attestation that there have been no changes to the capital plan since it was last submitted to the Federal Reserve; (B) The purpose of the transaction; (C) A description of the capital distribution, including for redemptions or repurchases of securities, the gross consideration to be paid and the terms and sources of funding for the PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 74647 transaction, and for dividends, the amount of the dividend(s); and (D) Any additional information requested by the Board or the appropriate Reserve Bank (which may include, among other things, an assessment of the bank holding company’s capital adequacy under a revised stress scenario provided by the Federal Reserve, a revised capital plan, and supporting data). (ii) Any request submitted with respect to a capital distribution described in paragraph (f)(1)(i) of this section shall also include a plan for restoring the bank holding company’s capital to an amount above a minimum level within 30 days and a rationale for why the capital distribution would be appropriate. (4) Approval of certain capital distributions. (i) A bank holding company must obtain approval from the Board or the appropriate Reserve Bank, after consultation with the Board, before making a capital distribution described in paragraph (f)(1) of this section. (ii) A request for a capital distribution under this section must be filed with the appropriate Reserve Bank and contain all the information set forth in paragraph (f)(3) of this section. (iii) The Board or the appropriate Reserve Bank, after consultation with the Board, will act on a request under this paragraph (f)(4) within 30 calendar days after the receipt of a complete request under paragraph (f)(4)(ii) of this section. The Board or the appropriate Reserve Bank may, at any time, request additional information that it believes is necessary for its decision. (iv) In acting on a request under this paragraph, the Board or appropriate Reserve Bank will apply the considerations and principles in paragraph (e) of this section. In addition, the Board or the appropriate Reserve Bank may disapprove the transaction if the bank holding company does not provide all of the information required to be submitted under paragraphs (f)(3) and (f)(5)(iii) of this section. (5) Disapproval and hearing. (i) The Board or the appropriate Reserve Bank will notify the bank holding company in writing of the reasons for a decision to disapprove any proposed capital distribution. Within 10 calendar days after receipt of a disapproval by the Board, the bank holding company may submit a written request for a hearing. (ii) The Board will order a hearing within 10 calendar days of receipt of the request if it finds that material facts are in dispute, or if it otherwise appears appropriate. Any hearing conducted under this paragraph shall be held in E:\FR\FM\01DER1.SGM 01DER1 74648 Federal Register / Vol. 76, No. 231 / Thursday, December 1, 2011 / Rules and Regulations accordance with the Board’s Rules of Practice for Formal Hearings (12 CFR part 263). (iii) At the conclusion of the hearing, the Board will by order approve or disapprove the proposed capital distribution on the basis of the record of the hearing. By order of the Board of Governors of the Federal Reserve System, November 21, 2011. Jennifer J. Johnson, Secretary of the Board. [FR Doc. 2011–30665 Filed 11–28–11; 4:15 pm] BILLING CODE 6210–01–P FEDERAL HOUSING FINANCE AGENCY FEDERAL HOUSING FINANCE BOARD 12 CFR Parts 912 and 997 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT Office of Federal Housing Enterprise Oversight 12 CFR Parts 1780 to 1799 RIN 2590–AA52 Repeal of Regulations Federal Housing Finance Agency; Federal Housing Finance Board; and Office of Federal Housing Enterprise Oversight. ACTION: Final rule. AGENCIES: The Federal Housing Finance Agency (FHFA) is repealing two obsolete and outdated Federal Housing Finance Board (Finance Board) regulations, which relate to meetings of the Board of Directors of the Finance Board and the manner of calculating the Resolution Funding Corporation (RefCorp) obligations of the Federal Home Loan Banks (Banks), respectively. FHFA is also repealing certain parts of the Office of Federal Housing Enterprise Oversight (OFHEO) regulations currently designated as reserved and an associated subchapter, which will be empty after the repeal of those parts. This final rule repeals the regulations and subchapter in their entirety. DATES: This rule is effective on January 3, 2012. FOR FURTHER INFORMATION CONTACT: Michou H.M. Nguyen, Assistant General Counsel, (202) 414–3810, Office of General Counsel, Federal Housing Finance Agency, Fourth Floor, 1700 G Street NW., Washington, DC 20552. The telephone number for the emcdonald on DSK5VPTVN1PROD with RULES SUMMARY: VerDate Mar<15>2010 17:21 Nov 30, 2011 Jkt 226001 Telecommunications Device for the Deaf is (800) 877–8339. SUPPLEMENTARY INFORMATION: I. Background and Analysis A. Creation of the Federal Housing Finance Agency and Recent Legislation Effective July 30, 2008, the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110–289, 122 Stat. 2654, created FHFA as a new independent agency of the Federal Government, and transferred to FHFA the supervisory and oversight responsibilities of OFHEO over the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation (collectively, the Enterprises), the oversight responsibilities of the Finance Board over the Banks and the Office of Finance (OF) (which acts as the Banks’ fiscal agent) and certain functions of the Department of Housing and Urban Development. See id. at section 1101, 122 Stat. 2661–62. FHFA is responsible for ensuring that the Enterprises and the Banks operate in a safe and sound manner, including that they maintain adequate capital and internal controls, that their activities foster liquid, efficient, competitive and resilient national housing finance markets, and that they carry out their public policy missions through authorized activities. See id. at section 1102, 122 Stat. 2663– 64. The Enterprises, the Banks, and the OF continue to operate under regulations promulgated by OFHEO and the Finance Board, respectively, until such regulations are superseded by regulations issued by FHFA. See id. at sections 1301, 1302, 1311, 1312, 122 Stat. 2794–95, 2797–98. B. Considerations of Differences Between the Banks and the Enterprises Section 1201 of HERA requires the Director, when promulgating regulations ‘‘of general applicability and future effect’’ relating to the Banks, to consider the differences between the Banks and the Enterprises as they may relate to the Banks’ cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability. See section 1201, Public Law 110–289, 122 Stat. 2782–83 (amending 12 U.S.C. 4513). This final rule does not impose any new obligations on the Banks, but instead simply removes two existing Finance Board regulations that, as a result of other events, no longer have any practical or legal effect. Furthermore, as explained below, the repeal of parts 912 and 997 of title 12 PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 of the Code of Federal Regulations (CFR) would not have a ‘‘future effect’’ on the rights and responsibilities of the Banks. For these reasons, FHFA believes that a section 1201 analysis is not required for this final rule. C. Part 912 (Meetings of the Board of Directors of the Finance Board) Part 912 of title 12 of the CFR was issued by the Finance Board pursuant to the Government in the Sunshine Act (Sunshine Act), which generally requires that meetings of Federal agencies that are headed by collegial bodies be open to the public, and that such agencies promulgate regulations to implement the provisions of the Sunshine Act. Section 2 of the Sunshine Act states that the purpose of the Act is to provide the public the ‘‘fullest practicable information regarding the decisionmaking processes of the Federal Government’’ while protecting legitimate individual privacy and ‘‘the ability of the Government to carry out its responsibilities.’’ Public Law 94–409, section 2, 90 Stat. 1241 (Sept. 13, 1976) reprinted in 5 U.S.C. 552b notes. In order to implement the purposes of the Sunshine Act as articulated in Article 2, part 912 was designed to provide the public with access to information regarding the decision-making processes of the Board of Directors of the Finance Board, while protecting the privacy rights of individuals and the ability of the Board of Directors of the Finance Board to carry out its responsibilities. Part 912 accomplished these goals through the use of various procedures applicable to open and closed meetings of the Board of Directors of the Finance Board. The Sunshine Act does not apply to FHFA, which is not administered by a collegial body. For purposes of 5 U.S.C. 552b, the term ‘‘agency’’ means ‘‘any agency * * * headed by a collegial body composed of two or more individual members * * *.’’ FHFA is headed by a single Director and therefore does not fall within the scope of this definition. Consequently, the procedures that the Finance Board had adopted in part 912 for its board meetings are no longer necessary, and should not be adopted by FHFA, because FHFA does not have a board of directors and is not subject to the Sunshine Act. Therefore, FHFA is hereby repealing part 912 in its entirety. D. Part 997 (RefCorp Obligations of the Banks) In 1989, Congress established RefCorp as a vehicle to provide funding for the Resolution Trust Corporation to finance resolution of the savings and loan crisis. E:\FR\FM\01DER1.SGM 01DER1

Agencies

FEDERAL RESERVE SYSTEM

[Federal Register Volume 76, Number 231 (Thursday, December 1, 2011)]
[Rules and Regulations]
[Pages 74631-74648]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30665]


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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Regulation Y; Docket No. R-1425]
RIN 7100-AD 77


Capital Plans

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Final rule.

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SUMMARY: The Board is adopting amendments to Regulation Y to require 
large bank holding companies to submit capital plans to the Federal 
Reserve on an annual basis and to require such bank holding companies 
to obtain approval from the Federal Reserve under certain circumstances 
before making a capital distribution. This rule applies only to bank 
holding companies with $50 billion or more of total consolidated 
assets.

DATES: The final rule will become effective on December 30, 2011.

FOR FURTHER INFORMATION CONTACT: Benjamin W. McDonough, Senior Counsel, 
(202) 452-2036, April C. Snyder, Senior Counsel, (202) 452-3099, or 
Christine E. Graham, Senior Attorney, (202) 452-3005, Legal Division; 
Timothy P. Clark, Senior Advisor, (202) 452-5264, Michael Foley, Senior 
Associate Director, (202) 452-6420, Anna Lee Hewko, Assistant Director, 
(202) 530-6260, or Thomas R. Boemio, Manager, (202) 452-2982, Division 
of Banking Supervision and Regulation, Board of Governors of the 
Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. 
Users of Telecommunication Device for Deaf (TDD) only, call (202) 263-
4869.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Overview of Comments
III. Scope
IV. Capital Planning
    A. Annual Capital Planning Requirement
    B. Mandatory Elements of a Capital Plan
    C. Data Submissions
    D. Federal Reserve Review of a Capital Plan
    E. Federal Reserve Action on a Capital Plan
    F. Federal Reserve Objection to a Capital Plan
    G. Re-submission of a Capital Plan
V. Approval Requirements
    A. General Requirements
    B. Contents of Request for Approval and Procedures for Review
VI. Conforming Changes to Section 225.4(b) of Regulation Y
VII. Administrative Law Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act

I. Background

    On June 17, 2011, the Board published a proposal in the Federal 
Register to require large bank holding companies to submit capital 
plans to the Federal Reserve on an annual basis and to require such 
bank holding companies to provide prior notice to the Federal Reserve 
under certain circumstances before making a capital distribution (the 
proposed rule or NPR).\1\ The public comment period on the proposed 
rule closed on August 5, 2011. The Board is adopting the rule in final 
form with certain modifications that are discussed below (final 
rule).\2\ The final rule

[[Page 74632]]

applies only to bank holding companies with $50 billion or more of 
total consolidated assets.
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    \1\ 76 FR 35351 (June 17, 2011).
    \2\ The amendments to Regulation Y are codified at 12 CFR 225.8. 
As discussed in section VI of this preamble, the rule also makes 
conforming changes to section 225.4(b) of Regulation Y (12 CFR 
225.4(b)).
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    During the years leading up to the recent financial crisis, many 
bank holding companies made significant distributions of capital, in 
the form of stock repurchases and dividends, without due consideration 
of the effects that a prolonged economic downturn could have on their 
capital adequacy and ability to continue to operate and remain credit 
intermediaries during times of economic and financial stress. The final 
rule is intended to address such practices, building upon the Federal 
Reserve'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.\3\
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    \3\ See SR letter 09-4 (Revised March 27, 2009), available at 
https://www.federalreserve.gov/boarddocs/srletters/2009/SR0904.htm; 
see also Revised Temporary Addendum to SR letter 09-4 (November 17, 
2010) (SR 09-4), available at https://www.federalreserve.gov/newsevents/press/bcreg/bcreg20101117b1.pdf.
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    The Federal Reserve has long held the view that bank holding 
companies generally should operate with capital positions well above 
the minimum regulatory capital ratios, with the amount of capital held 
commensurate with the bank holding company's risk profile.\4\ Bank 
holding companies should have internal processes for assessing their 
capital adequacy that reflect a full understanding of their risks and 
ensure that they hold capital corresponding to those risks to maintain 
overall capital adequacy.\5\ Bank holding companies that are subject to 
the Board's advanced approaches risk-based capital requirements must 
satisfy specific requirements relating to their internal capital 
adequacy processes in order to use the advanced approaches to calculate 
their minimum risk-based capital requirements.\6\
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    \4\ See 12 CFR part 225, Appendix A; see also SR letter 99-18 
(July 1, 1999), available at https://www.federalreserve.gov/boarddocs/srletters/1999/SR9918.HTM.
    \5\ See SR 09-4.
    \6\ See 12 CFR part 225, Appendix G, section 22(a); see also, 
Supervisory Guidance: Supervisory Review Process of Capital Adequacy 
(Pillar 2) Related to the Implementation of the Basel II Advanced 
Capital Framework, 73 FR 44620 (July 31, 2008).
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    As part of their fiduciary responsibilities to a bank holding 
company, the board of directors and senior management bear the primary 
responsibility for developing, implementing, and monitoring a bank 
holding company's capital planning strategies and internal capital 
adequacy process. The final rule does not diminish that responsibility. 
Rather, the final rule is designed to (i) establish common minimum 
supervisory standards for such strategies and processes for certain 
large bank holding companies; (ii) describe how boards of directors and 
senior management of these bank holding companies should communicate 
the strategies and processes, including any material changes thereto, 
to the Federal Reserve; and (iii) provide the Federal Reserve with an 
opportunity to review large bank holding companies' proposed capital 
distributions under certain circumstances.
    In the Board's view, the analytical techniques and other 
requirements set forth in the final rule are necessary to identify, 
measure, and monitor risks to the financial stability of the United 
States.\7\ An elevated capital planning standard for large bank holding 
companies is appropriate because of the heightened risk they pose to 
the financial system and the importance of capital in mitigating these 
risks.\8\ Under section 165 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (Dodd-Frank Act), the Board is required 
to impose enhanced prudential standards on large bank holding 
companies, including stress testing requirements; enhanced capital, 
leverage, liquidity, and risk management requirements; and a 
requirement to establish a risk committee.\9\ The Board expects that 
large bank holding companies will reflect these enhanced prudential 
standards, including the results of any required stress tests, in their 
capital planning strategies and internal capital adequacy processes.
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    \7\ See section 165(i)(1)(B)(iii) of Public Law 111-203, 124 
Stat. 1376 (2010) (Dodd-Frank Act); 12 U.S.C. 5365(i)(1)(B)(iii).
    \8\ Currently, savings and loan holding companies are not 
subject to minimum regulatory capital ratio requirements. As 
discussed in the Board's Notice of Intent To Apply Certain 
Supervisory Guidance to Savings and Loan Holding Companies, the 
Board is considering applying to savings and loan holding companies 
the same consolidated risk-based and leverage capital requirements 
as bank holding companies to the extent reasonable and feasible 
taking into consideration the unique characteristics of savings and 
loan holding companies and the requirements of Home Owners' Loan 
Act. See 76 FR 22662, 22665 (April 22, 2011). The Board may extend 
the capital plan rule's requirements to savings and loan holding 
companies at such time as the Board applies minimum regulatory 
capital ratio requirements to them.
    \9\ See generally section 165 of the Dodd Frank Act; 12 U.S.C. 
5365. One commenter expressed support for enhanced capital and 
leverage requirements.
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    The Dodd-Frank Act also requires the Board to implement early 
remediation requirements on large bank holding companies under which a 
large bank holding company experiencing financial distress must take 
specific remedial actions in order to minimize the probability that the 
company will become insolvent and minimize the potential harm of such 
insolvency to the United States.\10\ These early remediation 
requirements must impose limitations on capital distributions in the 
initial stages of financial decline and increase in stringency as the 
financial condition of the company declines.\11\ Depending on a large 
bank holding company's financial condition, early remediation 
requirements imposed under the Dodd-Frank Act may result in limitations 
on a company's capital distributions in addition to the requirements 
that are imposed by the final rule.
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    \10\ See section 166 of the Dodd-Frank Act; 12 U.S.C. 5366.
    \11\ Id.
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II. Overview of Comments

    The Board received 16 comments on the proposed rule. Commenters 
included financial trade associations, bank holding companies, policy 
institutions, and individuals. Commenters generally expressed support 
for the proposed rule. Several commenters recommended one or more 
changes to specific provisions of the proposed rule.
    For instance, many commenters provided suggestions on the timeframe 
under which the Federal Reserve would review and act on a bank holding 
company's capital plan. Commenters asked for more information related 
to the data submissions that accompany the capital plan submission. In 
addition, many of the commenters asked for clarification on the content 
of the capital plans and provided views on the standards under which 
the Federal Reserve could object to capital plans. Other commenters 
provided suggestions on whether firms should be able to make capital 
distributions not specified in their capital plans without providing 
prior notice to the Federal Reserve and how such a standard should be 
crafted. In addition, three commenters raised issues that would be 
relevant to savings and loan holding companies should the final rule's 
requirements extend to these institutions at a future date.
    In developing this final rule, the Board has carefully considered 
the comments received on the proposed rule. In response to these 
comments, the Board has clarified the requirements of the rule and 
modified the proposed rule in certain respects. For example, the Board 
has--
     Clarified in the preamble that a notice of a non-objection 
to a capital

[[Page 74633]]

plan will extend through the first quarter of the subsequent year;
     Clarified in the preamble that large bank holding 
companies will remain subject to SR letter 09-4, which provides 
guidance regarding capital distributions;
     Revised the final rule to provide that, if the Federal 
Reserve objects to a bank holding company's capital plan, the bank 
holding company may not make any capital distribution (other than a 
capital distribution with respect to which the Federal Reserve did not 
object) until such time as the Federal Reserve issues a non-objection 
to the company's capital plan; and
     Added a limited exception that permits well capitalized 
large bank holding companies that are performing in accordance with 
baseline projections to make modest capital distributions in excess of 
the amount described in the company's capital plan under certain 
circumstances.
    In addition, in response to commenters' requests for additional 
guidance on the data collection, the Federal Reserve has published a 
detailed description of the data that it intends to collect for 
supervisory purposes and to support the review of capital plans in a 
separate Federal Register notice.\12\
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    \12\ 76 FR 55288 (September 7, 2011).
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    These changes, as well as the Board's other responses to the 
comments received, are discussed in greater detail below.

III. Scope

    The final rule applies to every top-tier bank holding company 
domiciled in the United States that has $50 billion or more in total 
consolidated assets (large bank holding companies).\13\ As of September 
30, 2011, there were approximately 34 large bank holding companies. The 
Board notes that the asset threshold of $50 billion is consistent with 
the threshold established by section 165 of the Dodd-Frank Act relating 
to enhanced supervision and prudential standards for certain bank 
holding companies.\14\
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    \13\ Thus, the final rule will not apply to a foreign bank or 
foreign banking organization that is itself a bank holding company 
or treated as a bank holding company pursuant to section 8(a) of the 
International Banking Act of 1978 (12 U.S.C. 3106(a)), but generally 
will apply to any U.S.-domiciled bank holding company subsidiary of 
the foreign bank or foreign banking organization that meets the 
final rule's size threshold.
    \14\ See section 165(a) of the Dodd-Frank Act; 12 U.S.C. 
5365(a). The Dodd-Frank Act provides that the Board may, upon the 
recommendation of the Financial Stability Oversight Council, 
increase the $50 billion asset threshold for the application of the 
resolution plan, concentration limit, and credit exposure report 
requirements. See 12 U.S.C. 5365(a)(2)(B).
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    The Board received a comment suggesting that the $50 billion asset 
threshold be measured over a four-quarter period in order to minimize 
the likelihood that temporary asset fluctuations would trigger the 
rule's application. In response to this comment, the Board has amended 
the proposal to measure ``total consolidated assets'' as the average of 
a company's total consolidated assets over the previous four calendar 
quarters, as reflected on the bank holding company's Consolidated 
Financial Statements for Bank Holding Companies (FR Y-9C). This 
calculation will be effective as of the due date of the bank holding 
company's most recent FR Y-9C. The final rule also applies to any 
institution that the Board determines, by order, shall be subject in 
whole or in part to the rule's requirements based on the institution's 
size, level of complexity, risk profile, scope of operations, or 
financial condition. The final rule provides that a bank holding 
company that becomes subject to the final rule by operation of the 
asset threshold after the 5th of January of a calendar year will not be 
subject until January 1 of the next calendar year to the final rule's 
requirement to file a capital plan with the Federal Reserve, resubmit a 
capital plan under certain circumstances, or to obtain prior approval 
of capital distributions in excess of those described in the firm's 
capital plan.
    Consistent with the phase-in period for the imposition of minimum 
risk-based and leverage capital requirements established in section 171 
of the Dodd-Frank Act, until July 21, 2015, the final rule does not 
apply to any bank holding company subsidiary of a foreign banking 
organization that is currently relying on Supervision and Regulation 
Letter SR 01-01 issued by the Board of Governors (as in effect on May 
19, 2010).\15\
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    \15\ Under Supervision and Regulation Letter SR 01-01, as a 
general matter, a U.S. bank holding company that is owned and 
controlled by a foreign bank that is a financial holding company 
that the Board has determined to be well-capitalized and well-
managed is not required to comply with the Board's capital adequacy 
guidelines. See SR letter 01-01 (January 5, 2001), available at 
https://www.federalreserve.gov/boarddocs/srletters/2001/sr0101.htm.
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    Several commenters suggested that the Board grant a transition 
period to large bank holding companies that did not participate in the 
2011 Comprehensive Capital Analysis and Review (CCAR). One commenter 
further suggested that, during the transition period, this set of large 
bank holding companies (non-CCAR firms) participate in a capital 
planning exercise where they would submit data templates and conduct 
stress testing, but would not be subject to the other requirements of 
the rule, including the prior notice requirements. The Board has 
carefully considered these comments and has decided not to provide for 
a formal transition period for non-CCAR firms. Thus, all large bank 
holding companies will be required to submit capital plans in January 
2012 and will generally be subject to the rule's requirements. The 
Board notes that the final rule is designed to be flexible enough to 
accommodate bank holding companies of varying degrees of complexity and 
to adjust to changing conditions over time. The level of detail and 
analysis expected in a capital plan will vary based on the large bank 
holding company's size, complexity, risk profile, and scope of 
operations. Moreover, the Federal Reserve will work with non-CCAR firms 
to communicate the review process and the information requirements of 
the rule.
    The Board understands that non-CCAR firms may need additional time 
to build and implement the internal systems necessary to satisfy the 
data collection requirements required with respect to stress scenarios 
provided by the Board. Thus, for purposes of the Federal Reserve's 
evaluation of capital plans due January 5, 2012, non-CCAR firms will 
not be required to submit the complete set of data templates required 
of the CCAR firms. Instead, as discussed in section IV.C. of the 
preamble, some non-CCAR firms may be asked to submit limited, summary 
information to the Federal Reserve about their projections of revenues 
and losses.
    Finally, three commenters raised issues that would be relevant to 
savings and loan holding companies should the final rule's requirements 
extend to these institutions at a future date. If the Board decides to 
extend the final rule to savings and loan holding companies through 
separate rulemaking or by order, it intends to take these comments into 
account.

IV. Capital Planning

A. Annual Capital Planning Requirement

    The final rule requires a large bank holding company to develop and 
maintain a capital plan. At least annually, the bank holding company's 
board of directors or a designated committee thereof is required to 
review the robustness \16\ of the holding

[[Page 74634]]

company's process for assessing capital adequacy, ensure that any 
deficiencies in the firm's process for assessing capital adequacy are 
appropriately remedied, and approve the bank holding company's capital 
plan.\17\
---------------------------------------------------------------------------

    \16\ The proposed rule would have required a bank holding 
company's board of directors or designated committee to review the 
``effectiveness'' of the holding company's process for assessing 
internal capital adequacy. In response to comments that this 
requirement was unclear, the Board has replaced the term 
``effectiveness'' with the term ``robustness'' and provided guidance 
on how robustness should be evaluated.
    \17\ As part of this review, the board of directors should 
consider any remaining uncertainties, limitations, and assumptions 
associated with the bank holding company's capital adequacy process.
---------------------------------------------------------------------------

    Robustness of a large bank holding company's capital adequacy 
process should be evaluated based on the following elements:
    (i) A sound risk management infrastructure that supports the 
identification, measurement, and assessment of all material enterprise-
level risks arising from the exposures and business activities of the 
bank holding company;
    (ii) An effective process for translating risk measures into 
estimates of potential loss over a range of adverse scenarios and 
environments--using multiple, complementary loss forecasting 
methodologies--and for aggregating those estimated losses across the 
bank holding company; \18\
---------------------------------------------------------------------------

    \18\ While a company should use multiple, complementary loss 
forecasting methodologies in its process for assessing capital 
adequacy (see section 225.8(d)(2)(ii) of the final rule), a company 
is not required to use multiple methodologies when estimating the 
expected uses and sources of capital for purposes of section 
225.8(d)(2)(i) of the final rule.
---------------------------------------------------------------------------

    (iii) A clear definition of available capital resources and an 
effective process for forecasting available capital resources 
(including any forecasted revenues) over the same range of adverse 
scenarios and environments used for loss forecasting;
    (iv) A process for considering the impact of loss and resource 
estimates on capital adequacy, in line with the bank holding company's 
stated goals for the level and composition of capital, and taking into 
account any limitations of the company's capital adequacy process and 
its components;
    (v) A process, supported by the bank holding company's capital 
policy, to use its assessments of the impact of loss and resource 
estimates on capital adequacy to make key decisions regarding the 
current level and composition of capital, specific capital actions, and 
capital contingency plans as they affect capital adequacy;
    (vi) Robust internal controls governing capital adequacy process 
components, including sufficient documentation; change control; model 
validation and independent review; and audit testing; and
    (vii) Effective board and senior management oversight of the bank 
holding company's capital adequacy process, including periodic review 
of capital goals, assessment of the appropriateness of adverse 
scenarios considered in capital planning, regular review of any 
limitations and uncertainties in the process, and approval of planned 
capital actions.
    Under the proposed rule, a large bank holding company would have 
been required to submit its capital plan by January 5th. Commenters 
provided suggestions on the proposed deadline. One commenter expressed 
the concern that a large bank holding company will be required to rely 
on tentative fourth quarter financial statements in developing its 
capital plan and suggested that the deadline be pushed to later in the 
first quarter. Another commenter suggested that the Board adopt a 
rolling submission process to permit firms to align capital plan 
submission with internal capital planning process. As discussed below, 
these concerns were motivated in part by the concern that the timing of 
the capital plan submission and review interrupted firms' ability to 
make capital distributions in the first quarter. The Board has 
addressed these concerns to a degree by clarifying in the preamble 
that, for a capital plan submitted in the first quarter, a non-
objection would cover the four-quarter period commencing with the 
second quarter and extend through the first quarter of the following 
year. For a capital plan resubmitted after the first quarter, a non-
objection would extend through the first quarter of the subsequent 
year.
    As further discussed below, the Board has decided to maintain the 
proposed submission date of January 5th for capital plans. Doing so 
will permit review of capital plans within the first quarter, thus 
minimizing to the greatest extent possible the potential to disrupt a 
large bank holding company's ability to make capital distributions in 
subsequent quarters of that year. In addition, a single submission date 
ensures that firms are finalizing their capital plans based on the same 
quarter's data, which permits the Board to perform a cross-firm 
comparison of capital plans based on the same scenarios and to 
determine whether to object to firms' capital plans based on consistent 
scenarios.

B. Mandatory Elements of a Capital Plan

    Consistent with the NPR, the final rule defines a capital plan as a 
written presentation of a large bank holding company's capital planning 
strategies and capital adequacy process that includes certain mandatory 
elements. These mandatory elements are organized into four main 
components:
    (i) An assessment of the expected uses and sources of capital over 
the planning horizon (at least nine quarters, beginning with the 
quarter preceding the quarter in which the bank holding company submits 
its capital plan) that reflects the bank holding company's size, 
complexity, risk profile, and scope of operations, assuming both 
expected and stressful conditions;
    (ii) A detailed description of the bank holding company's process 
for assessing capital adequacy;
    (iii) The bank holding company's capital policy; and
    (iv) A discussion of any expected changes to the bank holding 
company's business plan that are likely to have a material impact on 
the firm's capital adequacy or liquidity.
    The mandatory elements under each component are described below. 
While the final rule reflects a different organizational structure than 
the proposed rule, the elements are substantively the same.\19\
---------------------------------------------------------------------------

    \19\ The proposed rule defined a ``capital plan'' as ``a written 
presentation of a bank holding company's capital planning strategies 
and capital adequacy processes that includes: (i) An assessment of 
the expected uses and sources of capital over a nine-quarter 
forward-looking planning period (beginning with the quarter 
preceding the quarter in which the bank holding company submits its 
capital plan) that reflects the bank holding company's size, 
complexity, risk profile, and scope of operations, assuming both 
expected and stressful conditions, (ii) a detailed description of 
the bank holding company's processes for assessing capital adequacy, 
and (iii) an analysis of the effectiveness of these processes.'' 
Section 225.8(d)(2) of the proposed rule set forth additional 
mandatory elements of a capital plan. The final rule simplifies the 
organization by locating all of the required elements of a capital 
plan in one place. The final rule defines a ``capital plan'' as 
``written presentation of a bank holding company's capital planning 
strategies and capital adequacy processes that includes the 
mandatory elements set forth in [section 225.8(d)(2) of the final 
rule].'' Section 225.8(d)(2) of the final rule sets forth the 
comprehensive list of elements required to be included in a firm's 
capital plan, including elements of the definition of a ``capital 
plan'' in the proposed rule.
     The final rule does not require a capital plan to include an 
analysis of the effectiveness of the large bank holding company's 
processes for assessing capital adequacy. As described in section 
IV.A of this preamble, the board of directors of a large bank 
holding company is required to assess the robustness of the bank 
holding company's capital plan at least annually. In light of the 
Board's supervisory review of this assessment, the Board will not 
require a large bank holding company to include a separate analysis 
in its capital plan.

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[[Page 74635]]

    These mandatory elements of a capital plan are consistent with the 
Federal Reserve's existing supervisory practice with respect to the 
information that it expects large bank holding companies to include in 
a capital plan for internal planning purposes. A large bank holding 
company should include in its capital plan other information and 
analysis that it determines is relevant to its capital planning 
strategies and internal capital adequacy process.
    The level of detail and analysis expected in a capital plan will 
vary based on the large bank holding company's size, complexity, risk 
profile, and scope of operations. Thus, for example, a large bank 
holding company that has extensive credit exposures to commercial real 
estate but very limited trading activities will be expected to have 
robust systems in place to identify and monitor its commercial real 
estate exposures, but its systems related to trading activities will 
not need to be as sophisticated or extensive. In contrast, a large bank 
holding company with extensive exposure to a variety of risk exposures, 
including both retail and wholesale exposures, as well as significant 
trading activities and international operations, will be expected to 
have an integrated system for measuring and aggregating all of these 
risk exposures.
    One commenter requested that the Board clarify that the capital 
planning process should focus on the consolidated organization. The 
Board confirms that the capital planning process should focus on the 
consolidated organization, but should also provide for the specific 
capital needs of material subsidiaries consistent with the large bank 
holding company's obligations to serve as a source of strength to its 
subsidiary depository institutions.
    Another commenter requested that the Federal Reserve recognize that 
bank holding companies that are wholly-owned subsidiaries of foreign 
banking organizations have different capital planning goals than 
publicly-traded domestic bank holding companies. In particular, capital 
planning by these institutions should take into account the financial 
condition of their parent foreign bank and/or developments in the 
parent foreign bank's home country. The Board recognizes that the 
capital planning considerations will be different for domestic 
subsidiaries of foreign banking organizations than for publicly traded 
domestic bank holding companies and expects that the capital plans of 
such domestic subsidiaries will reflect these differences.
1. Assessment of the Expected Uses and Sources of Capital Over the 
Planning Horizon That Reflects the Large Bank Holding Company's Size, 
Complexity, Risk Profile, and Scope of Operations, Assuming Both 
Expected and Stressful Conditions
    The first component of a large bank holding company's capital plan 
is an assessment of the expected uses and sources of capital over the 
planning horizon, assuming both expected and stressful conditions. This 
assessment must contain the following elements:
    (1) Estimates of projected revenues, losses, reserves, and pro 
forma capital levels, including any minimum regulatory capital ratios 
(for example, leverage, tier 1 risk-based, and total risk-based capital 
ratios) and any additional capital measures deemed relevant by the bank 
holding company, over the planning horizon under expected conditions 
and under a range of stressed scenarios, including any scenarios 
provided by the Federal Reserve and at least one stressed scenario 
developed by the bank holding company appropriate to its business model 
and portfolios; \20\
---------------------------------------------------------------------------

    \20\ Whereas the proposed rule required a large bank holding 
company to conduct a probabilistic assessment of the likelihood of 
the bank holding company-developed scenario, the Board has not 
included it as a mandatory element in the final rule because it does 
not believe that such a probabilistic assessment will assist the 
bank holding company's board of directors in determining the 
robustness of a capital plan in all circumstances. The Board has 
also provided additional guidance on its expectations in regard to 
the bank holding company-developed scenarios.
---------------------------------------------------------------------------

    (2) A calculation of the pro forma tier 1 common ratio over the 
planning horizon under expected conditions and under a range of 
stressed scenarios and discussion of how the company will maintain a 
pro forma tier 1 common ratio above 5 percent under the stressed 
scenarios required by the final rule;
    (3) a discussion of the results of any stress test required by law 
or regulation, and an explanation of how the capital plan takes these 
results into account; and
    (4) a description of all planned capital actions over the planning 
horizon.
a. Stress Scenarios
    In assessing its expected uses and sources of capital over the 
planning horizon, a large bank holding company must estimate projected 
revenues, losses, reserves, and pro forma capital levels under expected 
conditions and under a range of stressed scenarios, including any 
scenarios provided by the Federal Reserve. Several commenters asked 
that the Board provide more guidance on these stressed scenarios and to 
provide the scenarios to a bank holding company well before the 
company's capital plan is due. Because the Board expects that the 
stressed scenarios will change over time and in order for the scenarios 
to reflect current data, the Board intends to provide the stressed 
scenarios to a firm at least several weeks before the capital plans are 
due.
    Other commenters requested guidance on the relationship between 
these stressed scenarios and the scenarios that the Board is required 
to provide under section 165(i) of the Dodd-Frank Act. The Board 
expects that the stress scenarios that it provides under the final rule 
will be consistent with the stress scenarios it will provide to firms 
for stress tests they conduct under section 165 of the Dodd-Frank Act. 
In addition, the Board confirms that stress testing should be conducted 
in accordance with any applicable supervisory guidance.
    One commenter suggested that the Board design stress scenarios 
based on extreme yet plausible conditions that are administered 
simultaneously across multiple banks. Generally, the Board expects that 
the stressed scenarios will consist of forecasts of key economic and 
financial variables consistent with a stressful environment. In 
calibrating the severity of a stress scenario, the Federal Reserve will 
target a severe scenario that is not outside the range of 
possibilities. There are multiple quantitative and qualitative 
approaches to achieve this level of target severity, described below.
    One approach involves the construction of a baseline forecast from 
a large-scale macroeconomic model and identification of a scenario that 
would have a specific probabilistic likelihood given the baseline 
forecast. For example, a scenario may be constructed that has a 5 
percent chance of occurring, conditional on the baseline outlook. While 
many scenarios would be equally likely using this ``probabilistic 
approach'' there are a variety of statistical approaches (together with 
some judgment) that help to select an appropriate scenario from this 
set. However, given that the probabilities of macroeconomic events can 
only be imprecisely estimated, and that many macroeconomic models tend 
to underestimate the true probabilities of stressful economic outcomes, 
such an approach may not, by itself, be well-suited to scenario design.
    An alternative approach assumes that the future path of the U.S. 
economy would follow the path experienced during post-war recessions. 
For example, of the 9 recessions since 1957, the average increase in 
the unemployment rate was 2.4 percentage points and the average peak-
to-trough

[[Page 74636]]

decline in GDP was 2.2 percent; the stress scenario could thus be 
designed to match these changes, or one could select from among 
scenarios that were worse than the average one. While this ``recession 
approach'' is transparent and straightforward to implement, it may not 
account for the underlying state of the economy at the time the stress 
test is conducted. The same shocks may lead to better or worse 
macroeconomic performance at a particular point in time depending on 
the scope for monetary or fiscal policy to offset the shocks or other 
factors. The ``recession approach'' may be augmented with a 
macroeconomic model to take into account the effect of current 
conditions on macroeconomic performance.
    Another approach augments the scenario generated by either the 
``probabilistic approach'' or ``recession approach'' with one or more 
particularly salient risks facing the economy or the financial system. 
As an example, while the more adverse macroeconomic scenario used in 
the 2009 Supervisory Capital Assessment Program (SCAP) was designed to 
capture a generally stressful macroeconomic environment, it also 
assumed an unprecedented 30 percent fall in house prices in 2009-2010, 
in part because of the important role that house prices had played in 
the macro-financial stress over the previous few years and expectations 
that house price declines would continue to be a salient risk facing 
the economy and the banking system.
    The stress scenarios will provide forecasts for a number of 
macroeconomic variables. In SCAP, the Federal Reserve defined the macro 
scenarios by providing forecasts for three variables: GDP, unemployment 
and house prices. In CCAR, the Federal Reserve defined the 
macroeconomic scenarios using nine variables: GDP, the consumer price 
index, disposable personal income, the unemployment rate, the three-
month T-bill rate, the 10-year Treasury rate, the rate on triple-B 
rated corporate bonds, the value of a broad index of U.S. stock prices, 
and house prices. Going forward, the Federal Reserve will likely 
modestly increase the number of variables used to define the scenarios. 
In particular, it will likely increase the number of U.S. macroeconomic 
indicators, as well as variables summarizing global macroeconomic 
conditions and exchange rates. In increasing the number of variables, 
the Federal Reserve intends to balance the benefits of additional 
precision to the scenarios with the cost of increased complexity.
    Measuring the effects of the scenarios on a firm's trading 
exposures requires the consideration of additional variables. 
Evaluating the profit and loss sensitivity of a firm's trading 
portfolio in response to an adverse market shock requires defining a 
large set of specific factors for which macroeconomic models can give 
only limited guidance (e.g., the Libor-overnight indexed swap rate 
spread). In the SCAP and CCAR, the Federal Reserve used financial 
market shocks consistent with what actually occurred from the end of 
June 2008 to year-end 2008, a period of severe financial dislocation. 
In the future, as the financial products traded by firms evolve, the 
trading scenario will likely rely less on a particular historical 
episode, and be guided more by a statistical framework based on 
historical experience, or hypothetical assumptions, reflecting salient 
risks facing the financial system. However, the trading book shock will 
not be inconsistent with the environment and circumstances 
characterized by the general macroeconomic scenario that is used.
    The Board intends that a large bank holding company will integrate 
into its capital plan, as one part of the underlying analysis, the 
results of the company-run stress tests conducted under section 165 of 
the Dodd-Frank Act, when implemented, and the Federal Reserve will 
consider the results of those stress tests in its evaluation of that 
bank holding company's capital plan.\21\ However, the Board does not 
expect that the results of stress tests conducted under the Dodd-Frank 
Act alone will be sufficient to address all relevant adverse outcomes 
that should be covered in a satisfactory capital plan for purposes of 
the final rule. The bank holding company-designed stress scenario 
should reflect an individual company's unique vulnerabilities to 
factors that affect its firm-wide activities and risk exposures, 
including macroeconomic, market-wide, and firm-specific events.
---------------------------------------------------------------------------

    \21\ See section 165(i)(1) and (2) of the Dodd-Frank Act; 12 
U.S.C. 5365(i)(1) and (2). In reviewing stress test results of U.S. 
subsidiaries of foreign banking organizations, the Federal Reserve 
intends to take into account any stress tests applicable to the 
foreign consolidated group.
---------------------------------------------------------------------------

b. Minimum Regulatory Capital Ratios and 5 Percent Tier 1 Common Ratio
    The following discussion provides more detail on the requirement 
that a company calculate pro forma capital levels, including any 
minimum regulatory capital ratios, and its pro forma tier 1 common 
ratio over the planning horizon under expected and stressful 
conditions. The final rule defines minimum regulatory capital ratios as 
any minimum regulatory capital ratio that the Federal Reserve may 
require of a large bank holding company, by regulation or order, 
including the bank holding company's leverage ratio and tier 1 and 
total risk-based capital ratios as calculated under Appendices A, D, E, 
and G to this part 225 (12 CFR part 225, Appendices A, D, E, and G), or 
any successor regulation. In the future, the Board may propose to 
modify, or add to, the existing minimum regulatory capital 
requirements.
    In addition to the requirements discussed above, under the proposed 
rule, until January 1, 2016, a large bank holding company would have 
been required to calculate its pro forma tier 1 common ratio under 
expected and stressful conditions and discuss in its capital plan how 
the bank holding company will maintain a pro forma tier 1 common ratio 
above 5 percent under those conditions throughout the planning horizon. 
This level reflects a supervisory assessment of the minimum capital 
needed to be a going concern throughout stressful conditions and on a 
post-stress basis, based on an analysis of the historical distribution 
of earnings by large banking organizations.
    For purposes of this requirement, a large bank holding company's 
tier 1 common ratio means the ratio of a large bank holding company's 
tier 1 common capital to its total risk-weighted assets. Tier 1 common 
capital is calculated as tier 1 capital less non-common elements in 
tier 1 capital, including perpetual preferred stock and related 
surplus, minority interest in subsidiaries, trust preferred securities 
and mandatory convertible preferred securities.\22\ Tier 1 capital has 
the same meaning as under Appendix A to Regulation Y, or any successor 
regulation, and total risk-weighted assets has the same meaning as 
under Appendices A, E, and G of Regulation Y, or any successor 
regulation.\23\
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    \22\ Specifically, non-common elements will include the 
following items captured in the FR Y-9C: Schedule HC, line item 23 
net of Schedule HC-R, line item 5; and Schedule HC-R, line items 6a, 
6b, and 6c.
    \23\ See 12 CFR part 225, Appendices A, E, and G.
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    This definition of tier 1 common capital is consistent with the 
definition that the Federal Reserve has used for supervisory purposes, 
including in CCAR. The Basel III framework proposed by the Basel 
Committee on Bank Supervision includes a different definition of tier 1 
common capital.\24\ In recognition of the fact that the Board

[[Page 74637]]

and the other federal banking agencies continue to work on implementing 
Basel III in the United States, the Board is requiring a large bank 
holding company to demonstrate how it will maintain a minimum tier 1 
common ratio above 5 percent under stressful conditions using the 
Board's existing supervisory definition of tier 1 common capital. The 
Board will work with the other federal banking agencies to implement 
Basel III and to propose a Basel III tier 1 common capital ratio as a 
new minimum regulatory capital ratio. The existing supervisory 
definition of tier 1 common capital will remain in force under the 
final capital plan rule until the Board adopts the Basel III tier 1 
common ratio, which the Board remains strongly committed to implement.
---------------------------------------------------------------------------

    \24\ See Basel Committee on Banking Supervision, Basel III: A 
global framework for more resilient banks and banking systems 
(December 2010), available at https://www.bis.org/publ/bcbs189.pdf.
---------------------------------------------------------------------------

c. Planned Capital Actions
    In its assessment of the uses and sources of capital, a large bank 
holding company's capital plan must describe all planned capital 
actions over the planning horizon. The final rule defines a capital 
action as any issuance of a debt or equity capital instrument, capital 
distribution, and any similar action that the Federal Reserve 
determines could impact a large bank holding company's consolidated 
capital. A capital distribution is defined as a redemption or 
repurchase of any debt or equity capital instrument, a payment of 
common or preferred stock dividends, a payment that may be temporarily 
or permanently suspended by the issuer on any instrument that is 
eligible for inclusion in the numerator of any minimum regulatory 
capital ratio, and any similar transaction that the Federal Reserve 
determines to be in substance a distribution of capital.\25\
---------------------------------------------------------------------------

    \25\ For example, this definition includes payments on trust 
preferred securities, but does not include payments on subordinated 
debt that could not be temporarily or permanently suspended by the 
issuer under the terms of the instrument.
---------------------------------------------------------------------------

    One commenter requested that the Board permit a capital plan to 
specify alternative uses of capital. The Board believes that the 
effects on a bank holding company's capital adequacy may vary 
significantly depending on the nature of a capital distribution and 
thus has not changed the requirement that a capital plan must include a 
description of all planned capital actions over the planning horizon.
2. Description of the Bank Holding Company's Process for Assessing 
Capital Adequacy
    The second component of a large bank holding company's plan is a 
description of the bank holding company's process for assessing capital 
adequacy. This description must contain the following elements:
    (1) A discussion of how the bank holding company will, under 
expected and stressful conditions, maintain capital commensurate with 
its risks, maintain capital above the minimum regulatory capital ratios 
and above a tier 1 common ratio of 5 percent, and serve as a source of 
strength to its subsidiary depository institutions; and
    (2) A discussion of how the bank holding company will, under 
expected and stressful conditions, maintain sufficient capital to 
continue its operations by maintaining ready access to funding, meeting 
its obligations to creditors and other counterparties, and continuing 
to serve as a credit intermediary.
    One commenter requested that the Board clarify that bank holding 
companies subject to an internal capital adequacy assessment process 
(ICAAP) requirement under the Federal Reserve's advanced approaches 
rules would be able to combine components of their ICAAP with their 
capital plan submissions and submit them on the capital plan timeline. 
ICAAP would constitute an internal capital adequacy process for 
purposes of the final rule, and bank holding companies that have a 
satisfactory ICAAP generally would be considered to have a satisfactory 
internal capital adequacy process for purposes of the final rule.
    Moreover, the description of the bank holding company's process for 
assessing capital adequacy may be presented in a document separate from 
the capital plan. Like other elements of a large bank holding company's 
capital plan, this description must be submitted to the Federal Reserve 
on an annual basis and must describe any changes to the bank holding 
company's capital planning process and any new analyses supporting 
changes to this process.
3. Capital Policy
    The third component of a large bank holding company's plan is its 
capital policy. A capital policy is defined as the bank holding 
company's written assessment of the principles and guidelines used for 
capital planning, capital issuance, usage and distributions, including 
internal capital goals; the quantitative or qualitative guidelines for 
dividend and stock repurchases; the strategies for addressing potential 
capital shortfalls; and the internal governance procedures around 
capital policy principles and guidelines. A large bank holding company 
should be able to demonstrate that achieving its stated internal 
capital goals will allow it to maintain ready access to funding, meet 
its obligations to creditors and other counterparties, and continue to 
serve as a credit intermediary during and after the impact of the 
stressed scenarios included in its capital plan over the planning 
horizon.\26\ Similarly, a large bank holding company's capital policy 
should reflect strategies for addressing potential capital shortfalls, 
such as by reducing or eliminating capital distributions, raising 
additional capital, or preserving its existing capital, to support 
circumstances where the economic outlook has deteriorated, the bank 
holding company has underestimated its risks, or the bank holding 
company's performance has not met its expectations.
---------------------------------------------------------------------------

    \26\ In addition, each bank holding company should ensure that 
its internal capital goals reflect any relevant minimum regulatory 
capital ratio levels, any higher levels of regulatory capital ratios 
(above regulatory minimums), and any additional capital measures 
that, when maintained, will allow the bank holding company to 
continue its operations.
---------------------------------------------------------------------------

4. Discussion of Any Expected Changes to the Bank Holding Company's 
Business Plan That Are Likely To Have a Material Impact on the Firm's 
Capital Adequacy or Liquidity
    The fourth element of a large bank holding company's capital plan 
is a discussion of any expected changes to the bank holding company's 
business plan that are likely to have a material impact on the firm's 
capital adequacy or liquidity. For example, the capital plan should 
reflect any expected material effects of new lines of business or 
activities on the bank holding company's capital adequacy or liquidity, 
including revenue and losses.

C. Data Submissions

    In connection with its submission of a capital plan to the Federal 
Reserve, a large bank holding company is required to provide certain 
data to the Federal Reserve. To the greatest extent possible, the data 
templates, and any other data requests, are designed to minimize burden 
on the bank holding company and to avoid duplication, particularly in 
light of potential new reporting requirements arising from the Dodd-
Frank Act. Data required by the Federal Reserve may include, but are 
not limited to, information regarding the bank holding company's 
financial condition, structure, assets, risk exposure, policies and 
procedures, liquidity, and management.
    Commenters requested that the Board provide more guidance on the 
nature and scope of the data requirements and

[[Page 74638]]

to provide any data templates at the time that the final rule becomes 
effective. Commenters also asked that the Federal Reserve be mindful to 
avoid duplicative data requests.
    In response to these comments, the Board has published a separate 
notice in the Federal Register that clarifies the nature and scope of 
the data requirements on the large bank holding companies firms that 
participated in CCAR, including the data templates, and is soliciting 
public comments on this information collection.\27\
---------------------------------------------------------------------------

    \27\ 76 FR 55288 (September 7, 2011).
---------------------------------------------------------------------------

    Commenters suggested that companies be given additional time to 
develop technology and processes to the extent strict compliance with a 
data request would result in undue burden or expense. The Board 
understands that non-CCAR firms are less likely to have technology and 
processes relevant for the specific data collection than the bank 
holding companies that participated in CCAR, and thus only large bank 
holding companies that previously participated in CCAR will be required 
to provide the complete set of data templates in connection with the 
submission of the capital plan due on January 5, 2012. In connection 
with this capital plan submission, non-CCAR firms may be required to 
submit certain limited, summary information under the baseline and 
stress scenarios, which may include income, balance sheet, capital, and 
revenue information by asset class. Going forward, the Federal Reserve 
will require a more complete set of data from non-CCAR firms to support 
their future capital plan submissions.
    In addition, the Board recognizes that non-CCAR firms have not had 
the benefit of receiving the supervisory review and feedback provided 
in the CCAR and Supervisory Capital Assessment Program. The Federal 
Reserve is engaging in extensive dialogue with these non-CCAR firms to 
communicate its expectations on capital planning and capital policies.
    In addition, commenters requested that the Board provide additional 
information regarding the security controls and processes the Board and 
the Reserve Banks have in place to safeguard data. The Board and 
Reserve Banks have internal controls and processes in place to help to 
ensure the integrity of confidential and proprietary data. In addition, 
the Board follows the National Institute of Standards and Technology 
guidance and adheres to Federal Information Security Management Act 
compliance for all the information collections and storage where 
sensitive data are concerned.\28\
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    \28\ See generally National Institute of Standards and 
Technology, https://csrc.nist.gov/; 44 U.S.C. 3541, et seq.
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    One commenter suggested that capital plans, non-objections or 
objections to capital plans, requests for reconsideration, approvals or 
rejections of any such requests, prior notice filings, and results of 
stressed scenarios be treated as confidential supervisory information. 
The confidentiality of information submitted to the Board under the 
final rule and related materials shall be determined in accordance with 
applicable exemptions under the Freedom of Information Act (5 U.S.C. 
552) and the Board's Rules Regarding Availability of Information (12 
CFR part 261).

D. Federal Reserve Review of a Capital Plan

    The final rule provides that the Federal Reserve will consider the 
following factors in reviewing a large bank holding company's capital 
plan:
    (i) The comprehensiveness of the capital plan, including the extent 
to which the analysis underlying the capital plan captures and 
addresses potential risks stemming from activities across the firm and 
the company's capital policy;
    (ii) The reasonableness of the bank holding company's assumptions 
and analysis underlying the capital plan and its methodologies for 
reviewing the robustness of its capital adequacy process; and
    (iii) The bank holding company's ability to maintain capital above 
each minimum regulatory capital ratio and above a tier 1 common ratio 
of 5 percent on a pro forma basis under expected and stressful 
conditions throughout the planning horizon, including but not limited 
to any stressed scenarios required under the final rule.
    The Federal Reserve will also consider the following information in 
reviewing a large bank holding company's capital plan:
    (i) Relevant supervisory information about the bank holding company 
and its subsidiaries;
    (ii) The bank holding company's regulatory and financial reports, 
as well as supporting data that will allow for an analysis of the bank 
holding company's loss, revenue, and reserve projections;
    (iii) As applicable, the Federal Reserve's own pro forma estimates 
of the firm's potential losses, revenues, reserves, and resulting 
capital adequacy under expected and stressful conditions, including but 
not limited to any stressed scenarios required under the final rule, as 
well as the results of any stress tests conducted by the bank holding 
company or the Federal Reserve; and
    (iv) Other information requested or required by the Federal 
Reserve, as well as any other information relevant, or related, to the 
bank holding company's capital adequacy.
    A commenter suggested that the Federal Reserve recognize the 
significance of consultation and coordination with appropriate home 
country supervisory authorities to the capital planning and review 
process. The Federal Reserve intends to continue consultation and 
coordination with home country supervisors in evaluating compliance 
with prudential standards.

E. Federal Reserve Action on a Capital Plan

    Nearly all commenters expressed the concern that the timing of the 
capital plan submission and review will interrupt the ability of bank 
holding companies to make capital distributions in the first quarter. 
Commenters proposed several alternatives, including a rolling 
submission process to allow greater flexibility and both earlier and 
later submission due dates to address blackout periods under the 
federal securities laws.
    In response to these commenters, the Board has adjusted the period 
over which a non-objection applies. For a capital plan submitted in the 
first quarter, a non-objection would cover the four-quarter period 
commencing with the second quarter. For a capital plan resubmitted 
after the first quarter, a non-objection would extend through the first 
quarter of the subsequent year. This change is intended to permit bank 
holding companies to continue to engage in planned capital actions 
throughout the first quarter of the calendar year while their capital 
plans are under review.
    In the final rule, a large bank holding company is required to 
submit a complete annual capital plan by January 5 of each calendar 
year. The Federal Reserve will object by March 31 to the capital plan, 
in whole or in part, or provide the large bank holding company with a 
notice of non-objection. With respect to a large bank holding company 
that submits its 2012 capital plan on a timely basis in January 2012, 
the Federal Reserve commits to respond by March 15, 2012, in order to 
give the bank holding company adequate opportunity to make adjustments 
to its capital distributions in the first quarter of 2012.
    This timeframe is intended to balance the Federal Reserve's 
interest in having

[[Page 74639]]

adequate time to review a capital plan with the bank holding company's 
interest in a process that does not unduly interfere with the ability 
of its board of directors and senior management to take appropriate 
capital actions. For example, if a firm submitted a capital plan to the 
Federal Reserve on a timely basis in January 2012, the Federal Reserve 
would provide a response by no later than March 15, 2012. The Federal 
Reserve's non-objection to that capital plan would extend through the 
first quarter of 2013, meaning that the firm could continue to make 
capital distributions during the first quarter of 2013 in accordance 
with the capital plan it submitted in 2012. If the firm submitted its 
2013 capital plan on a timely basis in January 2013, the firm would be 
notified by March 31, 2013, whether or not the Federal Reserve had any 
objection to its 2013 capital plan. If the Federal Reserve did not 
object to the firm's 2013 capital plan, the firm could begin making 
capital distributions under that capital plan in the second quarter of 
2013. Thus, for this hypothetical firm, the Federal Reserve's review of 
its capital plan should not delay the bank holding company's ability to 
pay dividends or take other capital actions while awaiting a response 
from the Federal Reserve.
    Commenters also suggested that the Board make appropriate 
transitional arrangements so that bank holding companies are not 
unnecessarily prevented from making capital distributions in the period 
between the effective date of the final rule and the first date on 
which a large bank holding company would be permitted to make capital 
distributions pursuant to its initial capital plan.
    Large bank holding companies remain subject to the SR letter 09-4. 
SR letter 09-4 states that a banking organization should consult with 
the Federal Reserve before making certain capital distributions. \29\ 
In addition, SR letter 09-4 states that a banking organization should 
hold capital commensurate with its overall risk profile and that a 
banking organization should include a full understanding of its risks 
in its assessment of capital adequacy and ensure that it holds capital 
corresponding to those risks to maintain overall capital adequacy.\30\
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    \29\ See supra note 3.
    \30\ Id.
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    With respect to the period between the effective date of the final 
rule and the date on which capital distributions would be permitted 
pursuant to a bank holding company's initial capital plan, bank holding 
companies that participated in CCAR will continue to be subject to 
Revised Temporary Addendum to SR letter 09-4 until the firms receive a 
notice of objection or non-objection from the Federal Reserve with 
respect to the capital plan due January 5, 2012.\31\ Thus, the Board 
expects such firms would not increase their capital distributions above 
the amount described in an approved capital plan, which may include an 
updated and resubmitted capital plan. Non-CCAR firms--which are subject 
to SR letter 09-4 but not the Revised Temporary Addendum to SR letter 
09-4--may make capital distributions before receiving a response from 
the Federal Reserve with respect to their capital plans due January 5, 
2012, but are expected to consult with their appropriate Reserve Bank 
before increasing capital distributions.\32\
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    \31\ Id.
    \32\ Id.
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    The Board recognizes that certain bank holding companies may have 
to align their internal capital planning processes with the required 
dates

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