Assessment of Fees on Large Bank Holding Companies and Nonbank Financial Companies Supervised by the Federal Reserve Board To Cover the Expenses of the Financial Research Fund, 35-44 [2011-33659]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 77, Number 1 (Tuesday, January 3, 2012)]
[Proposed Rules]
[Pages 35-44]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-33659]



[[Page 35]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

31 CFR Part 150

RIN 1505--AC42


Assessment of Fees on Large Bank Holding Companies and Nonbank 
Financial Companies Supervised by the Federal Reserve Board To Cover 
the Expenses of the Financial Research Fund

AGENCY: Departmental Offices, Treasury.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Department of the Treasury is issuing a proposed rule to 
implement Section 155 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Pub. L. 111-203 or ``Dodd-Frank Act''), which directs 
the Department to establish by regulation an assessment schedule for 
bank holding companies with total consolidated assets of $50 billion or 
greater and nonbank financial companies supervised by the Board of 
Governors of the Federal Reserve (``the Board'') to collect assessments 
equal to the total expenses of the Office of Financial Research 
(``OFR'' or ``the Office''). Included in the Office's expenses are 
expenses of the Financial Stability Oversight Council (``FSOC'' or 
``the Council''), as provided under Section 118 of the Dodd-Frank Act, 
and certain expenses of the Federal Deposit Insurance Corporation 
(``FDIC''), as provided under Section 210 of the Dodd-Frank Act. The 
proposed rule outlines the key elements of Treasury's assessment 
program, which will collect semiannual assessment fees from these 
companies beginning on July 20, 2012.

DATES: Comment due date: March 5, 2012.

ADDRESSES: Submit comments electronically through the Federal 
eRulemaking Portal: https://www.regulations.gov, or by mail (if hard 
copy, preferably an original and two copies) to: The Treasury 
Department, Attn: Financial Research Fund Assessment Comments, 1500 
Pennsylvania Avenue NW., Washington, DC 20220. Because paper mail in 
the Washington, DC area may be subject to delay, it is recommended that 
comments be submitted electronically. Please include your name, 
affiliation, address, email address, and telephone number in your 
comment. Comments will be available for public inspection on 
www.regulations.gov. In general comments received, including 
attachments and other supporting materials, are part of the public 
record and are available to the public. Do not submit any information 
in your comment or supporting materials that you consider confidential 
or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Jonathan Sokobin: (202) 927-8172.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 155 of the Dodd-Frank Act directs the Secretary of the 
Treasury to establish by regulation, and with the approval of the 
Council, an assessment schedule to collect assessments from certain 
companies equal to the total expenses of the Office beginning on July 
20, 2012. Section 155 describes these companies as:
    (A) Bank holding companies having total consolidated assets of $50 
billion or more; and
    (B) nonbank financial companies supervised by the Board pursuant to 
section 113 of the Dodd-Frank Act.
    Under Section 118 of the Dodd-Frank Act, the expenses of the 
Council are considered expenses of, and are paid by, the OFR. In 
addition, under Section 210 implementation expenses associated with the 
FDIC's orderly liquidation authorities are treated as expenses of the 
Council,\1\ and the FDIC is directed to periodically submit requests 
for reimbursement to the Council Chair. The total expenses for the OFR 
thereby include the combined expenses of the OFR, the Council, and 
certain expenses of the FDIC. All of these expenses are paid out of the 
Financial Research Fund (FRF), a fund managed by the Department of the 
Treasury.
---------------------------------------------------------------------------

    \1\ Under Section 210(n)(10)(C) of the Dodd-Frank Act the term 
implementation expenses ``(i) means costs incurred by [the FDIC] 
beginning on the date of enactment of this Act, as part of its 
efforts to implement [Title II] that do not relate to a particular 
covered financial company; and (ii) includes the costs incurred in 
connection with the development of policies, procedures, rules, and 
regulations and other planning activities of the [FDIC] consistent 
with carrying out [Title II].''
---------------------------------------------------------------------------

    The Council was established by the Dodd-Frank Act to coordinate 
across agencies in monitoring risks and emerging threats to U.S. 
financial stability. The Council is chaired by the Secretary of the 
Treasury and brings together all federal financial regulators, an 
independent member with insurance expertise appointed by the President, 
and state regulators. Under the Dodd-Frank Act, the Council is tasked 
with identifying and monitoring risks to U.S. financial stability, 
promoting market discipline, and responding to emerging threats to the 
U.S. financial system.\2\
---------------------------------------------------------------------------

    \2\ As outlined in Section 112 of the Dodd-Frank Act, the 
Council is tasked with the following:
    1. To identify risks to the financial stability of the United 
States that could arise from the material financial distress or 
failure, or ongoing activities, of large, interconnected bank 
holding companies or nonbank financial companies, or that could 
arise outside the financial services marketplace.
    2. To promote market discipline, by eliminating expectations on 
the part of shareholders, creditors, and counterparties of such 
companies that the U.S. government will shield them from losses in 
the event of failure.
    3. To respond to emerging threats to the stability of the U.S. 
financial system.
---------------------------------------------------------------------------

    The OFR was established within the Treasury Department by the Dodd-
Frank Act to serve the Council, its member agencies, and the public by 
improving the quality, transparency, and accessibility of financial 
data and information, by conducting and sponsoring research related to 
financial stability, and by promoting best practices in risk 
management. Among the OFR's key tasks are:
     Measuring and analyzing factors affecting financial 
stability and helping FSOC member agencies to develop policies to 
promote it;
     Collecting needed financial data, and promoting their 
integrity, accuracy, and transparency for the benefit of market 
participants, regulators, and research communities;
     Reporting to the Congress and the public on the OFR's 
assessment of significant financial market developments and potential 
threats to financial stability; and
     Collaborating with foreign policymakers and regulators, 
multilateral organizations, and industry to establish global standards 
for data and analysis of policies that promote financial stability.

II. This Proposed Rule

    Under this proposed rule, Treasury has developed procedures to 
estimate, bill and collect, on an ongoing basis beginning on July 20, 
2012, the total budgeted expenses of the OFR, including those estimated 
separately by the Council and expenses submitted by the FDIC. The 
aggregate of these estimated expenses would provide the basis for an 
assessment that the Treasury would allocate to individual companies by 
means of a semiannual assessment fee calculated from a schedule based 
on each company's total consolidated assets. For a foreign company, the 
assessment fee would be based on the total consolidated assets of the 
foreign company's combined U.S. operations.
    This proposed rule outlines how the Treasury's assessment fee 
program would be administered, including (a) how the Treasury would 
determine which companies will be subject to an assessment fee, (b) how 
the Treasury would estimate the total expenses that

[[Page 36]]

are necessary to carry out the activities to be covered by the 
assessment, (c) how the Treasury would determine the assessment fee for 
each of these companies, and (d) how the Treasury would bill and 
collect the assessment fee from these companies. Treasury is seeking 
comments on all aspects of this proposed rulemaking.

Determination of Assessed Companies

    The assessment of fees for the companies described in Section 155 
of the Dodd-Frank Act requires that the Treasury determine those 
companies that would be subject to the assessment, referred to for the 
purpose of this rule as the assessed companies. As described in more 
detail below, Treasury will work closely with the Board, to determine 
the population of assessed companies and the basis for fee assessments.
    The determination date is the date at which assessed companies are 
identified. Prior to each assessment period, on the determination date, 
the Treasury would determine the pool of assessed companies. The 
determination date for the initial assessment period is anticipated to 
be December 31, 2011, and the initial assessment period would include 
part of fiscal year 2012 (July 20, 2012 to September 30, 2012) and the 
first half of fiscal year 2013 (October 1, 2012 to March 31, 2013). The 
determination date for the second assessment period, which would 
include the second half of fiscal year 2013 (April 1, 2013 to September 
30, 2013), is anticipated to be December 31, 2012. Thereafter, the 
determination dates are anticipated to be the June 30 immediately 
preceding the first assessment period (October 1 to March 31) and the 
December 31 immediately preceding the second assessment period (April 1 
to September 30). A company will be defined as an assessed company for 
an assessment period if, on the respective determination date, the 
company is:
     A bank holding company (other than a foreign banking 
organization), as defined in section 2 of the Bank Holding Company Act 
of 1956, that has $50 billion or more in total consolidated assets, as 
determined based on the average total consolidated assets (Schedule 
HC--Consolidated Balance Sheet) as reported on the bank holding 
company's four most recent Consolidated Financial Statements for Bank 
Holding Companies (FR Y-9C; OMB No. 7100-0128) submissions;
     A foreign banking organization that has $50 billion or 
more in total consolidated assets, as determined based on the average 
of total assets at end of period (Part 1--Capital and Asset Information 
for the Top-tier consolidated Foreign Banking Organization) as reported 
on the foreign banking organization's four most recent Capital and 
Asset Information for the Top-tier Consolidated Foreign Banking 
Organization (FR Y-7Q; OMB No. 7100-0125) submissions; \3\ or
---------------------------------------------------------------------------

    \3\ For those foreign banking organizations that file the FR Y-
7Q annually instead of quarterly, the company's total consolidated 
assets would be determined based on the average of total assets at 
end of period as reported on the foreign banking organization's two 
most recent FR Y-7Q.
---------------------------------------------------------------------------

     A nonbank financial company required to be supervised by 
the Board under section 113 of the Dodd-Frank Act, as determined by the 
Council.
    The Treasury, in consultation with the Board, considered using only 
the most recent financial report filed by each bank holding company or 
foreign banking organization to determine whether the company has total 
consolidated assets of $50 billion or more. However, the Treasury was 
concerned that relying solely on the financial report of the most 
recent quarter would not always allow sufficient lead time for the 
company and the Treasury to prepare for a company's inclusion as an 
assessed company for an upcoming assessment period. For example, as a 
company grows and approaches the $50 billion threshold, financial 
reports of previous quarters may reflect total consolidated assets of 
slightly less than $50 billion. As the determination date approaches, 
the Treasury--and to some extent the company--may not be able to 
determine whether the financial report for the quarter immediately 
preceding the determination date, when filed, would report total 
consolidated assets of $50 billion or more. By using an average of 
total consolidated assets of the four most recent quarters, the 
Treasury and the company should have ample time to prepare for the 
company's inclusion in the pool.\4\
---------------------------------------------------------------------------

    \4\ For the December 31 determination date, the most recent four 
quarters would be reported as of September 30, June 30, and March 31 
of the current year, and December 31 of the prior year. For the June 
30 determination date, the most recent four quarters would be 
reported as of March 31 of the current year, and December 31, 
September 30, and June 30 of the prior year.
---------------------------------------------------------------------------

    The Treasury would also apply the following provisions in 
determining which companies would be assessed companies, based upon the 
most recent data and information filed with or furnished to the 
relevant regulator.
     For tiered bank holding companies for which a holding 
company owns or controls, or is owned or controlled by, other holding 
companies, the assessed company would be the top-tier, regulated 
holding company.
     In situations where more than one top-tier, regulated bank 
holding company has a legal authority for control of a U.S. bank, each 
of the top-tier regulated holding companies would be designated as an 
assessed company.\5\
---------------------------------------------------------------------------

    \5\ A company has control over a bank or company if the company 
has (a) ownership, control, or power to vote 25 percent or more of 
the outstanding shares of any class of voting securities of the bank 
or company, directly or indirectly or acting through one or more 
other persons; (b) control in any manner over the election of a 
majority of the directors or trustees of the bank or company; or (c) 
the Treasury determines the company exercises, directly or 
indirectly, a controlling influence over the management or policies 
of the bank or company. See 12 U.S.C. 1841(a)(2).
---------------------------------------------------------------------------

     In situations where a company has not filed four 
consecutive quarters of the financial reports referenced above for the 
most recent quarters (or two consecutive years for annual filers of the 
FR Y-7Q), such as may be true for companies that recently converted to 
a bank holding company, the Treasury would use, at its discretion, 
other financial or annual reports filed by the company, such as 
Securities and Exchange Commission (SEC) filings, to determine a 
company's total consolidated assets.
     In situations where a company does not report total 
consolidated assets in its public reports or where a company uses a 
financial reporting methodology other than U.S. GAAP to report on its 
U.S. operations, the Treasury would use comparable financial 
information that the Treasury may require from the company for this 
determination.
     Any company that the Treasury determines is an assessed 
company on the determination date would be an assessed company for the 
entire assessment period and would be subject to the full assessment 
fee for that assessment period, regardless of any changes (e.g., 
structural or financial) that occur during the assessment period that 
would otherwise affect the financial company's status as an assessed 
company.
     All organizational information regarding the company that 
would be used by the Treasury for the purpose of determining whether a 
company is an assessed company, including information with respect to 
whether a company has control over a U.S. bank, must have been filed 
with or furnished to the relevant regulator on or before the 
determination date, and the effective date of the information must have 
been on or before the determination date.

[[Page 37]]

Determination of the Assessment Basis

    For each assessment period, the OFR would calculate an assessment 
basis reflecting an estimate of the total expenses that are necessary 
or appropriate to carry out the responsibilities of the OFR and the 
Council as defined in the Dodd-Frank Act.
    The assessment basis would be determined so as to replenish the FRF 
at the start of each assessment period to a level equivalent to six 
months of budgeted operating expenses and twelve months of capital 
expenses \6\ for the OFR and FSOC, as well as covered FDIC expenses. 
The OFR and Council each produce an annual budget, and would 
independently estimate the budgetary needs appropriate to carry out 
their responsibilities under the Dodd-Frank Act.\7\ The assessment 
basis would be the combined total of these budgets, with adjustments 
made as necessary to the second semiannual assessment to meet necessary 
expenses.\8\
---------------------------------------------------------------------------

    \6\ Capital expenses follow the OMB Circular A-11 definition of 
capital assets which include occupancy and information technology 
costs. Operating expenses exclude capital expenses.
    \7\ These budgets are published annually as part of the 
President's budget submission. The OFR budget is determined by the 
Director in consultation with the Chair of the Council. The Council 
budget is determined and approved by the Council.
    \8\ Any change from the previously approved budget for the OFR 
must be approved by the Director in consultation with the Chair of 
the FSOC; any change in the budget for the FSOC must be approved by 
the FSOC.

                                                           Sample Assessment Basis Calculation
--------------------------------------------------------------------------------------------------------------------------------------------------------
     6 Months of                                                                                       Projected unused
 budgeted operating                 12 Months capital                                                resources at end of
   expenses (OFR &         +         expenses (OFR &         +          FDIC Payment          -        last assessment        =        Assessment basis
        FSOC)                             FSOC)                                                             period
Column A              ..........                    Colu..........                    Colu.........                    Col.........                    Column E
--------------------------------------------------------------------------------------------------------------------------------------------------------
                $A           +                    $B           +                     $C          -                   $D          =                   $E
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For the initial assessment, the assessment basis will cover 
operating expenses and capital expenses for the period from July 21, 
2012 to September 30, 2012, covered FDIC expenses for the period from 
July 21, 2012 to September 30, 2013, and the first six months of 
operating expenses for the OFR and the FSOC for FY 2013. To smooth the 
transition in funding the Financial Research Fund, this assessment will 
be set to cover budgeted capital expenditures for only the first seven 
months of FY 2013 (in addition to the period from July 21, 2012 to 
September 30, 2012). Replenishment to the full 12-month level for 
capital expenditures will begin with the second assessment.

                                   Sample Initial Assessment Basis Calculation
----------------------------------------------------------------------------------------------------------------
 Budgeted operating
expenses for  7/21/               Capital expenses                FDIC Payment in             Initial assessment
2012-3/31/2013 (OFR      +      for  7/21/2012-4/30/     +            FY 2013           =            basis
      & FSOC)                    2013 (OFR & FSOC)
Column A             .........                    Col.........                   Col........                   Column D
----------------------------------------------------------------------------------------------------------------
                $A          +                   $B          +                   $C        =                  $D
----------------------------------------------------------------------------------------------------------------

Allocating the Assessment Basis to Assessed Companies

    The following principles inform the Treasury's proposed 
implementation of Section 155:
     The assessment structure should be simple and transparent; 
and
     Allocation among companies should take into account 
differences among such companies, based on the considerations for 
establishing the prudential standards under section 115 of the Dodd-
Frank Act as required by the Act.\9\
---------------------------------------------------------------------------

    \9\ Section 115(a)(2)(A) describes the factors that the Council 
should consider in making recommendations regarding enhanced 
prudential standards, it reads: ``differentiate among companies that 
are subject to heightened standards on an individual basis or by 
category, taking into consideration their capital structure, 
riskiness, complexity, financial activities (including the financial 
activities of their subsidiaries), size, and any other risk-related 
factors that the Council deems appropriate.''
---------------------------------------------------------------------------

    In evaluating how best to implement the Dodd-Frank Act, the 
Treasury believes that there is significant benefit to adopting a 
standard that is transparent, well-understood by market participants, 
and reasonably estimable. A number of different assessment schedules 
for assessing companies were considered, taking into account the 
considerations described in Section 115 of the Dodd-Frank Act. 
Ultimately, the Treasury concluded, in balancing the principles above, 
that it would be reasonable to allocate the assessment basis among 
assessed companies by means of an assessment fee that is based on the 
asset size of each assessed company.
    Under the proposed rule, the Treasury would allocate the assessment 
basis to each assessed company in the following manner:
     An assessment fee rate would determine the semiannual 
assessment fee collected from each assessed company, based on the 
company's total assessable assets.
     Total assessable assets of each assessed company would be 
determined by the Treasury on the determination date, as described 
below.
    [cir] For a bank holding company (other than a foreign banking 
organization), total assessable assets would be equal to total 
consolidated assets, as reported on the bank holding company's most 
recent FR Y-9C;
    For a foreign banking organization, total assessable assets would 
be equal to the company's total assets of combined U.S. operations, as 
determined by the Treasury, based on the combined total assets of the 
foreign banking organization's U.S. subsidiaries as reported on the 
foreign banking organization's most recent financial reports.\10\ The 
applicable financial

[[Page 38]]

reports of foreign banking organizations used to determine the 
company's total assets of combined U.S. operations would include the 
following reports, as applicable:
---------------------------------------------------------------------------

    \10\ Total assets of combined U.S. operations would be comprised 
of the foreign banking organization's U.S. entities, including any 
bank holding companies on a consolidated basis, as well as any U.S. 
entities held outside of a bank holding company, including branches 
and agencies, broker/dealers, commercial banks or savings 
associations, Edge or agreement corporations, and any nonbank 
entities, but excluding any offshore branches.
---------------------------------------------------------------------------

     FR Y-9C, Parent Company Only Financial Statements for 
Large Bank Holding Companies (FR Y-9LP), or Parent Company Only 
Financial Statements for Small Bank Holding Companies (FR Y-9SP) for 
assets of bank holding companies,
     Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks (FFIEC 002) for assets of U.S branches and 
agencies of foreign banks,
     Consolidated Reports of Condition and Income for a Bank 
with Domestic and Foreign Offices (FFIEC 031) for assets of commercial 
banks and trust companies not reported in the consolidated assets of a 
bank holding company,
     Consolidated Reports of Condition and Income for a Bank 
with Domestic Offices Only (FFIEC 041) for assets of commercial banks 
and trust companies not reported in the consolidated assets of a bank 
holding company,
     Consolidated Report of Condition and Income for Edge and 
Agreement Corporations (FR 2886b) for assets of Edge and agreement 
corporations not reported in the consolidated assets of a bank holding 
company,
     Financial Statements of U.S. Nonbank Subsidiaries Held by 
Foreign Banking Organizations (FR Y-7N/FR Y-7NS) for nonbank assets not 
held under a U.S. bank holding company,
     FOCUS Report, Part II (SEC1695) and FOCUS Report Part IIa 
(SEC1696) for Broker/Dealer assets not reported in the consolidated 
assets of a bank holding company;
    [cir] For a nonbank financial company required to be supervised by 
the Board under section 113 of the Dodd-Frank Act, assessable assets 
would be calculated on the basis of reported total consolidated assets, 
if the nonbank financial company is a U.S. company, or on the basis of 
the company's total assets of combined U.S. operations, if the nonbank 
financial company is a foreign company; \11\
---------------------------------------------------------------------------

    \11\ To date, the Council has not made a determination regarding 
the applicability of Board supervision under section 113 for a 
nonbank financial company. As the Council begins to make 
determinations regarding nonbank financial companies under section 
113, Treasury will review the methodology for determining the 
assessment fee for these companies to determine if any changes in 
approach are needed.
---------------------------------------------------------------------------

    [cir] In situations where a company does not file, or has not 
filed, the applicable reports referenced above or in situations where a 
company uses a financial reporting methodology other than U.S. GAAP to 
report on its U.S. operations, the Treasury would use other financial 
or annual reports filed by the company, such as Securities and Exchange 
Commission (SEC) filings or any comparable financial information, that 
the Treasury may require from the company to determine the company's 
total assessable assets.
     Assessed companies would include:
    [cir] U.S. bank holding companies having total consolidated assets 
of $50 billion or more;
    [cir] Foreign banking organizations having total consolidated U.S. 
assets of $50 billion or more; and
    [cir] Nonbank financial companies supervised by the Board pursuant 
to Section 113 of the Dodd-Frank Act.
     Eligible foreign banking organizations with $50 billion in 
total consolidated world-wide assets, but less than $50 billion in 
total assessable assets, would not be charged.

Confirmation Statement and Notice of FRF Fees

    A Notice of FRF Fees (``Notice of Fees'') would be published prior 
to each assessment period. The Notice of Fees would incorporate an 
assessment fee schedule providing the rate that would be used to 
calculate the semiannual assessment fee for each assessed company.
    Under the approach outlined in this proposed rule, the semiannual 
fee that an individual company would be assessed would likely vary, at 
least somewhat, from one assessment period to the next. A company's 
assessment fee would depend on the assessment basis for each period, 
the number of assessed companies that the Treasury determines for the 
period, and the relative asset size of each company within that pool of 
assessed companies. To determine the rate for calculating each 
company's semiannual assessment fee, the Treasury would first need to 
determine the pool of assessed companies and those companies' total 
assessable assets. The rate would be modified each assessment period to 
produce assessment fees that, when aggregated for all assessed 
companies, would equal the assessment basis for the respective 
assessment period.
    Because of the role of the pool of assessed companies in 
determining the rate used for the assessment fee schedule, companies 
identified as assessed companies will have an opportunity to contest 
Treasury's determination. Each company that the Treasury determines is 
an assessed company for the assessment period would be sent a 
confirmation statement about two weeks after the determination date, 
but no later than 30 calendar days prior to the first day of an 
assessment period. The confirmation statement would confirm that the 
company had been determined by the Treasury to be an assessed company 
and would state the total assessable assets that the Treasury 
determined would be used for calculating the company's semiannual 
assessment. Companies may contest Treasury's determination of the 
company as an assessed company or the Treasury's determination of the 
company's total assessable assets by providing an appeal to the 
Treasury. Treasury must receive such notice within 14 calendar days of 
the date of the confirmation statement to be considered.
    To contest any aspect of the confirmation statement, the company 
would be required to submit to the Treasury a written request for 
redetermination that would need to include all the pertinent facts that 
would be necessary for the Treasury to consider in a redetermination. 
If the Treasury does not receive a written request for redetermination 
from a company within 14 calendar days of the date of the confirmation 
statement, the company would be invoiced, and subsequently charged, for 
the semiannual assessment fee calculated from the company's total 
assessable assets reflected in the confirmation statement. If the 
Treasury receives a written request for redetermination from a company 
within the 14 calendar day period, the Treasury would consider the 
company's request and respond with the results of a redetermination no 
later than 14 calendar days, if the Treasury concludes that a 
redetermination is warranted.
    After the determination date, should a company restate its 
submission of any financial report described in this rule in a manner 
that either materially increases or decreases the company's total 
consolidated assets or total assessable assets, the Treasury would not 
adjust its determination of a company as an assessed company, its 
determination of the company's total assessable assets, or the 
resulting semiannual assessment fee for the assessment period. Since 
this proposed rule is designed to allocate the transfers to the 
Treasury necessary to support the duties of the FSOC and the OFR during

[[Page 39]]

each period, changes to one company's assessment for a particular 
period would necessitate a change in all the other companies' 
assessments so that the aggregate of all assessment fees equaled the 
assessment basis for the period. The Treasury believes that the burden 
and uncertainty that such changes would bring are too high to warrant 
attempting to delineate a process to allow changes to the information 
used by the Treasury to make its determinations, or adjust the 
company's semiannual fee determined by the published assessment fee 
schedule. The Treasury does reserve the right to correct an assessment 
to a company if the original assessment is found to have been made 
based upon materially misrepresented or misstated information.
    Treasury would publish the Notice of Fees about one month prior to 
the payment date for the assessment period, once the Treasury has 
assured its determination of the pool of assessed companies for the 
assessment period.
    For the initial assessment period including the end of fiscal year 
2012 (July 20, 2012 to September 30, 2012) and first half of fiscal 
year 2013 (October 1, 2012 to March 31, 2013), the corresponding 
confirmation statement would be sent to the assessed companies on the 
day the final rule is published and Treasury will work with the 
companies to verify the total assessable assets to be used for 
calculating the company's assessment. The corresponding Notice of Fees 
would be published about one month prior to the first payment, which 
would be due on the date the rule becomes in effect.

Assessment Fee Rate

    An assessment fee rate published prior to each assessment period 
would determine the semiannual assessment fee that the Treasury would 
collect from each assessed company based on their total assessable 
assets as of the determination date.
     The Treasury would publish the assessment fee rate for 
each assessment period as part of the Notice of Fees.
     To determine the assessment fee, a company's total 
assessable assets would be multiplied by the assessment fee rate. The 
resulting product would be the amount of the semiannual assessment fee 
for that company.

For example, if the assessment basis was $10, and total assessable 
assets were $1,000, the assessment fee rate would be one percent. 
Because of the anticipated year-to-year variability in the budget need 
of OFR and FSOC, the assessment fee rate may change over time.

                     Sample Assessment Fee Schedule
------------------------------------------------------------------------
     Total
   assessable         x            Rate           =         Semiannual
     assets                                               assessment fee
Column A         ..........                Col.........                Column C
------------------------------------------------------------------------
            $A   x                        B   =                       $C
------------------------------------------------------------------------

Billing & Collection of Assessment Fees

    Prior to each assessment period, after determining the pool of 
assessed companies and publishing an assessment fee rate, the Treasury 
would calculate the assessment fee for each assessed company, send an 
electronic billing notification to each assessed company, and, on the 
payment date, initiate a direct debit to each company's account through 
www.pay.gov to collect the assessment fee.
    The table below shows proposed dates of the assessment billing and 
collection process:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Confirmation statement  Publication of notice
         Assessment period             Determination date            date *                of fees **            Billing date           Payment date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Initial Assessment (July 2012 to     December 31, 2011.....  Final rule publication  About one month prior  14 calendar days       July 20, 2012.
 March 2013).                                                 date.                   to payment date.       prior to payment
                                                                                                             date.
------------------------------------------------------------------------------------                                              ----------------------
1st semiannual Assessment (April-    December 31...........  About two weeks after   .....................  .....................  March 15 (or prior
 September).                                                  the determination                                                     business day).
                                                              date.
------------------------------------------------------------                                                                      ----------------------
2nd semiannual Assessment (October-  June 30...............  ......................  .....................  .....................  September 15 (or
 March).                                                                                                                            prior business day).
--------------------------------------------------------------------------------------------------------------------------------------------------------
* No later than 30 days prior to the first day of an assessment period.
** Rate published in the Notice of Fees.

    The first time a company is determined an assessed company, 
Treasury will send, in conjunction with the confirmation statement, 
instructions on how to establish an account with www.pay.gov for direct 
debits. As part of these instructions, each assessed company would be 
required to designate a deposit account and authorize the Treasury to 
initiate an electronic debit transaction from that account to satisfy 
the assessment fee by completing the FRF Assessment Fee Agreement Form 
(``agreement form''). The agreement form asks for contact information 
for the account holder, including the appropriate account (ABA) routing 
number. The agreement form should be completed by the date indicated in 
the instructions, which would be about two weeks after the confirmation 
statement is issued and, thereafter, maintained for all subsequent 
assessment periods for which the company would be subject to 
assessment. The agreement form authorizing an electronic debit 
transaction would remain in effect for all subsequent assessments 
unless the assessed company or account holder submits a modified 
agreement form to the Treasury. For the initial assessment period 
including the end of fiscal year 2012 (July 20, 2012 to September 30, 
2012) and first half of fiscal year 2013 (October 1, 2012 to March 31, 
2013), the

[[Page 40]]

agreement form would be sent in conjunction with the confirmation 
statement on the day the final rule is published and Treasury will work 
with the companies to complete the agreement form.
    Fourteen calendar days prior to the payment date, the Treasury will 
issue an electronic billing notification, and on the payment date, 
through www.pay.gov, would initiate an electronic debit transaction for 
each assessed company.

III. Procedural Requirements

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et. seq., 
requires agencies to prepare an initial regulatory flexibility analysis 
(IRFA) to determine the economic impact of the proposed rule on small 
entities. Section 605(b) allows an agency to prepare a certification in 
lieu of an IRFA if the proposed rule will not have a significant 
economic impact on a substantial number of small entities. Pursuant to 
5 USC 605(b), it is hereby certified that this proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. The size standard for determining whether a bank holding 
company or a nonbank financial company is small is $7 million in 
average annual receipts. Under Section 155 of the Dodd-Frank Act, only 
bank holding companies with more than $50 billion in total consolidated 
assets or nonbank financial companies regulated by the Federal Reserve 
will be subject to assessment. As such, this proposed rule will not 
apply to small entities and a regulatory flexibility analysis is not 
required.

B. Paperwork Reduction Act

    We estimate that there are certain direct costs associated with 
complying with these rules. On a one time basis, assessed entities 
would be required to set up a bank account for fund transfers and 
provide the required information to the Treasury Department through an 
information collection form. The information collection form includes 
bank account routing information and contact information for the 
individuals at the company that will be responsible for setting up the 
account and ensuring that funds are available on the billing date. We 
estimate that approximately 50 companies could be affected, and that 
filling out the form and submitting it to the Treasury Department would 
take approximately fifteen minutes. The aggregate paper work burden is 
estimated at 12.5 hours. We note that this represents a conservative 
estimate of administrative burden, as some of these companies may have 
already established an account for payments or collections to the U.S. 
government.
    On a semi-annual basis, assessed companies will have the 
opportunity to review the confirmation statement and assessment bill. 
The rules do not require the companies to conduct the review, but it 
does permit it. We anticipate that at least some of the companies will 
conduct reviews, in part because the cost associated with it is very 
low.
    The collection of information contained in this proposed rule has 
been submitted to the Office of Management and Budget (OMB) for review 
under the requirements of the Paperwork Reduction Act, 44 U.S.C. 
3507(d).
    Organizations and individuals desiring to submit comments 
concerning the collection of information in the proposed rule should 
direct them to: Office of Management and Budget, Attn: Desk Officer for 
the Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, or by email to oira_submission@omb.eop.gov. A copy of the comments should also be sent to 
Treasury at the addresses previously specified. Comments on the 
collection of information should be received by March 5, 2012.
    Treasury specifically invites comments on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the mission of Treasury, and whether the information will have 
practical utility; (b) the accuracy of the estimate of the burden of 
the collections of information (see below); (c) ways to enhance the 
quality, utility, and clarity of the information collection; (d) ways 
to minimize the burden of the information collection, including through 
the use of automated collection techniques or other forms of 
information technology; and (e) estimates of capital or start-up costs 
and costs of operation, maintenance, and purchase of services to 
maintain the information.
    The information collections are included in Sec.  150.6.

C. Regulatory Planning and Review (Executive Orders 12866 and 13563)

    It has been determined that this regulation is a significant 
regulatory action as defined in Executive Order 12866 as supplemented 
by Executive Order 13563, in that this rule would have an annual effect 
on the economy of $100 million or more. Accordingly, this proposed rule 
has been reviewed by the Office of Management and Budget. The 
Regulatory Impact Assessment prepared by Treasury for this regulation 
is provided below.
1. Description of Need for the Regulatory Action
    Section 155 of the Dodd-Frank Act directs the Board to provide 
funding sufficient to cover the expenses of the OFR and FSOC during the 
two-year period following enactment. (The Dodd-Frank Act was enacted on 
July 21, 2010.) To provide funding after July 21, 2012, Section 155(d) 
of the Dodd-Frank Act directs the Secretary of the Treasury to 
establish by regulation, and with the approval of the FSOC, an 
assessment schedule for bank holding companies with total consolidated 
assets of $50 billion or greater and nonbank financial companies 
supervised by the Board.
2. Provision--Affected Population
    Section 155(d) of the Dodd-Frank Act defines the population of 
assessed companies as bank holding companies with total consolidated 
assets of $50 billion or greater and nonbank financial companies 
supervised by the Board.
    Under this definition, U.S. bank holding companies and foreign 
banking organizations with $50 billion or more in total worldwide 
consolidated assets and nonbank financial companies supervised by the 
Board qualify for assessment. However, under the proposed rule only 
U.S.-based assets from foreign banking organizations' would be used to 
calculate their assessments. Foreign banking organizations with less 
than $50 billion in U.S.-based assets would not be assessed. Based on 
information provided by the Board, we estimate that forty-eight bank 
holding companies met the criteria as assessed companies as of June 30, 
2011.
    Nonbank financial companies determined by the FSOC to require 
heightened supervision under Title I would be assessed on the basis of 
their total consolidated assets for U.S. entities and on the basis of 
total consolidated assets of U.S. operations for foreign entities, 
similar to bank holding companies. All such nonbank financial companies 
would be assessed, regardless of their level of total consolidated 
assets.\12\
---------------------------------------------------------------------------

    \12\ To date, the Council has not made a determination regarding 
the applicability of Board supervision under section 113 for a 
nonbank financial company. Moreover, it is unclear as to what type 
of nonbank financial companies the Council may consider for a 
determination. For these reasons, as the Council begins to make 
determinations regarding nonbank financial companies under section 
113, the Treasury's methodology for determining the assessment fee 
for these companies would be reviewed and, as needed, revised 
through the rulemaking process to assure that the corresponding 
assessment fees charged to these companies would be appropriate.

---------------------------------------------------------------------------

[[Page 41]]

3. Baseline
    The Dodd-Frank Act requires establishment of the FSOC, the OFR, and 
the FDIC's orderly liquidation facility. These activities are directed 
by the Dodd-Frank Act to be funded by the Board for a two-year period 
to end on July 21, 2012. There is no provision in the Dodd-Frank Act 
for the FSOC or the OFR to receive appropriated funds. Section 152(e) 
of the Dodd-Frank Act allows departments or agencies of government to 
provide funds, facilities, staff, and other support services to the OFR 
as the OFR may determine advisable. Section 152(e) and Section 111(j) 
allow for employees of the Federal Government to be detailed to the OFR 
and the FSOC, respectively, without reimbursement. Funding through 
departments or agencies of government would not be sufficient to 
perform all of the functions of the FSOC, the OFR, and the FDIC 
required by the Act. Agencies funded by appropriations would be 
restricted in the amount of funding support they could provide to the 
FSOC or the OFR. Agencies not funded by appropriations would be 
restricted in the amount of funding support they could provide for 
activities outside their primary mandate. Restrictions on the 
availability of funds or lack of predictability of funding would make 
it difficult to maintain consistent program activities, and complete 
analysis required to identify possible threats to financial stability.
4. Assessment of Total Fees Collected
    It is anticipated that the annual assessments for the FRF will 
exceed $100 million, making the rule a significant regulatory action as 
defined in Executive Order 12866.
    The assessment and collection of fees described in this rule 
represent an economic transfer from assessed companies to the 
government, for purposes of providing the benefits described above. As 
such, the assessments do not represent an economic cost for purposes of 
this analysis. However, the allocation of the assessment may have 
distributional impacts.
    There is a wide range of possible assessment schedules which could 
be used to collect funds for the OFR and the FSOC. For example, the 
schedule could be structured to charge eligible companies a similar 
fee, it could include tiered fees and rates, or it could include 
assessments for all eligible companies as opposed to just entities with 
$50 billion in U.S.-based assets (i.e., including foreign banking 
organizations with more than $50 billion in worldwide assets but less 
than $50 billion in U.S.-based assets). Having a simple, more 
transparent assessment schedule reduces costs for government and for 
assessed companies by making assessments easier to calculate, budget 
for, and manage administratively. Executive Order 12866 specifically 
requires that agencies ``design its regulations in the most cost-
effective manner to achieve the regulatory objective.''
    The selection of the assessment schedule was governed by two 
guiding principles:
     The assessment structure should be simple and transparent; 
and
     Allocation should take into account differences among such 
companies, based on the considerations for establishing the prudential 
standards under section 115 of the Dodd-Frank Act as required by the 
Act.
    Under Section 155 of the Act, the assessment schedule is required 
to take into account criteria for establishing prudential standards for 
supervision and regulation of large bank holding companies and nonbank 
financial companies as described in Section 115 of the Act. The 
criteria in Section 115 include: ``capital structure, riskiness, 
complexity, financial activities (including the financial activities of 
subsidiaries), size, and any other risk-related factors that the 
Council deems appropriate.'' Selection of total consolidated assets as 
the basis for assessments was intended to take into account the 
criteria identified in Section 115, while providing a more transparent 
and administratively cost effective metric. Using other risk-related 
metrics as a base for calculation could dramatically increase the cost 
of calculating assessments, as well as reduce a company's ability to 
project their assessment level. As of June 30, 2011, companies meeting 
the criteria for assessment had $18.7 trillion in total consolidated 
assets.
    Under the proposed assessment structure, each assessed company's 
eligible assets would be multiplied by an assessment fee rate to 
determine their assessment amount. (Eligible assets would be total 
worldwide consolidated assets for U.S.-based bank holding companies and 
designated U.S.-based nonbank financial companies, and total U.S.-based 
assets for foreign banking organizations and foreign designated nonbank 
financial companies.) Assessments would be made semiannually, generally 
based on an average of the company's last four quarters of total 
consolidated assets.
    Based on data on assessable assets as of June 30, 2011, for every 
$100 million collected the range of assessments would be $280,000 for 
the smallest assessed company (with just over $50 billion in assets) to 
$12.5 million for the largest assessed company (with approximately $2.3 
trillion in assets).\13\ The ten largest assessed companies would 
provide roughly two-thirds of the total assessed amount.
---------------------------------------------------------------------------

    \13\ Semiannual assessments will be set to maintain FRF balance 
at 12 months of budgeted capital expenses and 6 months of budgeted 
operating expenses. The initial assessment basis would be equivalent 
to the budgeted expenses for the end of fiscal year 2012 (July 20, 
2012 to September 30, 2012), 7 months of budgeted capital expenses 
and 6 months of budgeted operating expenses for FY 2013.
---------------------------------------------------------------------------

    Based on currently available data, no assessed company will have 
less than $50 billion in assets, thus no small businesses are directly 
affected by the regulation. Under the proposed structure of the rule, 
the only assessed companies that could have less than $50 billion in 
assets would be nonbank financial companies subject to enhanced 
prudential supervision by the Board. While no such determinations have 
yet been made, Treasury believes that the FSOC will not make such a 
determination for any nonbank financial company that is a small 
business. It is not anticipated that the regulation will unduly 
interfere with state, local, and tribal governments in the exercise of 
their governmental functions.
    We estimate that there are certain direct costs associated with 
complying with these rules. On a one time basis, assessed entities 
would be required to set up a bank account for fund transfers and 
provide the required information to the Treasury Department through an 
information collection form. The information collection form includes 
bank account routing information and contact information for the 
individuals at the company that will be responsible for setting up the 
account and ensuring that funds are available on the billing date. We 
estimate that approximately 50 companies could be affected, and that 
the cost associated with filling out the form and submitting it to the 
Treasury Department is approximately $600.\14\ We note that this 
represents a conservative estimate of costs as some of these companies 
may have already

[[Page 42]]

established an account for payments or collections to the U.S. 
government.
---------------------------------------------------------------------------

    \14\ The cost of this activity is calculated by multiplying the 
50 companies by the time it takes to complete the form (15 minutes) 
by an approximate hourly wage of $48 (assuming an annual salary of 
$100,000).
---------------------------------------------------------------------------

    On a semi-annual basis, assessed companies will have the 
opportunity to review the confirmation statement and assessment bill. 
The rules do not require the companies to conduct the review, but it 
does permit it. We anticipate that at least some of the companies will 
conduct reviews, in part because the cost associated with it is very 
low.
5. Alternative Approaches Considered
    We have noted that there are many possible assessment structures 
which could be employed to collect assessments. As part of the 
rulemaking process, Treasury contemplated a variety of structures for 
determining how assessments would be allocated. Particularly, Treasury 
considered alternate approaches with regard to the complexity of the 
method of assessment. In addition, Treasury considered alternative 
approaches with the following features: (1) Approaches designed to 
charge assessed companies at a similar fee level, distributing 
collections more evenly; (2) approaches designed to charge different 
rates for different levels of total consolidated assets, creating a 
``tiered'' structure of rates; and (3) approaches designed to charge 
all eligible bank holding companies, as opposed to just those with $50 
billion in assessable assets. We discuss these alternative approaches 
below.
a. Complexity of Approach
    In evaluating methodologies for determining individual company 
assessments, the Treasury notes that there has been a variety of 
assessment approaches employed by other federal and international 
agencies which incorporate measures of risk that are similar to the 
considerations mentioned in Section 115 of the Dodd-Frank Act. For 
example, Basel III capital adequacy standards are based on charges 
against risk-weighted assets and include additional charges for a 
mandatory capital conservation buffer and a discretionary 
countercyclical buffer. The risk-based charges incorporate capital 
tiers, leverage, credit valuation adjustments, and other factors. In 
the U.S., as required by the Dodd-Frank Act, the FDIC recently revised 
how banks are charged deposit insurance assessments. With some minor 
exceptions, the FDIC assessment base is total consolidated assets minus 
tangible equity.
    In each of these cases, and in other related determinations, the 
complexity of the assessment methodology is tied to the goal of the 
charge. For instance, the Dodd-Frank Act requires the Board to collect 
assessments designed to cover the costs of heightened regulation and 
supervision of large bank holding companies, large savings and loan 
holding companies, and nonbank financial companies supervised by the 
Board.
    In evaluating these arrangements, Treasury notes that complexity in 
the assessment design increases the administrative burden to assessed 
companies, including planning for those assessments, and decreases 
transparency to the public. Treasury does not believe that the benefits 
of a complex methodology justify their increased costs in the context 
of this rulemaking.
b. Charging Companies Fees at a Similar Level
    Section 155 of the Dodd-Frank Act requires that the assessment 
schedule take into account criteria for establishing prudential 
standards for supervision and regulation of large bank holding 
companies and nonbank financial companies as described in Section 115 
of the Act. The criteria in Section 115 include: ``capital structure, 
riskiness, complexity, financial activities (including the financial 
activities of subsidiaries), size, and any other risk-related factors 
that the Council deems appropriate.'' The option of charging companies 
at a similar level was rejected as it would appear to contradict the 
intent of the Act for the schedule to charge larger, more complex and 
riskier firms higher fees. On the basis of size alone, we estimate that 
the largest eligible companies have over 40 times the assessable assets 
of smallest companies.
c. Charging Fees Under a Tiered Rate Structure
    A number of regulators rely on tiered assessment schedules to 
collect fees. The Office of the Comptroller of the Currency uses a 
tiered assessment structure to collect fees associated with regulating 
and supervising national banks. The Office of Thrift Supervision used a 
tiered structure to collect fees to regulate and supervise thrifts. The 
main benefit of a tiered structure is that it allows fees to be charged 
at different rates to different companies. For example, supervision may 
benefit from economies of scale, meaning that the additional resources 
required for supervision do not grow dollar for dollar with the size of 
the entity. Alternatively, larger companies may pose risks that are 
disproportionately larger than their asset size, requiring even more 
resources for supervision than do smaller companies. A tiered approach 
could accommodate such differences by allowing different fee rates to 
be charged against assessed assets by tier.
    Consideration was given to establishing such a structure for FRF 
assessments. The primary benefit would have been greater flexibility in 
determining the relative amounts assessed on larger companies versus 
smaller companies. However, these benefits were balanced against an 
interest for assessment fees to be reasonably estimable and simpler to 
calculate, reducing administrative costs both for assessed companies 
and the Treasury, improving transparency, and allowing companies to 
better anticipate assessment amounts. Given that all assessed companies 
are large (generally with over $50 billion in assets) and by definition 
systemically important, and the activities of the FSOC, the OFR, and 
the FDIC's orderly liquidation facility correspond to all of them, the 
relative benefits of a tiered structure over a fixed rate structure 
were unclear.
d. Charging All Eligible Bank Holding Companies
    Based on the definition of ``bank holding company'' in Title I of 
the Dodd-Frank Act, assessments can be made against any foreign banking 
organizations with $50 billion or more in total consolidated assets. 
Since many of these eligible foreign banking companies have a 
relatively small percentage of their operations in the United States, 
there is limited basis for assessing these companies. Consideration was 
given to charging a small fee, so that all eligible companies would be 
charged, but the additional costs associated with administering the fee 
and cost of compliance by these companies outweighed the perceived 
benefits of this choice. The final proposal was to charge foreign 
banking organizations with $50 billion or more in total U.S.-based 
assets and U.S.-based bank holding companies with $50 billion or more 
in total consolidated assets.
6. Request for Comments
    Treasury is seeking comments on all aspects of this proposed 
rulemaking. Treasury is specifically seeking comment on the following 
issues:
    1. Does the proposed rule provide sufficient time if an assessed 
company requests redetermination?
    2. Does the method for determining the allocation of assessments 
provide companies with a reasonable ability to estimate or anticipate 
the assessment?
    3. Is the method proposed for consolidation in the case where more

[[Page 43]]

than one top-tier bank holding company has a legal authority of control 
appropriate?
    4. Is the evaluation of alternative approaches considered (in 
Section III.C.5) appropriate? Please provide specific information and 
data to support your comment.

List of Subjects in 31 CFR Part 150

    Bank Holding Companies, Nonbank financial companies, Financial 
Research Fund.

    For the reasons set forth in the preamble, Treasury proposes to 
amend Title 31, Chapter I of the Code of Federal Regulations by adding 
a new part 150 as set forth below.

PART 150--FINANCIAL RESEARCH FUND

Sec.
150.1 Scope.
150.2 Definitions.
150.3 Determination of assessed companies.
150.4 Calculation of assessment basis.
150.5 Calculation of assessments.
150.6 Notice and payment of assessments.

    Authority:  12 U.S.C. 5345; 31 U.S.C. 321.


Sec.  150.1  Scope.

    The assessments contained in this part are made pursuant to the 
authority contained in 12 U.S.C. 5345.


Sec.  150.2  Definitions.

    As used in this part:
    Assessed company means:
    (1) A bank holding company that has $50 billion or more in total 
consolidated assets, based on the average of total consolidated assets 
as reported on the bank holding company's four most recent quarterly 
Consolidated Financial Statements for Bank Holding Companies (or, in 
the case of a foreign banking organization, based on the average of 
total assets at end of period as reported on such company's four most 
recent Capital and Asset Information for the Top-tier Consolidated 
Foreign Banking Organization submissions, or most recent annual 
submission, as appropriate); or
    (2) A nonbank financial company required to be supervised by the 
Board under section 113 of the Dodd-Frank Act.
    Assessment basis means, for a given assessment period, an estimate 
of the total expenses that are necessary or appropriate to carry out 
the responsibilities of the Office and the Council as set out in the 
Dodd-Frank Act (including expenses of the Corporation that shall be 
treated as expenses of the Council pursuant to section 210(n)(10) of 
the Dodd-Frank).
    Assessment fee rate, with regard to a particular assessment period, 
means the rate published by the Department for the calculation of 
assessment fees for that period.
    Assessment payment date means:
    (1) For the initial assessment period, July 20, 2012;
    (2) For any semiannual assessment period ending on March 31 of a 
given calendar year, September 15 of the prior calendar year; and
    (3) For any semiannual assessment period ending on September 30 of 
a given calendar year, March 15 of the same year.
    Assessment period means any of:
    (1) The initial assessment period; or
    (2) Any semiannual assessment period.
    Bank holding company means:
    (1) A bank holding company as defined in section 2 of the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841); or
    (2) A foreign banking organization.
    Board means the Board of Governors of the Federal Reserve Syst