Annual Stress Test, 3166-3172 [2012-1135]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Proposed Rules]
[Pages 3166-3172]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1135]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325, Subpart C

RIN 3064-AD91


Annual Stress Test

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Proposed rule with request for public comment.

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SUMMARY: The Federal Deposit Insurance Corporation (the ``Corporation'' 
or ``FDIC'') requests comment on this proposed rule that implements the 
requirements in Section 165(i) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (the ``Dodd-Frank Act'') regarding stress tests 
(``proposed rule''). This proposed rule would implement section 
165(i)(2) by requiring state nonmember banks and state savings 
associations supervised by the Corporation with total consolidated 
assets of more than $10 billion to conduct annual stress tests in 
accordance with the proposed rule, report the results of such stress 
tests to the Corporation and the Board of Governors of the Federal 
Reserve System (``Board'') at such time and in such a form containing 
the information required by the Corporation, and publish a summary of 
the results of the required stress tests.

DATES: Comments should be received on or before March 23, 2012.

[[Page 3167]]


ADDRESSES: You may submit comments by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web site: https://www.FDIC.gov/regulations/laws/federal/propose.html.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street, NW., Washington, DC 20429.
     Hand Delivered/Courier: The guard station at the rear of 
the 550 17th Street Building (located on F Street), on business days 
between 7 a.m. and 5 p.m.
     Email: Comments@FDIC.gov.
    Instructions: Comments submitted must include ``FDIC'' and ``RIN 
3064-AD91.'' Comments received will be posted without change to https://www.FDIC.gov/regulations/laws/federal/propose.html, including any 
personal information provided.

FOR FURTHER INFORMATION CONTACT: George French, Deputy Director, 
Policy, (202) 898-3929, Robert Burns, Associate Director, Mid-Tier Bank 
Branch, (202) 898-3905, or Karl R. Reitz, Senior Capital Markets 
Specialist, (202) 898-6775, Division of Risk Management and 
Supervision; Mark G. Flanigan, Counsel, (202) 898-7426, or Ryan K. 
Clougherty, Senior Attorney, (202) 898-3843, Legal Division, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC, 
20429.

SUPPLEMENTARY INFORMATION:

I. Background

A. Overview of Section 165(i) of the Dodd-Frank Act

    Section 165(i)(2) of the Dodd-Frank Act requires the Corporation to 
issue regulations that require FDIC-insured state nonmember banks and 
FDIC-insured state-chartered savings associations with total 
consolidated assets of more than $10 billion (``covered banks'') to 
conduct annual stress tests (``bank-run stress tests'').
    For these stress tests, section 165(i)(2) requires that the 
Corporation issue regulations that: (1) Define the term ``stress test'' 
for purposes of the regulations; (2) establish methodologies for the 
conduct of the stress tests that provide for at least three different 
sets of conditions, including baseline, adverse, and severely adverse 
conditions; (3) establish the form and content of a required report on 
the stress tests that banks subject to the regulation must submit to 
the Corporation; and (4) require covered banks to publish a summary of 
the results of the required stress tests.
    Section 165(i)(2)(C) of the Dodd-Frank Act requires the 
Corporation, in coordination with the Board and the Federal Insurance 
Office, to issue consistent and comparable regulations to implement the 
requirements of this section. This proposed rule implements section 
165(i)(2) as described further below.

B. Overview of Proposed Rule

1. Annual Stress Tests
a. Purpose
    The Corporation views the bank-run stress tests required under the 
proposed rule as providing forward-looking information to assist the 
Corporation in its overall assessment of a covered bank's capital 
adequacy, helping to better identify potential downside risks and the 
potential impact of adverse outcomes on the covered bank's capital 
adequacy, and to assist it in ensuring the institution's financial 
stability. Further, these stress tests are expected to improve the 
quality of covered banks' internal assessments of capital adequacy and 
overall capital planning.
    The proposed rule would require covered banks to conduct annual 
stress tests. The proposed rule defines a stress test as a process to 
assess the potential impact on a covered bank of economic and financial 
conditions (``scenarios'') on the consolidated earnings, losses and 
capital of the covered bank over a set planning horizon, taking into 
account the current condition of the covered bank and its risks, 
exposures, strategies, and activities.
    The Corporation expects that the stress tests required under the 
proposed rule would be one component of the broader stress testing 
activities conducted by covered banks. The broader stress testing 
activities should address the impact of a broad range of potentially 
adverse outcomes across a broad set of risk types affecting other 
aspects of a bank's financial condition beyond capital adequacy alone. 
For example, under existing guidance, supervisors expect banks to 
evaluate their liquidity under stressed conditions and their exposure 
to changes in interest rates.\1\ In addition, a full assessment of a 
bank's capital adequacy must take into account a range of factors, 
including evaluation of its capital planning processes, the governance 
over those processes, regulatory capital measures, results of 
supervisory stress tests where applicable, and market assessments, 
among other factors. The Corporation notes that the stress tests 
described in the proposed rule focus on capital adequacy and do not 
focus on other aspects of financial condition.
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    \1\ On June 15, 2011, the Corporation, along with the other 
banking agencies, published for comment proposed guidance on covered 
banks' stress testing as a part of overall institution risk 
management. The guidance included stress testing non-capital related 
aspects of financial condition. (76 FR 35072)
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b. Applicability
    The proposed rule would apply to covered banks. Covered banks are 
defined under the proposed rule as any state nonmember bank or state-
chartered savings association that has more than $10 billion in total 
consolidated assets, as determined based on the average total 
consolidated assets as reported on the state nonmember bank's four most 
recent Consolidated Reports of Condition and Income (``Call Reports'') 
or on the state savings association's four most recent Thrift Financial 
Reports (``TFRs''), respectively. Once a state nonmember bank or state 
savings association becomes a covered bank, it will remain so for 
purposes of the proposed rule unless and until the state nonmember bank 
or state savings association has $10 billion or less in total 
consolidated assets as determined on each of, for state nonmember 
banks, the four most recent Call Reports or, for state savings 
associations, each of the four most recent TFRs.
    The Corporation may accelerate or extend any specified deadline for 
stress testing if the Corporation determines such modification is 
appropriate in light of the institution's activities, operations, risk 
profile, or regulatory capital.
c. Process Overview
    Except as otherwise provided in the proposed rule, a bank that 
becomes a covered bank no less than 90 days before September 30 of any 
given calendar year must comply with the requirements, including the 
timing of required submissions to the Corporation, of the proposed rule 
from September 30 forward. With respect to initial applicability, a 
bank that is a covered bank on the effective date of the proposed rule 
is subject to the proposed requirements as of the effective date, 
including the timing of required submissions to the Corporation. The 
Corporation expects to use the following general process and timetables 
in connection with the stress tests.
i. Reporting by Covered Banks
    Under the proposed rule, the Corporation would collect the covered 
bank's stress test results and additional qualitative and quantitative 
information about the tests on a confidential basis. The Corporation 
plans to publish notice of both specific requirements and related 
instructions for the report to be

[[Page 3168]]

submitted to the Corporation, as described below. Following the annual 
stress test, each covered bank would be required to publish a summary 
of its results.
    ii. Annual Stress Test
    Each year, in advance of the annual stress test required of all 
covered banks on a schedule to be established, the Corporation would 
provide to such banks at least three scenarios, including baseline, 
adverse, and severely adverse, that each covered bank must use to 
conduct its annual stress test required under the proposed rule.
iii. Proposed Steps for Annual Stress Test
    Table A below describes proposed steps for the stress test cycle 
for covered banks, including proposed general time frames for each 
step. The proposed time frames are illustrative and are subject to 
change.

          Table A--Process Overview of Annual Stress Test Cycle
                     [Using data as of September 30]
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              Step                          Proposed timeframe
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1. FDIC provides covered banks   No later than mid-November.
 with scenarios for annual
 stress tests.
2. Covered banks submit          By January 5.
 required regulatory reports to
 the FDIC on their stress tests.
3. Covered banks make required   By early April.
 public disclosures.
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d. Overview of Stress Test Requirements
i. General Requirements for Stress Tests
    Under the proposed rule, each covered bank would be required to 
conduct annual stress tests using the bank's financial data as of 
September 30 of that year to assess the potential impact of different 
scenarios on the consolidated earnings and capital of that bank and 
certain related items over a nine-quarter forward-looking planning 
horizon, taking into account all relevant exposures and activities.
    The Corporation recognizes that certain parent company structures 
of covered banks may include one or more financial companies, each with 
total consolidated assets greater than $10 billion. The stress test 
requirements of section 165(i)(2) apply to the parent company and to 
each subsidiary financial company (including covered banks) regulated 
by a primary federal financial regulatory agency that has more than $10 
billion in total consolidated assets. To avoid unnecessary complexity 
or duplication of effort associated with this requirement, the 
Corporation intends to coordinate with the other primary federal 
financial regulatory agencies, to the extent needed. For example, the 
Corporation will aim to coordinate, as appropriate, with the other 
primary federal financial regulatory agencies in providing scenarios to 
be used by multiple entities within a holding company structure when 
meeting the requirements of the stress tests described in the proposed 
rule.
ii. Scenarios
    The proposed rule would require each covered bank to use a minimum 
of three sets of economic and financial conditions, including baseline, 
adverse, and severely adverse scenarios, or such additional conditions 
as the Corporation determines appropriate. The Corporation would 
provide at least three scenarios (baseline, adverse, and severely 
adverse) in advance of the annual stress tests.
iii. Methodologies and Practices
    Under the proposed rule, each covered bank would be required to use 
the applicable scenarios discussed above in conducting its stress tests 
to calculate, for each quarter-end within the planning horizon, the 
impact on its potential losses, pre-provision revenues, loan loss 
reserves, and pro forma capital positions over the planning horizon, 
including the impact on capital levels and ratios. Each covered bank 
would also be required to calculate, for each quarter-end within the 
planning horizon, the potential impact of the specific scenarios on its 
capital ratios, including regulatory and any other capital ratios 
specified by the Corporation.
    The proposed rule would require each covered bank to establish and 
maintain a system of controls, oversight, and documentation, including 
policies and procedures, designed to ensure that the stress testing 
processes used by the bank are effective in meeting the requirements of 
the proposed rule. The covered bank's policies and procedures must, at 
a minimum, outline the bank's stress testing practices and 
methodologies, validation, use of stress test results, and processes 
for updating the bank's stress testing practices consistent with 
relevant supervisory guidance. The board of directors and senior 
management of each covered bank must approve and annually review the 
controls, oversight, and documentation, including policies and 
procedures, of the covered bank established in the proposed rule.
iv. Stress Test Information and Results
    1. Required Report to the FDIC of Stress Test Information and 
Results
    On or before January 5 of each year, each covered bank would be 
required to report to the Corporation, in the manner and form 
prescribed in the proposed rule, the results of the stress tests 
conducted by the bank during the immediately preceding year (``required 
report''). The Corporation plans to publish for comment a description 
of items to be included in the required report to the Corporation. It 
is anticipated that the required report would include (but not 
necessarily be limited to) the following qualitative and quantitative 
information.
    Qualitative information:
     A general description of the use of stress tests required 
by the proposed rule in the bank's capital planning and capital 
adequacy assessments;
     A description of the types of risks (e.g., credit, market, 
operational, etc.) being captured in the stress test;
     A general description of the methodologies employed to 
estimate losses, pre-provision net revenues, loan loss reserves, 
changes in capital levels and ratios, and changes in the bank's balance 
sheet over the planning horizon;
     Assumptions about potential capital distributions over the 
planning horizon; and
     Any other relevant qualitative information to facilitate 
supervisory assessment of the tests, upon request by the Corporation.
    Quantitative information under each scenario:
     Estimated pro forma capital levels and capital ratios, 
including regulatory and any other capital ratios specified by the 
Corporation;
     Estimated losses by exposure category;
     Estimated pre-provision net revenue;

[[Page 3169]]

     Estimated changes in loan loss reserves;
     Estimated total assets and risk-weighted assets;
     Estimated aggregate loan balances;
     Potential capital distributions over the planning horizon; 
and
     Any other relevant quantitative information to facilitate 
supervisory understanding of the tests, upon request by the primary 
supervisor of the covered bank.
    The confidentiality of information submitted to the Corporation 
under the proposed rule shall be determined in accordance with 
applicable law including any available exemptions under the Freedom of 
Information Act (5 U.S.C. 552(b)) and the FDIC's Rules and Regulations 
regarding the Disclosure of Information (12 CFR part 309).
    The Corporation may also obtain supplemental information as needed.
    Question: What are the anticipated costs on covered banks 
associated with internal data collection and developing methodologies 
for stress testing in line with requirements in the regulation?
2. Supervisory Review of Covered Banks' Stress Test Processes and 
Results
    Based on information submitted by a covered bank in the required 
report to the Corporation, as well as other relevant information, the 
Corporation would conduct an analysis of the quality of the bank's 
stress test processes and related results. The Corporation envisions 
that feedback concerning such analysis would be provided to a covered 
bank through the supervisory process. In addition, each covered bank 
would be required to take the results of the annual stress test, in 
conjunction with the Corporation's analyses of those results, into 
account in making changes, as appropriate, to: the bank's capital 
structure (including the level and composition of capital); its 
exposures, concentrations, and risk positions; any plans of the covered 
bank for recovery and resolution; and to improve the overall risk 
management of the firm. The Corporation may also require other actions 
consistent with safety and soundness of the covered bank.
3. Publication of Results
    Consistent with the requirements of the Dodd-Frank Act, the 
proposed rule would require each covered bank to publish a summary of 
the results of its annual stress tests within 90 days of the required 
date for submitting its stress test report to the Corporation. The 
summary may be published on a covered bank's Web site or any other 
forum that is reasonably accessible to the public. It is expected that 
a covered bank that is a subsidiary of a parent company also subject to 
section 165(i)(2) summary publication requirements could publish its 
summary on the parent company's Web site or in another forum with the 
parent company's summary. The required information publicly disclosed 
by each covered bank, as applicable, would, at a minimum, include:
    (1) A description of the types of risks being included in the 
stress test;
    (2) A general description of the methodologies employed to estimate 
losses, pre-provision net revenue, loss reserves, and changes in 
capital positions over the planning horizon; and
    (3) Aggregate losses, pre-provision net revenue, loss reserves, net 
income, and pro forma capital levels and capital ratios (including 
regulatory and any other capital ratios specified by the Corporation) 
over the planning horizon, under each scenario.
    Question: Is the proposed method of public disclosure appropriate 
and why? If not, what alternatives would be more appropriate? Do 
commenters have concerns with the content of public disclosures, 
including the details of qualitative and quantitative information?

II. Request for Comments

    The Corporation requests comments on all aspects of the proposed 
rule for stress testing. What, if any, specific challenges exist with 
respect to the proposed steps and time frames? What specific 
alternatives exist to address these challenges that still allow the 
companies to meet their statutory requirements?
    Is the proposed timing of stress testing appropriate and why? If 
not, what alternatives would be more appropriate? What, if any, 
specific challenges exist with respect to the proposed steps and time 
frames? What specific alternatives exist to address these challenges 
that still allow the Corporation to meet its statutory requirements? 
Please comment on the use of the ``as of'' date of September 30, the 
January 5 reporting date, the publication date, and the sufficiency of 
time for completion of the stress test. Does the immediate 
effectiveness of the proposed rule provide sufficient time for a 
covered bank as of the effective date of the rule to conduct its first 
stress test?

III. Administrative Law Matters

A. Paperwork Reduction Act Analysis

A. Request for Comment on Proposed Information Collection
    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501-3521) (``PRA''), the Corporation 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 information 
collection requirements contained in this notice of proposed rulemaking 
have been submitted by the Corporation to OMB for review and approval 
under section 3506 of the PRA and section 1320.11 of OMB's implementing 
regulations (5 CFR part 1320).
    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the agency's functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collection, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    You may submit written comments by any of the following methods:
     Agency Web Site: https://www.fdic.gov/regulations/laws/
federal/propose.html. Follow the instructions for submitting comments 
on the FDIC Web site.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: Comments@FDIC.gov. Include RIN 3064-AD91 on the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, FDIC, 550 17th Street NW., Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m.
    Public Inspection: All comments received will be posted without 
change

[[Page 3170]]

to https://www.fdic.gov/regulations/laws/federal/propose.html including 
any personal information provided. Comments may be inspected at the 
FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002, 
Arlington, VA 22226 between 9 a.m. and 4:30 p.m. on business days.
    A copy of the comments may also be submitted to the OMB desk 
officer for the agencies: By mail to the U.S. Office of Management and 
Budget, 725 17th Street NW., 10235, Washington, DC 20503 or by 
facsimile to (202) 395-6974, Attention: Federal Banking Agency Desk 
Officer.
 B. Proposed Information Collection
    Title of Information Collection: Stress Test Reporting.
    Frequency of Response: Annually.
    Affected Public: State nonmember banks and state savings 
associations supervised by the Corporation.
    Abstract: The information collection requirements are found in 
sections 325.204, 325.205, and 325.207 of the proposed rule. These 
requirements implement the stress testing and stress testing reporting 
requirements set forth in Section 165(i) of the Dodd-Frank Act. Section 
325.204(a) identifies the calculations of the potential impact on 
capital that must be made during each quarter of the planning horizon. 
Section 325.204(c) requires that each covered bank must establish and 
maintain a system of controls, oversight, and documentation, including 
policies and procedures that describe the covered bank's stress test 
practices and methodologies, and processes for updating such bank's 
stress test practices. Section 325.205 sets forth the requirements for 
stress test reports to be filed annually with the Corporation and the 
Board in the time, manner and form specified by the Corporation. 
Section 325.205(d) includes a written request for institutions to 
request an extension of time to submit the stress test reports under 
certain situations that have been identified by the Corporation. 
Section 325.207 requires that a covered bank shall publish a summary of 
the results of its annual stress tests. The summary must include a 
description of the types of risks being included in the stress test, a 
general description of the methodologies employed to estimate losses, 
pre-provision net revenue, loss reserves, and changes in capital 
positions over the planning horizon and aggregate losses, pre-provision 
net revenue, loss reserves, net income, and pro forma capital levels 
and capital ratios (including regulatory and any other capital ratios 
specified by the Corporation) over the planning horizon, under each 
scenario.

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                                                     Number of        Annual          Hourly
                                                    respondents      frequency       estimate       Total hours
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Initial Paperwork Burden:
    Initial Report..............................              23               1           2,000          46,000
                                                 ---------------------------------------------------------------
        Total...................................              23               1           2,000          46,000
Ongoing Paperwork Burden:
    Annual Report...............................              23               1           1,040          23,920
                                                 ---------------------------------------------------------------
        Total...................................              23               1           1,040          23,920
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B. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq. (``RFA''), 
requires that each federal agency either certify that a proposed rule 
would not, if adopted in final form, have a significant economic impact 
on a substantial number of small entities or prepare an initial 
regulatory flexibility analysis of the rule and publish the analysis 
for comment.\2\ The proposed rule would apply only to state nonmember 
banks and state savings associations with more than $10 billion in 
total consolidated assets. Under regulations issued by the Small 
Business Administration (``SBA''), a bank or other depository 
institution is considered ``small'' if it has $175 million or less in 
assets.\3\ As of December 31, 2010, there are approximately 2,685 small 
state nonmember banks and state savings associations. Since the 
proposed rule would apply only to state nonmember banks and state 
savings associations with more than $10 billion in total consolidated 
assets, the Corporation does not expect that the proposed rule will 
directly affect a substantial number of small entities. It is hereby 
certified that this rule will not have a significant economic impact on 
a substantial number of small entities and therefore, a regulatory 
flexibility analysis under the RFA is not required.
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    \2\ See 5 U.S.C. 603, 604, and 605.
    \3\ 13 CFR 121.201.
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C. Solicitation of Comments and Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471, 12 U.S.C. 4809) requires federal banking agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. The Corporation has sought to present the proposed 
rule in a simple and straightforward manner and invites comment on how 
to make the proposed rule easier to understand. For example:
     Is the material organized to suit your needs? If not, how 
could the rule be more clearly presented?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would achieve that?
     Is this section format adequate? If not, which of the 
sections should be changed and how?
     What other changes can the Corporation incorporate to make 
the regulation easier to understand?

List of Subjects in 12 CFR Part 325

    Administrative practice and procedure, Banks, Banking, Federal 
Deposit Insurance Corporation, Reporting and recordkeeping 
requirements, State savings associations, Stress tests.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

    The Corporation proposes to amend part 325 of chapter III of title 
12 of the Code of Federal Regulations as follows:

PART 325--CAPITAL MAINTENANCE

    1. The authority citation for part 325 is revised to read as 
follows:

    Authority:  12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i),

[[Page 3171]]

1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; Pub. L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 
105 Stat. 2236, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 
(12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as 
amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 
note); 12 U.S.C. 5365(i).

    2. Add subpart C to part 325 to read as follows:
Subpart C--Annual Stress Test
Sec.
325.201 Authority, purpose, applicability, and reservation of 
authority.
325.202 Definitions.
325.203 Annual stress tests required.
325.204 Methodologies and practices.
325.205 Report to the FDIC of stress test results and related 
information.
325.206 Supervisory review of stress tests and post-assessment 
actions.
325.207 Publication of summary of results.

 Subpart C--Annual Stress Test


Sec.  325.201  Authority, purpose, applicability, and reservation of 
authority.

    (a) Authority. This subpart is issued by the Federal Deposit 
Insurance Corporation (the ``Corporation'' or ``FDIC'') under section 
165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (the ``Dodd-Frank Act'') (Pub. L. 111-203, 124 Stat. 1376, 1430-
1431, 12 U.S.C. 5365(i)(2)).
    (b) Purpose. This subpart implements section 165(i)(2) of the Dodd 
Frank Act (12 U.S.C. 5365(i)(2)), which requires the Corporation (in 
coordination with the Board of Governors of the Federal Reserve System 
(``Board'') and the Federal Insurance Office) to issue regulations 
implementing the requirement that each covered bank supervised by the 
Corporation with total consolidated assets of more than $10 billion 
conduct annual stress tests.
    (c) Applicability. (1) Except as otherwise provided in this 
subpart, a bank that becomes a covered bank no less than 90 days before 
September 30 of that calendar year is subject to the requirements of 
this subpart.
    (2) Initial applicability. A bank that is a covered bank on the 
effective date of this subpart is subject to the requirements, 
including timing of required submissions to the Corporation, of this 
subpart.
    (d) Reservation of authority. (1) Notwithstanding any other 
provisions of this subpart, the Corporation may accelerate or extend 
any deadline for stress testing, reporting or publication, or require 
additional tests if the Corporation determines that such modification 
is appropriate in light of the covered bank's activities, operations, 
risk profile, or regulatory capital.
    (2) If the Corporation determines that the stress testing 
techniques and methodologies of a covered bank are deficient under 
Sec.  325.204, the Corporation may determine that additional analytical 
techniques and methodologies are appropriate for the covered bank to 
use in identifying, measuring, and monitoring risks to its safety and 
soundness and require it to implement such techniques and 
methodologies.
    (3) The Corporation reserves the authority to require a covered 
bank to make additional publications beyond those required by this 
subpart if the Corporation determines that such covered bank's 
publication does not adequately address one or more material elements 
of the stress test. Further, nothing in this subpart limits the 
authority of the Corporation under any other provision of law or 
regulation to take supervisory or enforcement action, including action 
to address unsafe and unsound practices or conditions, or violations of 
law or regulation.


Sec.  325.202  Definitions.

    For purposes of this subpart--
    (a) Covered bank means
    (1) Any state nonmember bank or state savings association that has 
more than $10 billion in total consolidated assets, as determined based 
on the average of total consolidated assets as reported on the state 
nonmember bank's four most recently-filed Consolidated Reports of 
Condition and Income (Call Report), or on the state savings 
association's four most recently-filed Thrift Financial Reports (TFRs).
    (2) Any state nonmember bank or state savings association that 
meets the requirements of paragraph (1) shall remain a covered bank for 
purposes of this subpart unless and until the state nonmember bank has 
$10 billion or less in total consolidated assets as determined based on 
its four most recently-filed Call Reports, or the state savings 
association has $10 billion or less in total consolidated assets as 
determined based on each of its four most recently-filed TFRs.
    (b) Planning horizon means the period over which the bank's stress 
test projections will extend: specifically nine quarters.
    (c) Scenarios are sets of economic and financial conditions used in 
the covered banks' stress tests, including baseline, adverse, and 
severely adverse.
    (d) State nonmember bank and state savings association shall each 
have the same respective meaning contained in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    (e) Stress test is a process used to assess the potential impact on 
a covered bank of economic and financial conditions (scenarios) on the 
consolidated earnings, losses, and capital of a covered bank over a set 
planning horizon, taking into account the current condition of the 
covered bank and the covered bank's risks, exposures, strategies, and 
activities.


Sec.  325.203  Annual stress tests required.

    (a)(1) Each covered bank shall complete an annual stress test of 
itself based on data of the covered bank as of September 30 of that 
calendar year.
    (2) The stress test shall be conducted in accordance with this 
section and the methodologies and practices described in section 
325.204.
    (b) Scenarios provided by the Corporation. In conducting its stress 
tests under this section, each covered bank must use scenarios provided 
by the Corporation that reflect a minimum of three sets of economic and 
financial conditions, including a baseline, adverse, and severely 
adverse scenario. In advance of these stress tests, the Corporation 
will provide to all covered banks a description of the baseline, 
adverse, and severely adverse scenarios that each covered bank shall 
use to conduct its annual stress tests under this subpart.


Sec.  325.204  Methodologies and practices.

    (a) Potential impact on capital.
    (1) In conducting a stress test under Sec.  325.203, each covered 
bank shall calculate how each of the following are impacted during each 
quarter of the stress test planning horizon for each scenario:
    (i) Potential losses, pre-provision net revenues, loan loss 
reserves, and pro forma capital positions over the planning horizon; 
and
    (ii) Capital levels and capital ratios, including regulatory and 
any other capital ratios specified by the Corporation.
    (b) Planning horizon. Each covered bank must use a planning horizon 
of at least nine quarters over which the impact of specified scenarios 
would be assessed.
    (c) Controls and oversight of stress testing processes.
    (1) Each covered bank must establish and maintain a system of 
controls, oversight, and documentation, including policies and 
procedures, designed to ensure that the stress testing processes used 
by the covered bank are effective in meeting the requirements in this 
subpart. These policies and procedures must, at a minimum, describe the 
covered bank's stress

[[Page 3172]]

testing practices and methodologies, validation, and use of stress 
testing results, as well as processes for updating the covered bank's 
stress testing practices consistent with relevant supervisory guidance.
    (2) The board of directors and senior management of each covered 
bank shall approve and annually review the controls, oversight, and 
documentation, including policies and procedures of the covered bank 
pursuant to this subpart.


Sec.  325.205  Report to the FDIC of stress test results and related 
information.

    (a) Report required for stress tests. On or before January 5 of 
each year, each covered bank must report the results of the stress test 
required under section 325.203 to the FDIC in accordance with paragraph 
325.205(b) .
    (b) Content of report for annual stress tests. Each covered bank 
must file a report in the manner, in such form, and containing the 
information established by the Corporation.
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Corporation under this 
subpart and related materials shall be determined in accordance with 
applicable law including any available exemptions under the Freedom of 
Information Act (5 U.S.C. 552(b)) and the FDIC's Rules and Regulations 
regarding the Disclosure of Information (12 CFR Part 309).
    (d) Extension. The Corporation may, in its discretion, and upon 
request by a covered bank, extend the time period for compliance 
established under paragraph 325.205(a) for up to an additional 60 days.


Sec.  325.206  Supervisory review of stress tests and post-assessment 
actions.

    (a) Each covered bank shall take the results of the stress tests 
conducted under section 325.203 into account in making changes, as 
appropriate, to: The covered bank's capital structure (including the 
level and composition of capital); its exposures, concentrations, and 
risk positions; any plans for recovery and resolution; and to improve 
overall risk management.


Sec.  325.207  Publication of summary of results.

    (a) Public disclosure of results required for stress tests of 
covered banks. Within 90 days of the date required for submitting a 
report under Sec.  325.205(a) for its required stress test under Sec.  
325.203, a covered bank shall publicly disclose a summary of the 
results of the stress tests required under Sec.  325.203.
    (b) Information to be disclosed in the summary. The information 
disclosed by each covered bank shall, at a minimum, include--
    (1) A description of the types of risks being included in the 
stress test;
    (2) A general description of the methodologies employed to estimate 
losses, pre-provision net revenue, loss reserves, and changes in 
capital positions over the planning horizon;
    (3) Aggregate losses, pre-provision net revenue, loss reserves, net 
income, and pro forma capital levels and capital ratios (including 
regulatory and any other capital ratios specified by the Corporation) 
over the planning horizon under each scenario.

    Dated at Washington, DC this 17th day of January, 2012.
    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2012-1135 Filed 1-20-12; 8:45 am]
BILLING CODE 6714-01-P