Annual Stress Test, 3408-3415 [2012-1274]

Agencies

• Office of the Comptroller of the Currency
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 77, Number 15 (Tuesday, January 24, 2012)]
[Proposed Rules]
[Pages 3408-3415]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1274]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 46

[Docket ID OCC-2011-0029]
RIN 1557-AD58


Annual Stress Test

AGENCY: Office of the Comptroller of the Currency (``OCC''), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would implement section 165(i) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (``Dodd-Frank 
Act'') which requires certain companies to conduct annual stress tests 
pursuant to regulations prescribed by their respective primary 
financial regulatory agencies. Specifically, this proposed rule would 
require national banks and Federal savings associations with total 
consolidated assets of more than $10 billion to conduct an annual 
stress test as prescribed by this proposed rule. In addition to the 
annual stress test requirement, such institutions would be subject to 
certain reporting and disclosure requirements.

DATES: Comments must be received by March 26, 2012.

ADDRESSES: Please use the title ``Annual Stress Test'' to facilitate 
the organization and distribution of the comments. You may submit 
comments by any of the following methods:
     Email: regs.comments@occ.treas.gov.
     Mail: Office of the Comptroller of the Currency, 250 E 
Street, SW., Mail Stop 2-3, Washington, DC 20219.
     Fax: (202) 874-5274.
     Hand Delivery/Courier: 250 E Street SW., Mail Stop 2-3, 
Washington, DC 20219.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket Number OCC-2011-0029'' in your comment. In general, OCC will 
enter all comments received into the docket and publish them on the 
Regulations.gov Web site without change, including any business or 
personal information that you provide such as name and address

[[Page 3409]]

information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not enclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this notice by any of the following methods:
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 250 E Street SW., Washington, DC. 
For security reasons, the OCC requires that visitors make an 
appointment to inspect comments. You may do so by calling (202) 874-
4700. Upon arrival, visitors will be required to present valid 
government-issued photo identification and to submit to security 
screening in order to inspect and photocopy comments.
     Docket: You may also view or request available background 
documents and project summaries using the methods described above.

FOR FURTHER INFORMATION CONTACT: Robert Scavotto, Lead International 
Expert, International Analysis and Banking Condition (202) 874-4943, 
Tanya Smith, Lead Expert, Regulatory Capital and Operational Risk (202) 
874-4464, Akhtarur Siddique, Deputy Director, Enterprise Risk Analysis 
Division (202) 874-4665, Ron Shimabukuro, Senior Counsel, or Alexandra 
Arney, Attorney, Legislative and Regulatory Activities Division (202) 
874-6104, Office of the Comptroller of the Currency, 250 E Street SW., 
Washington, DC 20219.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 165(i) of the Dodd-Frank Act \1\ created two types of 
stress testing requirements: stress tests conducted by the company and 
stress tests conducted by the Board of Governors of the Federal Reserve 
System (``Board''). Section 165(i)(2) requires certain financial 
companies, including national banks and Federal savings associations, 
to conduct stress tests and requires the primary financial regulatory 
agency \2\ of those financial companies to issue regulations 
implementing the stress test requirements. A national bank or Federal 
savings association is subject to the stress test requirements if its 
total consolidated assets are more than $10 billion. Under section 
165(i)(2), a financial company is required to submit to the Board and 
to its primary financial regulatory agency a report at such time, in 
such form, and containing such information as the primary financial 
regulatory agency may require.\3\ The primary financial regulatory 
agency is required to define ``stress test,'' establish methodologies 
for the conduct of the company-conducted stress test that must include 
at least three different sets of conditions (baseline, adverse, and 
severely adverse), establish the form and content of the institution's 
report, and compel the institution to publish a summary of the results 
of the Dodd-Frank institutional stress tests.\4\
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    \1\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ 12 U.S.C. 5301(12).
    \3\ 12 U.S.C. 5365(i)(2)(B).
    \4\ 12 U.S.C. 5365(i)(2)(C).
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    In general, section 165 of the Dodd-Frank Act sets forth a number 
of requirements and responsibilities for the Board related to 
supervision and prudential standards for nonbank financial companies 
and bank holding companies with total consolidated assets equal to or 
greater than $50 billion. In addition to the company stress tests 
required under section 165(i)(2), section 165(i)(1) requires the Board 
to conduct annual analyses of nonbank financial companies supervised by 
the Board and bank holding companies with total consolidated assets 
equal to or greater than $50 billion to determine whether such 
companies have the capital, on a total consolidated basis, necessary to 
absorb losses as a result of adverse economic conditions.\5\ The Board 
published a proposed rule implementing this supervisory stress testing 
on January 5, 2012.\6\
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    \5\ 12 U.S.C. 5365(i)(1)(A).
    \6\ Enhanced Prudential Standards and Early Remediation 
Requirements for Covered Companies, 77 FR 594, Jan. 5, 2012.
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II. Overview of the Proposed Rule

    As required by section 165(i)(2), this proposed rule implements the 
company-conducted stress test requirements for national banks and 
Federal savings associations. Under this proposed rule, a national bank 
or a Federal savings association with total consolidated assets of more 
than $10 billion, defined as a ``covered institution,'' would be 
required to conduct an annual stress test as prescribed by this 
proposed rule. The OCC is developing this rule in coordination with the 
Board and the Federal Insurance Office, as required by section 
165(i)(2)(C). The Board and Federal Deposit Insurance Corporation 
(``FDIC'') are planning to issue separate proposed rules with respect 
to their supervised entities.\7\ For purposes of this rule, the 
proposed rule defines a stress test as a process to assess the 
potential impact of hypothetical economic conditions (``scenarios'') on 
the capital of a covered institution over a set period (the ``planning 
horizon''), taking into account the current condition of the covered 
institution including its material risks, exposures, strategies, and 
activities.
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    \7\ The Board published its proposed rule on January 5. See 77 
FR 594, Jan. 5, 2012. Certain of the Board's supervised entities, 
i.e. those subject to the Board-conducted tests, will be required by 
the Board to self-stress test more frequently, on a semi-annual 
basis. 12 U.S.C. 5365(i)(2)(A). The FDIC rule has not been published 
as of the publication of this proposed rule.
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A. The Purpose of Stress Tests

    The OCC views the stress tests conducted by covered institutions 
under the proposed rule as providing forward-looking information to 
supervisors to assist in their overall assessments of a covered 
institution's capital adequacy and to aid in identifying downside risks 
and the potential impact of adverse outcomes on the covered 
institution's capital adequacy. In addition, the OCC may use stress 
tests to determine whether additional analytical techniques and 
exercises are appropriate for a covered institution to employ in 
identifying, measuring, and monitoring risks to the financial soundness 
of the covered institution, and may require a covered institution to 
implement such techniques and exercises in conducting its stress tests. 
Further, these stress tests are expected to support ongoing improvement 
in a covered institution's stress testing practices with respect to its 
internal assessments of capital adequacy and overall capital planning.
    The OCC expects that the annual stress tests required under the 
proposed rule would be only one component of the broader stress testing 
activities conducted by covered institutions. In this regard, the OCC 
notes that the federal banking agencies have recently issued for public 
comment proposed joint guidance on ``Stress Testing for Banking 
Organizations with More Than $10 Billion in Total Consolidated 
Assets.'' See 76 FR 35072 (June 15, 2011). These broader stress testing 
activities should address the impact of a range of potentially adverse 
outcomes across a set of risk types affecting aspects of the covered 
institution's financial condition other than capital adequacy. In 
addition, a full assessment of a covered institution's capital adequacy 
must take into account a range of factors, including evaluation of its

[[Page 3410]]

capital planning processes, the governance over those processes, 
regulatory capital measures, results of supervisory stress tests where 
applicable, and market assessments.

B. Covered Institutions

1. National Banks and Federal Savings Associations
    Under this proposed rule, a covered institution would include a 
national bank or Federal savings association for which total 
consolidated assets averaged over the four most recent consecutive 
quarters exceeds $10 billion. A covered institution would be required 
to conduct annual stress tests as prescribed by this proposed rule.
    An institution is a covered institution on the effective date of 
the final rule based upon the institution's total consolidated assets 
averaged over the four consecutive quarters preceding the effective 
date, as reported on the institution's regulatory condition reports for 
those quarters. For national banks, the regulatory condition report is 
the Consolidated Reports of Income and Condition (``Call Report'') 
required under 12 U.S.C. 161; for Federal savings associations, the 
regulatory condition report is the Thrift Financial Report.\8\ Unless 
the OCC determines otherwise, a covered institution will remain subject 
to the company-conducted stress tests under the proposed rule until its 
total consolidated assets averaged over the four most recent 
consecutive quarters, as reported on the institution's regulatory 
condition reports for those quarters, are $10 billion or less.
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    \8\ Beginning with the March 31, 2012 report date, savings 
associations will be required to file the Consolidated Reports of 
Condition and Income (Call Reports) instead of the Thrift Financial 
Report. After that time, the regulatory condition report for both 
national banks and savings associations will be the Call Report.
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    An institution becomes a covered institution after the effective 
date of the final rule based upon the average of the institution's 
total consolidated assets over the four most recent consecutive 
quarters, as reported on the institution's regulatory condition reports 
for those quarters. The date on which such an institution becomes a 
covered institution is the as-of date of the fourth consecutive 
regulatory condition report that causes the institution's average total 
consolidated assets for four consecutive quarters to exceed $10 
billion. An institution that becomes a covered institution after the 
effective date of the rule would be required to fully implement the 
stress testing requirements of the rule, and conduct its first annual 
stress test according to the annual cycle specified by the OCC in this 
rule, in the calendar year following the calendar year in which the 
institution becomes a covered institution.
    For example, a national bank for which the four-quarter average of 
total consolidated assets exceeded $10 billion on its June 2013 Call 
Report (based on the average from its September 2012, December 2012, 
March 2013, and June 2013 Call Reports) would become a covered 
institution on June 30, 2013. The newly covered institution would be 
required to fully implement the stress testing requirements of the rule 
and conduct its first stress test in the testing cycle beginning in the 
following calendar year, 2014. Because the stress tests under the 
proposed rule will be undertaken annually and according to an OCC-
specified timeline that is uniform across all covered institutions, the 
time between the date at which an institution becomes a covered 
institution and the date at which the institution must conduct its 
first stress test may be more than or less than one year, depending on 
the specific quarter in which the institution becomes covered.
    The OCC also may designate an institution as a covered institution 
or exempt an otherwise-covered institution from certain, or all, of the 
Dodd-Frank stress testing requirements based on the institution's level 
of complexity, risk profile, or scope of operations. Additionally, the 
OCC may accelerate or extend any specified deadline for stress testing, 
reporting or publication of the stress test results, or require 
additional stress tests, if the OCC determines that such modification 
of a deadline or additional testing is appropriate in light of the 
institution's activities, operations, risk profile, or regulatory 
capital. With respect to the exercise of the reservation of authority 
in this proposed rule, the OCC is considering adopting notice and 
response procedures similar to those provided under 12 CFR 3.12.
    Question 1. Is the proposed method of calculating total 
consolidated assets, for purposes of determining when an institution 
becomes a covered institution and ceases to be a covered institution, 
appropriate?
    Question 2. Does the proposed rule's requirement that a newly 
covered institution run its first stress test in the year following the 
calendar year in which the institution becomes a covered institution 
provide sufficient time for an institution to fully implement the 
stress testing requirements? Conversely, should a newly covered 
institution be required to run its first stress test on a faster 
timeline, for example by requiring an institution that becomes a 
covered institution no less than 90 days before September 30 of a 
calendar year to comply with the requirements of this proposed rule 
beginning on September 30 of that calendar year?
2. Federal Branches or Agencies of a Foreign Bank Not Covered
    While the requirement to conduct annual stress tests applies to all 
national banks and Federal savings associations with total consolidated 
assets of more than $10 billion, the OCC proposes not to apply the 
annual stress test requirements of this proposed rule to Federal 
branches or agencies of a foreign bank. The company stress test 
provisions under section 165(i)(2) of the Dodd-Frank Act are by design 
intended to assess capital adequacy, and since Federal branches and 
agencies are not separately capitalized, the application of these 
requirements to Federal branches and agencies would not be meaningful.

C. Stress Test Scenarios

    Under the proposed rule each covered institution would be required 
to conduct an annual stress test using covered institution financial 
data as of September 30th of that year to assess the potential impact 
of different scenarios on the capital of that institution and certain 
related items over a forward-looking, nine-quarter planning horizon 
(that is, through the December 31 reporting date of the second calendar 
year following the year containing the September 30 as-of date), taking 
into account all relevant exposures and activities. The OCC will 
provide a minimum of three economic scenarios, reflecting baseline, 
adverse, and severely adverse conditions, or such additional conditions 
as the OCC determines appropriate, which the covered institution must 
use for the stress test. The OCC anticipates that the annual stress 
test scenarios will be revised as appropriate to ensure that each 
scenario remains relevant under prevailing economic and industry 
conditions.
    As discussed in Section F on Process Overview, the OCC plans to 
provide the annual stress test scenarios to covered institutions 
approximately two months in advance of the time by which the 
institution must report the results of its annual stress test. The OCC 
believes that two months should be sufficient time to permit covered 
institutions to ensure that staff, data, and other resources are 
adequately prepared to carry out required stress tests, while also 
ensuring that the set of conditions reflected in the scenarios remains 
relevant.
    The OCC plans to coordinate the development of the annual stress 
test

[[Page 3411]]

scenarios on an interagency basis with the FDIC and the Board to ensure 
consistent and comparable stress testing for all covered financial 
institutions and to minimize regulatory burden. The OCC anticipates 
issuing proposed guidance and procedures for scenario development for 
comment at a later date. Absent specific supervisory concerns, the OCC 
anticipates that the annual stress test scenarios will be identical for 
all covered financial institutions. To the extent possible, the OCC 
expects that the annual stress test scenarios that may result from the 
interagency scenario development process may be similar to the 
scenarios developed by the Board for the supervisory stress tests 
conducted by the Board under section 165(i)(1).
    Question 3. Should the OCC permit a covered institution to develop 
and use its own scenarios for the annual stress tests required under 
this part? If so, what guidance should the OCC provide on the covered 
institution's scenario development, if any? What are the costs and 
benefits of permitting a covered institution to use its own scenarios? 
What are the costs and benefits of requiring a covered institution to 
use OCC-provided scenarios?
    Question 4. Assuming that the OCC provides the scenarios for the 
annual stress tests required under this part, what level of detail 
should be included in those scenarios? Should the scenarios just 
address general macroeconomic factors or provide more specifics? For 
example, should the OCC supplement the scenarios with market price and 
rate ``shocks'' to address short-term volatility associated with 
certain trading positions and trading-related exposures? If so, how 
should such rate shocks be incorporated into the stress testing 
framework?

D. Stress Test Methodologies and Practices

    The proposed rule states that each covered institution would be 
required to use the annual stress test scenarios provided by the OCC in 
conducting its annual stress tests. Each covered institution must use a 
planning horizon of at least nine quarters over which the impact of 
specified scenarios would be assessed. The covered institution would be 
required to calculate, for each quarter-end within the planning 
horizon, estimates of revenues, potential losses, and loan loss 
provisions that would result from the conditions specified in each 
scenario. A covered institution also would be required to calculate, 
for each quarter-end within the planning horizon, the potential impact 
on its regulatory capital levels and ratios applicable to the 
institution under 12 CFR part 3 or 12 CFR part 167, incorporating the 
effects of any expected capital distributions over the planning 
horizon. The applicable regulatory capital levels and ratios would 
include, for national banks, Minimum Capital Ratios (12 CFR 3.6), Risk-
Based Capital Guidelines based on Basel I (Appendix A to part 3), Risk-
Based Capital Guidelines; Market Risk Adjustment (Appendix B to part 
3), and Internal-Ratings-Based and Advanced Measurement Approaches 
under Basel II (Appendix C to Part 3), and for federal savings 
associations, Regulatory Capital Requirements (12 CFR part 167) and 
Risk-Based Capital Requirements and Internal-Ratings-Based and Advanced 
Measurement Approaches (Appendix C to part 167). A covered institution 
would also be required to calculate the potential impact on any other 
capital ratios specified by the OCC. The stress test must incorporate 
maintenance by the institution of an allowance for loan losses that 
would be appropriate for credit exposures throughout the planning 
horizon.
    The proposed rule also would require each covered institution 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 institution are effective 
in meeting the requirements of the proposed rule. The covered 
institution's policies and procedures must, at a minimum, outline the 
covered institution's stress testing practices and methodologies and 
processes for updating its stress testing practices consistent with 
relevant supervisory guidance. The covered institution's board of 
directors must approve and review the policies and procedures of the 
covered institution, as frequently as economic conditions or the 
condition of the institution may warrant, at least annually. The 
covered institution's senior management must establish and maintain a 
system of controls, oversight, and documentation designed to ensure 
that the stress test processes satisfy the requirements under this 
proposed rule.
    Question 5. What are the anticipated costs on covered institutions, 
and sources of those costs, associated with internal data collection 
and developing methodologies for stress testing under the requirements 
in the proposed rule?

E. Reporting and Disclosures

    Section 165(i)(2)(B) requires a covered institution to submit a 
report to the Board and to its primary financial regulatory agency at 
such time, in such form, and containing such information as the primary 
financial regulatory agency shall require. Section 165(i)(2)(C)(iv) 
compels the primary financial regulatory agencies to require a covered 
institution to publish a summary of its stress test results. This 
proposed rule would implement the statutory reporting and disclosure 
requirements. Specifically, the proposed rule requires that each 
covered institution submit a report to the OCC and to the Board of the 
results of the stress test by January 5. The exact form and contents of 
this report will be the subject of a separate future proposal. At this 
time, the OCC anticipates that the annual stress test report, and any 
other information that the OCC may require to be provided on a 
supplemental basis, will be confidential. The OCC plans to publish for 
notice and comment both specific annual stress test reporting 
requirements and related instructions in a separate proposed 
information collection under the Paperwork Reduction Act.\9\
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    \9\ 44 U.S.C. 3501-3521.
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    Consistent with section 165(i)(2), the proposed rule also would 
require each covered institution to publish a summary of the results of 
its annual stress tests within 90 days of submitting its annual stress 
test report to the OCC and the Board. At a minimum, the summary shall 
include a description of the types of risks (such as credit default 
losses and non-default credit losses by portfolio, trading losses, and 
risks to non-interest revenue) included in the stress test, and 
estimates of aggregate losses, net income, and pro forma capital levels 
and capital ratios (including regulatory and any other capital ratios 
specified by the OCC) over the planning horizon, under each scenario. 
Summary results must be made readily accessible to the public, for 
example, by publication on a covered institution's Web site. In order 
to avoid duplicative regulatory requirements, the OCC is proposing to 
permit disclosure of the summary of results by the parent bank holding 
company or savings and loan holding company of a covered institution if 
the parent holding company satisfactorily complies with the disclosure 
requirements under the Board's Company-Run Stress Test rule.\10\ 
However, the OCC reserves the right to require additional disclosures 
if the OCC believes that the disclosures at the holding company level 
do not accurately capture the potential impact

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of the scenarios on the condition of the covered institution.
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    \10\ Section 46.8 of the proposed rule includes citations to the 
Board's Company-Run Stress Test proposed rule (proposed 12 CFR Part 
252, Subpart G). 77 FR 594, Jan. 5, 2012. The Board's proposal has 
not yet been finalized.
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    Question 6. Is the proposed method of public disclosure 
appropriate, and why? If not, what alternatives would be more 
appropriate? Should additional disclosure be required, such as, for 
example, pre-provision net revenue, allowance for loan losses, or a 
description of the methodologies used by the covered institution? What 
are your concerns with public disclosures, including the details of the 
disclosure and qualitative information and the manner of disclosure? 
How could these concerns be mitigated or addressed by the agencies 
while still meeting the statutory mandate for public disclosure?

F. Process and Timing of Annual Stress Test

    As discussed above, covered institutions will be subject to an 
annual stress test cycle under this proposed rule. For illustration 
purposes, Table 1--Process Overview of Annual Stress Test Cycles for 
Covered Institutions sets out the OCC best estimate for key dates in 
the annual stress test cycle under the proposed rule.

   Table 1--Process Overview of Annual Stress Test Cycles for Covered
                              Institutions
     [Using covered institution financial data as of September 30th]
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                Key step                       Proposed  timeframe
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1. OCC publishes scenarios for annual    By mid-October.
 stress tests.
2. Covered institutions conduct annual   By January 5.
 stress test and submit Annual Stress
 Test Report to the OCC and the Board.
3. Covered institutions make required    By early April.
 public disclosures.
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    As noted in Table 1, the annual stress test cycle consist of three 
key events: (1) Publication of the stress test scenarios by the OCC, 
(2) conducting of the stress test and submission of the Annual Stress 
Test Report, and (3) publication of required disclosures. The OCC 
recognizes that certain parent company structures may include one or 
more subsidiary banks or savings associations, each with total 
consolidated assets greater than $10 billion. The company-conducted 
stress test requirements of section 165(i)(2) apply to the parent 
company and to each subsidiary bank or savings association of the 
covered company that has $10 billion or more in total consolidated 
assets.
    The OCC recognizes the possibility that different covered 
institutions within a given parent institution may be required to 
conduct stress tests using different scenarios, if the scenarios 
required by their respective primary federal financial regulators are 
different. In this regard, the OCC intends to coordinate with the Board 
and the FDIC on the development of the three scenarios that will be 
specified each year under these regulations. The OCC anticipates making 
every effort to avoid differences in the scenarios required by each 
primary federal financial regulator under the regulations implementing 
section 165(i)(2), and understands the Board and the FDIC to be in 
agreement.
    When a covered institution comprises the bulk of the assets for a 
given parent holding company, the inputs to the stress tests conducted 
by that institution and the holding company, and the conclusions 
reached, would be expected to be similar. For example, for a bank 
holding company that is essentially a shell holding company with a 
single national bank that has total consolidated assets of more than 
$10 billion, the Board and the OCC would coordinate efforts and 
communicate with the bank holding company and the bank on how to 
adequately address their respective stress testing requirements while 
avoiding duplication of effort. This may include consideration of 
whether the parent holding company may produce one consolidated set of 
stress tests when the inputs and results of the particular test will be 
substantially similar. In other instances, there may be economically 
meaningful differences in the vulnerability to economic stress of 
separate covered institutions within the same parent organization. The 
OCC anticipates addressing, on a case-by-case basis through the 
supervisory process, instances in which it may be appropriate to modify 
stress testing requirements for this part when there are multiple 
covered institutions within a single parent organization.
    Question 7. 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 
timeframes? What specific alternatives exist to address these 
challenges that still allow the OCC to meet its statutory requirements? 
Please comment on the use of the September 30 ``as of'' date for 
financial data, the January 5 reporting date, the deadline for public 
disclosure, and the sufficiency of time for completion of the stress 
test.
    Question 8. Would an immediately effective date in a final rule 
provide sufficient time for an institution that is covered at the 
effective date of the rule to conduct its first annual stress test?
    Question 9. Should the rule require a covered institution to take 
into account the results of any stress tests conducted pursuant to the 
rule in taking future actions, such as making changes to capital 
structure, exposures, concentrations, risk positions, or recovery 
plans, or generally improving overall risk management?

III. Request for Comments

    In addition to the specifically enumerated questions in the 
preamble, the OCC requests comment on all aspects of this proposed 
rule. The OCC requests that, for the specifically enumerated questions, 
commenters include the number of the question in their response to make 
review of the comments more efficient.

IV. Regulatory Analysis

A. Paperwork Reduction Act

Request for Comment on Proposed Information Collection
    In accordance with section 3512 of the Paperwork Reduction Act 
(``PRA'') of 1995 (44 U.S.C. 3501-3521), the OCC may not conduct or 
sponsor, and a 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 OCC to OMB for review and approval under section 3506 
of the PRA and Sec.  1320.11 of OMB's implementing regulations (5 CFR 
part 1320 et seq.). The information collection requirements are found 
in Sec. Sec.  46.5-46.8.
    Comments are invited on:
    (a) Whether the collection of information is necessary for the 
proper performance of the OCC's functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimate 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 information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or startup costs and costs of operation, 
maintenance,

[[Page 3413]]

and purchase of services to provide information.
    All comments will become a matter of public record. Comments should 
be addressed to: Communications Division, Office of the Comptroller of 
the Currency, Public Information Room, Mailstop 2-3, Attention: 1557-
NEW, 250 E Street SW., Washington, DC 20219. In addition, comments may 
be sent by fax to (202) 874-5274, or by electronic mail to 
regs.comments@occ.treas.gov. You may personally inspect and photocopy 
comments at the OCC, 250 E Street SW., Washington, DC 20219. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 874-4700. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect and photocopy comments.
    Additionally, you should send a copy of your comments to the OMB 
Desk Officer, by mail to U.S. Office of Management and Budget, 725 17th 
Street NW., 10235, Washington, DC 20503, or by fax to 202-395-6974.
Proposed Information Collection
    Title of Information Collection: Annual Stress Test.
    Frequency of Response: Annually.
    Affected Public: Businesses or other for-profit.
    Respondents: National banks, Federal savings associations, and 
Federal savings banks.
    Description of Requirements:
    Section 46.6(a) specifies the calculations of the potential impact 
on capital that must be made during each quarter of a planning horizon. 
Section 46.6(c) requires that each covered institution must establish 
and maintain a system of controls, oversight, and documentation, 
including policies and procedures that, at a minimum, describe the 
covered institution's stress test practices and methodologies, and 
processes for updating the covered institution's stress test practices. 
The board of directors of the covered institution shall approve and 
review the policies and procedures of the covered institution, as 
frequently as economic conditions or the condition of the institution 
may warrant, but no less than annually. The senior management of the 
covered institution shall establish and maintain a system of controls, 
oversight, and documentation designed to ensure that the stress test 
processes satisfy the requirements in this part.
    Section 46.7 provides that each covered institution shall report to 
the OCC and to the Board annually the results of the stress test in the 
time, manner and form specified by the OCC.
    Section 46.8 requires that, within 90 days of the due date of the 
report, a covered institution shall publish a summary of the results of 
its annual stress tests on its Web site or in any other forum that is 
reasonably accessible to the public. The summary must include a 
description of the types of risks being included in the stress test and 
estimates of aggregate losses, net income, and pro forma capital levels 
and capital ratios (including regulatory and any other capital ratios 
specified by the OCC) over the planning horizon, under each scenario.
    Estimated PRA Burden:
    Estimated Number of Respondents: 61.
    Estimated Burden per Respondent: 1,040 hours.
    Total Annual Burden: 63,440 hours.

B. Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (``RFA''), 
generally requires that, in connection with a notice of proposed 
rulemaking, an agency prepare and make available for public comment an 
initial regulatory flexibility analysis that describes the impact of a 
proposed rule on small entities.\11\ The Small Business Administration 
has defined ``small entities'' for banking purposes to include a bank 
or savings association with $175 million or less in assets.\12\
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    \11\ See 5 U.S.C. 603(a).
    \12\ See 13 CFR 121.201.
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    The proposed rule would apply only to national banks and Federal 
savings associations with more than $10 billion in total consolidated 
assets. No small banking organizations satisfy these criteria. No small 
entities would be subject to this rule. Therefore, the OCC certifies 
that the proposed rule would not, if promulgated, have a significant 
economic impact on a substantial number of small entities.

C. Unfunded Mandates Reform Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (2 U.S.C. 1532) (``Unfunded Mandates Act''), requires that an 
agency prepare a budgetary impact statement before promulgating any 
rule likely to result in a Federal mandate that may result in the 
expenditure by state, local, and tribal governments, in the aggregate, 
or by the private sector of $100 million or more in any one year. If a 
budgetary impact statement is required, section 205 of the Unfunded 
Mandates Act also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule. The OCC has determined that this proposed rule will not result in 
expenditures by state, local, and tribal governments, or by the private 
sector, of $100 million or more in any one year. Accordingly, this 
proposal is not subject to section 202 of the Unfunded Mandates Act.

D. Solicitation of Comments and Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \13\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The OCC invites comment on how to make 
the proposed rule easier to understand. For example:
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    \13\ Public Law 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809.
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     Is the material organized to suit your needs? If not, how 
could the OCC present the rule more clearly?
     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 agencies incorporate to make 
the regulation easier to understand?

List of Subjects in Part 46

    Banking, Banks, Capital, Disclosures, National banks, 
Recordkeeping, Reporting, Risk, Stress test.

Authority and Issuance

    For the reasons stated in the preamble, the OCC proposes to add 
part 46 to Title 12, Chapter I of the Code of Federal Regulations to 
read as follows:

PART 46--ANNUAL STRESS TEST

Sec.
46.1 Authority and purpose.
46.2 Definitions.
46.3 Applicability.
46.4 Reservation of authority.
46.5 Annual stress test.
46.6 Stress test methodologies and practices.
46.7 Report to the Office of the Comptroller of the Currency and the 
Federal Reserve Board.
46.8 Publication.


[[Page 3414]]


    Authority:  12 U.S.C. 93a; 12 U.S.C. 5365(i)(2).


Sec.  46.1   Authority and purpose.

    (a) Authority. 12 U.S.C. 93a; 12 U.S.C. 5365(i)(2).
    (b) Purpose. This part implements 12 U.S.C. 5365(i)(2), which 
requires annual stress tests to be conducted by financial companies 
with total consolidated assets of more than $10 billion and establishes 
a definition of stress test, methodologies for conducting stress tests, 
and reporting and disclosure requirements.


Sec.  46.2  Definitions.

    For purposes of this part, the following definitions apply:
    Board means the Board of Governors of the Federal Reserve System.
    Covered institution means a national bank or Federal savings 
association whose average total consolidated assets, calculated as 
required under this part, exceeds $10 billion.
    Federal savings association has the same meaning as in 12 U.S.C. 
1813(b)(2).
    Regulatory condition report means:
    (a) For a Federal savings association, either the Thrift Financial 
Report or the Consolidated Report of Condition and Income (Call 
Report), as appropriate; and
    (b) For a national bank, the Consolidated Report of Condition and 
Income (Call Report).
    Planning horizon means a set period of time over which the impact 
of the scenarios is assessed.
    Pre-provision net revenue means the sum of net interest income and 
non-interest income less expenses before adjusting for loss provisions.
    Scenario means a set of hypothetical economic conditions.
    Stress test means a process to assess the potential impact of 
scenarios on the capital of a covered institution over the planning 
horizon, taking into account the covered institution's current 
condition, material risks, exposures, strategies, and activities.


Sec.  46.3   Applicability.

    (a) Scope. This part applies to a national bank or Federal savings 
association that meets the definition of a ``covered institution.''
    (b) Election to apply stress test requirements. Any national bank 
or Federal savings association may elect to be a covered institution 
and subject to the requirements of this section.
    (c) Measurement of total consolidated assets for purpose of being 
deemed a covered institution. An institution's total consolidated 
assets are deemed to be more than $10 billion when its average total 
consolidated assets over the four most recent consecutive quarters, as 
reported on the institution's regulatory condition reports for those 
four quarters, exceeds $10 billion.
    (d) Institutions subject to stress testing requirements as of the 
effective date. A national bank or Federal savings association that is 
a covered institution shall be subject to this part on [the effective 
date of the final rule] and will conduct its first stress test under 
this part using financial statement data as of September 30, 2012, with 
results reported as required under this part in January 2013.
    (e) Institutions subject to stress testing requirements after 
effective date. A national bank or Federal savings association that 
qualifies as a covered institution after the effective date of this 
part shall be subject to the requirements of this part in the next 
calendar year after the calendar year containing the date upon which it 
becomes a covered institution. The date upon which an institution 
becomes a covered institution shall be the as-of date of the fourth 
consecutive regulatory condition report that causes the institution's 
average total consolidated assets for four consecutive quarters to 
exceed $10 billion.
    (f) Ceasing to be a covered institution. A covered institution 
shall remain subject to this part until its average total consolidated 
assets over the four most recent consecutive quarters, as defined in 
this part, are $10 billion or less. The date upon which an institution 
ceases to be a covered institution shall be the as-of date of the 
fourth consecutive regulatory condition report that causes the 
institution's four-quarter average to fall to $10 billion or less.


Sec.  46.4   Reservation of authority.

    The OCC may require a national bank or Federal savings association 
not otherwise subject to this part to comply with the requirements of 
this part, or may exempt any covered institution from some or all of 
the requirements of this part, if the OCC determines in writing that 
the application or exemption of the requirements of this part is 
appropriate in light of the institution's level of complexity, risk 
profile, or scope of operations. Notwithstanding sections 46.3, 46.5, 
46.7, and 46.8 the OCC may accelerate or extend any specified deadline 
for stress testing, reporting or publication of the stress test 
results, or require additional stress tests, if the OCC determines that 
such modification of a deadline or additional testing is appropriate in 
light of the institution's activities, operations, risk profile, or 
regulatory capital. If the OCC determines that the stress testing 
methodologies and practices of a covered institution are deficient 
under section 46.6 of this part, the OCC may determine that additional 
analytical techniques and exercises are appropriate for an institution 
to use in identifying, measuring, and monitoring risks to the financial 
soundness of the company, and require a covered institution to 
implement such techniques and exercises in order to fulfill the 
requirements of this part. The OCC reserves authority to require 
covered institutions to make additional publication beyond that 
specified in section 46.8 of this part if the OCC determines that the 
publication does not adequately address one or more material elements 
of the stress test.


Sec.  46.5   Annual stress test.

    Each covered institution must complete an annual stress test in 
accordance with the following requirements:
    (a) Financial data. The stress test must use financial data of the 
covered institution as of September 30 of that calendar year.
    (b) Scenarios provided by the OCC. In conducting its stress tests 
under this section, each covered institution must use scenarios 
provided by the OCC 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 OCC will 
provide to all covered institutions a description of the baseline, 
adverse, and severely adverse scenarios that each covered institution 
shall use to conduct its annual stress tests under this part.
    (c) Methodologies and practices. The stress test shall be conducted 
in accordance with the methodologies and practices described in section 
46.6.


Sec.  46.6   Stress test methodologies and practices.

    (a) Potential impact on capital. During each quarter of the 
planning horizon, a covered institution shall calculate the following 
for each economic scenario:
    (1) Pre-provision net revenues, market and credit losses, and loan 
loss reserves, and
    (2) The potential impact on the covered institution's regulatory 
capital levels and ratios applicable to the institution under 12 CFR 
part 3, 12 CFR part 167, and any other capital ratios specified by the 
OCC, incorporating the effects of any expected capital distributions 
over the planning horizon and maintenance by the institution of an

[[Page 3415]]

allowance for loan losses appropriate for credit exposures throughout 
the planning horizon.
    (b) Planning horizon. Each covered institution must use a planning 
horizon of at least nine quarters.
    (c) Controls and oversight of stress test processes. (1) Each 
covered institution must establish and maintain a system of controls, 
oversight, and documentation, including policies and procedures, 
designed to ensure that the stress test processes used by the covered 
institution satisfy the requirements in this part. These policies and 
procedures must, at a minimum, describe the covered institution's 
stress test practices and methodologies, and processes for updating the 
covered institution's stress test practices.
    (2) The board of directors of the covered institution shall approve 
and review the policies and procedures of the covered institution, as 
frequently as economic conditions or the condition of the institution 
may warrant, but no less than annually. The senior management of the 
covered institution shall establish and maintain a system of controls, 
oversight, and documentation designed to ensure that the stress test 
processes satisfy the requirements in this part.


Sec.  46.7   Report to the Office of the Comptroller of the Currency 
and the Federal Reserve Board.

    On or before January 5, each covered institution shall report to 
the OCC and to the Board the results of the stress test in the time, 
manner and form specified by the OCC.


Sec.  46.8   Publication.

    (a) Within ninety (90) days following the due date of the report 
required under section 46.7 of this part, a covered institution shall 
publish a summary of the results of its annual stress tests. The 
summary may be published on the covered institution's Web site or in 
any other forum that is reasonably accessible to the public. A covered 
institution controlled by a bank holding company that is required to 
conduct an annual company-run stress test under [INSERT CITATION TO 12 
CFR PART 252 SUBPART G] will be deemed to have satisfied the 
publication requirement of this section when the bank holding company 
publicly discloses summary results of its annual stress test in 
satisfaction of [INSERT CITATION TO 12 CFR 252.148], unless the OCC 
determines that the disclosures at the holding company level do not 
adequately capture the potential impact of the scenarios on the capital 
of the covered institution.
    (b) Information to be disclosed in the summary. The information 
disclosed shall, at a minimum, include--
    (1) A description of the types of risks being included in the 
stress test; and
    (2) Estimates of aggregate losses, net income, and pro forma 
capital levels and capital ratios (including regulatory and any other 
capital ratios specified by the OCC) over the planning horizon, under 
each scenario.

    Dated: January 18, 2012.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2012-1274 Filed 1-23-12; 8:45 am]
BILLING CODE 4810-33-P