Annual Stress Test, 62417-62427 [2012-25194]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Rules and Regulations]
[Pages 62417-62427]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-25194]



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Federal Register / Vol. 77, No. 199 / Monday, October 15, 2012 / 
Rules and Regulations

[[Page 62417]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 325

RIN 3064-AD91


Annual Stress Test

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (the ``Corporation'' 
or ``FDIC'') is issuing a final rule that implements the requirements 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 
``Dodd-Frank Act'') regarding stress tests (``final rule''). 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 to conduct annual stress tests, report the results of such 
stress tests to the Corporation and the Board of Governors of the 
Federal Reserve System (``Board''), and publish a summary of the 
results of the stress tests. The final rule requires large covered 
banks to conduct annual stress tests beginning on the effective date of 
this final rule. The Corporation, however, will delay implementation of 
the annual stress test requirements under the final rule for 
institutions with total consolidated assets of more than $10 billion 
but less than $50 billion until September 30, 2013. The final rule 
requirement for public disclosure of a summary of the stress testing 
results for these institutions will be implemented starting with the 
2014 stress test, with the disclosure occurring during the period 
starting June 15 and ending June 30 of 2015.

DATES: This final rule is effective October 15, 2012.

FOR FURTHER INFORMATION CONTACT: George French, Deputy Director, 
Policy, (202) 898-3929, Robert Burns, Associate Director, Mid-Tier Bank 
Branch, (202) 898-3905, or Ryan Sheller, Senior Large Financial 
Institutions Specialist, (202) 412-4861, Division of Risk Management 
and Supervision; Mark G. Flanigan, Counsel, (202) 898-7426, Jason 
Fincke, Senior Attorney, (202) 898-3659, Rachel Jones, Attorney, (202) 
898-6858, 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

    The Dodd-Frank Act was enacted on July 21, 2010.\1\ Section 
165(i)(2) of the Dodd-Frank Act (``section 165(i)(2)'') requires the 
Corporation, as a Federal primary financial regulatory agency, 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 to conduct annual stress tests. 
Additionally, 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 covered banks must submit to the Corporation; and 
(4) require covered banks to publish a summary of the results of the 
required stress tests.
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
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    Section 165(i)(2)(C) requires the Corporation, in coordination with 
the Board of Governors and the Federal Insurance Office, to issue 
regulations implementing the stress testing requirements that are 
consistent and comparable with the other Federal primary financial 
regulatory agencies.\2\
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    \2\ Under section 2(12) of the Dodd-Frank Act, the term 
``Primary financial regulatory agency'' includes the federal banking 
agencies, including the Corporation, the Board of Governors, and the 
Office of the Comptroller of the Currency (``OCC''); the Securities 
and Exchange Commission; the Commodity Futures Trading Commission; 
and the Federal Housing Finance Agency. 12 U.S.C. 5301(12).
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    On January 23, 2012, pursuant to section 165(i) of the Dodd-Frank 
Act, the Corporation issued a notice of proposed rulemaking in the 
Federal Register that proposed to require covered banks to conduct 
annual stress tests (``NPR'' or ``proposed rule'').\3\ The Corporation 
is now issuing a final rule implementing the requirements of section 
165(i)(2) as proposed in the NPR, with certain modifications as 
described further below.
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    \3\ 77 FR 3166 (Jan. 23, 2012).
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II. Comments Received

A. Overview

    The NPR solicited public comment on all aspects of the proposed 
rule. The NPR's comment period ended on April 30, 2012, and resulted in 
the FDIC receiving 18 comment letters. Comments were submitted by, or 
on behalf of, individuals, banks and bank holding companies, consulting 
firms, and banking and financial services industry trade groups and 
associations. The comment letters generally supported the broader goals 
of the NPR, but many expressed concerns with respect to certain aspects 
of the proposed rule, as discussed in more detail below.

B. Agency Coordination

    A number of commenters expressed concerns about the scope of the 
proposed rule and the need for coordination between the agencies in 
implementing the stress test requirements for various institutions. 
These commenters generally suggested that the agencies should seek 
comparability on their respective stress testing requirements and 
resolve some of the key differences between their respective proposals 
to ensure consistent and comparable stress testing for all covered 
financial institutions and to minimize regulatory burden.
    The Corporation understands and is sensitive to commenters' 
concerns regarding the importance of issuing a consistent and 
comparable set of final stress testing rules across the banking 
agencies. The FDIC understands that there are a number of insured 
depository institutions subject to the stress testing final rules that 
may operate within organizational structures with regulated entities 
that may be supervised by different federal banking

[[Page 62418]]

regulators. The FDIC has developed this rule in coordination with the 
FRB and the Federal Insurance Office as required by section 
165(i)(2)(C). Additionally, the FDIC has worked closely with the other 
banking agencies to ensure the standards of the final rule are 
consistent and comparable in the areas of: scope of application, 
scenarios, data collection and reporting, and disclosure. The Board and 
OCC have issued separate final stress test rules with respect to their 
supervised entities.

C. Effective Date of Proposed Rule

    The NPR sought public comment on the timing of the proposed rule, 
both with respect to the proposed immediate effectiveness and the 
proposed time period allotted for completion of the stress tests.
    With respect to the proposed effective date, several commenters 
recommended delayed effective dates based on the asset size of the 
bank. One commenter suggested a delayed effective date because, due to 
the complexity of the rule's stress testing requirements, regional and 
community banks would require additional time to build and effectuate 
the systems necessary to conduct testing. Another commenter noted that 
community banks have not participated in stress tests and have not 
experienced the supervisory expectations that accompany the stress 
testing process and therefore need additional time to comply with the 
proposed rule. Several commenters requested delaying the implementation 
of the proposed rule for at least one year.
    The FDIC recognizes that a number of state nonmember banks and 
state savings associations are at different stages in developing their 
stress testing frameworks. Certain institutions may need additional 
time to fully develop their stress testing systems, processes, and 
procedures, and to collect the information that the FDIC may require in 
connection with these tests. After considering the comments, the FDIC 
has decided to delay implementation of the final rule for institutions 
with total consolidated assets of more than $10 billion but less than 
$50 billion until September 30, 2013, to ensure that these institutions 
have sufficient time to develop high-quality stress testing programs. 
Furthermore, the FDIC has decided to delay the initial public 
disclosure requirement for these institutions until the 2014 stress 
test (with the public disclosure to be made in 2015).
    Most banks with consolidated assets of $50 billion or more have 
been involved in stress testing previously, including the 2009 
Supervisory Capital Assessment Program (SCAP) and the Board's 
Comprehensive Capital Analysis and Review (CCAR) stress tests, and 
consequently have in place a framework necessary to conduct the stress 
tests required by this rule. Given the size, complexity, and importance 
of these covered banks to the safety and soundness of the United States 
banking system, the FDIC believes it is appropriate for these covered 
banks to commence stress testing as soon as possible. Consequently, 
state nonmember banks and state savings associations with consolidated 
total assets equal to or exceeding $50 billion will be required to 
conduct their first annual stress tests under this final rule using 
financial data as of September 30, 2012.
    The FDIC is aware, however, that some state nonmember banks and 
state savings associations with assets of $50 billion or more may not 
be able or ready to conduct the annual stress test this year in a 
manner that would yield meaningful results. For example, covered banks 
that were not subject to SCAP and CCAR may need more time to develop 
and implement a robust stress testing framework. Therefore, the FDIC is 
reserving authority in the rule to permit these covered banks to delay 
the application of the requirements under this final rule on a case-by-
case basis.

D. Timing of the Stress Test Requirements

    The NPR sought public comment on the proposed time period allotted 
for completion of the stress tests. A number of comments were received 
expressing concern with respect to the proposed rule's timing for the 
annual stress test. Several commenters noted that the proposed rule 
would require covered banks to conduct stress tests during the busiest 
time of year for many institutions. Furthermore, one commenter argued 
that the narrow timeframe between the release of scenarios and the 
submission of the required reports could present timing issues for 
institutions, particularly smaller banks, in preparing year-end 
information. Additionally, several commenters requested that the 
Corporation provide flexibility with respect to when covered banks are 
required to perform stress tests. For example, one commenter 
recommended that covered banks be permitted to choose when they will 
conduct stress testing throughout the year, and also suggested that the 
Corporation should provide economic scenarios for the stress tests no 
later than September 30 of each calendar year.
    After consideration of the comments, the FDIC has decided to make 
changes in the timeline in the final rule. The Corporation intends to 
distribute the scenarios to all covered banks no later than November 15 
of each year, which aligns the development and issuance of the 
scenarios with the other agencies and which is approximately seven 
weeks prior to the date by which an over $50 billion covered bank must 
report the results of its annual stress test. The Corporation believes, 
based on its supervisory experience, that over $50 billion covered 
banks will have adequate time to carry out the required stress tests. 
For the $10 billion to $50 billion covered banks, the final rule 
extends the reporting date to March 31 of each year giving additional 
time to these institutions to conduct stress tests and report the 
results. The final rule also permits these institutions to report their 
stress test results under the same timeframe as their parent holding 
company.
    The final rule states that a state nonmember bank or state savings 
association that becomes a covered bank after the final rule's 
effective date shall comply with the requirements of the final rule and 
conduct its stress test beginning in the calendar year after the date 
the state nonmember bank or state savings association becomes a covered 
bank. This modification to the proposed rule is in response to 
commenters' concerns that certain institutions have not previously been 
subject to stress-testing requirements and may need additional time to 
develop the systems and procedures, as well as information collection 
processes necessary to conduct these tests.

E. Scenario Development

    A number of the comments received by the Corporation raised 
concerns with respect to the development and use of economic scenarios 
within the proposed rule. For example, one commenter suggested that the 
scenarios should be realistic and robust enough to illuminate potential 
problems, and that, at a minimum, the ``severely adverse'' scenario 
should be as adverse as conditions were during the recent financial 
crisis. A trade association recommended that the scenarios address only 
general macroeconomic factors for institutions with between $10 billion 
and $50 billion in assets, while more complex institutions or those 
that have significant trading positions should incorporate rate 
``shocks'' into their stress tests. Another commenter requested that 
the banking regulators

[[Page 62419]]

and the bank mutually determine stress testing criteria that are 
tailored to a bank's specific business profile, including unique asset 
mixes and operating profiles, in order to avoid the distortions that a 
``one size fits all'' approach would create.
    Several commenters requested that banks with small geographic 
footprints be permitted to develop economic scenarios relevant to 
banks' regional operations. One such commenter argued that the 
requirements could become a costly ``check the box'' exercise if stress 
scenarios are not relevant to banks with small geographic footprints. 
The commenter also recommended that the Corporation provide guidance to 
banks for developing their own scenarios, including reports on regional 
economic outlooks.
    A comment submitted jointly by a number of industry organizations 
requested that the Corporation and other federal banking agencies 
minimize the burden of the multiple and overlapping stress test 
requirements by consistently using the same set of supervisory stress 
scenarios and models for all stress-test requirements. The FDIC intends 
to coordinate with other federal banking agencies on the development of 
scenarios. To promote a consistent and transparent framework to support 
scenario design, the banking agencies anticipate seeking comment on the 
procedures to be used by the agencies in the development of the 
scenarios. With regard to commenters' requests to use their own 
internally generated scenarios, the FDIC believes that all covered 
banks should use the same set of scenarios so that the results are more 
directly comparable. However, to allow for unforeseen circumstances, 
the FDIC reserves the authority to require a covered bank to use 
different or additional scenarios that the FDIC deems appropriate.

F. Reporting

    Commenters also expressed concerns about the required reports that 
must be submitted to the Corporation under the proposed rule. For 
example, one commenter suggested that the Corporation's expectations 
for the required reports should be clear and simple enough so that 
institutions, particularly smaller banks, do not have to rely on 
vendors or third-party professionals to comply with the requirements.
    A number of commenters suggested that it would be appropriate in 
certain situations to allow a covered bank that is a subsidiary of a 
bank holding company (that is itself subject to stress testing 
requirements) to submit a single report for both the bank and the bank 
holding company. One such commenter requested that the Corporation 
provide more comprehensive guidance with respect to the standards by 
which the company-run stress tests will be analyzed.
    The FDIC recently proposed reporting templates for covered banks 
with consolidated assets of $50 billion or more.\4\ The Dodd-Frank Act 
stress testing reporting requirements apply to all covered banks, but 
the FDIC recognizes that many covered banks with consolidated total 
assets of $50 billion or more have been subject to stress testing 
requirements under the Board's CCAR or Capital Plan Review (CapPR) 
exercises. The FDIC also recognizes that these banks' stress tests will 
be applied to more complex portfolios and therefore warrant a broader 
set of reports to adequately capture the results of the company-run 
stress tests. These reports will necessarily require more detail than 
would be appropriate for smaller, less complex banks. Therefore, the 
FDIC will propose more simplified and separate reporting templates for 
institutions with total consolidated assets of more than $10 billion 
but less than $50 billion than for covered banks with total 
consolidated assets of $50 billion or more. The general expectations 
for the proposed reporting requirements are discussed further below.
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    \4\ 77 FR 52718 (Aug. 30, 2012).
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    The FDIC reserves the authority to require a $10 billion to $50 
billion covered bank to use the reporting template for larger banks. 
The FDIC may also, on a case-by-case basis, require a covered bank to 
report stress test results using a simpler format to be specified by 
the FDIC.

G. Public Disclosure of Stress Test Results

    Many of the comments received by the Corporation addressed issues 
associated with the proposed rule's public disclosure requirement. 
Several commenters expressed concern that the publication of detailed 
stress test results could be misinterpreted by the general public which 
could, in turn, undermine public confidence in banks. One such 
commenter noted that the required public disclosure of results may be 
used for comparison across institutions, suggesting that regulators run 
the risk of creating an environment where banks present a conservative 
bias where there is flexibility in adopting test inputs.
    Several commenters requested additional clarity with respect to the 
Corporation's expectations for the required summary public disclosure. 
One commenter noted that the company-run stress tests would not be 
standardized, and thus, comparison of results across various companies 
may not be possible. This commenter urged the Corporation to provide 
companies with a standardized template for disclosure that could enable 
a better understanding of the stress test results by the capital 
markets and the general public. Another commenter urged the Corporation 
to require small banks to disclose only a description of the types of 
risks being included in the stress test, a general description of the 
methodologies employed, and the capital ratios at the end of the 
planning horizon.
    Two commenters recommended that the CCAR or CapPR disclosure 
templates be used for disclosure of the results of the severely adverse 
scenario for company-run stress tests, at least for covered banks with 
consolidated assets of $50 billion or more. One of these commenters 
supported not requiring the publication of summary results under the 
adverse scenario. Several commenters suggested that covered banks 
should not be required to disclose baseline stress test results or 
other information that could be used to reverse-engineer earnings 
guidance.
    After careful consideration of the comments, the FDIC has decided 
to make the following changes. First, the public disclosure requirement 
will be delayed for an additional year for institutions with total 
consolidated assets of more than $10 billion but less than $50 billion 
so that these institutions will have additional time to develop robust 
stress testing methodologies before they report publicly. Therefore, 
these covered banks will conduct their required stress tests for the 
first time in 2013, with the first disclosure of a summary of stress 
test results occurring in 2015, based on the results of the 2014 stress 
tests. Covered banks with total consolidated assets of $50 billion or 
more that are subject to this final rule as of the effective date of 
this final rule must conduct their first stress test this year, with 
disclosure required in 2013.
    Institutions that become $10 billion to $50 billion covered banks 
after the effective date of the final rule would begin stress testing 
in the calendar year after they become covered banks. This is a change 
from the proposed rule, which would have required institutions to begin 
stress testing in the same calendar year if they became covered banks 
no less than 90 days before September 30 of that year. This change was 
in response to comments that requested

[[Page 62420]]

that the Corporation's final rule be consistent with the OCC's and the 
Board's final rules under Section 165(i).
    Additionally, the final rule removes the requirement that covered 
banks publicly disclose results under the baseline scenario and adverse 
scenario. The FDIC agrees with the commenters that publicly disclosing 
the above items under a baseline or adverse scenario could be construed 
as long-term earnings forecasts.

H. Other Issues

    In addition to the issues identified above, the Corporation 
received a number of comments that addressed a wide range of other 
topics associated with the proposed rule. A number of commenters 
suggested establishing a threshold to determine when a covered bank 
that is a subsidiary of an institution that is itself subject to 
stress-testing requirements would be required to perform independent 
stress tests and comply with the requirements of the proposed rule. 
Commenters suggested that the proposed rule may create duplicative 
efforts when a subsidiary covered bank comprises greater than 90 
percent of its holding company's total consolidated assets. One of 
these commenters suggested that in order to eliminate duplicate stress 
testing, the Corporation should accept the CCAR and the Board of 
Governors' Board FR Y-14A form submissions for annual stress tests of a 
covered bank that comprises greater than 90 percent of its bank holding 
company's total consolidated assets and that also serves as the lead 
depository institution for the bank holding company covered by the CCAR 
process.
    Another commenter noted that the completion of the stress testing 
and related supervisory evaluation process should not hinder or delay 
covered banks' ability to take necessary strategic capital actions not 
otherwise set forth in previously approved capital plans. One of the 
comments received requested that the Corporation set forth a robust and 
transparent process for responding to inquiries in a timely manner and 
suggested that experienced examiners should offer instruction, 
assistances, and feedback to facilitate the good faith efforts of 
smaller banks to implement the proposed rule. This commenter also 
suggested that the Corporation offer a dedicated email address that 
banks could use to submit questions and receive answers in a timely 
manner.
    The FDIC has carefully considered the comments and has made 
appropriate revisions to the final rule as described below.

III. The Final Rule

    The Corporation is now issuing this final rule to implement the 
requirements of section 165(i)(2) as proposed in the NPR, with certain 
modifications, as discussed below. Under this final rule, FDIC-insured 
state nonmember banks and FDIC-insured state-chartered savings 
associations with total consolidated assets of more than $10 billion 
would be required to conduct an annual stress test. The FDIC is 
delaying the application of the annual stress test requirements by one 
year for state nonmember banks and state-chartered savings associations 
with consolidated assets of more than $10 billion but less than $50 
billion.

A. The Purpose of the Annual Stress Test

    The FDIC views the stress tests conducted under the final rule as 
providing forward-looking information to supervisors to assist in their 
overall assessments of a covered bank's capital adequacy and to aid in 
identifying downside risks and the potential impact of adverse outcomes 
on the covered bank. In addition, the FDIC may use stress tests to 
determine whether additional analytical techniques and exercises are 
appropriate for a covered bank to employ in identifying, measuring, and 
monitoring risks to the financial soundness of the covered bank, and 
may require a covered bank to implement such techniques and exercises 
in conducting its stress tests. Further, these stress tests are 
expected to support ongoing improvement in a covered bank's internal 
assessments of capital adequacy and overall capital planning.
    The FDIC expects that the annual stress tests required under the 
final rule will be only one component of the broader stress testing 
activities conducted by covered banks. In this regard, the FDIC notes 
that the agencies have recently issued final joint guidance on ``Stress 
Testing for Banking Organizations with More Than $10 Billion in Total 
Consolidated Assets.'' \5\ 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 bank's 
financial condition including, but not limited to, capital adequacy. In 
addition, a full assessment of a covered bank's capital adequacy should 
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.
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    \5\ See 77 FR 29458 (May 17, 2012).
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B. Applicability

    The final rule will apply to covered banks that are FDIC-insured 
state nonmember banks and FDIC-insured state savings associations with 
more than $10 billion in total consolidated assets. Covered banks will 
be required conduct stress in accordance with the requirements of the 
final rule. However, the final rule separates a ``covered bank'' into 
two categories: a state nonmember bank or state savings association 
that is either a $10 billion to $50 billion covered bank or an over $50 
billion covered bank. The final rule defines a $10 billion to $50 
billion covered bank as any state nonmember bank or state savings 
association with average total consolidated assets that are greater 
than $10 billion but less than $50 billion. The final rule defines an 
over $50 billion covered bank as any state nonmember bank or state 
savings association with average total consolidated assets that are not 
less than $50 billion. The stress testing, reporting, and disclosure 
requirements, and deadlines of the final rule differ depending on 
whether the covered bank is a $10 billion to $50 billion covered bank 
or an over $50 billion covered bank.
    The FDIC recognizes that some covered bank subsidiaries may be 
affiliated with larger institutions also subject to requirements for 
stress testing, reporting, and disclosure. In such cases, it may be 
less burdensome and more appropriate for the covered bank subsidiaries 
to follow the timing requirements of their parent holding companies. 
The final rule permits covered bank subsidiaries to choose to conduct 
their stress tests using the same timeline requirements as their parent 
holding companies.
    A state nonmember bank or state savings association becomes a 
covered bank for purposes of the final rule based on its total 
consolidated assets averaged over each of the institution's four most 
recent consecutive quarters as reported on its Call Reports. The date 
on which a state nonmember bank or state savings association becomes a 
covered bank is the as-of date of the fourth consecutive Call Report in 
which its reported average total consolidated assets are greater than 
$10 billion. Similarly, a covered bank will remained subject to the 
stress testing requirements of the final rule until it has $10 billion 
or less in total consolidated assets for each of the four most recent 
consecutive quarters as reported in the covered

[[Page 62421]]

bank's four most recently filed Call Reports. Public comments requested 
that the Corporation's final rule be consistent with the OCC's and the 
Board's final rules under Section 165(i). Therefore, in order to 
maintain consistency with the OCC's and the Board's final rules and to 
provide clarity in the application of standards of coverage, the 
Corporation will use the measure described in the final rule to 
determine whether an institution meets the definition of a covered bank 
and at which point a state nonmember bank or state savings association 
ceases to be a covered bank.
    The date by which a state nonmember bank or state savings 
association must conduct its first annual stress test under this final 
rule depends on its size category and whether it becomes a covered bank 
before or after the effective date of this final rule. A state 
nonmember bank or state savings association that is subject to this 
final rule as of October 15, 2012 must conduct the annual stress test 
under this final rule beginning this year if it is an over $50 billion 
covered bank, whereas a $10 billion to $50 billion covered bank would 
conduct its first annual stress test in 2013. Further, the final rule 
requirement for public disclosure of a summary of the stress testing 
results for a $10 billion to $50 billion covered bank will not occur 
until the 2014 stress test.
    A state nonmember bank or state savings association that becomes a 
covered bank after October 15, 2012 would be required to conduct its 
first annual stress test in the calendar year following the year in 
which it becomes a covered bank. For example, a 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 bank on June 30, 2013, and would conduct their first 
stress test in 2014.

C. Shell Holding Companies and Multi-Bank Holding Companies

    When a covered bank 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. The FDIC expects to take this into 
account in applying the requirements of this rule. For example, for a 
holding company that is essentially a shell holding company with a 
single state nonmember or state savings association that has total 
consolidated assets of more than $10 billion, the Board and the FDIC 
would coordinate efforts and communicate with the holding company and 
the covered bank on how to adequately address their respective stress 
testing requirements while avoiding duplication of effort.
    The FDIC 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 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 FDIC 
anticipates addressing, on a case-by-case basis through the supervisory 
process, instances in which it may be appropriate to modify stress 
testing requirements when there are multiple covered banks within a 
single parent organization.

D. Scenarios

    Under the final rule, each covered bank would be required to 
conduct an annual stress test using its financial data as of September 
30 of that year, unless the FDIC communicates, in the fourth quarter of 
that year, a different required as-of date for any or all categories of 
financial data. Additionally, the Corporation could accelerate or 
extend any specified deadline for stress testing if the Corporation 
determined that such modification is appropriate in light of the 
institution's activities, level of complexity, scope of operations, 
risk profile, or regulatory capital.
    The stress test must assess the potential impact of different 
scenarios on the capital of the covered bank 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 FDIC will provide a minimum of three economic scenarios, 
(baseline, adverse, and severely adverse), or such additional scenarios 
as the FDIC determines appropriate, no later than November 15, which 
the covered bank must use for the stress test. While each scenario 
includes the paths of a number of economic variables that are typically 
considered in stress test models, the FDIC expects that covered banks 
may use all or a subset of the economic variables provided, and may 
extrapolate other variables (such as local economic variables) from the 
paths of the economic variables provided, as appropriate, to conduct 
the stress test.
    The FDIC may require a covered bank to include one or more 
additional scenarios in its stress test based on the institutions 
activities, level of complexity, risk profiles, scope of operations and 
regulatory capital, in addition to any other relevant factors. The FDIC 
will notify the institution in writing that it will be required to 
include one or more additional scenarios in its stress test, and the 
notification will include a description of the scenario and the basis 
for requiring the institution to include the scenario in its stress 
test.
    The FDIC has established provisions within the final rule that 
apply to covered banks having significant trading activities. For those 
covered banks, an additional trading and counterparty risk scenario may 
be included as a component of their stress test scenarios. The FDIC 
will select an as-of date between October 1 and December 1 of that 
calendar year for the trading and counterparty risk scenario which will 
be communicated to the covered bank no later than December 1. This 
provision is necessary to allow the FDIC to tailor the scenarios and 
other stress test requirements for those covered banks to ensure that 
the stress tests provide a meaningful identification of downside risks 
and assessment of the potential impact of adverse outcomes on the 
covered bank's capital. Typically, the scenarios would include market 
price and rate ``shocks'' consistent with historical or hypothetical 
adverse market events.
    The FDIC expects that the annual stress test scenarios will be 
revised from time to time to ensure that each scenario remains relevant 
under current economic and industry conditions. The FDIC will consult 
closely with the Board and OCC on the development of the annual stress 
test scenarios to ensure consistent and comparable stress tests for all 
covered financial institutions and to minimize regulatory burden.
    The FDIC expects to issue for comment proposed guidance and 
procedures for scenario development at a later date.

E. Stress Test Methodologies and Practices

    The final rule requires each covered bank to use the annual stress 
test scenarios provided by the FDIC in conducting its annual stress 
tests. Each covered bank must use a planning horizon of at least nine 
quarters over which the impact of specified scenarios would be 
assessed. The nine-quarter planning horizon would permit the covered 
bank to make informed projections of its financial and capital

[[Page 62422]]

positions for a two-calendar-year period. The covered bank is required 
to calculate, for each quarter-end within the planning horizon, 
estimates of losses, pre-provision net revenues, net income, and 
provision for loan and lease losses that result from the conditions 
specified in each scenario. Such a covered bank also is required to 
calculate, for each quarter-end within the planning horizon, the 
potential impact on its capital levels and regulatory capital ratios 
applicable to the institution under 12 CFR Part 325 (and any other 
capital ratios specified by the Corporation), incorporating the effects 
of any expected capital actions over the planning horizon.
    The final rule also requires the senior management of 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 covered bank are 
effective in meeting the requirements of the final rule. The covered 
bank's policies and procedures must, at a minimum, outline the covered 
bank's stress testing practices and methodologies, and processes for 
validating and updating its stress testing practices consistent with 
applicable laws, regulations and supervisory guidance.\6\ The covered 
bank's board of directors (or a committee thereof) must approve and 
review the policies and procedures of the stress testing processes as 
frequently as economic conditions may warrant, but no less than 
annually. The covered bank's board of directors and senior management 
must receive a summary of the results of the annual stress test.
---------------------------------------------------------------------------

    \6\ See Supervisory Guidance on Stress Testing for Banking 
Organizations With More Than $10 Billion in Total Consolidated 
Assets, 77 FR 29458 (May 17, 2012).
---------------------------------------------------------------------------

F. Reporting and Disclosures

    Section 165(i)(2)(B) requires a covered bank to submit a report to 
the Board and 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) mandates that 
the primary financial regulatory agencies require a covered bank to 
publish a summary of its stress test results.
    The final rule requires that each over $50 billion covered bank 
submit a report of the stress test results and documentation to the 
FDIC and to the Board by January 5. The FDIC published for notice and 
comment specific annual stress test reporting requirements for over $50 
billion covered banks in a separate information collection under the 
Paperwork Reduction Act (44 U.S.C. 3501-3521).\7\ The Corporation plans 
to publish for comment separately the required report for covered banks 
with total consolidated assets of more than $10 billion but less than 
$50 billion. For $10 billion to $50 billion covered banks, the final 
rule requires that each bank submit a report of the stress test results 
to the FDIC and to the Board by March 31.
---------------------------------------------------------------------------

    \7\ 77 FR 52718 (Aug. 30, 2012).
---------------------------------------------------------------------------

    The confidentiality of information submitted to the Corporation 
under the final rule will 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).
    Based on information submitted by a covered bank in the required 
report to the Corporation, as well as other relevant information, the 
Corporation will conduct an analysis of the quality of the bank's 
stress test processes and related results. The Corporation envisions 
that feedback concerning such analysis will be provided to a covered 
bank through the supervisory process. In addition, each covered bank 
must consider the results of the stress tests conducted under the final 
rule in the normal course of business including, but not limited to, 
the banking organization's capital planning, assessment of capital 
adequacy, and risk management practices. The Corporation may also 
require other actions consistent with safety and soundness of the 
covered bank.
    Consistent with section 165(i)(2), the final rule also requires 
each covered bank to publish a summary of the results of its annual 
stress tests after submitting its annual stress test report to the FDIC 
and the Board. Under the final rule, a $10 billion to $50 billion 
covered bank must publish a summary of the results of its annual stress 
test from the period beginning on June 15 and ending June 30 and an 
over $50 billion covered bank must publish its summary disclosures from 
the period beginning on March 15 and ending on March 31.
    The timing of the disclosures in the final rule has changed from 
the timing sequence proposed in the NPR. The proposed rule would have 
required all disclosures to be made no later than April 5. The final 
rule extends the disclosure due date for $10 billion to $50 billion 
covered banks to June 30. Therefore, this final rule replaces the 
specific disclosure due date with a 15-day period in which disclosures 
must be made. This change ensures adequate time for review of stress 
test results prior to disclosure.
    The summary may be published on a covered bank's Web site or any 
other forum that is reasonably accessible to the public. The required 
information publicly disclosed by each covered bank for the severely 
adverse scenario, at a minimum, includes:
    i. A description of the types of risks being included in the stress 
test;
    ii. A summary description of the methodologies used in the stress 
test;
    iii. Estimates of aggregate losses, pre-provision net revenue, net 
income, provision for loan and lease losses, capital ratios (including 
regulatory and any other capital ratios specified by the FDIC); and
    iv. An explanation of the most significant causes for the changes 
in regulatory capital ratios, such as the amount of losses attributable 
to a particular portfolio.
    Covered banks that are consolidated subsidiaries of a bank holding 
company or savings and loan holding company will be permitted to 
publish abbreviated disclosures with the parent's summary and on the 
same timeline as the parent holding company. These disclosures will 
include a summary of changes in regulatory capital ratios of the 
depository institution subsidiary over the planning horizon, including 
an explanation of the most significant causes for changes in regulatory 
capital ratios, such as the amount of losses attributable to a 
particular portfolio. However, the FDIC reserves the right to require 
additional disclosures if the FDIC believes that the disclosures at the 
holding company level do not accurately capture the potential impact of 
the scenarios on the condition of the covered bank.

G. Summary of Steps for Annual Stress Test

    The table below describes the steps and timeframes for the annual 
stress test for covered banks.

[[Page 62423]]



------------------------------------------------------------------------
Process Overview of Annual Stress Test (Using Data as of September 30th)
-------------------------------------------------------------------------
                                                       Timeframe for $10
                                  Timeframe for over    billion to $50
              Step                    $50 billion       billion covered
                                     covered banks           banks
------------------------------------------------------------------------
1. FDIC provides covered banks    No later than       No later than
 with scenarios for annual         November 15th.      November 15th.
 stress tests.
2. Covered banks submit required  No later than       No later than
 regulatory reports to the FDIC    January 5th.        March 31st.\8\
 on their stress tests.
3. Covered banks make required    Between March 15th  Between June 15th
 public disclosures.               and March 31st.     and June 30th.
------------------------------------------------------------------------

H. Administrative Law Matters
---------------------------------------------------------------------------

    \8\ A covered bank subsidiary may elect to report and issue its 
required public disclosure on its parent bank holding company's or 
savings and loan holding company's timeline.
---------------------------------------------------------------------------

Administrative Procedure Act
    The final rule will be effective immediately upon publication in 
the Federal Register. Section 553(d)(3) of the Administrative Procedure 
Act (``APA'') provides that publication of a rule shall be made not 
less than 30 days before its effective date, except ``* * * (3) as 
otherwise provided by the agency for good cause found and published 
with the rule.'' Consistent with section 553(d)(3) and for the reasons 
discussed below, the FDIC finds good cause exists to publish this final 
rule with an immediate effective date.\9\
---------------------------------------------------------------------------

    \9\ 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------

    The FDIC believes the final rule is necessary to address the 
continuing exposure of the banking industry to potentially adverse 
economic conditions. The FDIC expects that all covered banks should 
have the capacity to understand their risks and the potential impact of 
stressful events and circumstances on their financial condition. The 
stress test requirements contained in the final rule will help covered 
banks and the FDIC to better understand such banks' financial condition 
in stressed environments, including the potential impact on covered 
banks' capital adequacy. Further, stress tests serve as an ongoing risk 
management tool that supports a covered bank's forward-looking 
assessment of its risks and better equips such organizations to address 
a range of adverse outcomes. As adverse economic conditions can occur 
quickly, the process of stress testing needs to begin promptly. 
Ensuring that covered banks are prepared for adverse economic 
situations is essential for their health and the overall financial 
stability of the economy. Accordingly, the FDIC finds good cause for 
the final rule to take effect immediately upon publication in the 
Federal Register.
Paperwork Reduction Act Analysis
    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (``PRA'') 
prohibits the Corporation from conducting or sponsoring, and 
respondents are not required to respond to, an information collection 
unless it displays a currently valid Office of Management and Budget 
(``OMB'') control number. In accordance with the PRA, the Corporation 
published notice of the proposed information collection for over $50 
billion covered banks on August 30, 2012.\10\ Following the close of 
the sixty-day comment period associated with the Corporation's proposed 
information collection notice, the Corporation will review the public 
comments and submit a proposed information collection to the OMB 
director for approval. If approved, covered banks would then be subject 
to the Corporation's stress test reporting requirements contained in 
the final rule. Additionally, prior to the 2013 stress test, the 
Corporation intends to publish in the Federal Register a proposed 
information collection notice for $10 billion to $50 billion covered 
banks.
---------------------------------------------------------------------------

    \10\ 77 FR 52718 (Aug. 30, 2012).
---------------------------------------------------------------------------

    Title of Information Collection: Annual Stress Test Reporting 
Template and Documentation for Covered Banks under the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.
    For over $50 billion covered banks, following the close of the 
sixty-day comment period associated with the Corporation's proposed 
information collection notice, the Corporation will submit its proposed 
information collection to the OMB director for approval. For $10 
billion to $50 billion covered banks, the Corporation will submit a 
proposed information collection to OMB following the publication and 
60-day comment period of a proposed information collection notice for 
$10 billion to $50 billion covered banks.
    OMB Number: 3064-0187.
    Frequency of Response: Annually.
    Affected Public: State nonmember banks and state savings 
associations supervised by the Corporation with more than $10 billion 
in total consolidated assets.
    Estimated Total Burden (includes all covered banks):
    The estimated burden for the reporting and disclosure requirements 
is as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of        Annual          Hourly
                                                    respondents      frequency       estimate       Total hours
----------------------------------------------------------------------------------------------------------------
Initial Paperwork Burden:
    Initial Report..............................              25               1           2,000          50,000
                                                 ---------------------------------------------------------------
        Total...................................              25               1           2,000          50,000
----------------------------------------------------------------------------------------------------------------
Ongoing Paperwork Burden:
    Annual Report...............................              25               1           1,040          26,000
                                                 ---------------------------------------------------------------
        Total...................................              25               1           1,040          26,000
----------------------------------------------------------------------------------------------------------------

    Abstract: The information collection requirements are found in 
sections 325.205, 325.206, and 325.207 of the final rule. These 
requirements implement the stress testing and stress testing reporting 
requirements set forth in Section 165(i) of the Dodd-Frank Act. Section 
325.205(a) identifies the calculations of the potential impact on

[[Page 62424]]

capital that must be made during each quarter of the planning horizon. 
Section 325.205(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, as well as processes for updating such 
bank's stress test practices. Section 325.206 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 325.207 requires that a covered bank must 
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 summary description of the methodologies used in 
the stress test, and estimates of losses, pre-provision net revenue, 
provision for loan and lease losses, net income and pro forma capital 
ratios (including regulatory and any other capital ratios specified by 
the FDIC) over the planning horizon, under the severely adverse 
scenario.
Regulatory Flexibility Act Analysis
    Pursuant to section 605(b) of the Regulatory Flexibility Act 
(``RFA''),\11\ the regulatory flexibility analysis otherwise required 
under section 604 of the RFA is not required if an agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities (defined for purposes of the RFA 
to include banks with assets less than or equal to $175 million) \12\ 
and publishes its certification and a short, explanatory statement in 
the Federal Register along with its rule. For the reasons provided 
below, the FDIC certifies that the final rule does not have a 
significant economic impact on a substantial number of small entities. 
Since the final rule applies 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 final rule will 
directly affect a substantial number of small entities. Accordingly, a 
regulatory flexibility analysis is not required.
---------------------------------------------------------------------------

    \11\ 5 U.S.C. 605(b).
    \12\ 5 U.S.C. 601, et seq.
---------------------------------------------------------------------------

Plain Language
    Section 722 of the Gramm-Leach-Bliley Act \13\ requires federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The Corporation sought to present the 
proposed rule in a simple and straightforward manner and invited 
comment on how to make the proposed rule easier to understand. The FDIC 
received no comments on the use of plain language.
---------------------------------------------------------------------------

    \13\ Public Law 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809 
(1999).
---------------------------------------------------------------------------

Riegle Community Development and Regulatory Improvement Act
    Section 302 of Riegle Community Development and Regulatory 
Improvement Act (``RCDRIA'') generally requires that regulations 
prescribed by federal banking agencies which impose additional 
reporting, disclosures or other new requirements on insured depository 
institutions take effect on the first day of a calendar quarter which 
begins on or after the date on which the regulations are published in 
final form unless an agency finds good cause that the regulations 
should become effective sooner. The final rule will be effective 
immediately upon publication in the Federal Register. The first day of 
a calendar quarter which begins on or after the date on which the 
regulations are published will be January 1, 2013. Accordingly, the 
FDIC invokes the good cause exception to the publication requirement 
because the final rule is necessary to address the continuing exposure 
of the banking industry to potentially adverse economic factors. For 
the same reasons discussed in support of the good cause waiver from the 
30-day delayed effective date required by the APA, the FDIC finds that 
good cause exists for an immediate effective date for the final rule.
Small Business Regulatory Enforcement Fairness Act
    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Fairness Act of 
1996 \14\ (``SBREFA''). As required by SBREFA, the FDIC will file the 
appropriate reports with Congress and the Government Accountability 
Office so that the final rule may be reviewed.
---------------------------------------------------------------------------

    \14\ 5 U.S.C. 801, et seq.
---------------------------------------------------------------------------

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.

Authority and Issuance

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

PART 325--CAPITAL MAINTENANCE

0
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), 1828(n), 
1828(o), 1831o, 1831p-1, 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); 12 U.S.C. 5412(b)(2)(B).

0
2. Add subpart C to read as follows:
Subpart C--Annual Stress Test
Sec.
325.201 Authority, purpose, and reservation of authority.
325.202 Definitions.
325.203 Applicability.
325.204 Annual stress tests required.
325.205 Methodologies and practices.
325.206 Required reports of stress test results to the FDIC and the 
Board of Governors of the Federal Reserve System.
325.207 Publication of stress test results.

Subpart C--Annual Stress Test


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

    (a) Authority. This subpart is issued by the Federal Deposit 
Insurance Corporation (the ``Corporation'' or ``FDIC'') under 12 U.S.C. 
5365(i)(2), 12 U.S.C. 5412(b)(2)(B), 12 U.S.C. 1818, 12 U.S.C. 
1819(a)(Tenth), 12 U.S.C. 1831o, and 12 U.S.C. 1831p-1.
    (b) Purpose. This subpart implements 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 that require each covered bank to conduct 
annual stress tests and establishes a definition of stress test, 
methodologies for conducting stress tests, and reporting and disclosure 
requirements.
    (c) Reservation of authority. Notwithstanding any other provisions 
of this subpart, the Corporation may modify some or all of the 
requirements of this subpart.
    (1) The Corporation may accelerate or extend any deadline for 
stress testing, reporting, or publication of the stress test results.
    (2) The Corporation may require different or additional tests not 
otherwise required by this subpart or may require or permit different 
or additional analytical techniques and methodologies, different or 
additional scenarios (including components for the

[[Page 62425]]

scenarios), or different assumptions for the covered bank to use in 
meeting the requirements of this subpart. In addition, the FDIC may 
specify a different as-of date for any or all categories of financial 
data used by the stress test.
    (3) The Corporation may modify the reporting requirements of a 
report under this subpart or may require additional reports. The 
Corporation may modify the publication requirements of this subpart and 
or may require different or additional publication disclosures.
    (4) Factors considered: Any exercise of authority under this 
section by the Corporation will be in writing and will consider the 
activities, level of complexity, risk profile, scope of operations, and 
the regulatory capital of the covered bank, in addition to any other 
relevant factors.
    (5) Notice and comment procedures: In exercising its authority to 
require different or additional stress tests and different or 
additional scenarios (including components for the scenarios) under 
paragraph (c)(2) of this section, the Corporation will apply notice and 
response procedures in the same manner and to the same extent as the 
notice and response procedures in 12 CFR 325.6, as appropriate.
    (6) 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) Adverse scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered bank that are more 
adverse than those associated with the baseline scenario and may 
include trading or other additional components.
    (b) Average total consolidated assets means the average of the 
covered bank's total consolidated assets, as reported on the covered 
bank's Consolidated Report of Condition and Income (Call Report) for 
the four most recent consecutive quarters. If the covered bank has not 
filed a Call Report for each of the four most recent consecutive 
quarters, the covered bank's average total consolidated assets means 
the average of the covered bank's total consolidated assets, as 
reported on the covered bank's Call Reports, for the most recent one or 
more consecutive quarters. The date on which the state nonmember bank 
or the state savings association becomes a covered bank will be the as-
of date of the most recent Call Report used in the calculation of the 
average.
    (c) Baseline scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered bank, and that 
reflect the consensus views of the economic and financial outlook.
    (d) Covered bank means any state nonmember bank or state savings 
association subject to the following categories:
    (1) $10 billion to $50 billion covered bank. Any state nonmember 
bank or state savings association with average total consolidated 
assets calculated as required under this subpart that are greater than 
$10 billion but less than $50 billion.
    (2) Over $50 billion covered bank. Any state nonmember bank or 
state savings association with average total consolidated assets 
calculated as required under this subpart that are not less than $50 
billion.
    (e) Planning horizon means the period of at least nine quarters 
over which the relevant projections extend.
    (f) Pre-provision net revenue means the sum of net interest income 
and non-interest income, less expenses, before adjusting for loss 
provisions.
    (g) Provision for loan and lease losses means the provision for 
loan and lease losses as reported by the covered bank on its Call 
Report.
    (h) Regulatory capital ratio means a capital ratio for which the 
Corporation established minimum requirements by regulation or order, 
including the leverage ratio and tier 1 and total risk-based capital 
ratios applicable to that covered bank as calculated under the 
Corporation's regulations.
    (i) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a covered bank that the 
Corporation annually determines are appropriate for use in the company-
run stress tests, including, but not limited to, baseline, adverse, and 
severely adverse scenarios.
    (j) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a covered bank and that 
overall are more severe than those associated with the adverse scenario 
and may include trading or other additional components.
    (k) State nonmember bank and state savings association have the 
same meanings as those terms are defined in section 3 of the Federal 
Deposit Insurance Act (12 U.S.C. 1813).
    (l) Stress test means the process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a 
covered bank over the 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  Applicability.

    (a) First stress test for covered banks subject to stress testing 
requirements as of October 15, 2012.
    (1) A $10 billion to $50 billion covered bank as of October 15, 
2012 must conduct its first stress test under this subpart using 
financial statement data as of September 30, 2013, and report the 
results of its stress test on or before March 31, 2014.
    (2) A $10 billion to $50 billion covered bank that is subject to 
its first annual stress test pursuant to section 203(a)(1) of this 
subpart must make its initial public disclosure in the period starting 
June 15 and ending June 30 of 2015, by disclosing the results of a 
stress test conducted in 2014, using financial statement data as of 
September 30, 2014.
    (3) A state nonmember bank or state savings association that is an 
over $50 billion covered bank as of October 15, 2012, must conduct its 
first stress test under this subpart using financial statement data as 
of September 30, 2012, and report the results of its stress test on or 
before January 5, 2013.
    (b) Covered banks that become subject to stress testing 
requirements after October 15, 2012. A state nonmember bank or state 
savings association that becomes a covered bank after October 15, 2012 
will conduct its first annual stress test under this subpart beginning 
in the next calendar year after the date the state nonmember bank or 
state savings association becomes a covered bank.
    (c) Ceasing to be a covered bank or changing categories. (1) A 
covered bank will remain subject to the stress test requirements based 
on its applicable category unless and until total consolidated assets 
of the covered bank falls below the relevant size threshold for each of 
four consecutive quarters as reported on the covered bank's most recent 
Call Reports. The calculation will be effective on the as-of date of 
the fourth consecutive Call Report.
    (2) Notwithstanding paragraph (c)(1) of this section, a state 
nonmember bank or state savings association that migrates from a $10 
billion to $50 billion covered bank to an over $50 billion covered bank 
will be subject to the stress test requirements applicable to an over 
$50 billion covered bank immediately as of the date the state nonmember 
bank or state savings association satisfies the size threshold for an 
over $50 billion covered bank.
    (d) Covered bank subsidiaries of a bank holding company or savings 
and

[[Page 62426]]

loan holding company subject to annual stress test requirements. (1) 
Notwithstanding the requirements applicable to covered banks under this 
section, a covered bank that is a consolidated subsidiary of a bank 
holding company or savings and loan holding company that is required to 
conduct an annual company-run stress test under applicable regulations 
of the Board of Governors of the Federal Reserve System may elect to 
conduct its stress test and report to the FDIC on the same timeline as 
its parent bank holding company or savings and loan holding company.
    (2) A covered bank that elects to conduct its stress test under 
paragraph (d)(1) of this section will remain subject to the same 
timeline requirements of its parent company until otherwise approved by 
the FDIC.


Sec.  325.204  Annual stress tests required.

    (a) General requirements. (1) $10 billion to $50 billion covered 
bank. A $10 billion to $50 billion covered bank must conduct a stress 
test on or before March 31 of each calendar year based on financial 
data as of September 30 of the preceding calendar year.
    (2) Over $50 billion covered bank. An over $50 billion covered bank 
must conduct a stress test on or before January 5 of each calendar year 
based on financial data as of September 30 of the preceding calendar 
year.
    (b) Scenarios provided by the Corporation. In conducting the stress 
test under this subpart, each covered bank must use the scenarios 
provided the Corporation. The scenarios provided by the Corporation 
will reflect a minimum of three sets of economic and financial 
conditions, including: Baseline, adverse, and severely adverse 
scenarios. The Corporation will provide a description of the scenarios 
required under this section to each covered bank no later than November 
15 of that calendar year.
    (c) Significant trading activities. The Corporation may require a 
covered bank with significant trading activities, as determined by the 
Corporation, to include a trading and counterparty component for the 
scenarios used in its stress test. The trading and counterparty 
position data used in this component of the scenarios will be as of a 
date between October 1 and December 1 of that calendar year selected by 
the Corporation and communicated to the covered bank no later than 
December 1 of the calendar year.


Sec.  325.205  Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
this subpart, during each quarter of the planning horizon, each covered 
bank must estimate the following for each scenario required to be used:
    (1) Pre-provision net revenues, losses, loan loss provisions and 
net income; and
    (2) The potential impact on the regulatory capital levels and 
ratios applicable to the covered bank, and any other capital ratios 
specified by the Corporation, incorporating the effects of any capital 
action over the planning horizon and maintenance of an allowance for 
loan losses appropriate for credit exposures throughout the planning 
horizon.
    (b) Controls and oversight of stress testing processes. (1) The 
senior management of a covered bank must establish and maintain a 
system of controls, oversight, and documentation, including policies 
and procedures, that are designed to ensure that its stress test 
processes satisfy the requirements in this subpart. These policies and 
procedures must, at a minimum, describe the covered bank's stress test 
practices and methodologies, and processes for validating and updating 
the covered bank's stress test practices and methodologies consistent 
with applicable laws, regulations, and supervisory guidance.
    (2) The board of directors, or a committee thereof, of a covered 
bank must approve and review the policies and procedures of the stress 
testing processes as frequently as economic conditions or the condition 
of the covered bank may warrant, but no less than annually. The board 
of directors and senior management of the covered bank must receive a 
summary of the results of the stress test.
    (3) The board of directors and senior management of each covered 
bank must consider the results of the stress tests in the normal course 
of business, including but not limited to, the covered bank's capital 
planning, assessment of capital adequacy, and risk management 
practices.


Sec.  325.206  Required reports of stress test results to the FDIC and 
the Board of Governors of the Federal Reserve System.

    (a) Report required for annual stress test results--(1) $10 billion 
to $50 billion covered bank. A $10 billion to $50 billion covered bank 
must report to the FDIC and to the Board on or before March 31 the 
results of the stress test in the manner and form specified by the 
FDIC.
    (2) Over $50 billion covered bank. An over $50 billion covered bank 
must report to the FDIC and to the Board, on or before January 5, the 
results of the stress test in the manner and form specified by the 
FDIC.
    (b) Content of reports. (1) The reports required under paragraph 
(a) of this section must include under the baseline scenario, adverse 
scenario, severely adverse scenario and any other scenario required by 
the Corporation under this subpart, a description of the types of risks 
being included in the stress test, a summary description of the 
methodologies used in the stress test, and, for each quarter of the 
planning horizon, estimates of aggregate losses, pre-provision net 
revenue, provision for loan and lease losses, net income, and pro forma 
capital ratios (including regulatory and any other capital ratios 
specified by the FDIC). In addition, the report must include an 
explanation of the most significant causes for the changes in 
regulatory capital ratios and any other information required by the 
Corporation.
    (2) The description of aggregate losses and net income must include 
the cumulative losses and cumulative net income over the planning 
horizon, and the description of each regulatory capital ratio must 
include the beginning value, ending value, and minimum value of each 
ratio over the planning horizon.
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Corporation under this 
subpart and related materials will 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).


Sec.  325.207  Publication of stress test results.

    (a) Publication date. (1) A $10 billion to $50 billion covered bank 
must publish a summary of the results of its annual stress test in the 
period starting June 15 and ending June 30.
    (2) An over $50 billion covered bank must publish a summary of the 
results of its annual stress tests in the period starting March 15 and 
ending March 31.
    (b) Publication method. The summary required under this section may 
be published on the covered bank's Web site or in any other forum that 
is reasonably accessible to the public. A covered bank that is a 
consolidated subsidiary of a bank holding company or savings and loan 
holding company that is required to conduct an annual company-run 
stress test under applicable regulations of the Board of Governors of 
the Federal Reserve

[[Page 62427]]

System will be deemed to have satisfied the public disclosure 
requirements under this subpart if it publishes a summary of its stress 
test results with its parent bank holding company's or savings and loan 
holding company's summary of stress test results. Subsidiary covered 
banks electing to satisfy their public disclosure requirement in this 
manner must include a summary of changes in regulatory capital ratios 
of such covered bank over the planning horizon, and an explanation of 
the most significant causes for the changes in regulatory capital 
ratios.
    (c) Information to be disclosed in the summary. A covered bank must 
disclose the following information regarding the severely adverse 
scenario if it is not a consolidated subsidiary of a parent bank 
holding company or savings and loan holding company that has elected to 
make its disclosure under section 203(d):
    (1) A description of the types of risks included in the stress 
test;
    (2) A summary description of the methodologies used in the stress 
test;
    (3) Estimates of aggregate losses, pre-provision net revenue, 
provision for loan and lease losses, net income, and pro forma capital 
ratios (including regulatory and any other capital ratios specified by 
the FDIC); and
    (4) An explanation of the most significant causes for the changes 
in the regulatory capital ratios.
    (d) Content of results. (1) The disclosure of aggregate losses, 
pre-provision net revenue, provisions for loan and lease losses, and 
net income under this section must be on a cumulative basis over the 
planning horizon.
    (2) The disclosure of regulatory capital ratios and any other 
capital ratios specified by the Corporation under this section must 
include the beginning value, ending value, and minimum value of each 
ratio over the planning horizon.

    Dated at Washington, DC, this 9th day of October, 2012.

    By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. 2012-25194 Filed 10-12-12; 8:45 am]
BILLING CODE 6714-01-P