Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and Their Subsidiary Insured Depository Institutions, 51101-51115 [2013-20143]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• FEDERAL RESERVE SYSTEM
• Department of Treasury
• Office of the Comptroller of the Currency

[Federal Register Volume 78, Number 161 (Tuesday, August 20, 2013)]
[Proposed Rules]
[Pages 51101-51115]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20143]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 6

[Docket ID OCC-2013-0008]
RIN 1557-AD69

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 217

[Regulation H and Q; Docket No. R-1460]
RIN 7100-AD 99

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AE01


Regulatory Capital Rules: Regulatory Capital, Enhanced 
Supplementary Leverage Ratio Standards for Certain Bank Holding 
Companies and Their Subsidiary Insured Depository Institutions

AGENCY: Office of the Comptroller of the Currency, Treasury; the Board 
of Governors of the Federal Reserve System; and the Federal Deposit 
Insurance Corporation.

ACTION: Joint notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are 
seeking comment on a proposal that would strengthen the agencies' 
leverage ratio standards for large, interconnected U.S. banking 
organizations. The proposal would apply to any U.S. top-tier bank 
holding company (BHC) with at least $700 billion in total consolidated 
assets or at least $10 trillion in assets under custody (covered BHC) 
and any insured depository institution (IDI) subsidiary of these BHCs. 
In the revised capital approaches adopted by the agencies in July, 2013 
(2013 revised capital approaches), the agencies established a minimum 
supplementary leverage ratio of 3 percent (supplementary leverage 
ratio), consistent with the minimum leverage ratio adopted by the Basel 
Committee on Banking Supervision (BCBS), for banking organizations 
subject to the advanced approaches risk-based capital rules. In this 
notice of proposed rulemaking (proposal or proposed rule), the agencies 
are proposing to establish a ``well capitalized'' threshold of 6 
percent for the supplementary leverage ratio for any IDI that is a 
subsidiary of a covered BHC, under the agencies' prompt corrective 
action (PCA) framework. The Board also proposes to establish a new 
leverage buffer for covered BHCs above the minimum supplementary 
leverage ratio requirement of 3 percent (leverage buffer). The leverage 
buffer would function like the capital conservation buffer for the 
risk-based capital ratios in the 2013 revised capital approaches. A 
covered BHC that maintains a leverage buffer of tier 1 capital in an 
amount greater than 2 percent of its total leverage exposure would not 
be subject to limitations on distributions and discretionary bonus 
payments. The proposal would take effect beginning on January 1, 2018. 
The agencies seek comment on all aspects of this proposal.

DATES: Comments must be received by October 21, 2013.

ADDRESSES: Comments should be directed to:
    OCC: Because paper mail in the Washington, DC area and at the OCC 
is subject to delay, commenters are encouraged to submit comments by 
the Federal eRulemaking Portal or email, if possible. Please use the 
title ``Regulatory Capital Rules: Regulatory Capital, Enhanced 
Supplementary Leverage Ratio Standards for Certain Bank Holding 
Companies and Their Subsidiary Insured Depository Institutions'' to 
facilitate the organization and distribution of the comments. You may 
submit comments by any of the following methods:
     Federal eRulemaking Portal--``regulations.gov'': Go to 
https://www.regulations.gov. Enter ``Docket ID OCC-2013-0008'' in the 
Search Box and click ``Search''. Results can be filtered using the 
filtering tools on the left side of the screen. Click on ``Comment 
Now'' to submit public comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: regs.comments@occ.treas.gov.
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW., Suite 
3E-218, Mail Stop 9W-11, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, 
Mail Stop 9W-11, Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2013-0008'' in your comment.

[[Page 51102]]

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 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 rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to https://www.regulations.gov. Enter ``Docket ID OCC-2013-0008'' in the Search 
box and click ``Search''. Comments can be filtered by Agency using the 
filtering tools on the left side of the screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
viewing public comments, viewing other supporting and related 
materials, and viewing the docket after the close of the comment 
period.
     Viewing Comments Personally: You may personally inspect 
and photocopy comments at the OCC, 400 7th 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) 649-
6700. 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.
    Board: When submitting comments, please consider submitting your 
comments by email or fax because paper mail in the Washington, DC area 
and at the Board may be subject to delay. You may submit comments, 
identified by Docket No. R-1460, by any of the following methods:
     Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: regs.comments@federalreserve.gov. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Robert de V. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Street NW., Washington, DC 20551) between 9 a.m. and 5 p.m. on 
weekdays.
    FDIC: You may submit comments, identified by RIN 3064-AE01, by any 
of the following methods:
    Agency Web site: https://www.fdic.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on the Agency 
Web site.
     Email: Comments@fdic.gov. Include the RIN 3064-AE01 on the 
subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., 
Washington, DC 20429.
     Hand Delivery: Comments may be hand delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street) on business days between 7:00 a.m. and 5:00 p.m.
    Public Inspection: All comments received must include the agency 
name and RIN 3064-AE01 for this rulemaking. All comments received will 
be posted without change to https://www.fdic.gov/regulations/laws/federal/propose.html, including any personal information provided. 
Paper copies of public comments may be ordered from the FDIC Public 
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, 
VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT:
    OCC: Roger Tufts, Senior Economic Advisor, (202) 649-6981; Nicole 
Billick, Risk Expert, (202) 649-7932, Capital Policy; or Ron 
Shimabukuro, Senior Counsel; or Carl Kaminski, Senior Attorney, 
Legislative and Regulatory Activities Division, (202) 649-5490, Office 
of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 
20219.
    Board: Anna Lee Hewko, Deputy Associate Director, (202) 530-6260; 
Constance M. Horsley, Manager, (202) 452-5239; Juan C. Climent, Senior 
Supervisory Financial Analyst, (202) 872-7526; or Holly Kirkpatrick, 
Senior Financial Analyst, (202) 452-2796, Capital and Regulatory 
Policy, Division of Banking Supervision and Regulation; or Benjamin 
McDonough, Senior Counsel, (202) 452-2036; April C. Snyder, Senior 
Counsel, (202) 452-3099; Christine Graham, Senior Attorney, (202) 452-
3005; or David Alexander, Senior Attorney, (202) 452-2877, Legal 
Division, Board of Governors of the Federal Reserve System, 20th and C 
Streets NW., Washington, DC 20551. For the hearing impaired only, 
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
    FDIC: George French, Deputy Director, gfrench@fdic.gov; Bobby R. 
Bean, Associate Director, bbean@fdic.gov; Ryan Billingsley, Chief, 
Capital Policy Section, rbillingsley@fdic.gov; Karl Reitz, Chief, 
Capital Markets Strategies Section, kreitz@fdic.gov; Capital Markets 
Branch, Division of Risk Management Supervision, 
regulatorycapital@fdic.gov or (202) 898-6888; or Mark Handzlik, 
Counsel, mhandzlik@fdic.gov; or Michael Phillips, Counsel, 
mphillips@fdic.gov; Supervision Branch, Legal Division, Federal Deposit 
Insurance Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

I. Background

    The recent financial crisis showed that some financial companies 
had grown so large, leveraged, and interconnected that their failure 
could pose a threat to overall financial stability. The sudden 
collapses or near-collapses of major financial companies were among the 
most destabilizing events of the crisis. As a result of the imprudent 
risk taking of major financial companies and the severe consequences to 
the financial system and the economy associated with the disorderly 
failure of these companies, the U.S. government (and many foreign 
governments in their home countries) intervened on an unprecedented 
scale to reduce the impact of, or prevent, the failure of these 
companies and the attendant consequences for the broader financial 
system.
    A perception continues to persist in the markets that some 
companies remain ``too big to fail,'' posing an ongoing threat to the 
financial system. First, the existence of the ``too big to fail'' 
problem reduces the incentives of shareholders, creditors and 
counterparties of these companies to

[[Page 51103]]

discipline excessive risk-taking by the companies. Second, it produces 
competitive distortions because companies perceived as ``too big to 
fail'' can often fund themselves at a lower cost than other companies. 
This distortion is unfair to smaller companies, damaging to fair 
competition, and tends to artificially encourage further consolidation 
and concentration in the financial system.
    An important objective of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (Dodd-Frank Act) is to mitigate the 
threat to financial stability posed by systemically-important financial 
companies.\1\ The agencies have sought to address this problem through 
enhanced supervisory programs, including heightened supervisory 
expectations for large, complex institutions and stress testing 
requirements. The Dodd-Frank Act further addresses this problem with a 
multi-pronged approach: a new orderly liquidation authority for 
financial companies (other than banks and insurance companies); the 
establishment of the Financial Stability Oversight Council (Council) 
empowered with the authority to designate nonbank financial companies 
for Board oversight; stronger regulation of major BHCs and nonbank 
financial companies designated for Board oversight; and enhanced 
regulation of over-the-counter (OTC) derivatives, other core financial 
markets, and financial market utilities.
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
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    This proposal would build on these efforts by increasing leverage 
standards for the largest and most interconnected U.S. banking 
organizations. The agencies have broad authority to set regulatory 
capital standards.\2\ As a general matter, the agencies' authority to 
set regulatory capital requirements for the institutions they regulate 
derives from the International Lending Supervision Act (ILSA)\3\ and 
the PCA provisions \4\ of Federal Deposit Insurance Corporation 
Improvement Act (FDICIA). In establishing ILSA, Congress codified its 
intentions, providing, ``It is the policy of the Congress to assure 
that the economic health and stability of the United States and the 
other nations of the world shall not be adversely affected or 
threatened in the future by imprudent lending practices or inadequate 
supervision.''\5\ ILSA encourages the agencies to work with their 
international counterparts to establish effective and consistent 
supervisory policies and practices and specifically provides the 
agencies authority to set broadly applicable minimum capital levels \6\ 
as well as individual capital requirements.\7\ Additionally, ILSA 
specifically calls on U.S. regulators to encourage governments, central 
banks, bank regulatory authorities, and other major banking countries 
to work toward maintaining, and where appropriate, strengthening the 
capital bases of banking institutions involved in international 
banking.\8\ With its focus on international lending and the safety of 
the broader financial system, ILSA provides the agencies with the 
authority to consider an institution's interconnectedness and other 
systemic factors when setting capital standards.
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    \2\ The agencies have authority to establish capital 
requirements for depository institutions under the prompt corrective 
action provisions of the Federal Deposit Insurance Act (12 U.S.C. 
1831o). In addition, the Federal Reserve has broad authority to 
establish various regulatory capital standards for BHCs under the 
Bank Holding Company Act and the Dodd-Frank Act. See, for example, 
sections 165 and 171 of the Dodd-Frank Act (12 U.S.C. 5365 and 12 
U.S.C. 5371).
    \3\ 12 U.S.C. 3901-3911.
    \4\ 12 U.S.C. 1831o.
    \5\ 12 U.S.C. 3901(a).
    \6\ ``Each appropriate Federal banking agency shall cause 
banking institutions to achieve and maintain adequate capital by 
establishing levels of capital for such banking institutions and by 
using such other methods as the appropriate Federal banking agency 
deems appropriate.'' 12 U.S.C. 3907(a)(1).
    \7\ Each appropriate Federal banking agency shall have the 
authority to establish such minimum level of capital for a banking 
institution as the appropriate Federal banking agency, in its 
discretion, deems to be necessary or appropriate in light of the 
particular circumstances of the banking institution.'' 12 U.S.C. 
3907(a)(2).
    \8\ 12 U.S.C. 3907(b)(3)(C).
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    As part of the overall prudential framework for bank capital, the 
agencies have long expected institutions to maintain capital well above 
regulatory minimums and have monitored banking organizations' capital 
adequacy through the supervisory process in accordance with this 
expectation. Additionally, this expectation is codified for IDIs in the 
statutory PCA requirements, which require the agencies to establish 
ratio thresholds for both leverage and risk-based capital that banks 
have to meet to be considered ``well capitalized.''
    Additionally, section 165 of the Dodd-Frank Act requires the Board 
to impose a package of enhanced prudential standards on BHCs with total 
consolidated assets of $50 billion or more and nonbank financial 
companies the Council has designated for supervision by the Board.\9\ 
The prudential standards for covered companies required under section 
165 of the Dodd-Frank Act must include enhanced leverage requirements. 
In general, the Dodd-Frank Act directs the Board to implement enhanced 
prudential standards that strengthen existing micro-prudential 
supervision and regulation of individual companies and incorporate 
macro-prudential considerations so as to reduce threats posed by 
covered companies to the stability of the financial system as a whole. 
The enhanced standards must increase in stringency based on the 
systemic footprint and risk characteristics of individual covered 
companies. When differentiating among companies for purposes of 
applying the standards established under section 165, the Board may 
consider the companies' size, capital structure, riskiness, complexity, 
financial activities, and any other risk-related factors the Board 
deems appropriate.
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    \9\ See 12 U.S.C. 5365; 77 FR 593 (January 5, 2012); and 77 FR 
76627 (December 28, 2012).
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    In the agencies' experience, strong capital is an important 
safeguard that helps financial institutions navigate periods of 
financial or economic stress. Maintenance of a strong base of capital 
at the largest, systemically important institutions is particularly 
important because capital shortfalls at these institutions can 
contribute to systemic distress and can have material adverse economic 
effects. Further, higher capital standards for these institutions would 
place additional private capital at risk before the Federal deposit 
insurance fund and the Federal government's resolution mechanisms would 
be called upon, and reduce the likelihood of economic disruptions 
caused by problems at these institutions. The agencies believe that 
higher standards for the supplementary leverage ratio would reduce the 
likelihood of resolutions, and would allow regulators more time to 
tailor resolution efforts in the event those are needed. By further 
constraining their use of leverage, higher leverage standards could 
offset possible funding cost advantages that these institutions may 
enjoy as a result of the ``too big to fail'' problem, as discussed 
above.

A. Scope of the Proposal

    In November 2011, the BCBS\10\ released a document entitled, Global 
systemically important banks: assessment methodology and the additional 
loss absorbency

[[Page 51104]]

requirement,\11\ which sets out a framework for a new capital surcharge 
for global systemically important banks (BCBS framework). The BCBS 
framework is intended to strengthen the capital position of the global 
systemically important banking organizations (G-SIBs) beyond the 
requirements for other banking organizations by expanding the capital 
conservation buffer for these organizations.
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    \10\ The BCBS is a committee of banking supervisory authorities, 
which was established by the central bank governors of the G-10 
countries in 1975. It currently consists of senior representatives 
of bank supervisory authorities and central banks from Argentina, 
Australia, Belgium, Brazil, Canada, China, France, Germany, Hong 
Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, 
the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, 
Sweden, Switzerland, Turkey, the United Kingdom, and the United 
States. Documents issued by the BCBS are available through the Bank 
for International Settlements Web site at https://www.bis.org.
    \11\ Available at https://www.bis.org/publ/bcbs207.pdf.
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    The BCBS framework incorporates five broad characteristics of a 
banking organization that the agencies consider to be good proxies for, 
and correlated with, systemic importance--size, complexity, 
interconnectedness, lack of substitutes, and cross-border activity. The 
Board believes that the criteria and methodology used by the BCBS to 
identify G-SIBs are consistent with the criteria it must consider under 
the DFA when tailoring enhanced prudential standards based on the 
systemic footprint and risk characteristics of individual covered 
companies.
    In November 2012 the FSB and BCBS published a list of banks that 
meet the BCBS definition of a G-SIB based on year-end 2011 data.\12\ 
Each of these organizations has more than $700 billion in consolidated 
assets or more than $10 trillion in assets under custody. For the 
reasons described in this notice, the agencies are proposing to modify 
the 2013 revised capital approaches \13\ to implement enhanced leverage 
standards for the largest, most interconnected U.S. BHCs (that have 
been, and are likely to continue to be identified as G-SIBs) and their 
subsidiary IDIs.\14\ Accordingly, the agencies propose to use these 
thresholds to identify covered BHCs and their IDI subsidiaries to which 
the higher leverage requirements would apply. Over time, as the G-SIB 
risk-based capital framework is implemented in the United States or 
revised by the BCBS, the agencies may consider modifying the scope of 
application of the proposed leverage requirements. In addition, 
independent of the G-SIB capital framework implementation, the agencies 
will continue to evaluate the proposed applicability thresholds and may 
consider revising them to ensure they remain appropriate.
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    \12\ The U.S. banking organizations that are currently 
identified as G-SIBs and that would be subject to the proposal are 
Citigroup Inc., JP Morgan Chase & Co., Bank of America Corporation, 
The Bank of New York Mellon Corporation, Goldman Sachs Group, Inc., 
Morgan Stanley, State Street Corporation, and Wells Fargo & Company. 
Available at https://www.financialstabilityboard.org/publications/r_121031ac.pdf.
    \13\ The 2013 revised capital approaches would revise and 
replace the agencies' risk-based and leverage capital standards and 
establish a 3 percent minimum supplementary leverage ratio for 
banking organizations subject to the agencies' advanced approaches 
risk-based capital rules. The Board adopted the 2013 revised capital 
approaches as final on July 2, 2013. See https://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm. The OCC 
adopted the 2013 revised capital approaches as final on July 9, 
2013. See https://www.occ.gov/news-issuances/news-releases/2013/nr-occ-2013-110.html. The FDIC adopted the 2013 revised capital 
approaches on an interim basis on July 9, 2013.
    \14\ Under the 2013 revised capital approaches, a ``subsidiary'' 
is defined as a company controlled by another company, and a person 
or company ``controls'' a company if it: (1) owns, controls, or 
holds with power to vote 25 percent or more of a class of voting 
securities of the company; or (2) consolidates the company for 
financial reporting purposes. See section 2 of the 2013 revised 
capital approaches.
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B. The Supplementary Leverage Ratio

    The 2013 revised capital approaches comprehensively revise and 
strengthen the capital regulations applicable to banking organizations. 
The 2013 revised capital approaches strengthen the definition of 
regulatory capital, increase the minimum risk-based capital 
requirements for all banking organizations, and modify the way banking 
organizations are required to calculate risk-weighted assets. The 2013 
revised capital approaches also establish a minimum tier 1 leverage 
ratio requirement \15\ of 4 percent applicable to all IDIs, which is 
the ``generally applicable'' leverage ratio for purposes of section 171 
of the Dodd-Frank Act. Accordingly, the minimum tier 1 leverage 
requirement for depository institution holding companies is also 4 
percent.\16\
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    \15\ The generally applicable leverage ratio under the 2013 
revised capital approaches is the ratio of a banking organization's 
tier 1 capital to its average total consolidated assets as reported 
on the banking organization's regulatory report minus amounts 
deducted from tier 1 capital.
    \16\ 12 U.S.C. 5371.
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    In addition, for advanced approaches banking organizations, the 
2013 revised capital approaches establish a minimum requirement of 3 
percent of tier 1 capital to total leverage exposure (supplementary 
leverage ratio). Total leverage exposure includes all on-balance sheet 
assets and many off-balance sheet exposures for banking organizations 
subject to the agencies' advanced approaches risk-based capital rules. 
The supplementary leverage ratio is consistent with the minimum 
leverage ratio requirement adopted by the BCBS (Basel III leverage 
ratio).\17\
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    \17\ See BCBS, ``Basel III: A Global Regulatory Framework for 
More Resilient Banks and Banking Systems'' (December 2010), 
available at https://www.bis.org/publ/bcbs189.htm.
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    Because total leverage exposure includes off-balance sheet 
exposures, for any given company with material off-balance sheet 
exposures, the minimum amount of capital required to meet the 
supplementary leverage ratio would substantially exceed the amount of 
capital that would be required to meet the generally applicable 
leverage ratio, assuming that both ratios were set at the same level. 
Based on recent supervisory estimates, the 6 percent proposed 
supplementary leverage ratio for subsidiary IDIs of covered BHCs 
corresponds to roughly an 8.6 percent generally applicable leverage 
ratio, while the proposed 5 percent buffer level of the supplementary 
leverage ratio for covered BHCs corresponds to a roughly 7 percent 
generally applicable leverage ratio, as shown in Table 1.

                     Table 1--Generally Applicable Leverage Ratio Equivalents for Various Values of the Supplementary Leverage Ratio
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                                                                                       Supplementary leverage ratio level:
                   Leverage concept                    -------------------------------------------------------------------------------------------------
                                                               3%               4%              5%              6%              7%              8%
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Implied generally applicable ratio*...................            4.3%              5.7%            7.2%            8.6%           10.0%           11.4%
Current BHC minimum**.................................            4
Current IDI minimum...................................            4
Current IDI well-capitalized threshold................           5
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*Assumes total leverage exposure for the supplementary leverage ratio is $143 for every $100 of current generally applicable leverage exposure based on
  a group of advanced approaches banking organizations as of 3Q 2012. Amounts by which total leverage exposure exceeds balance sheet amounts will vary
  across banking organizations depending on the composition of their off-balance sheet assets.
**Under the 2013 revised capital approaches, the minimum leverage ratio for BHCs is 4 percent.


[[Page 51105]]

    The introduction of the Basel III leverage ratio as a minimum 
standard is an important step in improving the BCBS framework for 
international capital standards (Basel capital framework), and the BCBS 
described it as a backstop to the risk-based capital ratios and an 
overall constraint on leverage. The agencies believe the leverage 
requirement should produce a simple and transparent measure of capital 
adequacy that will be credible to market participants and ensure a 
meaningful amount of capital is available to absorb losses. The Basel 
III leverage ratio is a non-risk-based measure of capital adequacy that 
measures both on- and off-balance sheet exposures relative to tier 1 
capital.\18\ This is particularly important for large, complex 
organizations that often have substantial off-balance sheet exposures. 
The financial crisis demonstrated the risks from off-balance sheet 
exposures that can require capital support, especially during a period 
of stress. The agencies note that the BCBS has committed to collecting 
additional data and potentially recalibrating the Basel III leverage 
ratio requirements. The agencies will review any modifications to the 
Basel III leverage ratio made by the BCBS and consider proposing 
revisions to the U.S. requirements, as appropriate.
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    \18\ The BCBS recently published a consultative paper seeking 
comment on a number of specific changes to the supplementary 
leverage ratio denominator. If and when any of these changes are 
finalized, the agencies would consider the appropriateness of their 
application in the United States.
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II. Proposed Revisions to Strengthen the Supplementary Leverage Ratio 
Standards

A. Factors Contributing to the Proposed Revisions

    In developing this proposal, the agencies considered various 
factors, including comments regarding the supplementary leverage ratio 
when the agencies proposed revisions to their capital standards in 
2012,\19\ and the calibration objectives and methodologies of the 
agencies in developing the risk-based capital and leverage requirements 
in the 2013 revised capital approaches.
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    \19\ See 77 FR 52792 (August 30, 2012) (2012 proposal).
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    Some commenters on the supplementary leverage ratio in the 2012 
proposal recommended that the agencies implement a higher minimum 
requirement. These commenters argued that the risk-based capital ratios 
are less transparent and more subject to manipulation than leverage 
ratios and therefore should not be the binding requirement. Other 
commenters recommended that the agencies wait to implement a 
supplementary leverage ratio until the BCBS completes any refinements 
to the Basel III leverage ratio.\20\ Some commenters stated that if a 
leverage ratio is the binding regulatory capital requirement, banking 
organizations may have incentives to increase their holdings of riskier 
assets.
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    \20\ If the BCBS finalizes changes in the definition of the 
total leverage exposure measure, the agencies will consider the 
appropriateness of incorporating those changes into the definition 
of the supplementary leverage ratio and its appropriate levels for 
purposes of U.S. regulation. Any such changes would be based on a 
notice and comment rulemaking process.
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    In calibrating the revised risk-based capital framework, the BCBS 
identified those elements of regulatory capital that would be available 
to absorb unexpected losses on a going-concern basis. The BCBS agreed 
that an appropriate regulatory minimum level for the risk-based capital 
requirements should force banking organizations to hold enough loss-
absorbing capital to provide market participants a high level of 
confidence in their viability. The BCBS also determined that a buffer 
above the minimum risk-based capital requirements would enhance 
stability, and that such a buffer should be calibrated to allow banking 
organizations to absorb a severe level of loss, while still remaining 
above the regulatory minimum requirements. The buffer is conceptually 
similar, but not identical in function, to the PCA ``well capitalized'' 
category for IDIs.
    The BCBS's approach for determining the minimum level of the Basel 
III leverage ratio was different than the calibration approach 
described above for the risk-based capital ratios. The BCBS used the 
most loss-absorbing measure of capital, common equity tier 1 capital, 
as the basis for calibration for the risk-based capital ratios, but not 
for the Basel III leverage ratio. In addition, the BCBS did not 
calibrate the minimum Basel III leverage ratio to meet explicit loss 
absorption and market confidence objectives as it did in calibrating 
the minimum risk-based capital requirements and did not implement a 
capital conservation buffer level above the minimum leverage ratio. 
Rather, the BCBS focused on calibrating the Basel III leverage ratio to 
be a backstop to the risk-based capital ratios and an overall 
constraint on leverage. The agencies believe that while the 
establishment of the Basel III leverage ratio internationally is an 
important achievement, further steps could be taken to ensure that the 
risk-based and leverage capital requirements effectively work together 
to enhance the safety and soundness of the largest, most systemically 
important banking organizations.
    An estimated half of the covered BHCs that were BHCs in 2006 would 
have met or exceeded a 3 percent minimum supplementary leverage ratio 
at the end of 2006, and the other half were quite close to the minimum. 
This suggests that the minimum requirement would not have placed a 
significant constraint on the pre-crisis buildup of leverage at the 
largest institutions. Based on their experience during the financial 
crisis, the agencies believe that there could be benefits to financial 
stability and reduced costs to the deposit insurance fund by requiring 
these banking organizations to meet a well-capitalized standard or 
capital buffer in addition to the 3 percent minimum supplementary 
leverage ratio requirement.
    The agencies have also considered the complementary nature of 
leverage capital requirements and risk-based capital requirements as 
well as the potential complexity and burden of additional leverage 
standards. From a safety-and-soundness perspective, each type of 
requirement offsets potential weaknesses of the other, and the two sets 
of requirements working together are more effective than either would 
be in isolation. In this regard, the agencies note that the 2013 
revised capital approaches strengthen U.S. banking organizations' risk-
based capital requirements considerably more than it strengthens their 
leverage requirements. Relative to the new supplementary leverage ratio 
in the 2013 revised capital approaches, the tier 1 risk-based capital 
requirements under the 2013 revised capital approaches will be 
proportionately stronger than was the case under the previous 
rules.\21\ At the same time, the degree to which banking organizations 
could potentially benefit from active management of risk-weighted 
assets before they breach the leverage requirements may be greater. 
Such potential behavior suggests that the increase in stringency of the 
leverage and risk-based standards should be more closely calibrated to 
each other so that they remain in an

[[Page 51106]]

effective complementary relationship. This was an important factor the 
agencies considered in identifying the proposed levels for the well-
capitalized and buffer levels of the supplementary leverage ratio.
---------------------------------------------------------------------------

    \21\ See section 10 of the 2013 revised capital approaches. The 
agencies' current risk-based capital rules are at 12 CFR part 3, 
appendix A and 12 CFR part 167 (OCC); 12 CFR part 208, appendix A 
and 12 CFR part 225, appendix A (Board); and 12 CFR part 325, 
appendix A and 12 CFR part 390, subpart Z (FDIC). The agencies' 
current leverage rules are at 12 CFR 3.6(b) and 3.6(c), and 12 CFR 
167.6 (OCC); 12 CFR part 208, appendix B and 12 CFR part 225, 
appendix D (Board); and 12 CFR 325.3 and 12 CFR 390.467 (FDIC).
---------------------------------------------------------------------------

    This proportionality rationale applies to all banking organizations 
and to both the generally applicable and supplementary leverage ratios. 
However, the agencies believe it is appropriate to weigh the burden and 
complexity of imposing a leverage buffer and enhanced PCA standards 
against the benefits to financial stability and addressing the concern 
that some institutions benefit from a real or perceived implicit 
Federal safety net subsidy or may be viewed as ``too big to fail.'' The 
agencies are therefore proposing to apply enhanced leverage standards 
only to those U.S. banking organizations that pose the greatest 
potential risk to financial stability, which are covered BHCs and their 
subsidiary IDIs.
    In this regard, the proposed heightened standards for the 
supplementary leverage ratio for covered BHCs and their subsidiary IDIs 
should provide meaningful incentives to encourage these banking 
organizations to conserve capital, thereby reducing the likelihood of 
their instability or failure and consequent negative external effects 
on the financial system. The calibration of the proposed heightened 
standards is based on consideration of all of the factors described in 
this section.

B. Description of the Proposed Revisions

    In the 2013 revised capital approaches, the agencies established a 
minimum supplementary leverage ratio requirement of 3 percent for 
advanced approaches banking organizations based on the Basel III 
leverage ratio. The supplementary leverage ratio is defined as the 
simple arithmetic mean of the ratio of the banking organization's tier 
1 capital to total leverage exposure calculated as of the last day of 
each month in the reporting quarter.
    Under this proposal, a covered BHC would be subject to a leverage 
buffer of tier 1 capital in addition to the minimum supplementary 
leverage ratio requirement established in the 2013 revised capital 
approaches. Similar to the capital conservation buffer in the 2013 
revised capital approaches, under the proposal, a covered BHC that 
maintains a leverage buffer of tier 1 capital in an amount greater than 
2 percent of its total leverage exposure would not be subject to 
limitations on its distributions and discretionary bonus payments.\22\ 
If the BHC maintains a leverage buffer of 2 percent or less, it would 
be subject to increasingly stricter limitations on such payouts. The 
proposed leverage buffer would follow the same general mechanics and 
structure as the capital conservation buffer contained in the 2013 
revised capital approaches.\23\ The leverage buffer constraints on 
distributions and discretionary bonus payments would be independent of 
any constraints imposed by the capital conservation buffer or other 
supervisory or regulatory measures.
---------------------------------------------------------------------------

    \22\ See section 11(a)(4) of the 2013 revised capital 
approaches.
    \23\ See section 11(a) of the 2013 revised capital approaches.
---------------------------------------------------------------------------

    In the 2013 revised capital approaches, the agencies incorporated 
the 3 percent supplementary leverage ratio minimum requirement into the 
PCA framework as an adequately capitalized threshold for IDIs subject 
to the agencies' advanced approaches risk-based capital rules, but did 
not establish an explicit well-capitalized threshold for this ratio. 
Under the proposal, an IDI that is a subsidiary of a covered BHC would 
be required to satisfy a 6 percent supplementary leverage ratio to be 
considered well capitalized for PCA purposes. The leverage ratio 
thresholds under the 2013 revised capital approaches and this proposal 
are shown in Table 2.

  Table 2--PCA Levels in the 2013 Revised Capital Approaches for Advanced Approaches Banking Organizations That Are IDIs and Proposed Well-Capitalized
                                                        Level for Subsidiary IDIs of Covered BHCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                               Proposed supplementary
                                                                    Generally applicable      Supplementary leverage ratio       leverage ratio for
                         PCA category                             leverage ratio  (percent)             (percent)            subsidiary IDIs of covered
                                                                                                                                   BHCs  (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Well Capitalized..............................................                          >= 5                Not applicable                         >= 6.
Adequately Capitalized........................................                          >= 4                          >= 3                         >= 3.
Undercapitalized..............................................                           < 4                           < 3                          < 3.
Significantly Undercapitalized................................                           < 3                Not applicable               Not applicable.
Critically Undercapitalized...................................   Tangible equity (defined as                Not applicable               Not applicable.
                                                                tier 1 capital plus non-tier
                                                                1 perpetual preferred stock)
                                                                        to Total Assets <= 2
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: The supplementary leverage ratio includes many off-balance sheet assets in its denominator; the generally applicable leverage ratio does not. See
  the supplementary leverage ratio under section I.B. of this preamble for additional information.

    Consistent with the transition provisions set forth in subpart G of 
the 2013 revised capital approaches, the agencies propose to adopt the 
leverage buffer for covered BHCs and the 6 percent well-capitalized 
threshold for subsidiary IDIs of covered BHCs beginning on January 1, 
2018.
    The agencies note that by setting the minimum supplementary 
leverage ratio plus leverage buffer at 5 percent for covered BHCs and 
the well-capitalized

[[Page 51107]]

threshold for subsidiary IDIs of covered BHCs at 6 percent, the 
proposal would be structurally consistent with the current relationship 
between the generally applicable leverage ratio requirements applicable 
to IDIs and BHCs under section 10 of the 2013 revised capital 
approaches. Under the 2013 revised capital approaches, IDIs must 
maintain a 5 percent generally applicable leverage ratio to be well 
capitalized for PCA purposes, whereas BHCs must maintain a minimum 4 
percent generally applicable leverage ratio under separate BHC 
regulations.
    Under this proposed rule, the well-capitalized supplementary 
leverage ratio standard for subsidiary IDIs of covered BHCs would 
become a more stringent requirement than the current 5 percent well-
capitalized standard under PCA with respect to the generally applicable 
leverage ratio. Accordingly, the agencies are considering eliminating 
the 5 percent well-capitalized standard for the generally applicable 
leverage ratio for subsidiary IDIs of covered BHCs if the agencies 
finalize the 6 percent well-capitalized threshold for the supplementary 
leverage ratio as proposed.

C. Required Capital and Credit Availability

    In developing this proposal, the agencies analyzed its potential 
impact on the amount of capital the covered organizations would be 
required to hold and, in general terms, factors relevant to the 
potential effects on credit availability.
    Some perspective on the potential effects of the proposed rule can 
be gained by considering information obtained from the Board's 
Comprehensive Capital Analysis and Review (CCAR) process in which all 
of the agencies participate. This information reflects banking 
organizations' own projections of their Basel III capital ratios under 
the supervisory baseline scenario, including institutions' own 
assumptions about earnings retention and other strategic actions. It 
does not reflect supervisory views. In the 2013 CCAR, all 8 covered 
BHCs met the 3 percent supplementary leverage ratio as of third quarter 
2012, and almost all projected that their supplementary leverage ratios 
would exceed 5 percent at year-end 2017.
    If the proposed supplementary leverage ratio thresholds had been in 
effect as of third quarter 2012, covered BHCs under the proposal that 
did not meet a 5 percent supplementary leverage ratio would have needed 
to increase their tier 1 capital by about $63 billion to meet that 
ratio. The incremental capital needs associated with higher 
supplementary leverage ratios need to be evaluated in the context of 
the proposed 2018 effective date and institutions' efforts to build 
their capital to meet Basel III requirements and for other purposes. 
Given these capital-building activities, it is likely that incremental 
capital needs to meet a 5 percent supplementary leverage ratio would be 
significantly less as the effective date approaches than if the 
requirements had been in place in September 2012. While projections and 
future economic conditions are subject to considerable uncertainty, 
covered BHCs' 2013 CCAR projections are currently the best available 
evidence on which to base an estimate of the ultimate incremental 
capital needs of the proposed rule. Based on these projections, 
achieving the proposed 5 percent supplementary leverage ratio for 
covered BHCs appears generally in line with current and planned capital 
strengthening initiatives and within the financial capacity of these 
organizations.
    Because CCAR is focused on the consolidated capital of BHCs, BHCs 
did not project future Basel III leverage ratios for their IDIs. To 
estimate the impact of the proposal on the lead IDIs of covered BHCs, 
the agencies assumed that an IDI has the same ratio of total leverage 
exposure to total assets as its BHC. Using this assumption and CCAR 
2013 projections, all 8 lead IDIs of covered BHCs are estimated to meet 
the 3 percent supplementary leverage ratio as of third quarter 2012. If 
the proposed supplementary leverage ratio thresholds had been in effect 
as of third quarter 2012, the lead IDIs that did not meet a 6 percent 
ratio would have needed to increase their tier 1 capital by about $89 
billion to meet that ratio.\24\ The agencies believe that the CCAR 
projections made by covered BHCs under the proposal in many cases 
reflect similar anticipated capital trends at these BHCs' lead IDIs and 
that affected IDIs under the proposal would be able to effectively 
manage their capital structures to meet a 6 percent supplementary 
leverage ratio at year-end 2017.
---------------------------------------------------------------------------

    \24\ The $89 billion estimate was calculated by assuming that 
CCAR results were proportionally applied based upon the total assets 
of the lead IDI relative to the BHC.
---------------------------------------------------------------------------

    In short, the agencies' assessment of the capital impact of the 
proposed rule is that it would formalize and preserve a strengthening 
of U.S. systemically important banking organizations' capital that is 
already underway and anticipated to continue.
    The agencies considered a number of broad considerations relevant 
to the potential effects of the proposal on credit availability. 
Roughly speaking, banking organizations fund themselves with debt and 
equity, and both funding sources support lending. The agencies believe 
the effect of higher banking organization capital requirements on 
lending would likely depend on a number of factors. First, if the 
higher capital requirement is less than the banking organization's 
planned capital holdings, the higher capital requirement may not 
directly affect lending. If the higher capital requirement does exceed 
planned capital levels, but the increase in capital does not increase 
overall funding costs (perhaps because the risk premium demanded by 
counterparties is sufficiently reduced), the higher capital requirement 
may not affect lending. If actual capital held increases and this 
causes overall funding costs to increase, and if these costs are passed 
on to borrowers, then there would likely be an increase in the cost of 
credit that could affect lending, in an amount that depends on the 
materiality of the increase in the cost of funding.
    The proposed rule would permit covered BHCs and their IDI 
subsidiaries to fund themselves more than 90 percent with debt while 
still satisfying the proposed leverage thresholds. In the extreme, if 
an organization had to increase its actual capital holdings by a full 3 
percentage points of its total leverage exposures, corresponding to the 
establishment of a 6 percent well-capitalized threshold above the 3 
percent adequately-capitalized threshold, the remainder of its funding 
sources would be expected to carry the same or possibly lower cost 
(lower if counterparty-demanded risk premiums come down) while a small 
percentage of its funding sources, in an amount equal to 3 percent of 
total leverage exposure, could come at a higher cost reflecting the 
replacement of debt with equity. The agencies note that to the extent 
that higher capital standards increase the cost of credit and reduce 
the volume of lending, this effect should be weighed against the 
potential long-term benefits to the availability of credit resulting 
from a better capitalized and more stable banking system that is less 
prone to crises. Historically, banking crises are often followed by 
long periods of diminished lending and economic growth.

III. Request for Comment

    The agencies seek comment on all aspects of the proposed 
strengthening of the leverage standards for covered BHCs and their 
subsidiary IDIs. Comments are

[[Page 51108]]

requested about the potential advantages of the proposal in 
strengthening the individual safety and soundness of these banking 
organizations and the stability of the financial system. Comments are 
also requested about the calibration and capital impact of the 
proposal, including whether the proposal maintains an appropriately 
complementary relationship between the risk-based and leverage capital 
requirements, and the nature and extent of any costs to the affected 
institutions or the broader economy. While the proposal references the 
supplementary leverage ratio defined in the 2013 revised capital 
approaches, comments are also sought about alternative definitions. 
Finally, the agencies seek commenters' views about future rulemaking 
efforts that should be considered for simplification or other 
improvements to the agencies' regulatory capital rules generally.
    Question 1: How would proposed strengthening of the supplementary 
leverage ratio for covered BHCs and their subsidiary IDIs contribute to 
financial stability and thus economic growth?
    Question 2: Would the proposed strengthening of the leverage ratio 
mitigate public-policy concerns about the regulatory treatment of 
banking organizations that may pose risks to the broader economy?
    Question 3: The agencies solicit commenters' views on what economic 
data suggest about leverage ratios and risk-based capital ratios as 
predictors of bank distress and thus tools to prevent the failure of 
large systemically-important banking organizations.
    Question 4: Would the proposal create any risk-reducing incentives 
and around what specific activities? Would the proposal create 
incentives for subject banking organizations to take additional risk 
and if so, would this effect be expected to limit the safety-and-
soundness benefits of the proposal?
    Question 5: What are commenters' views on the proposed calibration 
of the leverage standards? Is the proposed 6 percent well-capitalized 
standard for subsidiary IDIs and the proposed 5 percent minimum 
supplementary leverage ratio plus leverage buffer for covered BHCs 
appropriate or should these requirements be higher or lower? In 
particular with regard to covered BHCs, what are the advantages and 
disadvantages of establishing the minimum supplementary leverage ratio 
plus leverage buffer at 5 percent for all covered BHC's versus 
establishing the amount between 4 and 5.5 percent according to each 
covered BHC's risk-based capital surcharge (that is, to reflect the 
minimum supplementary leverage ratio of 3 percent plus between 1 and 
2.5 percent depending upon each covered BHC's risk-based capital 
surcharge)? With respect to the subsidiary IDIs of covered BHCs, the 
agencies seek commenters' views on what, if any, specific challenges 
these institutions would face in meeting the proposed well-capitalized 
threshold of 6 percent beginning on January 1, 2018.
    Question 6: The agencies solicit commenters' views on whether a 
strengthened leverage ratio requirement would enhance the competitive 
position of U.S. banking organizations relative to foreign banking 
organizations by enhancing the relative safety of the U.S. banking 
system. Alternatively, could the proposed strengthened leverage ratio 
requirement place U.S. banking organizations at a competitive 
disadvantage relative to foreign banking organizations and if so, in 
what areas?
    Question 7: How would this proposal affect counterparty incentives 
and behavior?
    Question 8: The agencies seek commenters' views on the 
macroeconomic implications of the proposal, particularly the potential 
effects the proposal could have on the allocation of credit and the 
volume of lending. For example, could a strengthened leverage ratio 
requirement as proposed cause a shift in favor of lending to 
individuals and businesses as opposed to markets- based activity by 
banking organizations? If covered BHCs were better capitalized as a 
group, to what extent would this improve their ability to serve as a 
source of credit to the economy during periods of economic stress? 
Conversely, to what extent would the proposal create incentives for 
banking organizations to shrink or otherwise modify their activities?
    Question 9: What are the incremental costs to banking organizations 
of the proposed rule compared to the costs of currently anticipated and 
planned capitalization initiatives?
    Question 10: The agencies are interested in comment on the 
appropriate measure of capital that should be used as the numerator of 
the supplementary leverage ratio. Among the many measures of capital 
used by banks, regulators and the market, the agencies considered the 
following measures: (1) Common equity tier 1 capital, (2) tier 1 
capital, (3) total capital, and (4) tangible equity (as these terms are 
defined in the agencies' capital regulations as of the date of the 
issuance of this proposed rule, including the 2013 revised capital 
approaches). What are the advantages and disadvantages of each of these 
as well as alternative measures?
    Question 11: What, if any, alternatives to the definition of total 
leverage exposure should be considered and why?
    Question 12: In light of the proposed enhanced leverage requirement 
and ongoing standardized risk-based capital floors, should the agencies 
consider, in some future regulatory action, simplifying or eliminating 
portions of the advanced approaches rule if they are unnecessary or 
duplicative? Are there opportunities to simplify the standardized risk-
based capital framework that would be consistent with safety and 
soundness or other policy objectives?
    Question 13: The proposed scope of application is U.S. top-tier 
BHCs with more than $700 billion in total assets or more than $10 
trillion in assets under custody and their subsidiary IDIs. Should the 
proposed requirements also be applied to other advanced approaches 
banking organizations? Why or why not? Should all IDI subsidiaries of a 
covered BHC be subject to the proposed well-capitalized standard, and 
if not, why? Please provide specific factors and the associated 
rationale the agencies should consider in establishing any exemption 
from the proposed well-capitalized standard.

IV. Regulatory Analysis:

A. Paperwork Reduction Act (PRA)

    There is no new collection of information pursuant to the PRA (44 
U.S.C. 3501 et seq.) contained in this proposed rule.

B. Regulatory Flexibility Act Analysis

OCC
    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), 
requires an agency to provide an initial regulatory flexibility 
analysis (IRFA) with a proposed rule or to certify 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 banking entities 
with total assets of $175 million or less, and, after July 22, 2013, 
total assets of $500 million or less).
    As described in sections I. and II. of this preamble, the proposal 
would strengthen the supplementary leverage ratio standards for U.S. 
top-tier bank holding companies with total assets of more than $700 
billion or assets under custody of more than $10 trillion and their IDI 
subsidiaries. Using the Small Business Administration's (SBA) recently 
issued size standards, as of

[[Page 51109]]

December 31, 2012, the OCC supervised approximately 1,291 small 
entities.\25\ Because the proposed rule only applies to large 
internationally active banks, it does not impact any OCC-supervised 
small entities. Therefore, the OCC does not believe that the proposed 
rule will result in a significant economic impact on a substantial 
number of small entities under its supervisory jurisdiction.
---------------------------------------------------------------------------

    \25\ The OCC based the estimate of the number of small entities 
on the SBA's size thresholds for commercial banks and savings 
institutions, and trust companies, which as of July 21, 2013 will be 
$500 million and $35.5 million, respectively. Consistent with the 
General Principles of Affiliation, 13 CFR 121.103(a), the OCC counts 
the assets of affiliated financial institutions when determining 
whether to classify a banking organization as a ``small entity'' for 
the purposes of the Regulatory Flexibility Act. The OCC used 
December 31, 2012, to determine size because the SBA has provided 
that a ``financial institution's assets are determined by averaging 
the assets reported on its four quarterly financial statements for 
the preceding year.'' See, footnote 8 to the SBA's Table of Size 
Standards.
---------------------------------------------------------------------------

    The OCC certifies that the proposed rule would not have a 
significant economic impact on a substantial number of small national 
banks and small Federal savings associations.
Board
    The Board is providing an initial regulatory flexibility analysis 
with respect to this proposed rule. As discussed above, this proposed 
rule is designed to enhance the safety and soundness of U.S. top-tier 
bank holding companies with at least $700 billion in consolidated 
assets or at least $10 trillion in assets under custody (covered BHCs), 
and the IDI subsidiaries of covered BHCs. Under regulations issued by 
the SBA, a small entity includes a depository institution, bank holding 
company, or savings and loan holding company with total assets of $500 
million or less (a small banking organization).\26\ As of March 31, 
2013, there were approximately 636 small state member banks. As of 
December 31, 2012, there were approximately 3,802 small bank holding 
companies.\27\
---------------------------------------------------------------------------

    \26\ See 13 CFR 121.201. Effective July 22, 2013, the SBA 
revised the size standards for banking organizations to $500 million 
in assets from $175 million in assets. 78 FR 37409 (June 20, 2013).
    \27\ Under the prior SBA threshold of $175 million in assets, as 
of March 31, 2013 the Board supervised approximately 369 small state 
member banks. As of December 31, 2012, there were approximately 
2,259 small bank holding companies.
---------------------------------------------------------------------------

    The proposal would apply only to very large bank holding companies 
and their IDI subsidiaries. Currently, no small top-tier bank holding 
company would meet the threshold criteria provided in this NPR, so 
there would be no additional projected compliance requirements imposed 
on small bank holding companies. One covered bank holding company has 
one small state member bank subsidiary, which would be covered by this 
proposal. The Board expects that this entity would rely on its parent 
banking organization for compliance and would not bear additional 
costs. The Board is aware of no other Federal rules that duplicate, 
overlap, or conflict with the proposed rule. The Board believes that 
the proposed rule will not have a significant economic impact on small 
banking organizations supervised by the Board and therefore believes 
that there are no significant alternatives to the proposed rule that 
would reduce the economic impact on small banking organizations 
supervised by the Board.
    The Board welcomes comment on all aspects of its analysis. A final 
regulatory flexibility analysis will be conducted after consideration 
of comments received during the public comment period.
FDIC
    The RFA requires an agency to provide an IRFA with a proposed rule 
or to certify 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 banking entities with total assets of $175 million or 
less, and, after July 22, 2013, total assets of $500 million or 
less).\28\
---------------------------------------------------------------------------

    \28\ Effective July 22, 2013, the SBA revised the size standards 
for banking organizations to $500 million in assets from $175 
million in assets. 78 FR 37409 (June 20, 2013).
---------------------------------------------------------------------------

    As described in sections I. and II. of this preamble, the proposal 
would strengthen the supplementary leverage ratio standards for U.S. 
top-tier bank holding companies with total assets of more than $700 
billion or assets under custody of more than $10 trillion and their 
IDIs subsidiaries. As of March 31, 2013, based on a $175 million 
threshold, 1 (out of 2,453) small state nonmember bank and no (out of 
159) small state savings associations were subsidiaries of a covered 
BHC. As of March 31, 2013, based on a $500 million threshold, 2 (out of 
3,398) small state nonmember banks and no (out of 316) small state 
savings associations were subsidiaries of a covered BHC. Therefore, the 
FDIC does not believe that the proposed rule will result in a 
significant economic impact on a substantial number of small entities 
under its supervisory jurisdiction.
    The FDIC certifies that the NPR would not have a significant 
economic impact on a substantial number of small FDIC-supervised 
institutions.

C. OCC Unfunded Mandates Reform Act of 1995 Determination

    The Unfunded Mandates Reform Act of 1995 (UMRA) requires federal 
agencies to prepare a budgetary impact statement before promulgating a 
rule that includes 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 (adjusted annually for 
inflation) in any one year. The current inflation-adjusted expenditure 
threshold is $141 million. If a budgetary impact statement is required, 
section 205 of the UMRA also requires an agency to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule.
    In conducting the regulatory analysis, UMRA requires each federal 
agency to provide:
     The text of the draft regulatory action, together with a 
reasonably detailed description of the need for the regulatory action 
and an explanation of how the regulatory action will meet that need;
     An assessment of the potential costs and benefits of the 
regulatory action, including an explanation of the manner in which the 
regulatory action is consistent with a statutory mandate and, to the 
extent permitted by law, promotes the President's priorities and avoids 
undue interference with State, local, and tribal governments in the 
exercise of their governmental functions;
     An assessment, including the underlying analysis, of 
benefits anticipated from the regulatory action (such as, but not 
limited to, the promotion of the efficient functioning of the economy 
and private markets, the enhancement of health and safety, the 
protection of the natural environment, and the elimination or reduction 
of discrimination or bias) together with, to the extent feasible, a 
quantification of those benefits;
     An assessment, including the underlying analysis, of costs 
anticipated from the regulatory action (such as, but not limited to, 
the direct cost both to the government in administering the regulation 
and to businesses and others in complying with the regulation, and any 
adverse effects on the efficient functioning of the economy, private 
markets (including productivity, employment, and competitiveness), 
health, safety, and the natural environment), together with, to the 
extent feasible, a quantification of those costs;
     An assessment, including the underlying analysis, of costs 
and benefits of potentially effective and

[[Page 51110]]

reasonably feasible alternatives to the planned regulation, identified 
by the agencies or the public (including improving the current 
regulation and reasonably viable non-regulatory actions), and an 
explanation why the planned regulatory action is preferable to the 
identified potential alternatives;
     An estimate of any disproportionate budgetary effects of 
the federal mandate upon any particular regions of the nation or 
particular State, local, or tribal governments, urban or rural or other 
types of communities, or particular segments of the private sector; and
     An estimate of the effect the rulemaking action may have 
on the national economy, if the OCC determines that such estimates are 
reasonably feasible and that such effect is relevant and material.
Need for Regulatory Action
    For the reasons set forth in the Supplementary Information section, 
the agencies are proposing to strengthen the agencies' leverage ratio 
standards for large, interconnected U.S. banking organizations. The 
agencies believe that the maintenance of a strong base of capital at 
the largest and most systemically important institutions is 
particularly important because capital shortfalls at these institutions 
can contribute to systemic distress and can have material adverse 
economic effects. Further, higher capital standards for these 
institutions would place additional private capital at risk before the 
federal deposit insurance fund and the federal government's resolution 
mechanisms would be called upon, and reduce the likelihood of economic 
disruptions caused by problems at these institutions.
The Proposed Rule
    The proposed rule would require the covered banking organizations 
to maintain higher supplementary leverage ratios. The supplementary 
leverage ratio is the ratio of tier 1 capital to total leverage 
exposure, where total leverage exposure is the sum of (1) on-balance 
sheet assets less amounts deducted from tier 1 capital, (2) potential 
future exposure from derivative contracts, (3) ten percent of the 
bank's notional amount of unconditionally cancellable commitments, and 
(4) the notional amount of all other off-balance sheet exposures except 
securities lending, securities borrowing, reverse repurchase 
transactions, derivatives, and unconditionally cancellable commitments. 
The regulatory metric will be the mean of the supplementary leverage 
ratios calculated as of the last day of each month in the reporting 
quarter. For instance, the supplementary leverage ratio (SLR) 
calculated when the 2013 revised capital approaches go into effect on 
January 1, 2018, will be as follows:
[GRAPHIC] [TIFF OMITTED] TP20AU13.072

    The SLR, which captures off-balance sheet and on-balance sheet 
assets in the denominator, would supplement the current U.S. leverage 
ratio, which is the ratio of tier 1 capital to on-balance sheet assets. 
The U.S. leverage ratio applies to all national banks and federal 
savings associations, and must be at least four percent for an 
institution to be ``adequately capitalized'' and five percent to be 
``well capitalized'' under the OCC's prompt corrective action 
regulations.\29\ The proposed rule would set a six percent SLR 
threshold for IDIs to be well-capitalized.\30\
---------------------------------------------------------------------------

    \29\ 12 CFR part 6.
    \30\ Given the usual fluctuations in capital and assets, well-
capitalized banks would, in particular, hold their SLR at least 
slightly above the six percent threshold level.
---------------------------------------------------------------------------

    The following table shows the transition table for leverage ratio 
requirements. The last row of the table indicates the proposed 
supplemental leverage ratio.

                                                      Transition Schedule for Leverage Requirements
                                                                      [In Percent]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             PCA
                                                                    Jan. 1,    Jan. 1,    Jan. 1,    Jan. 1,    Jan. 1,    Jan. 1,  --------------------
                                                                      2014       2015       2016       2017       2018       2019      Adq.       Well
--------------------------------------------------------------------------------------------------------------------------------------------------------
Applies to All Banks:
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Minimum Common Equity + Conservation Buffer..................        4.0        4.5      5.125       5.75      6.375        7.0       4.5        6.5
    Minimum Tier 1 + Conservation Buffer.........................        5.5        6.0      6.625       7.25      7.875        8.5         6        8
    Minimum Total Capital + Conservation Buffer..................        8.0        8.0      8.625       9.25      9.875       10.5         8       10
    U. S. Leverage Ratio.........................................        4.0        4.0      4.0         4.0       4.0          4.0         4        5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced Approaches Banks:
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Maximum Countercyclical Buffer...............................  .........  .........      0.625       1.25      1.875        2.5  ........  .........
    Basel III Supplemental Leverage Ratio........................  .........  Start to   .........  .........      3.0          3.0  ........  .........
                                                                               Report
--------------------------------------------------------------------------------------------------------------------------------------------------------
U.S. Banking Organizations with $700 billion in total assets or $10 trillion in custody assets
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Proposed Rule Supplemental Basel III Leverage Ratio for Well   .........  .........  .........  .........      6            6           3        6
     Capitalized Banks...........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 51111]]

Institutions Affected by the Proposed Rule
    The proposed rule currently would apply to eight U.S. banking 
organizations, which have at least $700 billion in consolidated assets 
or at least $10 trillion in assets under custody. These thresholds 
capture the eight U.S. bank holding companies that the Financial 
Stability Board designated as G-SIBs on November 1, 2012.\31\ Of the 
eight U.S. bank holding companies that would be subject to the rule, 
six have subsidiary IDIs that are supervised by the OCC.
---------------------------------------------------------------------------

    \31\ To measure custody assets, the OCC used custody and 
safekeeping accounts non-managed assets (RCFDB898) from Call Report 
Schedule RC-T: Fiduciary and Related Services.
---------------------------------------------------------------------------

Estimated Costs and Benefits of the Proposed Rule
    The proposed rule could affect costs in two ways: (1) the cost of 
the additional capital institutions will need to meet the higher 
minimum leverage ratio, and (2) potential spillover costs into various 
markets for bank products and economic growth in general. Under the 
2013 revised capital approaches, all advanced approach banks must 
compute a supplementary leverage ratio. Therefore, the OCC estimates 
that there are no additional compliance costs associated with 
establishing systems to determine the proposed supplementary leverage 
ratio.
Benefits of the Proposed Rule
    The proposed rule would produce the following benefits:
     It would increase the amount of loss absorbing capital 
held by covered BHCs and their IDI subsidiaries.
     Consequently, it would increase the likelihood that loss 
absorbing capital in the U.S. banking system will dampen negative 
economic shocks as they pass through the U.S. financial system, thereby 
diminishing the negative effect of the shock on growth in the broader 
U.S. and global economies.
     It would help mitigate the threat to financial stability 
posed by systemically important financial companies.
     It places additional private capital ahead of the deposit 
insurance fund and the federal government's resolution mechanisms.
     It offsets possible funding cost advantages that some 
institutions may enjoy as a result of real or perceived implicit 
federal support.
Costs of the Proposed Rule
    To estimate the impact of the proposed rule on bank capital 
requirements, the OCC estimated the amount of additional tier 1 capital 
banks will need to meet the six percent supplementary leverage ratio 
relative to the amount of tier 1 capital currently reported. To 
estimate new capital ratios and requirements, the OCC used data from a 
quantitative impact study (QIS) from the fourth quarter of 2012 and 
data from the Board's most recent Comprehensive Capital Analysis and 
Review (CCAR) program. These data collection exercises gather holding 
company data.
    The estimates based on QIS data are likely to be conservative. They 
include denominator elements that are relevant internationally but that 
are not part of the domestic rule. Their inclusion for the purposes of 
this analysis along with the CCAR data generates a range of cost 
estimates.
    To estimate the effect of the proposed rule on IDIs, the OCC 
adjusted bank-level Call Report data by applying scalars created by 
comparing QIS and CCAR holding company data to Y9 data. In particular, 
the adjustment factor for each IDI's reported tier 1 capital is equal 
to the ratio of the holding company's Basel III tier 1 capital reported 
in the QIS and CCAR to the holding company's tier 1 capital reported in 
Y9 data. Similarly, the adjustment factor for each IDI's reported 
average assets for leverage ratio purposes is equal to the ratio of the 
holding company's Basel III leverage exposure reported in the QIS or 
CCAR to the holding company's average assets for leverage ratio 
purposes reported in Y9 data. In effect, this approach assumes (1) that 
the ratio of tier 1 capital as determined under the 2013 revised 
capital approaches to tier 1 capital determined under previous rules is 
the same at the bank and the bank holding company, and (2) that the 
ratio of the denominator of the supplemental leverage ratio to the 
denominator of the leverage ratio is the same at the bank and the bank 
holding company.
    The following tables show the OCC's estimates, using QIS and CCAR 
data, of the total shortfall in tier 1 capital at various levels of the 
supplementary leverage ratio for the six covered BHCs that control OCC-
regulated IDIs. As the tables show, at the five percent supplementary 
leverage ratio for holding companies, QIS and CCAR data suggest that 
the capital shortfall will range between $63 billion and $113 
billion.\32\ After making the scalar adjustments to estimate IDI data, 
at the six percent supplementary leverage ratio for IDIs, QIS and CCAR 
data suggest that the bank-level capital shortfall will range between 
$84 billion and $123 billion.
---------------------------------------------------------------------------

    \32\ Because the 2013 revised capital approaches require 
advanced approaches banks to maintain a minimum supplementary 
leverage ratio of at least 3 percent, and all covered BHCs are 
advanced approaches banks, the OCC estimates the capital shortfall 
related to the proposed rule as the difference between the leverage 
ratio threshold shown and any shortfall at the 3 percent ratio. With 
QIS data, there is a shortfall at the three percent ratio of 
approximately $5 billion. Thus, the shortfall shown is approximately 
$5 billion less than the actual shortfall. There is no adjustment 
with CCAR data as this data shows no shortfall at the three percent 
threshold.
---------------------------------------------------------------------------

    To estimate the cost to IDIs of additional capital associated with 
the proposed supplemental leverage ratio requirement, the OCC examined 
the effect of this requirement on capital structure and the overall 
cost of capital. \33\ The cost of financing a bank or any firm is the 
weighted average cost of its various financing sources, which amounts 
to a weighted average cost of capital reflecting many different types 
of debt and equity financing. Because interest payments on debt are tax 
deductible, a more leveraged capital structure reduces corporate taxes, 
thereby lowering funding costs, and the weighted average cost of 
financing tends to decline as leverage increases. Thus, an increase in 
required equity capital would require a bank to deleverage and--all 
else equal--would increase the cost of capital for that bank.
---------------------------------------------------------------------------

    \33\ See, Merton H. Miller, (1995), ``Do the M & M propositions 
apply to banks?'' Journal of Banking & Finance, Vol. 19, pp. 483-
489.
---------------------------------------------------------------------------

    This increased cost would be tax benefits foregone: the additional 
capital requirement (between $84 billion and $123 billion), multiplied 
by the interest rate on the debt displaced and by the effective 
marginal tax rate for the banks affected by the proposed rule. The 
effective marginal corporate tax rate is affected not only by the 
statutory federal and state rates, but also by the probability of 
positive earnings (since there is no tax benefit when earnings are 
negative), and the offsetting effects of personal taxes on required 
bond yields. Graham (2000) considers these factors and estimates a 
median marginal tax benefit of $9.40 per $100 of interest. So, using an 
estimated interest rate on debt of 6 percent, the OCC estimates that 
the annual tax benefits foregone on between $84 billion and $123 
billion of capital switching from debt to equity is between $474 
million and $694 million per year ($474 million = $84 billion * 0.06 
(interest rate) * 0.094 (median marginal tax savings)).\34\
---------------------------------------------------------------------------

    \34\ See, John R. Graham, (2000), ``How Big Are the Tax Benefits 
of Debt?'' Journal of Finance, Vol. 55, No. 5, pp. 1901-1941. Graham 
points out that ignoring the offsetting effects of personal taxes 
would increase the median marginal tax rate to $31.5 per $100 of 
interest.

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

[[Page 51112]]

    The OCC does not anticipate any additional compliance costs for 
banks or costs to the agencies. Thus, the overall cost estimate for 
OCC-regulated banking organizations under the proposed rule is between 
$474 million and $694 million per year.
Potential Costs
    In addition to costs associated with increasing minimum capital 
levels, the proposed rule could affect competition, and it could have 
some effect on lending and other bank activities.
    Because the proposed rule would not take effect until January 1, 
2018, institutions subject to the proposed rule would have roughly four 
years to accumulate the additional capital needed to meet the new 
requirements. In most instances, this transition period should allow 
for institutions to adjust smoothly to the proposed requirements, 
should they become final in their current form, without disruption to 
bank lending and other banking activities.
    The proposed rule would strengthen the capital position of covered 
U.S. banking organizations. If other foreign and domestic banks did not 
follow suit, the market share of these covered institutions might 
conceivably expand because they might be relatively well-positioned to 
invest and make acquisitions, especially in a downturn.
    However, the direct effect of the proposed rule on competition is 
more likely to be to reduce the market share of the covered 
institutions. If they met with any difficulty in accumulating or 
raising additional tier 1 capital, then they would have to decrease the 
size of their supplementary leverage ratio denominator to meet the new 
standards. Such an adjustment to the denominator could affect on-
balance sheet assets, exposure to derivative contracts, or commitments 
and other off-balance sheet exposures.\35\ Should such an adjustment to 
the denominator be necessary at one or more institutions affected by 
the proposed rule, it is likely that another unrestricted financial 
institution would provide these products or services, which could 
mitigate any associated disruption to financial markets in general.
---------------------------------------------------------------------------

    \35\ Affected banking organizations do have some potential for 
lost revenue should they elect to shed assets as part of their 
strategy to meet the new minimum supplementary leverage ratio 
requirement.
---------------------------------------------------------------------------

    This potential shift in banking activities away from institutions 
affected by the proposed rule, while not likely, does highlight the 
potential for the proposed rule to have some effect on competition, 
both foreign and domestic. Again, should affected banking organizations 
need to contract their banking activities in order to meet the new 
supplementary leverage ratio, foreign-owned G-SIBs or other large U.S. 
banking organizations would likely expand to take their place.. The 
proposed rule is not likely to have an adverse effect on financial 
markets generally, but it could affect the competitive standing of 
particular institutions.

U.S. Banking Organizations With OCC-Regulated IDIs Short of the Supplementary Leverage Ratio, QIS Data, December
                                                    31, 2012
                                                [$ in thousands]
----------------------------------------------------------------------------------------------------------------
                                                                                                 Annual cost of
                                                             BHC Tier 1     Proposed rule BHC     capital for
              Supplementary leverage ratio               capital shortfall       marginal           marginal
                                                                                shortfall          shortfall
----------------------------------------------------------------------------------------------------------------
3%.....................................................         $5,137,830                 $0                 $0
4%.....................................................         21,786,760         16,648,930             93,900
5%.....................................................        118,503,000        113,365,170            639,380
6%.....................................................        235,270,200        230,132,370          1,297,947
7%.....................................................        361,547,477        356,409,647          2,010,150
8%.....................................................        497,877,831        492,740,001          2,779,054
9%.....................................................        634,208,185        629,070,355          3,547,957
----------------------------------------------------------------------------------------------------------------


    U.S. Banking Organizations With OCC-Regulated IDIs Short of the Supplementary Leverage Ratio, CCAR Data,
                                               September 30, 2012
                                                [$ in thousands]
----------------------------------------------------------------------------------------------------------------
                                                                                                 Annual cost of
                                                             BHC Tier 1     Proposed rule BHC     capital for
              Supplementary leverage ratio               capital shortfall       marginal           marginal
                                                                                shortfall          shortfall
----------------------------------------------------------------------------------------------------------------
3%.....................................................                 $0                 $0                 $0
4%.....................................................          7,528,091          7,528,091             42,458
5%.....................................................         62,722,407         62,722,407            353,754
6%.....................................................        167,020,534        167,020,534            941,996
7%.....................................................        281,777,638        281,777,638          1,589,226
8%.....................................................        405,078,110        405,078,110          2,284,641
9%.....................................................        528,378,583        528,378,583          2,980,055
----------------------------------------------------------------------------------------------------------------

Comparison Between the Proposed Rule and the Baseline
    Under the baseline scenario, minimum supplementary leverage 
requirements set forth in the 2013 revised capital approaches would 
continue to take effect. Thus, under the baseline, the minimum 
supplementary leverage ratio requirement of three percent would take 
effect, and the only costs associated with the supplemental leverage 
ratio requirement would be those related to the 2013 revised capital 
approaches.\36\ Under the baseline, however, there would also be no 
added

[[Page 51113]]

benefits stemming from the protection provided by additional tier 1 
capital.
---------------------------------------------------------------------------

    \36\ The OCC estimates this cost to be between zero and $29 
million.
---------------------------------------------------------------------------

Comparison Between the Proposed Rule and Alternatives
    The above tables provide several alternative scenarios for varying 
requirements of the supplementary leverage ratio. As these tables 
suggest, increasing the supplementary leverage ratio increases the 
total amount of additional tier 1 capital required and the 
corresponding cost of the proposal. Similarly, decreasing the total 
asset and total custody asset size thresholds that determine 
applicability of the proposed rule would capture a larger number of 
institutions, and would thereby increase the capital costs of the 
proposed rule. Increasing the total asset and total custody asset size 
thresholds capture a smaller number of institutions, and would thereby 
decrease the costs of the proposed rule. The benefits from additional 
protection provided by the additional tier 1 capital would also 
increase with the supplementary leverage ratio. While the optimal 
leverage ratio is the subject of some debate, the BCBS selected 3 
percent as a test minimum during the parallel run period between 
January 1, 2013, and January 1, 2017. During the parallel run period, 
the BCBS will assess whether the leverage ratio definition and 
regulatory minimum are appropriate. The agencies have indicated in the 
proposed rule that they will review any modifications to the Basel III 
leverage ratio made by the BCBS.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The agencies have sought to present 
the proposed rule in a simple and straightforward manner, and invite 
comment on the use of plain language. For example:
     Have the agencies organized the material to suit your 
needs? If not, how could they present the proposed rule more clearly?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposed 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?

End of the Common Preamble.

List of Subjects

12 CFR Part 3

    Administrative practice and procedure, Capital, National banks, 
Reporting and recordkeeping requirements, Risk.

12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 6

    National banks.

12 CFR Part 165

    Administrative practice and procedure, Savings associations.

12 CFR Part 167

    Capital, Reporting and recordkeeping requirements, Risk, Savings 
associations.

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 217

    Administrative practice and procedure, Banks, Banking, Capital, 
Federal Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Risk.

12 CFR Part 324

    Administrative practice and procedure, Banks, banking, Capital 
Adequacy, Reporting and recordkeeping requirements, Savings 
associations, State non-member banks.

Department of the Treasury

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the common preamble and under the 
authority of 12 U.S.C. 93a, 1831o, and 5412(b)(2)(B), the Office of the 
Comptroller of the Currency proposes to amend part 6 of chapter I of 
title 12, Code of Federal Regulations as follows:

PART 6--PROMPT CORRECTIVE ACTION


0
1. Revise the authority of part 6 to read as follows:

    Authority: 12 U.S.C. 93a, 1831o, 5412(b)(2)(B).

0
2. In Sec.  6.4, remove and reserve paragraphs (a) and (b) and revise 
paragraph (c) to read as follows:


Sec.  6.4  Capital measures and capital category definition.

* * * * *
    (c) Capital categories applicable on and after January 1, 2015. On 
January 1, 2015, and thereafter, for purposes of the provisions of 
section 38 and this part, a national bank or Federal savings 
association shall be deemed to be:
    (1) Well capitalized if:
    (i) [Reserved]
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) Leverage Measure:
    (A) The national bank or Federal savings association has a leverage 
ratio of 5.0 percent or greater; and
    (B) With respect to a national bank or Federal savings association 
that is a subsidiary of a U.S. top-tier bank holding company that has 
more than $700 billion in total assets as reported on the company's 
most recent Consolidated Financial Statement for Bank Holding Companies 
(FR Y-9C) or more than $10 trillion in assets under custody as reported 
on the company's most recent Banking Organization Systemic Risk Report 
(Y-15), on January 1, 2018 and thereafter, the national bank or Federal 
savings association has a supplementary leverage ratio of 6.0 percent 
or greater; and
    (v) [Reserved]
    (2) [Reserved]
* * * * *

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the common preamble, chapter II of 
title 12 of the Code of Federal Regulations is proposed to be amended 
as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
3. The authority citation for part 208 is revised to read as follows:


[[Page 51114]]


     Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 
15 U.S.C. 78b, 78I(b), 781(i), 780-4(c)(5), 78q, 78q-1, and 78w, 
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 
4104a, 4104b, 4106 and 4128.

0
4. In Sec.  208.41, remove the alphabetical paragraph designations and 
arrange definitions in alphabetical order and add in alphabetical order 
a definition of ``covered BHC'' to read as follows:


Sec.  208.41  Definitions for purposes of this subpart.

* * * * *
    Covered BHC means a covered BHC as defined in Sec.  217.2 of 
Regulation Q (12 CFR 217.2).
* * * * *
0
5. Revise Sec.  208.43 to read as follows:


Sec.  208.43  Capital measures and capital category definitions.

    (a) Capital measures.
    (1) [Reserved]
    (2) Capital measures applicable after January 1, 2015. On January 
1, 2015, and thereafter, for purposes of section 38 and this subpart, 
the relevant capital measures are:
    (i) [Reserved]
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) Leverage Measure:
    (A) [Reserved]
    (B) [Reserved]
    (C) With respect to any bank that is a subsidiary (as defined in 
Sec.  217.2 of Regulation Q (12 CFR 217.2)) of a covered BHC, on 
January 1, 2018, and thereafter, the supplementary leverage ratio.
    (b) [Reserved]
    (c) Capital categories applicable to advanced approaches banks and 
to all member banks on and after January 1, 2015. On January 1, 2015, 
and thereafter, for purposes of section 38 and this subpart, a member 
bank is deemed to be:
    (1) ``Well capitalized'' if:
    (i) [Reserved]
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) Leverage Measure:
    (A) The bank has a leverage ratio of 5.0 percent or greater; and
    (B) Beginning on January 1, 2018, with respect to any bank that is 
a subsidiary of a covered BHC under the definition of ``subsidiary'' in 
section 2 of part 217 (12 CFR 217.2), the bank has a supplementary 
leverage ratio of 6.0 percent or greater; and
    (v) [Reserved]
    (2) [Reserved]
    6. Add part 217 to read as follows:

PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND 
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

Sec.
Subpart A--General Provisions
217.1 Purpose, applicability, reservations of authority, and timing.
217.2 Definitions.
Subpart B--Capital Ratio Requirements and Buffers
217.11 Capital conservation buffer and countercyclical capital 
buffer amount.

    Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5371.

Subpart A--General Provisions


Sec.  217.1  Purpose, applicability, reservations of authority, and 
timing.

    (a) [Reserved]
    (b) [Reserved]
    (c) [Reserved]
    (d) [Reserved]
    (e) [Reserved]
    (f) Timing. (1) Subject to the transition provisions in subpart G 
of this part, an advanced approaches Board-regulated institution that 
is not a savings and loan holding company must:
    (i) [Reserved]
    (ii) [Reserved]
    (iii) Beginning on January 1, 2014, calculate and maintain minimum 
capital ratios in accordance with subparts A, B, and C of this part, 
provided, however, that such Board-regulated institution must:
    (A) [Reserved]
    (B) [Reserved]
    (C) Beginning January 1, 2018, a covered BHC as defined in Sec.  
217.2 is subject to the lower of the maximum payout amount as 
determined under paragraph (a)(2)(ii) of Sec.  217.11 and the maximum 
leverage payout amount as determined under paragraph (c)(3) of Sec.  
217.11.


Sec.  217.2  Definitions.

    Covered BHC means a U.S. top-tier bank holding company that has 
more than $700 billion in total assets as reported on the company's 
most recent Consolidated Financial Statement for Bank Holding Companies 
(FR Y-9C) or more than $10 trillion in assets under custody as reported 
on the company's most recent Banking Organization Systemic Risk Report 
(FR Y-15).

Subpart B--Capital Ratio Requirements and Buffers


Sec.  217.11  Capital conservation buffer and countercyclical capital 
buffer amount.

    (a) Capital conservation buffer.
    (1) [Reserved]
    (2) Definitions. For purposes of this section, the following 
definitions apply:
    (i) [Reserved]
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) [Reserved]
    (v) Maximum leverage payout ratio. The maximum leverage payout 
ratio is the percentage of eligible retained income that a covered BHC 
can pay out in the form of distributions and discretionary bonus 
payments during the current calendar quarter. The maximum leverage 
payout ratio is based on the covered BHC's leverage buffer, calculated 
as of the last day of the previous calendar quarter, as set forth in 
Table 2.
    (vi) Maximum leverage payout amount. A covered BHC's maximum 
leverage payout amount for the current calendar quarter is equal to the 
covered BHC's eligible retained income, multiplied by the applicable 
maximum leverage payout ratio, as set forth in Table 2.
    (3) [Reserved]
    (4) Limits on distributions and discretionary bonus payments.
    (i) [Reserved]
    (ii) A Board-regulated institution that has a capital conservation 
buffer that is greater than 2.5 percent plus 100 percent of its 
applicable countercyclical capital buffer, in accordance with paragraph 
(b) of this section, and, if applicable, that has a leverage buffer 
that is greater than 2.0 percent, in accordance with paragraph (c) of 
this section, is not subject to a maximum leverage payout amount under 
this section.
    (iii) Negative eligible retained income. Except as provided in 
paragraph (a)(4)(iv) of this section, a Board-regulated institution may 
not make distributions or discretionary bonus payments during the 
current calendar quarter if the Board-regulated institution's:
    (A) Eligible retained income is negative; and
    (B) Capital conservation buffer was less than 2.5 percent, or, if 
applicable, leverage buffer was less than 2.0 percent, as of the end of 
the previous calendar quarter.
    (iv) [Reserved]
    (v) [Reserved]
    (b) [Reserved]
    (c) Leverage buffer. (1) General. A covered BHC is subject to the 
lower of

[[Page 51115]]

the maximum payout amount as determined under paragraph (a)(2)(ii) of 
this section and the maximum leverage payout amount as determined under 
paragraph (a)(2)(vi) of this section.
    (2) Composition of the leverage buffer. The leverage buffer is 
composed solely of tier 1 capital.
    (3) Calculation of leverage buffer. (i) A covered BHC's leverage 
buffer is equal to the covered BHC's supplementary leverage ratio minus 
3 percent, calculated as of the last day of the previous calendar 
quarter based on the covered BHC's most recent Consolidated Financial 
Statement for Bank Holding Companies (FR Y-9C).
    (ii) Notwithstanding paragraph (c)(3)(i) of this section, if the 
covered BHC's supplementary leverage ratio is less than or equal to 3 
percent, the covered BHC's leverage buffer is zero.

 Table 2 to Sec.   217.11--Calculation of Maximum Leverage Payout Amount
------------------------------------------------------------------------
                                    Maximum leverage payout ratio  (as a
         Leverage buffer              percentage of eligible retained
                                                  income)
------------------------------------------------------------------------
Greater than 2.0 percent.........  No payout ratio limitation applies.
Less than or equal to 2.0          60 percent.
 percent, and greater than 1.5
 percent.
Less than or equal to 1.5          40 percent.
 percent, and greater than 1.0
 percent.
Less than or equal to 1.0          20 percent.
 percent, and greater than 0.5
 percent.
Less than or equal to 0.5 percent  0 percent.
------------------------------------------------------------------------

Federal Deposit Insurance Corporation

12 CFR chapter III

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation proposes to add part 324 of chapter III of Title 
12, Code of Federal Regulations to read as follows:

PART 324--CAPITAL ADEQUACY

Sec.
Subparts A-G [Reserved]
Subpart H--Prompt Corrective Action
324.403 Capital measures and capital category definitions.

    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, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 
105 Stat. 2236, 2355, 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); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).

Subparts A-G [Reserved]

Subpart H--Prompt Corrective Action


Sec.  324.403  Capital measures and capital category definitions.

    (a) [Reserved]
    (b) Capital categories. For purposes of section 38 of the FDI Act 
and this subpart, an FDIC-supervised institution shall be deemed to be:
    (1) ``Well capitalized'' if it:
    (i) [Reserved]
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) [Reserved]
    (v) Beginning on January 1, 2018 and thereafter, an FDIC-supervised 
institution that is a subsidiary of a covered BHC will be deemed to be 
``well capitalized'' if the FDIC-supervised institution satisfies 
paragraphs (b)(1)(i)-(iv) of this paragraph and has a supplementary 
leverage ratio of 6.0 percent or greater. For purposes of this 
paragraph, a covered BHC means a U.S. top-tier bank holding company 
with more than $700 billion in total assets as reported on the 
company's most recent Consolidated Financial Statement for Bank Holding 
Companies (FR Y-9C) or more than $10 trillion in assets under custody 
as reported on the company's most recent Banking Organization Systemic 
Risk Report (FR Y-15); and
    (vi) [Reserved]
    (2) [Reserved]

    Dated: July 9, 2013.
Thomas J. Curry,
Comptroller of the Currency.


    By order of the Board of Governors of the Federal Reserve 
System, July 8, 2013.
Robert deV. Frierson,
Secretary of the Board.

    Dated at Washington, DC, this 9th day of July, 2013.

By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2013-20143 Filed 8-19-13; 8:45 am]
BILLING CODE P