Annual Company-Run Stress Tests at Banking Organizations With Total Consolidated Assets of More Than $10 Billion But Less Than $50 Billion; One-Year Transition Period to Revised Regulatory Capital Framework for 2013-2014 Stress Test Cycle, 59791-59798 [2013-23619]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 78, Number 189 (Monday, September 30, 2013)]
[Rules and Regulations]
[Pages 59791-59798]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-23619]


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FEDERAL RESERVE SYSTEM

12 CFR Part 252

[Docket No. R-1464; RIN 7100 AE 02]


Annual Company-Run Stress Tests at Banking Organizations With 
Total Consolidated Assets of More Than $10 Billion But Less Than $50 
Billion; One-Year Transition Period to Revised Regulatory Capital 
Framework for 2013-2014 Stress Test Cycle

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Interim final rule with request for comment.

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SUMMARY: The Board invites comment on an interim final rule that 
provides a one-year transition period during which bank holding 
companies and most state member banks with more than $10 billion but 
less than $50 billion in total consolidated assets would not be 
required to reflect the revised regulatory capital framework that the 
Board approved on July 2, 2013 (revised capital framework) in their 
stress tests for the stress test cycle that begins October 1, 2013. For 
this stress test cycle, these companies will be required to estimate 
their pro forma capital levels and ratios over the full nine-quarter 
planning horizon using the Board's current regulatory capital rules. 
The interim final rule also clarifies when a banking organization would 
estimate its minimum regulatory capital ratios using

[[Page 59792]]

the advanced approaches for a given stress test cycle.

DATES: This rule is effective on September 30, 2013. Comments must be 
received on or before November 25, 2013.

ADDRESSES: You may submit comments, identified by Docket No.R-1464 and 
RIN No. 7100 AE-02, 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 Rulemaking 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.
    Facsimile: (202) 452-3819 or (202) 452-3102.
    Mail: Robert deV. 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 
Streets, NW.) between 9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Deputy Associate Director, 
(202) 263-4833, Constance Horsley, Manager, (202) 452-5239, David 
Palmer, Senior Supervisory Financial Analyst, (202) 452-2904; Joseph 
Cox, Financial Analyst, (202) 452-3216; or Keith Coughlin, Manager, 
(202) 452-2056, Division of Banking Supervision and Regulation; Laurie 
Schaffer, Associate General Counsel, (202) 452-2272, Benjamin W. 
McDonough, Senior Counsel, (202) 452-2036, or Christine Graham, Senior 
Attorney, (202) 452-3005, Legal Division, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) 
only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION: On July 2, 2013, the Board approved revised 
risk-based and leverage capital requirements for banking organizations 
that implement the Basel III regulatory capital reforms and certain 
changes required by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (revised capital framework).\1\ The revised capital 
framework introduces a new common equity tier 1 capital ratio and 
supplementary leverage ratio, raises the minimum tier 1 ratio and, for 
certain banking organizations, leverage ratio, implements strict 
eligibility criteria for regulatory capital instruments, and introduces 
a standardized methodology for calculating risk-weighted assets. The 
new minimum regulatory capital ratios and the eligibility criteria for 
regulatory capital instruments will begin to take effect as of January 
1, 2014, subject to transition provisions, for banking organizations 
that meet the criteria for the advanced approaches rule (advanced 
approaches banking organizations).\2\ All other banking organizations 
must begin to comply with the revised capital framework beginning on 
January 1, 2015.
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    \1\ See Regulatory Capital Rules: Regulatory Capital, 
Implementation of Basel III, Capital Adequacy, Transition 
Provisions, Prompt Corrective Action, Standardized Approach for 
Risk-weighted Assets, Market Discipline and Disclosure Requirements, 
Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital 
Rule (July 2, 2013), available at: https://www.federalreserve.gov/newsevents/press/bcreg/20130702a.htm (Revised capital framework).
    \2\ A banking organization is subject to the advanced approaches 
rule if it has consolidated assets greater than or equal to $250 
billion, if it has total consolidated on-balance sheet foreign 
exposures of at least $10 billion, or if it elects to apply the 
advanced approaches rule.
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    As the revised capital framework comes into effect, banking 
organizations will be required to reflect the new capital rules in 
their company-run stress tests conducted under the Board's rules 
implementing the stress tests established by the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (stress tests rules).\3\
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    \3\ See 77 FR 62378 (October 12, 2012) (codified at 12 CFR part, 
252 subpart H) (stress test rule).
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I. Description of Interim Final Rule

A. Transition Period for Revised Capital Framework

    Under the Board's stress test rules, each bank holding company with 
more than $10 billion and less than $50 billion total consolidated 
assets and each state member bank with more than $10 billion in total 
consolidated assets must conduct a company-run stress test to estimate 
the potential impact of three scenarios provided by the Board on its 
regulatory capital ratios.\4\ In addition, each of these companies is 
required to disclose a summary of the results of its company-run stress 
tests within 90 days of submitting the results to the Board.
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    \4\ Savings and loan holding companies with more than $10 
billion in total consolidated assets are also subject to the stress 
test rules; however, savings and loan holding companies are not 
subject to stress tests in this coming stress test cycle and thus 
have been omitted from the discussion in this interim final rule. In 
addition to the rule described above requiring annual company-run 
stress tests, in October of 2012 the Board also issued stress 
testing rules that apply to bank holding companies with $50 billion 
or more in total consolidated assets and any non-bank financial 
companies designated for supervision by the Board. Those rules set 
out the process for an annual supervisory stress test by the Federal 
Reserve and the requirements for semi-annual company run stress 
tests. See 12 CFR part 225, subparts F and G.
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    In this interim final rule, the Board is providing bank holding 
companies and state member banks with total consolidated assets of more 
than $10 but less than $50 billion (other than state member banks that 
are subsidiaries of bank holding companies with total consolidated 
assets of $50 billion or more) with a one-year transition period to 
incorporate the revised capital framework into their company-run stress 
tests. In the stress test cycle that begins on October 1, 2013, these 
companies will estimate their pro forma capital levels and ratios over 
the planning horizon using the capital rules in effect as of the 
beginning of the stress test cycle beginning on October 1, 2013, and 
will not reflect the impact of the revised capital framework in their 
company-run stress tests. In particular, for this stress test cycle, 
such a company will not calculate common equity tier 1 capital as 
defined in the revised capital framework or incorporate the effects of 
any changes to the definition of capital, any new or additional 
deductions from capital, or any changes to the calculation of risk-
weighted assets.
    The interim final rule does not provide the one-year transition 
period for state member banks that are subsidiaries of bank holding 
companies with total consolidated assets of $50 billion or more. 
Consistent with the stress test rules applicable to their bank holding 
company parents, these state member banks must project their regulatory 
capital ratios for each quarter of the planning horizon in accordance 
with the minimum capital requirements that will be in effect during 
that quarter. The Board is concurrently issuing an interim final rule 
clarifying this treatment for bank holding companies with total 
consolidated assets of $50 billion or more and nonbank financial 
companies supervised by the Board.
    The Board is issuing this interim final rule to tailor the 
application of the stress test rules for bank holding companies and 
state member banks with total consolidated assets of more than $10 but 
less than $50 billion (other than state member banks that are 
subsidiaries of bank holding companies with total

[[Page 59793]]

consolidated assets of $50 billion or more). The Board believes that 
requiring these companies to reflect the impact of the revised capital 
framework during the planning horizon of the stress test cycle 
beginning October 1, 2013, and to model alternative capital 
calculations in the middle of planning horizon, would add operational 
complexity and increase the likelihood of erroneous calculations or 
assumptions without a sufficient corresponding benefit. The complexity 
and increased risk of error could interfere with the ability of a these 
company to conduct company-run stress tests that capture material risks 
to the company and provide a meaningful forward-looking assessment of 
its capital adequacy without providing a corresponding near-term 
benefit.
    In its stress test rules, the Board tailored the application of the 
stress test rules for companies with total consolidated assets of more 
than $10 but less than $50 billion in recognition of the fact that 
those companies are generally less complex and pose more limited risk 
to U.S. financial stability than larger banking organizations. 
Specifically, the stress test rule provided virtually all companies 
with total consolidated assets of more than $10 but less than $50 
billion in 2012 with an additional year to begin conducting stress 
tests, provided a longer period of time for these companies to conduct 
their stress test each year, and does not require these billion 
companies to publicly disclose the results of the stress test conducted 
in the stress test cycle beginning October 1, 2013. In the preamble of 
the stress test rule, the Board stated that it expected to further 
tailor its approach for companies with total consolidated assets of 
more than $10 but less than $50 billion during implementation of the 
stress test rules. For example, the Board's regulatory reports that 
these companies use in reporting the results of their company-run 
stress tests (FR Y-16),\5\ which are being finalized at this time, are 
shorter and simpler than the corresponding regulatory report, the FR Y-
14 report, that is applicable to bank holding companies with $50 
billion or more in total consolidated assets.\6\
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    \5\ See 78 FR 16502 (March 15, 2013).
    \6\ In addition, in July 2013, the Board, jointly with the OCC 
and the Federal Deposit Insurance Corporation (FDIC), issued 
proposed supervisory guidance for companies the agencies supervise 
with between $10 and $50 billion in assets that builds upon the 
tailoring in the stress testing rule by further clarifying minimum 
expectations for company-run stress test practices and providing 
examples of satisfactory practices. See 78 FR 18716 (August 5, 
2013).
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    The OCC and FDIC both plan to implement the Dodd-Frank Act stress 
testing requirements for the stress test cycle beginning October 1, 
2013, in a similar manner for banks and savings associations under 
their supervision with between $10 and $50 billion in total 
consolidated assets.

B. Parallel Run Notification Date

    In light of the issuance of the revised capital framework, the 
Board is providing clarity on when a bank holding company, savings and 
loan holding company, or state member bank would be required to 
calculate its minimum regulatory capital ratios using the advanced 
approaches for a given stress testing cycle.
    A bank holding company, savings and loan holding company, or state 
member bank that is an advanced approaches banking organization is 
required to use the advanced approaches to calculate its minimum 
regulatory capital ratios if it has conducted a satisfactory parallel 
run, which is defined as a period of no less than four consecutive 
calendar quarters during which a banking organization complies with 
certain qualification requirements of the advanced approaches.\7\ 
Currently, all advanced approaches banking organizations are in 
parallel run, but it is possible that firms could complete a 
satisfactory parallel run in the near term and, as a result, be 
required to calculate their regulatory capital ratios using the 
advanced approaches. Under the current stress test rule, such a firm 
arguably would be required to estimate its capital ratios over the 
planning horizon using the advanced approaches if the firm is notified 
any time before January 5, which is the date on which a banking 
organization must submit its stress test results to the Board.
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    \7\ 12 CFR Part 225, Appendix G, section 21(c).
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    In order to provide sufficient notice to an advanced approaches 
banking organization so that it could calculate its regulatory capital 
ratios based on the advanced approaches in a given stress test cycle, 
the interim final rule provides that a bank holding company, savings 
and loan holding company, or state member bank must be notified that it 
has completed its parallel run by September 30 of a given year in order 
to be required to estimate its capital ratios using the advanced 
approaches for the stress test cycle that begins on October 1 of that 
year.

 II. Effective Date; Solicitation of Comments

    This interim final rule is effective October 1, 2013. Pursuant to 
the Administrative Procedure Act (APA), at 5 U.S.C. 553(b)(B), notice 
and comment are not required prior to the issuance of a final rule if 
an agency, for good cause, finds that ``notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest.'' \8\ Similarly, a final rule may be published with an 
immediate effective date if an agency finds good cause and publishes 
such with the final rule.\9\
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    \8\ 5 U.S.C. 553(b)(B).
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    Consistent with section 553(b)(B) of the APA, the Board finds that 
issuing this rule as an interim final rule is necessary to clarify the 
process for bank holding companies and state member banks with total 
consolidated assets of more than $10 but less than $50 billion 
conducting Dodd-Frank Act stress tests in the stress test cycle that 
begins on the effective date of the interim final rule. Obtaining 
notice and comment prior to issuing the interim final rule would be 
impracticable and contrary to the public interest. Furthermore, the 
Board finds that there is good cause to publish the interim final rule 
with an immediate effective date.
    The approval by the Board of the revised capital framework in July 
prompted a need to clarify how companies should incorporate the revised 
capital framework into conducting their first Dodd-Frank Act company-
run stress test. Requiring bank holding companies and state member 
banks with total consolidated assets of more than $10 but less than $50 
billion (other than state member banks that are subsidiaries of bank 
holding companies with total consolidated assets of $50 billion or 
more) to reflect the impact of the revised capital framework during the 
planning horizon of the stress test cycle beginning October 1, 2013, 
and model alternative capital calculations in the middle of the 
planning horizon, would add operational complexity and increase the 
likelihood of erroneous calculations or assumptions without a 
sufficient corresponding benefit. This complexity and increased risk of 
error may interfere with the ability of a company to conduct company-
run stress tests that capture salient material risks to the company and 
provide a meaningful forward-looking assessment of its capital 
adequacy.
    Moreover, the interim final rule should not impose any incremental 
burden on these firms. The interim final rule relieves burden on these 
companies by clarifying the process for their upcoming company-run 
stress tests and allowing them additional time to build systems and 
processes necessary to effectively implement the requirements of the 
revised capital framework.

[[Page 59794]]

    Although notice and comment are not required prior to the effective 
date of this interim final rule, the Board invites comment on all 
aspects of this rulemaking and will revise this interim final rule if 
necessary or appropriate in light of the comments received. The Board 
is interested in receiving comments on all aspects of the interim final 
rule. In particular, are there any areas where the Board should further 
clarify the process for incorporating accounting and regulatory changes 
into a company's Dodd-Frank Act stress tests?

III. Regulatory Analysis

A. Regulatory Flexibility Act Analysis

    The Board has considered the potential impact of the interim final 
rule on small companies in accordance with the Regulatory Flexibility 
Act (5 U.S.C. 603(b)). Based on its analysis and for the reasons stated 
below, the Board believes that the interim final rule will not have a 
significant economic impact on a substantial number of small entities. 
Nevertheless, the Board is publishing a regulatory flexibility 
analysis.
    For the reason discussed in the Supplementary Information above, 
the Board is issuing this interim final rule to clarify the 
requirements for certain companies required to conduct Dodd-Frank Act 
company run stress tests in the stress test cycle commencing on October 
1, 2013. Under regulations issued by the Small Business Administration 
(``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). The interim 
final rule would apply to state member banks, bank holding companies, 
and savings and loan holding companies with more than $10 billion but 
less than $50 billion in total consolidated assets. Companies that 
would be subject to the interim finale rule therefore substantially 
exceed the $500 million total asset threshold at which a company is 
considered a small company under SBA regulations. In light of the 
foregoing, the Board does not believe that the interim final rule would 
have a significant economic impact on a substantial number of small 
entities.

B. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act required the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The Board invites comment on how to 
make this interim final rule easier to understand. For example:
     Has the Board organized the material to suit your needs? 
If not, how could the rule be more clearly stated?
     Are the requirements in the rule clearly stated? If not, 
how could the rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would make the regulation easier to 
understand?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What else could the Board do to make the regulation easier 
to understand?

C. Paperwork Reduction Act

Request for Comment on Proposed Information Collection
    This interim final rule references currently approved collections 
of information under the Paperwork Reduction Act (44 U.S.C. 3501-3520) 
provided for in the DFA stress test rules. This interim final rule does 
not introduce any new collections of information nor does it 
substantively modify the collections of information that Office of 
Management and Budget (OMB) has approved. Therefore, no Paperwork 
Reduction Act submissions to OMB are required.

List of Subjects in 12 CFR Part 252

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

Authority and Issuance

    For the reasons stated in the Supplementary Information, the Board 
of Governors of the Federal Reserve System amends 12 CFR chapter II as 
follows:

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY).

0
1. The authority citation for part 252 continues to read as follows:

    Authority:  12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1, 
1844(b), 1844(c), 5361, 5365, 5366.


0
2. Subpart H to part 252 is revised to read as follows:

Subpart H--Company-Run Stress Test Requirements for Banking 
Organizations With Total Consolidated Assets Over $10 Billion That 
Are Not Covered Companies

Sec.
252.151 Authority and purpose.
252.152 Definitions.
252.153 Applicability.
252.154 Annual stress test.
252.155 Methodologies and practices.
252.156 Reports of stress test results.
252.157 Disclosure of stress test results.


Sec.  252.151  Authority and purpose.

    (a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831o, 1831p-1, 
1844(b), 1844(c), 3906-3909, 5365.
    (b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a bank holding company 
with total consolidated assets of greater than $10 billion but less 
than $50 billion and savings and loan holding companies and state 
member banks with total consolidated assets of greater than $10 billion 
to conduct annual stress tests. This subpart also establishes 
definitions of stress test and related terms, methodologies for 
conducting stress tests, and reporting and disclosure requirements.


Sec.  252.152  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Advanced approaches means the regulatory capital requirements 
at 12 CFR part 225, appendix G, and 12 CFR part 217, subpart E, as 
applicable, and any successor regulation.
    (b) Adverse scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a bank holding company, savings 
and loan holding company, or state member bank that are more adverse 
than those associated with the baseline scenario and may include 
trading or other additional components.
    (c) Asset threshold means--
    (1) For a bank holding company, average total consolidated assets 
of greater than $10 billion but less than $50 billion, and
    (2) For a savings and loan holding company or state member bank, 
average total consolidated assets of greater than $10 billion.
    (d) Average total consolidated assets means the average of the 
total consolidated assets as reported by a bank holding company, 
savings and loan holding company, or state member bank on its 
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) 
or Consolidated Report of Condition and Income (Call Report), as

[[Page 59795]]

applicable, for the four most recent consecutive quarters. If the bank 
holding company, savings and loan holding company, or state member bank 
has not filed the FR Y-9C or Call Report, as applicable, for each of 
the four most recent consecutive quarters, average total consolidated 
assets means the average of the company's total consolidated assets, as 
reported on the company's FR Y-9C or Call Report, as applicable, for 
the most recent quarter or consecutive quarters. Average total 
consolidated assets are measured on the as-of date of the most recent 
FR Y-9C or Call Report, as applicable, used in the calculation of the 
average.
    (e) Bank holding company has the same meaning as in section 
225.2(c) of the Board's Regulation Y (12 CFR 225.2(c)).
    (f) Baseline scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a bank holding company, 
savings and loan holding company, or state member bank, and that 
reflect the consensus views of the economic and financial outlook.
    (g) Capital action has the same meaning as in section 225.8(c)(2) 
of the Board's Regulation Y (12 CFR 225.8(c)(2)).
    (h) Covered company subsidiary means a state member bank that is a 
subsidiary of a covered company as defined in subpart F of this part.
    (i) Depository institution has the same meaning as in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
    (j) Foreign banking organization has the same meaning as in section 
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
    (k) Planning horizon means the period of at least nine quarters, 
beginning on the first day of a stress test cycle (on October 1) over 
which the relevant projections extend.
    (l) Pre-provision net revenue means the sum of net interest income 
and non-interest income less expenses before adjusting for loss 
provisions.
    (m) Provision for loan and lease losses means the provision for 
loan and lease losses as reported by the bank holding company, savings 
and loan holding company, or state member bank on the FR Y-9C or Call 
Report, as appropriate.
    (n) Regulatory capital ratio means a capital ratio for which the 
Board established minimum requirements for the company by regulation or 
order, including, as applicable, a company's tier 1 and supplementary 
leverage ratio and common equity tier 1, tier 1, and total risk-based 
capital ratios as calculated under the Board's regulations, including 
appendices A, D, E, and G to 12 CFR part 225 and appendices A, B, E, 
and F to 12 CFR part 208 and 12 CFR part 217, as applicable, including 
the transition provisions at 12 CFR 217.1(f)(4) and 12 CFR 217.300, or 
any successor regulation. For state member banks other than covered 
company subsidiaries and for all bank holding companies, for the stress 
test cycle that commences on October 1, 2013, regulatory capital ratios 
must be calculated pursuant to the regulatory capital framework set 
forth in 12 CFR part 225, appendix A, and not the regulatory capital 
framework set forth in 12 CFR part 217.
    (o) Savings and loan holding company has the same meaning as in 
Sec.  238.2(m) of the Board's Regulation LL (12 CFR 238.2(m)).
    (p) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a bank holding company, savings 
and loan holding company, or state member bank that the Board annually 
determines are appropriate for use in the company-run stress tests, 
including, but not limited to, baseline, adverse, and severely adverse 
scenarios.
    (q) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a bank holding company, 
savings and loan holding company, or state member bank and that overall 
are more severe than those associated with the adverse scenario and may 
include trading or other additional components.
    (r) State member bank has the same meaning as in Sec.  208.2(g) of 
the Board's Regulation H (12 CFR 208.2(g)).
    (s) Stress test means a process to assess the potential impact of 
scenarios on the consolidated earnings, losses, and capital of a bank 
holding company, savings and loan holding company, or state member bank 
over the planning horizon, taking into account the current condition, 
risks, exposures, strategies, and activities.
    (t) Stress test cycle means the period between October 1 of a 
calendar year and September 30 of the following calendar year.
    (u) Subsidiary has the same meaning as in Sec.  225.2(o) the 
Board's Regulation Y (12 CFR 225.2(o)).


Sec.  252.153  Applicability.

    (a) Compliance date for bank holding companies and state member 
banks that meet the asset threshold on or before December 31, 2012--(1) 
Bank holding companies--(i) In general. Except as provided in paragraph 
(a)(1)(ii) of this section, a bank holding company that meets the asset 
threshold on or before December 31, 2012, must comply with the 
requirements of this subpart beginning with the stress test cycle that 
commences on October 1, 2013, unless that time is extended by the Board 
in writing.\10\
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    \10\ See Sec.  252.152(m).
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    (ii) SR Letter 01-01. A U.S.-domiciled bank holding company that is 
a subsidiary of a foreign banking organization that is currently 
relying on Supervision and Regulation Letter SR 01-01 issued by the 
Board (as in effect on May 19, 2010) must comply with the requirements 
of this subpart beginning with the stress test cycle that commences on 
October 1, 2015, unless that time is extended by the Board in writing.
    (2) State member banks. (i) A state member bank that meets the 
asset threshold as of November 15, 2012, and is a subsidiary of a bank 
holding company that participated in the 2009 Supervisory Capital 
Assessment Program, or a successor to such bank holding company, must 
comply with the requirements of this subpart beginning with the stress 
test cycle that commences on November 15, 2012, unless that time is 
extended by the Board in writing.
    (ii) A state member bank that meets the asset threshold on or 
before December 31, 2012, and is not described in paragraph (a)(2)(i) 
of this section must comply with the requirements of this subpart 
beginning with the stress test cycle that commences on October 1, 2013, 
unless that time is extended by the Board in writing.\11\
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    \11\ See Sec.  252.152(m).
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    (b) Compliance date for bank holding companies and state member 
banks that meet the asset threshold after December 31, 2012. A bank 
holding company or state member bank that meets the asset threshold 
after December 31, 2012, must comply with the requirements of this 
subpart beginning with the stress test cycle that commences in the 
calendar year after the year in which the company meets the asset 
threshold, unless that time is extended by the Board in writing.
    (c) Compliance date for savings and loan holding companies. (1) A 
savings and loan holding company that meets the asset threshold on or 
before the date on which it is subject to minimum regulatory capital 
requirements must comply with the requirements of this subpart 
beginning with the stress test cycle that commences in the calendar 
year after the year in which the company becomes subject to the Board's 
minimum regulatory capital

[[Page 59796]]

requirements, unless the Board accelerates or extends the compliance 
date.
    (2) A savings and loan holding company that meets the asset 
threshold after the date on which it is subject to minimum regulatory 
capital requirements must comply with the requirements of this subpart 
beginning with the stress test cycle that commences in the calendar 
year after the year in which the company becomes subject to the Board's 
minimum regulatory capital requirements, unless that time is extended 
by the Board in writing.
    (d) Ongoing application. A bank holding company, savings and loan 
holding company, or state member bank that meets the asset threshold 
will remain subject to the requirements of this subpart unless and 
until its total consolidated assets fall below $10 billion for each of 
four consecutive quarters, as reported on the FR Y-9C or Call Report, 
as applicable. The calculation will be effective on the as-of date of 
the fourth consecutive FR Y-9C or Call Report, as applicable.
    (e) Interaction with 12 CFR part 252, subpart G. Notwithstanding 
paragraph (d) of this section, a bank holding company or savings and 
loan holding company that becomes a covered company as defined in 
subpart G of this part and conducts a stress test pursuant to that 
subpart is not subject to the requirements of this subpart.
    (f) Advanced approaches. Notwithstanding any other requirement in 
this section, for a given stress test cycle, a bank holding company, 
savings and loan holding company, or state member bank's estimates of 
its pro forma regulatory capital ratios over the planning horizon shall 
not include estimates using the advanced approaches if the company is 
notified on or after the first day of that stress test cycle that it is 
required to calculate its risk-based capital requirements using the 
advanced approaches.


Sec.  252.154  Annual stress test.

    (a) General requirements--(1) Savings and loan holding companies 
with average total consolidated assets of $50 billion or more and state 
member banks that are covered company subsidiaries. A savings and loan 
holding company with average total consolidated assets of $50 billion 
or more or a state member bank that is a covered company subsidiary or 
must conduct a stress test by January 5 of each calendar year based on 
data as of September 30 of the preceding calendar year, unless the time 
or the as-of date is extended by the Board in writing.
    (2) Bank holding companies, savings and loan holding companies with 
total consolidated assets of less than $50 billion, and state member 
banks that are not covered company subsidiaries. Except as provided in 
paragraph (a)(1), a bank holding company, savings and loan holding 
company, or state member bank must conduct a stress test by March 31 of 
each calendar year using financial statement data as of September 30 of 
the preceding calendar year, unless the time or the as-of date is 
extended by the Board in writing.
    (b) Scenarios provided by the Board. (1) In general. In conducting 
a stress test under this section, a bank holding company, savings and 
loan holding company, or state member bank must use the scenarios 
provided by the Board. Except as provided in paragraphs (b)(2) and (3) 
of this section, the Board will provide a description of the scenarios 
to each bank holding company, savings and loan holding company, or 
state member bank no later than November 15 of that calendar year.
    (2) Additional components. (i) The Board may require a bank holding 
company, savings and loan holding company, or state member bank with 
significant trading activity, as determined by the Board and specified 
in the Capital Assessments and Stress Testing report (FR Y-14), to 
include a trading and counterparty component in its adverse and 
severely adverse scenarios in the stress test required by this section. 
The Board may also require a state member bank that is subject to 12 
CFR part 208, appendix E and that is a subsidiary of a bank holding 
company subject to this Sec.  252.154(b)(2)(i) or 12 CFR 
252.144(b)(2)(i) to include a trading and counterparty component in the 
state member bank's adverse and severely adverse scenarios in the 
stress test required by this section. The data used in this component 
will be as of a date between October 1 and December 1 of that calendar 
year selected by the Board, and the Board will communicate the as-of 
date and a description of the component to the company no later than 
December 1 of the calendar year.
    (ii) The Board may require a bank holding company, savings and loan 
holding company, or state member bank to include one or more additional 
components in its adverse and severely adverse scenarios in the stress 
test required by this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
    (3) Additional scenarios. The Board may require a bank holding 
company, savings and loan holding company, or state member bank to 
include one or more additional scenarios in the stress test required by 
this section based on the company's financial condition, size, 
complexity, risk profile, scope of operations, or activities, or risks 
to the U.S. economy.
    (4) Notice and response. If the Board requires a bank holding 
company, savings and loan holding company, or state member bank to 
include one or more additional components in its adverse and severely 
adverse scenarios under paragraph (b)(2)(ii) of this section or to use 
one or more additional scenarios under paragraph (b)(3) of this 
section, the Board will notify the company in writing no later than 
September 30. The notification will include a general description of 
the additional component(s) or additional scenario(s) and the basis for 
requiring the company to include the additional component(s) or 
additional scenario(s). Within 14 calendar days of receipt of a 
notification under this paragraph, the bank holding company, savings 
and loan holding company, or state member bank may request in writing 
that the Board reconsider the requirement that the company include the 
additional component(s) or additional scenario(s), including an 
explanation as to why the reconsideration should be granted. The Board 
will respond in writing within 14 calendar days of receipt of the 
company's request. The Board will provide the bank holding company, 
savings and loan holding company, or state member bank with a 
description of any additional component(s) or additional scenario(s) by 
December 1.


Sec.  252.155  Methodologies and practices.

    (a) Potential impact on capital. In conducting a stress test under 
Sec.  252.154, for each quarter of the planning horizon, a bank holding 
company, savings and loan holding company, or state member bank must 
estimate the following for each scenario required to be used:
    (1) Losses, pre-provision net revenue, provision for loan and lease 
losses, and net income; and
    (2) The potential impact on pro forma regulatory capital levels and 
pro forma capital ratios (including regulatory capital ratios and any 
other capital ratios specified by the Board), incorporating the effects 
of any capital actions over the planning horizon and maintenance of an 
allowance for loan losses appropriate for credit exposures throughout 
the planning horizon.
    (b) Assumptions regarding capital actions. In conducting a stress 
test under Sec.  252.154 of this part, a bank holding company or 
savings and loan

[[Page 59797]]

holding company is required to make the following assumptions regarding 
its capital actions over the planning horizon--
    (A) For the first quarter of the planning horizon, the bank holding 
company or savings and loan holding company must take into account its 
actual capital actions as of the end of that quarter; and
    (B) For each of the second through ninth quarters of the planning 
horizon, the bank holding company or savings and loan holding company 
must include in the projections of capital--
    (i) Common stock dividends equal to the quarterly average dollar 
amount of common stock dividends that the company paid in the previous 
year (that is, the first quarter of the planning horizon and the 
preceding three calendar quarters);
    (ii) Payments on any other instrument that is eligible for 
inclusion in the numerator of a regulatory capital ratio equal to the 
stated dividend, interest, or principal due on such instrument during 
the quarter; and
    (iii) An assumption of no redemption or repurchase of any capital 
instrument that is eligible for inclusion in the numerator of a 
regulatory capital ratio.
    (c) Controls and oversight of stress testing processes--(1) In 
general. The senior management of a bank holding company, savings and 
loan holding company, or state member bank must establish and maintain 
a system of controls, oversight, and documentation, including policies 
and procedures, that are designed to ensure that its stress testing 
processes are effective in meeting the requirements in this subpart. 
These policies and procedures must, at a minimum, describe the 
company's stress testing practices and methodologies, and processes for 
validating and updating the company's stress test practices and 
methodologies consistent with applicable laws, regulations, and 
supervisory guidance.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a bank holding company, savings and loan 
holding company, or state member bank must approve and review the 
policies and procedures of the stress testing processes as frequently 
as economic conditions or the condition of the company may warrant, but 
no less than annually. The board of directors and senior management of 
the bank holding company, savings and loan holding company, or state 
member bank must receive a summary of the results of the stress test 
conducted under this section.
    (3) Role of stress testing results. The board of directors and 
senior management of a bank holding company, savings and loan holding 
company, or state member bank must consider the results of the stress 
test in the normal course of business, including but not limited to, 
the banking organization's capital planning, assessment of capital 
adequacy, and risk management practices.


Sec.  252.156  Reports of stress test results.

    (a) Reports to the Board of stress test results--(1) Savings and 
loan holding companies with average total consolidated assets of $50 
billion or more and state member banks that are covered company 
subsidiaries. A savings and loan holding company with average total 
consolidated assets of $50 billion or more or a state member bank that 
is a covered company subsidiary must report the results of the stress 
test to the Board by January 5 of each calendar year in the manner and 
form prescribed by the Board, unless that time is extended by the Board 
in writing.
    (2) Bank holding companies, savings and loan holding companies, and 
state member banks. Except as provided in paragraph (a)(1) of this 
section, a bank holding company, savings and loan holding company, or 
state member bank must report the results of the stress test to the 
Board by March 31 of each calendar year in the manner and form 
prescribed by the Board, unless that time is extended by the Board in 
writing.
    (b) Contents of reports. The report required under paragraph (a) of 
this section must include, under the baseline scenario, adverse 
scenario, severely adverse scenario, and any other scenario required 
under Sec.  252.154(b)(3) of this part, a description of the types of 
risks being included in the stress test; a summary description of the 
methodologies used in the stress test; and, for each quarter of the 
planning horizon, estimates of aggregate losses, pre-provision net 
revenue, provision for loan and lease losses, net income, and 
regulatory capital ratios. In addition, the report must include an 
explanation of the most significant causes for the changes in 
regulatory capital ratios and any other information required by the 
Board. This paragraph will remain applicable until such time as the 
Board issues a reporting form to collect the results of the stress test 
required under Sec.  252.154 of this part.
    (c) Confidential treatment of information submitted. The 
confidentiality of information submitted to the Board under this 
subpart and related materials shall be determined in accordance with 
applicable exemptions under the Freedom of Information Act (5 U.S.C. 
552(b)) and the Board's Rules Regarding Availability of Information (12 
CFR part 261).


Sec.  252.157  Disclosure of stress test results.

    (a) Public disclosure of results--(1) In general. (i) Except as 
provided in paragraph (a)(1)(ii) or (b)(2) of this section, a bank 
holding company, savings and loan holding company, or state member bank 
must disclose a summary of the results of the stress test in the period 
beginning on June 15 and ending on June 30 unless that time is extended 
by the Board in writing.
    (ii) Except as provided in paragraph (b)(2) of this section, a 
state member bank that is a covered company subsidiary or a savings and 
loan holding company with average total consolidated assets of $50 
billion or more must disclose a summary of the results of the stress 
test in the period beginning on March 15 and ending on March 31, unless 
that time is extended by the Board in writing.
    (2) Initial disclosure. A bank holding company, savings and loan 
holding company, or state member bank that has total consolidated 
assets of less than $50 billion on or before December 31, 2012, must 
comply with the requirements of this section beginning with the stress 
test cycle commencing on October 1, 2014.
    (3) Disclosure method. The summary required under this section may 
be disclosed on the Web site of a bank holding company, savings and 
loan holding company, or state member bank, or in any other forum that 
is reasonably accessible to the public.
    (b) Summary of results--(1) Bank holding companies and savings and 
loan holding companies. A bank holding company or savings and loan 
holding company must disclose, at a minimum, the following information 
regarding the severely adverse scenario:
    (i) A description of the types of risks included in the stress 
test;
    (ii) A summary description of the methodologies used in the stress 
test;
    (iii) Estimates of--
    (A) Aggregate losses;
    (B) Pre-provision net revenue;
    (C) Provision for loan and lease losses;
    (D) Net income; and
    (E) Pro forma regulatory capital ratios and any other capital 
ratios specified by the Board;
    (iv) An explanation of the most significant causes for the changes 
in regulatory capital ratios; and
    (v) With respect to a stress test conducted by an insured 
depository institution subsidiary of the bank holding company or 
savings and loan

[[Page 59798]]

holding company pursuant to section 165(i)(2) of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act, changes in regulatory 
capital ratios and any other capital ratios specified by the Board of 
the depository institution subsidiary over the planning horizon, 
including an explanation of the most significant causes for the changes 
in regulatory capital ratios.
    (2) State member banks that are subsidiaries of bank holding 
companies. A state member bank that is a subsidiary of a bank holding 
company will satisfy the public disclosure requirements under section 
165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act when the bank holding company publicly discloses summary results of 
its stress test pursuant to this section or section 252.148 of this 
part, unless the Board determines that the disclosures at the holding 
company level do not adequately capture the potential impact of the 
scenarios on the capital of the state member bank. In this case, the 
state member bank must make the same disclosure as required by 
paragraph (b)(3) of this section.
    (3) State member banks that are not subsidiaries of bank holding 
companies. A state member bank that is not a subsidiary of a bank 
holding company must disclose, at a minimum, the following information 
regarding the severely adverse scenario:
    (i) A description of the types of risks being included in the 
stress test;
    (ii) A summary description of the methodologies used in the stress 
test;
    (iii) Estimates of--
    (A) Aggregate losses;
    (B) Pre-provision net revenue
    (C) Provision for loan and lease losses;
    (D) Net income; and
    (E) Pro forma regulatory capital ratios and any other capital 
ratios specified by the Board; and
    (iv) An explanation of the most significant causes for the changes 
in regulatory capital ratios.
    (c) Content of results. (1) The disclosure of aggregate losses, 
pre-provision net revenue, provision for loan and lease losses, and net 
income that is required under paragraph (b) of this section must be on 
a cumulative basis over the planning horizon.
    (2) The disclosure of pro forma regulatory capital ratios and any 
other capital ratios specified by the Board that is required under 
paragraph (b) of this section must include the beginning value, ending 
value and minimum value of each ratio over the planning horizon.

    By order of the Board of Governors of the Federal Reserve 
System, September 24, 2013.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2013-23619 Filed 9-27-13; 8:45 am]
BILLING CODE 6210-01-P