Application of the Revised Capital Framework to the Capital Plan and Stress Test Rules, 13498-13515 [2014-05053]
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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations
5 Women
fully breastfeeding multiple infants from the same pregnancy are prescribed 1.5 times the maximum allowances.
of single-strength and concentrated juices may be issued provided that the total volume does not exceed the maximum monthly allowance for single-strength juice.
7 WIC formula means infant formula, exempt infant formula, or WIC-eligible nutritionals.
8 Powder and ready-to-feed may be substituted at rates that provide comparable nutritive value.
9 Whole milk is the standard milk for issuance to 1-year-old children (12 through 23 months). Fat-reduced milks may be issued to 1-year-old
children as determined appropriate by the health care provider per medical documentation. Lowfat (1%) or nonfat milks are the standard milks for
issuance for children ≥ 24 months of age and women. Whole milk or reduced fat (2%) milk may be substituted for lowfat (1%) or nonfat milk for
children ≥ 24 months of age and women as determined appropriate by the health care provider per medical documentation.
10 Evaporated milk may be substituted at the rate of 16 fluid ounces of evaporated milk per 32 fluid ounces of fluid milk or a 1:2 fluid ounce
substitution ratio. Dry milk may be substituted at an equal reconstituted rate to fluid milk.
11 For children and women, cheese may be substituted for milk at the rate of 1 pound of cheese per 3 quarts of milk. For children and women
in the pregnant, partially breastfeeding and postpartum food packages, no more than 1 pound of cheese may be substituted. For women in the
fully breastfeeding food package, no more than 2 pounds of cheese may be substituted for milk. State agencies do not have the option to issue
additional amounts of cheese beyond these maximums even with medical documentation. (No more than a total of 4 quarts of milk may be substituted for a combination of cheese, yogurt or tofu for children and women in the pregnant, partially breastfeeding and postpartum food packages. No more than a total of 6 quarts of milk may be substituted for a combination of cheese, yogurt or tofu for women in the fully breastfeeding
food package.)
12 For children24 months of and women, yogurt may be substituted for fluid milk at the rate of 1 quart of yogurt per 1 quart of milk; a maximum
of 1 quart of milk can be substituted. Additional amounts of yogurt are not authorized. Whole yogurt is the standard yogurt for issuance to 1-yearold children (12 through 23 months). Lowfat or nonfat yogurt may be issued to 1-year-old children (12 months to 23 months) as determined appropriate by the health care provider per medical documentation. Lowfat or nonfat yogurts are the standard yogurt for issuance to children ≥ 24
months of age and women. Whole yogurt may be substituted for lowfat or nonfat yogurt for children ≥ 24 months of age and women as determined appropriate by the health care provider per medical documentation. (No more than a total of 4 quarts of milk may be substituted for a
combination of cheese, yogurt or tofu for children and women in the pregnant, partially breastfeeding and postpartum food packages. No more
than a total of 6 quarts of milk may be substituted for a combination of cheese, yogurt or tofu for women in the fully breastfeeding food package.)
13 For children, soy-based beverage and tofu may be substituted for milk as determined appropriate by the health care provider per medical
documentation. Soy-based beverage may be substituted for milk on a quart for quart basis up to the total maximum allowance of milk. Tofu may
be substituted for milk for children at the rate of 1 pound of tofu per 1 quart of milk. (No more than a total of 4 quarts of milk may be substituted
for a combination of cheese, yogurt or tofu for children.) Additional amounts of tofu may be substituted, up to the maximum allowance for fluid
milk for children, as determined appropriate by the health care provider per medical documentation.
14 For women, soy-based beverage may be substituted for milk on a quart for quart basis up to the total maximum monthly allowance of milk.
Tofu may be substituted for milk at the rate of 1 pound of tofu per 1 quart of milk. (No more than a total of 4 quarts of milk may be substituted for
a combination of cheese, yogurt or tofu for women in the pregnant, partially breastfeeding and postpartum food packages. No more than a total
of 6 quarts of milk may be substituted for a combination of cheese, yogurt or tofu for women in the fully breastfeeding food package.) Additional
amounts of tofu may be substituted, up to the maximum allowances for fluid milk, as determined appropriate by the health care provider per
medical documentation.
15 32 dry ounces of infant cereal may be substituted for 36 ounces of breakfast cereal as determined appropriate by the health care provider
per medical documentation..
16 At least one half of the total number of breakfast cereals on the State agency’s authorized food list must have whole grain as the primary ingredient and meet labeling requirements for making a health claim as a ‘‘whole grain food with moderate fat content’’ as defined in Table 4 of
paragraph (e)(12) of this section.
17 Both fresh fruits and fresh vegetables must be authorized by State agencies. Processed fruits and vegetables, i.e., canned (shelf-stable), frozen, and/or dried fruits and vegetables may also be authorized to offer a wider variety and choice for participants. State agencies may choose to
authorize one or more of the following processed fruits and vegetables: canned fruit, canned vegetables, frozen fruit, frozen vegetables, dried
fruit, and/or dried vegetables. The cash-value voucher may be redeemed for any eligible fruit and vegetable (refer to Table 4 of paragraph
(e)(12) of this section and its footnotes). Except as authorized in paragraph (b)(1)(i) of this section, State agencies may not selectively choose
which fruits and vegetables are available to participants. For example, if a State agency chooses to offer dried fruits, it must authorize all WIC-eligible dried fruits.
18 Children and women whose special dietary needs require the use of pureed foods may receive commercial jarred infant food fruits and
vegetables in lieu of the cash-value voucher. Children may receive 128 oz of commercial jarred infant food fruits and vegetables and women
may receive 160 oz of commercial jarred infant food fruits and vegetables in lieu of the cash-value voucher. Infant food fruits and vegetables
may be substituted for the cash-value voucher as determined appropriate by the health care provider per medical documentation.
19 The monthly value of the fruit/vegetable cash-value vouchers will be adjusted annually for inflation as described in § 246.16(j).
20 Whole wheat and/or whole grain bread must be authorized. State agencies have the option to also authorize brown rice, bulgur, oatmeal,
whole-grain barley, whole wheat macaroni products, or soft corn or whole wheat tortillas on an equal weight basis.
21 Canned legumes may be substituted for dry legumes at the rate of 64 oz. (e.g., four 16-oz cans) of canned beans for 1 pound dry beans. In
Food Packages V and VII, both beans and peanut butter must be provided. However, when individually tailoring Food Packages V or VII for nutritional reasons (e.g., food allergy, underweight, participant preference), State agencies have the option to authorize the following substitutions: 1
pound dry and 64 oz. canned beans/peas (and no peanut butter); or 2 pounds dry or 128 oz. canned beans/peas (and no peanut butter); or 36
oz. peanut butter (and no beans).
6 Combinations
[FR Doc. C1–2014–04105 Filed 3–10–14; 8:45 am]
BILLING CODE 1505–01–D
FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 252
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[Regulations Y and YY; Docket Nos. R–1463
and R–1464; RIN 7100 AE–01 and AE–02]
Application of the Revised Capital
Framework to the Capital Plan and
Stress Test Rules
Board of Governors of the
Federal Reserve System (Board).
ACTION: Final rule.
AGENCY:
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The Board is adopting a final
rule to require a bank holding company
with total consolidated assets of $50
billion or more to estimate its tier 1
common ratio using the exiting
definition for purposes of the Board’s
capital plan and stress test rules; defer
until October 1, 2015, the use of the
Board’s advanced approaches rule for
purposes of the Board’s capital planning
and stress testing rules; maintain the
one-year transition period in the current
stress test cycle during which bank
holding companies and most state
member banks with more than $10
billion but less than $50 billion in total
consolidated assets are not required to
SUMMARY:
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incorporate the Board’s Basel III-based
revised regulatory capital framework
that the Board approved on July 2, 2013
(revised capital framework); and make
minor, conforming changes to the
Board’s capital plan rule and stress test
rules. The final rule maintains all the
changes to the Board’s capital plan rule
and stress test rules that were required
under two interim final rules that the
Board issued in September 2013, except
that under the final rule, no banking
organization is required to use the
advanced approaches rule for purposes
of the capital planning and stress testing
rules until 2015.
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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations
The final rule is effective April
15, 2014.
FOR FURTHER INFORMATION CONTACT: Lisa
Ryu, Deputy Associate Director, (202)
263–4833, Constance Horsley, Assistant
Director, (202) 452–5239, Ann
McKeehan, Senior Supervisory
Financial Analyst, (202) 973–6903, or
Holly Kirkpatrick, Senior Financial
Analyst, (202) 452–2796, 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, Counsel,
(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:
DATES:
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I. Background
A. Revised Capital Framework
On July 2, 2013, the Board approved
the revised capital framework, which
implemented the Basel III regulatory
capital reforms and certain changes
required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(Dodd-Frank Act).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 began 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.
As the revised regulatory capital
framework comes into effect and as
explained more fully below, banking
organizations will be required to reflect
the requirements of the revised capital
framework in their capital plans
submitted pursuant to the Board’s
capital plan rule and in their stress tests
conducted under the Board’s rules
implementing the stress test
requirements of the Dodd-Frank Act.
B. Capital Plan Rule
Pursuant to the Board’s capital plan
rule and its related supervisory process,
the Comprehensive Capital Analysis
and Review (CCAR), the Board assesses
the internal capital planning process of
a bank holding company with total
consolidated assets of $50 billion or
more (large bank holding company) and
its ability to maintain sufficient capital
to continue its operations under
expected and stressful conditions.3
Under the capital plan rule, a large bank
holding company is required to submit
an annual capital plan to the Board that
contains estimates of its minimum
regulatory capital ratios and its tier 1
common ratio under expected
conditions and a range of stressed
scenarios over a nine-quarter planning
horizon (planning horizon).4 A capital
plan also must include a discussion of
how a large bank holding company will
maintain a pro forma tier 1 common
ratio above 5 percent under expected
conditions and stressed scenarios.5
The preamble to the capital plan rule
noted that the Basel III framework
proposed by the Basel Committee on
Bank Supervision includes a different
definition of tier 1 common capital and
that the Board and the other federal
banking agencies continued to work to
implement Basel III in the United
States.6 The capital plan rule’s
definition of ‘‘tier 1 common ratio’’
states that the definition will remain in
effect until the Board adopts an
alternative tier 1 common ratio
definition as a minimum regulatory
capital ratio.7
C. Stress Test Rules
The Board’s stress test rules for large
bank holding companies and nonbank
financial companies supervised by the
Board (together, covered companies)
establish a framework for the Board to
conduct annual supervisory stress tests
to evaluate whether these companies
have the capital necessary to absorb
losses as a result of adverse economic
conditions and require that these
companies conduct semi-annual
company-run stress tests.8 For the
supervisory stress tests, the Board uses
3 See
generally 12 CFR 225.8.
4 Id.
1 See
12 CFR part 217.
banking organization is subject to the
advanced approaches rule if it has consolidated
assets of at least $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.
2A
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5 Id.
at § 225.8(d)(2)(i)(B).
FR 74631, 74637 (December 1, 2011).
7 Id. at § 225.8(c)(9).
8 The changes in this final rule would apply to
nonbank financial companies supervised by the
Board once they become subject to stress test
requirements.
6 76
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13499
data as of September 30 of each year to
assess a covered company’s capital
levels, regulatory capital ratios, and tier
1 common ratio over the nine-quarter
planning horizon of a given stress test
cycle.9 Similarly, the semi-annual stress
tests conducted by a covered company
require it to report, among other
elements, its regulatory capital ratios
and tier 1 common ratio for each quarter
of a nine-quarter planning horizon.10
The stress test rule for covered
companies defines the tier 1 common
ratio by cross-reference to the capital
plan rule, which, as previously
described, provides that the tier 1
common ratio is to remain in effect until
the Board adopts an alternative tier 1
common ratio definition.11
D. Interim final rules
On September 30, 2013, the Board
published in the Federal Register two
interim final rules that amended the
Board’s capital plan rule and stress test
rules.12 The first interim final rule
(capital planning and stress testing IFR)
amended the Board’s capital plan rule 13
and stress test rules 14 to require a bank
holding company with total
consolidated assets of $50 billion or
more to estimate its tier 1 common ratio
using the methodology in the Board’s
Basel I-based capital rules (under 12
CFR part 225, Appendix A).15 This
interim final rule also clarified when a
banking organization would estimate its
minimum regulatory capital ratios using
the advanced approaches rule for a
given capital plan and stress test cycle
and made minor, technical changes to
the capital plan rule.16 Under the
interim final rule, a banking
organization is required to use the
advanced approaches rule in its stress
testing and capital planning only if the
Board notifies the banking organization
on or before September 30 that it has
been approved to exit from parallel run
under the advanced approaches rule. A
satisfactory ‘‘parallel run’’ under the
9 12
CFR 252.44(a).
at 252.56(a).
11 Id. at 252.42(r), 252.52(t).
12 78 FR 59779 (September 30, 2013); 78 FR
59791 (September 30, 2013).
13 76 FR 74631 (Dec. 1, 2011) (codified at 12 CFR
225.8).
14 77 FR 62378 (Oct. 12, 2012) (codified at 12 CFR
part 252, subparts F and G).
15 See 12 CFR 225.8 (capital plan rule); 12 CFR
part 252, subpart F (Supervisory Stress Test
Requirements for Covered Companies); 12 CFR part
252, subpart G (Company-Run Stress Test
Requirements for Covered Companies).
16 As of January 1, 2014, the advanced approaches
rule is found at 12 CFR part 217, subpart E. Until
December 31, 2013, the advanced approaches rule
was found at 12 CFR part 208, Appendix F (state
member banks) and 12 CFR part 225, Appendix G
(bank holding companies).
10 Id.
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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations
advanced approaches rule is a period of
no less than four consecutive calendar
quarters during which the banking
organization complies with the
qualification requirements of the rule.17
The second interim final rule (IFR for
$10–$50 billion companies) provided 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 are not required to
reflect the Board’s revised capital
framework in their stress tests for the
stress test cycle that began on October
1, 2013. Instead, for this stress test
cycle, these companies are required to
estimate their pro forma capital levels
and ratios over the full nine-quarter
planning horizon using the Board’s
Basel I-based capital rules.18 Like the
capital planning and stress testing IFR,
the IFR for $10–$50 billion companies
also clarified that a banking
organization is required to use the
advanced approaches rule in its
company-run stress testing only if the
Board notifies the banking organization
on or before September 30 that it has
been approved to exit from parallel run
under the advanced approaches rule.
In this final rule, the Board is
adopting both the capital planning and
stress testing IFR and the IFR for $10–
$50 billion companies in final form. The
final rule is identical to the interim final
rules except that the final rule provides
an additional year, until October 1,
2015, for companies that have exited
from parallel run to incorporate the
advanced approaches rule into their
capital planning and company-run
stress tests, and for the Board to
incorporate the advanced approaches
rule in its supervisory stress tests.
II. Comments on the Interim Final
Rules
The Board received two comments on
the capital planning and stress testing
IFR. The comments were both from
individuals and encouraged the Board
to implement the Dodd-Frank Act in a
stringent manner. Neither commenter
provided any specific comments
regarding the capital planning and stress
testing IFR.
The Board did not receive any
comments on the IFR for $10–$50
billion companies.
III. Summary of the Final Rule
A. Incorporating the Revised Capital
Framework Into the Capital Plan and
Stress Tests Rules
The capital planning and stress
testing IFR clarified that large bank
holding companies should continue to
calculate their tier 1 common ratio using
the methodology in the Board’s Basel Ibased capital rules. The final rule
maintains this requirement.
Under the final rule, a large bank
holding company must project its
regulatory capital ratios and meet the
minimum capital requirements for each
quarter of the planning horizon in
accordance with the minimum capital
requirements that are in effect for that
company during that quarter.
Accordingly, under the final rule, in the
capital planning and stress test cycle
that begins on October 1, 2014, a large
bank holding company that is an
advanced approaches banking
organization is required to calculate its
common equity tier 1 capital ratio using
the revised capital framework in every
quarter of the nine-quarter planning
horizon, meet a 4.0 percent minimum in
common equity tier 1 capital ratio in
2014, and a 4.5 percent minimum
common equity tier 1 capital ratio in
2015 and 2016. A large bank holding
company that is not an advanced
approaches banking organization is
required to calculate its common equity
tier 1 capital ratio in the capital
planning and stress test cycle that
begins on October 1, 2014, using the
Basel I-based capital rules in the first
quarter of the planning horizon and the
revised capital framework in the second
through ninth quarters of the planning
horizon, and meet a 4.5 percent
minimum common equity tier 1 capital
ratio in 2015 and 2016. A state member
bank that is a subsidiary of a bank
holding company with total
consolidated assets of $50 billion or
more will reflect the revised capital
framework in the same manner as its
bank holding company parent in
projecting its capital for the upcoming
stress test cycle. Table 1 summarizes
these requirements.
TABLE 1—COMMON EQUITY RATIOS APPLICABLE TO LARGE BANK HOLDING COMPANIES IN THE CAPITAL PLAN AND
STRESS TEST CYCLES THAT BEGINS OCTOBER 1, 2014
Q4 2014
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Non-advanced
approaches
bank holding companies.
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%.
Current T1C
ratio of
5.0%
CET1 ratio
of 4.0%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%.
Current T1C
ratio of
5.0%.
CET1 ratio
of 4.5%
Current T1C
ratio of
5.0%
CET1 ratio
of 4.5%.
Advanced
approaches
bank holding companies.
Q1 2015
CET1 ratio
of 4.5%.
CET1 ratio
of 4.5%.
CET1 ratio
of 4.5%.
CET1 ratio
of 4.5%.
CET1 ratio
of 4.5%.
CET1 ratio
of 4.5%.
CET1 ratio
of 4.5%
Current T1C ratio: the ratio of a bank
holding company’s tier 1 common
capital calculated using the definitions
17 12
CFR 217.121(c).
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under the Board’s Basel I-based capital
rules (i.e., tier 1 capital as defined under
Appendix A of 12 CFR part 225, less the
non-common elements of tier 1 capital,
over total risk-weighted assets as
18 These capital rules are found at 12 CFR parts
208 and 225, Appendix A.
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defined under Appendices A and E of
12 CFR part 225).
CET1 ratio: a bank holding company’s
common equity tier 1 capital ratio as
calculated under 12 CFR part 217,
including the transition provisions of 12
CFR part § 217.300, as applicable within
each quarter of the capital plan and
stress test cycles that begin October 1,
2014.
Under the final rule, as under the
capital planning and stress testing IFR,
both large bank holding companies that
are subject to the advanced approaches
rule and large bank holding companies
that are not subject to the advanced
approaches rule must meet a minimum
5.0 percent tier 1 common ratio over
every quarter of the planning horizon,
calculate the tier 1 common ratio using
the definitions of tier 1 capital and total
risk-weighted assets under the Board’s
Basel I-based capital rules, and not
incorporate the new definitions in the
revised capital framework as part of this
calculation. This approach maintains
consistency with previous capital plan
cycles during the multi-year phase-in of
the new common equity tier 1 capital
minimum requirement. Once the new
minimum common equity tier 1 capital
ratio reaches its permanent level of 4.5
percent and the deductions from
common equity tier 1 capital are fully
phased-in, the Board expects that the
common equity tier 1 ratio will be
generally more stringent than the tier 1
common ratio of 5.0 percent for the
largest bank holding companies.
B. Transition Period for Revised Capital
Framework
Under the IFR for $10–$50 billion
companies, the Board provided 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. During this
transition period, these companies are
not required to reflect the revised
capital framework in any quarter of the
nine-quarter planning horizon. The final
rule maintains this transition period
with respect to the current stress test
cycle that began on October 1, 2013.
These companies will estimate their
pro forma capital levels and ratios over
the planning horizon using the capital
rules under 12 CFR part 208, Appendix
A (for state member banks) and 12 CFR
part 225, Appendix A (for bank holding
companies) and will not reflect the
impact of the revised capital framework
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(12 CFR part 217) in their company-run
stress tests. In particular, for this stress
test cycle, these companies 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
or any changes to the calculation of riskweighted assets. Beginning with the
stress test cycle that starts on October 1,
2014, these companies will be required
to reflect the revised capital framework
in their company-run stress tests,
including the common equity tier 1
capital requirement. Accordingly, for
purposes of the stress test cycle that
begins on October 1, 2014, each of these
companies that is subject to the
advanced approaches will be required to
calculate its capital requirements,
including the common equity tier 1
capital ratio, using the revised capital
framework in every quarter of the ninequarter planning horizon, and each of
these companies that is not subject to
the advanced approaches will be
required to calculate its capital
requirements using the Basel I-based
capital rules in the first quarter of the
planning horizon and the revised capital
framework, including the common
equity tier 1 capital ratio, in the second
through ninth quarters of the planning
horizon.
The final rule, like the IFR for $10–
$50 billion companies, excludes from
the one-year transition period 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 Office of the Comptroller of the
Currency and Federal Deposit Insurance
Company both implemented the DoddFrank Act stress testing requirements for
the stress test cycle that began on
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.
C. Parallel Run
In light of the issuance of the revised
capital framework, both interim final
rules were intended to provide clarity
on when a banking organization would
be required to estimate its minimum
regulatory capital ratios over the
planning horizon using the advanced
approaches for a given capital planning
and stress testing cycle. Without regard
to the capital planning and stress test
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13501
rules, 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.19 The interim final rules provided
that for purposes of capital planning
and stress testing, a banking
organization must be notified that it has
completed a successful parallel run by
September 30 of a given calendar year
in order to be required to estimate its
capital ratios using the advanced
approaches for the capital plan or stress
test cycle that begins on October 1 of
that calendar year. The final rule
maintains this approach. Thus, the final
rule provides that a company 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 capital plan or stress
test cycle that begins on October 1 of
that year.
On February 14, 2014, the Board
announced that certain advanced
approaches banking organizations had
completed a successful parallel run.20
Beginning April 15, 2014, these
companies will be required to use the
advanced approaches rule to calculate
their risk-based capital requirements
consistent with the requirements of the
advanced approaches rule. However,
these companies will not be required to
calculate capital according to the
advanced approaches rule for purposes
of capital planning and stress testing
rules until the October 1, 2015, cycle.
As described above, the revised
capital framework introduces more
stringent capital requirements,
including the 4.5 percent minimum
common equity tier 1 capital ratio and
the increasing deductions that will
become effective on January 1, 2015. For
the largest bank holding companies, this
common equity tier 1 capital
requirement, when fully phased in, is
generally expected to result in a more
stringent capital requirement than the
capital plan rule’s 5.0 percent tier 1
common ratio, in part because it
incorporates significantly higher
deductions from capital. The minimum
capital requirements will continue to
increase in stringency until the capital
deductions are fully phased in in 2018.
Large bank holding companies began to
reflect these more stringent capital
requirements in the current capital
planning and stress test cycle, and all
banking organizations subject to capital
planning and stress testing will be
19 12
CFR 217.121(d).
Board press release dated February 20,
20 See
2014.
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required to reflect the more stringent
capital requirements in the next capital
planning and stress test cycle.
Given the operational complexity
associated with incorporating the
advanced approaches rule in the capital
planning and stress testing processes,
the final rule clarifies that the advanced
approaches rule’s incorporation into the
capital plan and stress testing rules will
be deferred for one year, until October
1, 2015, with respect to any banking
organization that is notified on or before
September 30, 2014, that the banking
organization may exit from parallel run.
The transition period will provide the
Federal Reserve with sufficient time to
integrate the advanced approaches into
its stress testing processes and to
provide guidance to advanced
approaches banking organizations
regarding supervisory expectations for
integrating the advanced approaches
into their stress testing and capital
planning processes.
D. Technical Changes
The interim final rule made minor
technical changes to the capital plan
rule. It clarified that a covered company
that has not filed the FR Y–9C report for
the four most recent consecutive
quarters will calculate its total
consolidated assets as reported on the
company’s available FR Y–9C reports
for the most recent quarter or
consecutive quarters. It also clarified
that the Board (or the Reserve Bank,
with concurrence of the Board) may
extend the resubmission period for a
capital plan beyond an initial 60-day
extension if the Board or Reserve Bank
determines that such longer period is
appropriate.
The interim final rule modified the
capital plan rule to reflect the Board’s
current practice of publicly disclosing
its decision to object or not object to a
bank holding company’s capital plan
along with a summary of the Board’s
analyses of that company. The rule
provides that any disclosure will occur
by March 31 of each calendar year,
unless the Board determines that
another date is appropriate. With regard
to the Board’s review of bank holding
companies’ capital plans, the Board
expects the summary results largely will
be similar to the results disclosed in
previous CCAR exercises, unless the
Board determines that different or
additional disclosures would be
appropriate.
The final rule maintains these minor
and technical modifications without
change. The final rule also deletes
references to 12 CFR part 225, Appendix
G, from the capital plan rule and stress
test rules, because this appendix was
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removed from the Code of Federal
Regulations effective January 1, 2014.
IV. Regulatory Analysis
A. Regulatory Flexibility Act Analysis
The Board has considered the
potential impact of the 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 final rule will not have a
significant economic impact on a
substantial number of small entities.
Nevertheless, the Board is publishing a
final regulatory flexibility analysis.
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 final
rule would apply to bank holding
companies, savings and loan holding
companies, and state member banks
with total consolidated asset of $10
billion or more and nonbank financial
companies supervised by the Board.
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.
The Board did not receive any
comments on the interim final rules
regarding their impact on small entities.
In light of the foregoing, the Board does
not believe that the 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-LeachBliley Act required the Federal banking
agencies to use plain language in all
proposed and final rules published after
January 1, 2000. The Board invited
comment on how to make the interim
final rules easier to understand. The
Board did not receive any comments on
plain language and believes that the
final rule is clearly written.
C. Paperwork Reduction Act
This final rule references currently
approved collections of information
under the Paperwork Reduction Act (44
U.S.C. 3501–3520) provided for in the
capital plan rules. This 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.
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List of Subjects
12 CFR Part 225
Administrative practice and
procedure, Banks, Banking, Capital
planning, Holding companies, Reporting
and recordkeeping requirements,
Securities, Stress testing.
12 CFR Part 252
Administrative practice and
procedure, Banks, Banking, Capital
planning, 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 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
1. The authority citation for part 225
continues to read as follows:
■
Authority: 2 U.S.C. 1817(j)(13), 1818,
1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b),
1972(1), 3106, 3108, 3310, 3331–3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w,
6801 and 6805.
Subpart A—General Provisions
■
2. Revise § 225.8 to read as follows:
§ 225.8
Capital planning.
(a) Purpose. This section establishes
capital planning and prior notice and
approval requirements for capital
distributions by certain bank holding
companies.
(b) Scope and effective date. (1) This
section applies to every top-tier bank
holding company domiciled in the
United States:
(i) With average total consolidated
assets of $50 billion or more. Average
total consolidated assets means the
average of the total consolidated assets
as reported by a bank holding company
on its Consolidated Financial
Statements for Bank Holding Companies
(FR Y–9C) for the four most recent
consecutive quarters. If the bank
holding company has not filed the FR
Y–9C 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,
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
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used in the calculation of the average;
or
(ii) That is subject to this section, in
whole or in part, by order of the Board
based on the institution’s size, level of
complexity, risk profile, scope of
operations, or financial condition.
(2) Beginning on December 23, 2011,
the provisions of this section shall apply
to any bank holding company that is
subject to this section pursuant to
paragraph (b)(1), provided that:
(i) Until July 21, 2015, this section
will not apply to any bank holding
company 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); and
(ii) A bank holding company that
becomes subject to this section pursuant
to paragraph (b)(1)(i) after the 5th of
January of a calendar year shall not be
subject to the requirements of
paragraphs (d)(1)(ii), (d)(4), and (f)(1)(iii)
of this section until January 1 of the
next calendar year.
(3) Notwithstanding any other
requirement in this section, for a given
capital plan cycle:
(i) Until October 1, 2015, a bank
holding company’s estimates of its pro
forma regulatory capital ratios and its
pro forma tier 1 common ratio over the
planning horizon shall not include
estimates using the advanced
approaches; and
(ii) Beginning October 1, 2015, for a
given capital plan cycle (including for
purposes of the January 5 submission of
a capital plan under paragraph (d)(1) of
this section and any resubmission of the
capital plan under paragraph (d)(4) of
this section during the capital plan
cycle), a bank holding company’s
estimates of its pro forma regulatory
capital ratios and its pro forma tier 1
common ratio over the planning horizon
shall not include estimates using the
advanced approaches if the bank
holding company is notified on or after
the first day of that capital plan cycle
(October 1) that the bank holding
company is required to calculate its
risk-based capital requirements using
the advanced approaches.
(4) Nothing in this section shall limit
the authority of the Federal Reserve to
issue a capital directive or take any
other supervisory or enforcement action,
including action to address unsafe or
unsound practices or conditions or
violations of law.
(c) Definitions. For purposes of this
section, the following definitions apply:
(1) Advanced approaches means the
risk-weighted assets calculation
methodologies at 12 CFR part 217,
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subpart E, as applicable, and any
successor regulation.
(2) Capital action means any issuance
of a debt or equity capital instrument,
any capital distribution, and any similar
action that the Federal Reserve
determines could impact a bank holding
company’s consolidated capital.
(3) Capital distribution means a
redemption or repurchase of any debt or
equity capital instrument, a payment of
common or preferred stock dividends, a
payment that may be temporarily or
permanently suspended by the issuer on
any instrument that is eligible for
inclusion in the numerator of any
minimum regulatory capital ratio, and
any similar transaction that the Federal
Reserve determines to be in substance a
distribution of capital.
(4) Capital plan means a written
presentation of a bank holding
company’s capital planning strategies
and capital adequacy process that
includes the mandatory elements set
forth in paragraph (d)(2) of this section.
(5) Capital plan cycle means the
period beginning on October 1 of a
calendar year and ending on September
30 of the following calendar year.
(6) Capital policy means a bank
holding company’s written assessment
of the principles and guidelines used for
capital planning, capital issuance, usage
and distributions, including internal
capital goals; the quantitative or
qualitative guidelines for dividend and
stock repurchases; the strategies for
addressing potential capital shortfalls;
and the internal governance procedures
around capital policy principles and
guidelines.
(7) Minimum regulatory capital ratio
means any minimum regulatory capital
ratio that the Federal Reserve may
require of a bank holding company, by
regulation or order, including, as
applicable, the bank holding company’s
tier 1 and supplementary leverage ratios
and common equity tier 1, tier 1, and
total risk-based capital ratios as
calculated under appendices A, D, and
E to this part (12 CFR part 225) 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.
(8) Planning horizon means the period
of at least nine quarters, beginning with
the quarter preceding the quarter in
which the bank holding company
submits its capital plan, over which the
relevant projections extend.
(9) Tier 1 capital has the same
meaning as under appendix A to this
part or under 12 CFR part 217, as
applicable, or any successor regulation.
(10) Tier 1 common capital means tier
1 capital as defined under appendix A
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13503
to this part less the non-common
elements of tier 1 capital, including
perpetual preferred stock and related
surplus, minority interest in
subsidiaries, trust preferred securities
and mandatory convertible preferred
securities.
(11) Tier 1 common ratio means the
ratio of a bank holding company’s tier
1 common capital to total risk-weighted
assets as defined under appendices A
and E to this part.
(d) General requirements. (1) Annual
capital planning. (i) A bank holding
company must develop and maintain a
capital plan.
(ii) A bank holding company must
submit its complete capital plan to the
appropriate Reserve Bank and the Board
each year by the 5th of January, or such
later date as directed by the Board or the
appropriate Reserve Bank, with
concurrence of the Board.
(iii) The bank holding company’s
board of directors or a designated
committee thereof must at least
annually and prior to submission of the
capital plan under paragraph (d)(1)(ii) of
this section:
(A) Review the robustness of the bank
holding company’s process for assessing
capital adequacy,
(B) Ensure that any deficiencies in the
bank holding company’s process for
assessing capital adequacy are
appropriately remedied; and
(C) Approve the bank holding
company’s capital plan.
(2) Mandatory elements of capital
plan. A capital plan must contain at
least the following elements:
(i) An assessment of the expected uses
and sources of capital over the planning
horizon that reflects the bank holding
company’s size, complexity, risk profile,
and scope of operations, assuming both
expected and stressful conditions,
including:
(A) Estimates of projected revenues,
losses, reserves, and pro forma capital
levels, including any minimum
regulatory capital ratios (for example,
leverage, tier 1 risk-based, and total riskbased capital ratios) and any additional
capital measures deemed relevant by the
bank holding company, over the
planning horizon under expected
conditions and under a range of stressed
scenarios, including any scenarios
provided by the Federal Reserve and at
least one stressed scenario developed by
the bank holding company appropriate
to its business model and portfolios;
(B) A calculation of the pro forma tier
1 common ratio over the planning
horizon under expected conditions and
under a range of stressed scenarios and
discussion of how the company will
maintain a pro forma tier 1 common
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ratio above 5 percent under expected
conditions and the stressed scenarios
required under paragraphs (d)(2)(i)(A)
and (ii) of this section;
(C) A discussion of the results of any
stress test required by law or regulation,
and an explanation of how the capital
plan takes these results into account;
and
(D) A description of all planned
capital actions over the planning
horizon.
(ii) A detailed description of the bank
holding company’s process for assessing
capital adequacy, including:
(A) A discussion of how the bank
holding company will, under expected
and stressful conditions, maintain
capital commensurate with its risks,
maintain capital above the minimum
regulatory capital ratios and above a tier
1 common ratio of 5 percent, and serve
as a source of strength to its subsidiary
depository institutions;
(B) A discussion of how the bank
holding company will, under expected
and stressful conditions, maintain
sufficient capital to continue its
operations by maintaining ready access
to funding, meeting its obligations to
creditors and other counterparties, and
continuing to serve as a credit
intermediary;
(iii) The bank holding company’s
capital policy; and
(iv) A discussion of any expected
changes to the bank holding company’s
business plan that are likely to have a
material impact on the firm’s capital
adequacy or liquidity.
(3) Data collection. Upon the request
of the Board or appropriate Reserve
Bank, the bank holding company shall
provide the Federal Reserve with
information regarding:
(i) The bank holding company’s
financial condition, including its
capital;
(ii) The bank holding company’s
structure;
(iii) Amount and risk characteristics
of the bank holding company’s on- and
off-balance sheet exposures, including
exposures within the bank holding
company’s trading account, other
trading-related exposures (such as
counterparty-credit risk exposures) or
other items sensitive to changes in
market factors, including, as
appropriate, information about the
sensitivity of positions to changes in
market rates and prices;
(iv) The bank holding company’s
relevant policies and procedures,
including risk management policies and
procedures;
(v) The bank holding company’s
liquidity profile and management; and
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(vi) Any other relevant qualitative or
quantitative information requested by
the Board or the appropriate Reserve
Bank to facilitate review of the bank
holding company’s capital plan under
this section.
(4) Re-submission of a capital plan. (i)
A bank holding company must update
and re-submit its capital plan to the
appropriate Reserve Bank within 30
calendar days of the occurrence of one
of the following events:
(A) The bank holding company
determines there has been or will be a
material change in the bank holding
company’s risk profile, financial
condition, or corporate structure since
the bank holding company adopted the
capital plan;
(B) The Board or the appropriate
Reserve Bank objects to the capital plan;
or
(C) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, directs the bank holding
company in writing to revise and
resubmit its capital plan for any of the
following reasons:
(1) The capital plan is incomplete or
the capital plan, or the bank holding
company’s internal capital adequacy
process, contains material weaknesses;
(2) There has been or will likely be a
material change in the bank holding
company’s risk profile (including a
material change in its business strategy
or any risk exposure), financial
condition, or corporate structure;
(3) The stressed scenario(s) developed
by the bank holding company is not
appropriate to its business model and
portfolios, or changes in financial
markets or the macro-economic outlook
that could have a material impact on a
bank holding company’s risk profile and
financial condition require the use of
updated scenarios; or
(4) The capital plan or the condition
of the bank holding company raise any
of the issues described in paragraph
(e)(2)(ii) of this section.
(ii) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, may, at its discretion, extend the
30-day period in paragraph (d)(4)(i) of
this section for up to an additional 60
calendar days, or such longer period as
the Board or the appropriate Reserve
Bank, with concurrence of the Board,
determines appropriate.
(iii) Any updated capital plan must
satisfy all the requirements of this
section; however, a bank holding
company may continue to rely on
information submitted as part of a
previously submitted capital plan to the
extent that the information remains
accurate and appropriate.
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(e) Review of capital plans by the
Federal Reserve; publication of
summary results. (1) Considerations and
inputs. (i) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, will consider the following
factors in reviewing a bank holding
company’s capital plan:
(A) The comprehensiveness of the
capital plan, including the extent to
which the analysis underlying the
capital plan captures and addresses
potential risks stemming from activities
across the firm and the company’s
capital policy;
(B) The reasonableness of the bank
holding company’s assumptions and
analysis underlying the capital plan and
its methodologies for reviewing the
robustness of its capital adequacy
process; and
(C) The bank holding company’s
ability to maintain capital above each
minimum regulatory capital ratio and
above a tier 1 common ratio of 5 percent
on a pro forma basis under expected and
stressful conditions throughout the
planning horizon, including but not
limited to any stressed scenarios
required under paragraph (d)(2)(i)(A)
and (ii) of this section.
(ii) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, will also consider the following
information in reviewing a bank holding
company’s capital plan:
(A) Relevant supervisory information
about the bank holding company and its
subsidiaries;
(B) The bank holding company’s
regulatory and financial reports, as well
as supporting data that would allow for
an analysis of the bank holding
company’s loss, revenue, and reserve
projections;
(C) As applicable, the Federal
Reserve’s own pro forma estimates of
the firm’s potential losses, revenues,
reserves, and resulting capital adequacy
under expected and stressful conditions,
including but not limited to any stressed
scenarios required under paragraph
(d)(2)(i)(A) and (ii) of this section, as
well as the results of any stress tests
conducted by the bank holding
company or the Federal Reserve; and
(D) Other information requested or
required by the appropriate Reserve
Bank or the Board, as well as any other
information relevant, or related, to the
bank holding company’s capital
adequacy.
(2) Federal Reserve action on a capital
plan. (i) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, will object, in whole or in part,
to the capital plan or provide the bank
holding company with a notice of nonobjection to the capital plan:
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(A) By March 31 of the calendar year
in which a capital plan was submitted
pursuant to paragraph (d)(1)(ii) of this
section, and
(B) By the date that is 75 calendar
days after the date on which a capital
plan was resubmitted pursuant to
paragraph (d)(4) of this section.
(ii) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, may object to a capital plan if it
determines that:
(A) The bank holding company has
material unresolved supervisory issues,
including but not limited to issues
associated with its capital adequacy
process;
(B) The assumptions and analysis
underlying the bank holding company’s
capital plan, or the bank holding
company’s methodologies for reviewing
the robustness of its capital adequacy
process, are not reasonable or
appropriate;
(C) The bank holding company has
not demonstrated an ability to maintain
capital above each minimum regulatory
capital ratio and above a tier 1 common
ratio of 5 percent, on a pro forma basis
under expected and stressful conditions
throughout the planning horizon; or
(D) The bank holding company’s
capital planning process or proposed
capital distributions otherwise
constitute an unsafe or unsound
practice, or would violate any law,
regulation, Board order, directive, or
any condition imposed by, or written
agreement with, the Board. In
determining whether a capital plan or
any proposed capital distribution would
constitute an unsafe or unsound
practice, the appropriate Reserve Bank
would consider whether the bank
holding company is and would remain
in sound financial condition after giving
effect to the capital plan and all
proposed capital distributions.
(iii) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, will notify the bank holding
company in writing of the reasons for a
decision to object to a capital plan.
(iv) If the Board or the appropriate
Reserve Bank, with concurrence of the
Board, objects to a capital plan and until
such time as the Board or the
appropriate Reserve Bank, with
concurrence of the Board, issues a nonobjection to the bank holding company’s
capital plan, the bank holding company
may not make any capital distribution,
other than those capital distributions
with respect to which the Board or the
appropriate Reserve Bank has indicated
in writing its non-objection.
(v) The Board may disclose publicly
its decision to object or not object to a
bank holding company’s capital plan
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under this section, along with a
summary of the Board’s analyses of that
company. Any disclosure under this
paragraph (e)(2)(v) will occur by March
31, unless the Board determines that a
later disclosure date is appropriate.
(3) Request for reconsideration or
hearing. Within 10 calendar days of
receipt of a notice of objection to a
capital plan by the Board or the
appropriate Reserve Bank:
(i) A bank holding company may
submit a written request to the Board
requesting reconsideration of the
objection, including an explanation of
why reconsideration should be granted.
Within 10 calendar days of receipt of
the bank holding company’s request, the
Board will notify the company of its
decision to affirm or withdraw the
objection to the bank holding company’s
capital plan or a specific capital
distribution; or
(ii) As an alternative to paragraph
(e)(3)(i) of this section, a bank holding
company may submit a written request
to the Board for a hearing. Any hearing
shall follow the procedures described in
paragraph (f)(5)(ii) through (iii) of this
section.
(f) Approval requirements for certain
capital actions. (1) Circumstances
requiring approval. Notwithstanding a
notice of non-objection under paragraph
(e)(2)(i) of this section a bank holding
company may not make a capital
distribution under the following
circumstances, unless it receives
approval from the Board or appropriate
Reserve Bank pursuant to paragraph
(f)(4) of this section:
(i) After giving effect to the capital
distribution, the bank holding company
would not meet a minimum regulatory
capital ratio or a tier 1 common ratio of
at least 5 percent;
(ii) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, notifies the company in writing
that the Federal Reserve has determined
that the capital distribution would
result in a material adverse change to
the organization’s capital or liquidity
structure or that the company’s earnings
were materially underperforming
projections;
(iii) Except as provided in paragraph
(f)(2) of this section, the dollar amount
of the capital distribution will exceed
the amount described in the capital plan
for which a non-objection was issued
under this section; or
(iv) The capital distribution would
occur after the occurrence of an event
requiring resubmission under
paragraphs (d)(4)(i)(A) and (d)(4)(i)(C) of
this section and before the Federal
Reserve acted on the resubmitted capital
plan.
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(2) Exception for well capitalized
bank holding companies. (i) A bank
holding company may make a capital
distribution for which the dollar amount
exceeds the amount described in the
capital plan for which a non-objection
was issued under this section if the
following conditions are satisfied:
(A) The bank holding company is, and
after the capital distribution would
remain, well capitalized as defined in
§ 225.2(r) of Regulation Y (12 CFR
225.2(r));
(B) The bank holding company’s
performance and capital levels are, and
after the capital distribution would
remain, consistent with its projections
under expected conditions as set forth
in its capital plan under this paragraph
(d)(2)(i);
(C) The annual aggregate dollar
amount of all capital distributions
(beginning on April 1 of a calendar year
and ending on March 31 of the
following calendar year) would not
exceed the total amounts described in
the company’s capital plan for which
the bank holding company received a
notice of non-objection by more than
1.00 percent multiplied by the bank
holding company’s tier 1 capital, as
reported to the Federal Reserve on the
bank holding company’s first quarter FR
Y–9C;
(D) The bank holding company
provides the appropriate Reserve Bank
with notice 15 calendar days prior to a
capital distribution that includes the
elements described in paragraph (f)(3) of
this section; and
(E) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, does not object to the transaction
proposed in the notice. In determining
whether to object to the proposed
transaction, the Board or the appropriate
Reserve Bank, with concurrence of the
Board, shall apply the criteria described
in paragraph (f)(4)(iv) of this section.
(ii) The exception in this paragraph
(f)(2) shall not apply if the Board or the
appropriate Reserve Bank notifies the
bank holding company in writing that it
may not take advantage of this
exception.
(3) Contents of request. (i) A request
for a capital distribution under this
section shall be filed with the
appropriate Reserve Bank and the Board
and shall contain the following
information:
(A) The bank holding company’s
current capital plan or an attestation
that there have been no changes to the
capital plan since it was last submitted
to the Federal Reserve;
(B) The purpose of the transaction;
(C) A description of the capital
distribution, including for redemptions
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or repurchases of securities, the gross
consideration to be paid and the terms
and sources of funding for the
transaction, and for dividends, the
amount of the dividend(s); and
(D) Any additional information
requested by the Board or the
appropriate Reserve Bank (which may
include, among other things, an
assessment of the bank holding
company’s capital adequacy under a
revised stress scenario provided by the
Federal Reserve, a revised capital plan,
and supporting data).
(ii) Any request submitted with
respect to a capital distribution
described in paragraph (f)(1)(i) of this
section shall also include a plan for
restoring the bank holding company’s
capital to an amount above a minimum
level within 30 days and a rationale for
why the capital distribution would be
appropriate.
(4) Approval of certain capital
distributions. (i) A bank holding
company must obtain approval from the
Board or the appropriate Reserve Bank,
with concurrence of the Board, before
making a capital distribution described
in paragraph (f)(1) of this section.
(ii) A request for a capital distribution
under this section must be filed with the
appropriate Reserve Bank and contain
all the information set forth in
paragraph (f)(3) of this section.
(iii) The Board or the appropriate
Reserve Bank, with concurrence of the
Board, will act on a request under this
paragraph (f)(4) within 30 calendar days
after the receipt of a complete request
under paragraph (f)(4)(ii) of this section.
The Board or the appropriate Reserve
Bank may, at any time, request
additional information that it believes is
necessary for its decision.
(iv) In acting on a request under this
paragraph, the Board or appropriate
Reserve Bank will apply the
considerations and principles in
paragraph (e) of this section. In
addition, the Board or the appropriate
Reserve Bank may disapprove the
transaction if the bank holding company
does not provide all of the information
required to be submitted under
paragraphs (f)(3) and (f)(5)(iii) of this
section.
(5) Disapproval and hearing. (i) The
Board or the appropriate Reserve Bank
will notify the bank holding company in
writing of the reasons for a decision to
disapprove any proposed capital
distribution. Within 10 calendar days
after receipt of a disapproval by the
Board, the bank holding company may
submit a written request for a hearing.
(ii) The Board will order a hearing
within 10 calendar days of receipt of the
request if it finds that material facts are
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in dispute, or if it otherwise appears
appropriate. Any hearing conducted
under this paragraph shall be held in
accordance with the Board’s Rules of
Practice for Formal Hearings (12 CFR
part 263).
(iii) At the conclusion of the hearing,
the Board will by order approve or
disapprove the proposed capital
distribution on the basis of the record of
the hearing.
PART 252—ENHANCED PRUDENTIAL
STANDARDS (REGULATION YY)
3. 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.
4. Subpart B is added to read as
follows:
■
Subpart B—Company-Run Stress Test
Requirements for Certain U.S. Banking
Organizations With Total Consolidated
Assets Over $10 Billion and Less Than $50
Billion
Sec.
252.10 [Reserved]
252.11 Authority and purpose.
252.12 Definitions.
252.13 Applicability.
252.14 Annual stress test.
252.15 Methodologies and practices.
252.16 Reports of stress test results.
252.17 Disclosure of stress test results.
Subpart B—Company-Run Stress Test
Requirements for Certain U.S. Banking
Organizations With Total Consolidated
Assets Over $10 Billion and Less Than
$50 Billion
§ 252.10
[Reserved]
§ 252.11
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.
§ 252.12
Definitions.
For purposes of this subpart, the
following definitions apply:
(a) Advanced approaches means the
regulatory capital requirements at 12
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
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
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 § 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 § 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)).
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(j) Foreign banking organization has
the same meaning as in § 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 noninterest 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,
and E to 12 CFR part 225, appendices
A, B, and E 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
§ 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.
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(r) State member bank has the same
meaning as in § 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 § 225.2(o) the Board’s Regulation Y
(12 CFR 225.2(o)).
§ 252.13
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.1
(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,
1 See
PO 00000
§ 252.12(c).
Frm 00011
Fmt 4700
2013, unless that time is extended by
the Board in writing.2
(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
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 asof date of the fourth consecutive FR Y–
9C or Call Report, as applicable.
(e) Interaction with 12 CFR part 252,
subpart F. 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 F 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
2 See
Sfmt 4700
13507
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§ 252.12(c).
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in this section, for a given stress test
cycle:
(1) Until October 1, 2015, 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; and
(2) Beginning October 1, 2015, 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 (October 1) that it is required to
calculate its risk-based capital
requirements using the advanced
approaches.
mstockstill on DSK4VPTVN1PROD with RULES
§ 252.14
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
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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 paragraph (b)(2)(i) of
this section or § 252.54(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
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
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.
§ 252.15
Methodologies and practices.
(a) Potential impact on capital. In
conducting a stress test under § 252.14,
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 § 252.14, a bank holding company
or savings and loan holding company is
required to make the following
assumptions regarding its capital
actions over the planning horizon—
(1) 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
(2) 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
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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.
mstockstill on DSK4VPTVN1PROD with RULES
§ 252.16
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
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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 § 252.14(b)(3), 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 § 252.14.
(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).
§ 252.17
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
PO 00000
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Sfmt 4700
13509
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
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 DoddFrank 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 § 252.58, 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.
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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, preprovision 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.
■ 5. Subpart E is added to read as
follows:
Subpart E—Supervisory Stress Test
Requirements for U.S. Bank Holding
Companies With $50 Billion or More in Total
Consolidated Assets and Nonbank
Financial Companies Supervised by the
Board
Sec.
252.40 [Reserved].
252.41 Authority and purpose.
252.42 Definitions.
252.43 Applicability.
252.44 Annual analysis conducted by the
Board.
252.45 Data and information required to be
submitted in support of the Board’s
analyses.
252.46 Review of the Board’s analysis;
publication of summary results.
252.47 Use requirement.
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Subpart E—Supervisory Stress Test
Requirements for U.S. Bank Holding
Companies With $50 Billion or More in
Total Consolidated Assets and
Nonbank Financial Companies
Supervised by the Board
§ 252.40
[Reserved].
§ 252.41
Authority and purpose.
(a) Authority. 12 U.S.C. 321–338a,
1467a(g), 1818, 1831p–1, 1844(b),
1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements
section 165(i)(1) of the Dodd-Frank Act
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(12 U.S.C. 5365(i)(1)), which requires
the Board to conduct annual analyses of
nonbank financial companies
supervised by the Board and bank
holding companies with $50 billion or
more in total consolidated assets to
evaluate whether such companies have
the capital, on a total consolidated basis,
necessary to absorb losses as a result of
adverse economic conditions.
§ 252.42
Definitions.
For purposes of this subpart, the
following definitions apply:
(a) Advanced approaches means the
risk-weighted assets calculation
methodologies at 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 covered
company that are more adverse than
those associated with the baseline
scenario and may include trading or
other additional components.
(c) Average total consolidated assets
means the average of the total
consolidated assets as reported by a
bank holding company on its
Consolidated Financial Statements for
Bank Holding Companies (FR Y–9C) for
the four most recent consecutive
quarters. If the bank holding company
has not filed the FR Y–9C 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, 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 used in the calculation of the
average.
(d) Bank holding company has the
same meaning as in § 225.2(c) of the
Board’s Regulation Y (12 CFR 225.2(c)).
(e) Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
(f) Covered company means:
(1) A bank holding company (other
than a foreign banking organization)
with average total consolidated assets of
$50 billion or more; and
(2) A nonbank financial company
supervised by the Board.
(g) Depository institution has the same
meaning as in section 3 of the Federal
Deposit Insurance Act (12 U.S.C.
1813(c)).
(h) Foreign banking organization has
the same meaning as in § 211.21(o) of
the Board’s Regulation K (12 CFR
211.21(o)).
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(i) Nonbank financial company
supervised by the Board means a
nonbank financial company that the
Financial Stability Oversight Council
has determined under section 113 of the
Dodd-Frank Act (12 U.S.C. 5323) shall
be supervised by the Board and for
which such determination is still in
effect.
(j) 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.
(k) Pre-provision net revenue means
the sum of net interest income and noninterest income less expenses before
adjusting for loss provisions.
(l) Provision for loan and lease losses
means the provision for loan and lease
losses as reported by the covered
company on the FR Y–9C.
(m) Regulatory capital ratio means a
capital ratio for which the Board
established minimum requirements for
the company by regulation or order,
including, as applicable, the company’s
tier 1 and supplementary leverage ratios
and common equity tier 1, tier 1, and
total risk-based capital ratios as
calculated under appendices A, D, and
E to this part (12 CFR part 225) 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.
(n) Scenarios are those sets of
conditions that affect the U.S. economy
or the financial condition of a covered
company that the Board annually
determines are appropriate for use in
the supervisory stress tests, including,
but not limited to, baseline, adverse,
and severely adverse scenarios.
(o) Severely adverse scenario means a
set of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
more severe than those associated with
the adverse scenario and may include
trading or other additional components.
(p) Stress test cycle means the period
between October 1 of a calendar year
and September 30 of the following
calendar year.
(q) Subsidiary has the same meaning
as in § 225.2(o) the Board’s Regulation Y
(12 CFR 225.2).
(r) Tier 1 common ratio has the same
meaning as in the Board’s Regulation Y
(12 CFR 225.8).
§ 252.43
Applicability.
(a) Compliance date for bank holding
companies that are covered companies
as of November 15, 2012. (1) In general.
Except as provided in paragraph (a)(2)
or (a)(3) of this section, a bank holding
company that is a covered company as
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of November 15, 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.
(2) 2009 Supervisory Capital
Assessment Program. A bank holding
company that participated in the 2009
Supervisory Capital Assessment
Program, or a successor to such a 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.
(3) SR Letter 01–01. A U.S.-domiciled
bank holding company that is a covered
company as of November 15, 2012, and
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.
(b) Compliance date for institutions
that become covered companies after
November 15, 2012. (1) Bank holding
companies. A bank holding company
that becomes a covered company after
November 15, 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 bank holding
company becomes a covered company,
unless that time is extended by the
Board in writing.
(2) Nonbank financial companies
supervised by the Board. A company
that becomes a nonbank financial
company supervised by the Board 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 first becomes subject to the
Board’s minimum regulatory capital
requirements, unless the Board
accelerates or extends the compliance
date.
(c) Ongoing application. A bank
holding company that is a covered
company will remain subject to the
requirements of this subpart unless and
until its total consolidated assets fall
below $50 billion for each of four
consecutive quarters, as reported on the
FR Y–9C. The calculation will be
effective on the as-of date of the fourth
consecutive FR Y–9C.
(d) Advanced approaches.
Notwithstanding any other requirement
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in this section, for a given stress test
cycle:
(1) Until October 1, 2015, the Board’s
analysis a covered company’s capital in
a given stress test cycle will not include
estimates using the advanced
approaches; and
(2) Beginning October 1, 2015, the
Board’s analysis of a covered company’s
capital in a given stress test cycle will
not include estimates using the
advanced approaches if the covered
company is notified on or after the first
day of that stress test cycle (October 1)
that the covered company is required to
calculate its risk-based capital
requirements using the advanced
approaches.
§ 252.44
Board.
Annual analysis conducted by the
(a) In general. (1) On an annual basis,
the Board will conduct an analysis of
each covered company’s capital, on a
total consolidated basis, taking into
account all relevant exposures and
activities of that covered company, to
evaluate the ability of the covered
company to absorb losses in specified
economic and financial conditions.
(2) The analysis will include an
assessment of the projected losses, net
income, and pro forma capital levels
and regulatory capital ratios, tier 1
common ratio, and other capital ratios
for the covered company and use such
analytical techniques that the Board
determines are appropriate to identify,
measure, and monitor risks of the
covered company that may affect the
financial stability of the United States.
(3) In conducting the analyses, the
Board will coordinate with the
appropriate primary financial regulatory
agencies and the Federal Insurance
Office, as appropriate.
(b) Economic and financial scenarios
related to the Board’s analysis. The
Board will conduct its analysis under
this section using a minimum of three
different scenarios, including a baseline
scenario, adverse scenario, and severely
adverse scenario. The Board will notify
covered companies of the scenarios that
the Board will apply to conduct the
analysis for each stress test cycle by no
later than November 15 of each year,
except with respect to trading or any
other components of the scenarios and
any additional scenarios that the Board
will apply to conduct the analysis,
which will be communicated by no later
than December 1.
§ 252.45 Data and information required to
be submitted in support of the Board’s
analyses.
(a) Regular submissions. Each covered
company must submit to the Board such
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13511
data, on a consolidated basis, that the
Board determines is necessary in order
for the Board to derive the relevant pro
forma estimates of the covered company
over the planning horizon under the
scenarios described in § 252.44(b).
(b) Additional submissions required
by the Board. The Board may require a
covered company to submit any other
information on a consolidated basis that
the Board deems necessary in order to:
(1) Ensure that the Board has
sufficient information to conduct its
analysis under this subpart; and
(2) Project a company’s pre-provision
net revenue, losses, provision for loan
and lease losses, and net income; and,
pro forma capital levels, regulatory
capital ratios, tier 1 common ratio, and
any other capital ratio specified by the
Board under the scenarios described in
§ 252.44(b).
(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 the Freedom of
Information Act (5 U.S.C. 552(b)) and
the Board’s Rules Regarding Availability
of Information (12 CFR part 261).
§ 252.46 Review of the Board’s analysis;
publication of summary results.
(a) Review of results. Based on the
results of the analysis conducted under
this subpart, the Board will conduct an
evaluation to determine whether the
covered company has the capital, on a
total consolidated basis, necessary to
absorb losses and continue its operation
by maintaining ready access to funding,
meeting its obligations to creditors and
other counterparties, and continuing to
serve as a credit intermediary under
baseline, adverse and severely adverse
scenarios, and any additional scenarios.
(b) Communication of results to
covered companies. The Board will
convey to a covered company a
summary of the results of the Board’s
analyses of such covered company
within a reasonable period of time, but
no later than March 31.
(c) Publication of results by the Board.
By March 31 of each calendar year, the
Board will disclose a summary of the
results of the Board’s analyses of a
covered company.
§ 252.47
Use requirement.
(a) In general. The board of directors
and senior management of each covered
company must consider the results of
the analysis conducted by the Board
under this subpart, as appropriate:
(1) As part of the covered company’s
capital plan and capital planning
process, including when making
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changes to the covered company’s
capital structure (including the level
and composition of capital);
(2) When assessing the covered
company’s exposures, concentrations,
and risk positions; and
(3) In the development or
implementation of any plans of the
covered company for recovery or
resolution.
(b) Resolution plan updates. Each
covered company must update its
resolution plan as the Board determines
appropriate, based on the results of the
Board’s analyses of the covered
company under this subpart.
■ 6. Subpart F is revised to read as
follows:
Subpart F—Company-Run Stress Test
Requirements for U.S. Bank Holding
Companies With $50 Billion or More in Total
Consolidated Assets and Nonbank
Financial Companies Supervised by the
Board
Sec.
252.50 [Reserved]
252.51 Authority and purpose.
252.52 Definitions.
252.53 Applicability.
252.54 Annual stress test.
252.55 Mid-cycle stress test.
252.56 Methodologies and practices.
252.57 Reports of stress test results.
252.58 Disclosure of stress test results.
Subpart F—Company-Run Stress Test
Requirements for U.S. Bank Holding
Companies With $50 Billion or More in
Total Consolidated Assets and
Nonbank Financial Companies
Supervised by the Board
§ 252.50
[Reserved].
§ 252.51
Authority and purpose.
(a) Authority. 12 U.S.C. 321–338a,
1467a(g), 1818, 1831p–1, 1844(b),
1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements
section 165(i)(2) of the Dodd-Frank Act
(12 U.S.C. 5365(i)(2)), which requires a
covered company to conduct annual
and semi-annual stress tests. This
subpart also establishes definitions of
stress test and related terms,
methodologies for conducting stress
tests, and reporting and disclosure
requirements.
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§ 252.52
Definitions.
For purposes of this subpart, the
following definitions apply:
(a) Advanced approaches means the
risk-weighted assets calculation
methodologies at 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 covered
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company that are more adverse than
those associated with the baseline
scenario and may include trading or
other additional components.
(c) Average total consolidated assets
means the average of the total
consolidated assets as reported by a
bank holding company on its
Consolidated Financial Statements for
Bank Holding Companies (FR Y–9C) for
the four most recent consecutive
quarters. If the bank holding company
has not filed the FR Y–9C 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, 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 used in the calculation of the
average.
(d) Bank holding company has the
same meaning as in § 225.2(c) of the
Board’s Regulation Y (12 CFR 225.2(c)).
(e) Baseline scenario means a set of
conditions that affect the U.S. economy
or the financial condition of a covered
company and that reflect the consensus
views of the economic and financial
outlook.
(f) Capital action has the same
meaning as in § 225.8(c)(2) of the
Board’s Regulation Y (12 CFR
225.8(c)(2)).
(g) Covered company means:
(1) A bank holding company (other
than a foreign banking organization)
with average total consolidated assets of
$50 billion or more; and
(2) A nonbank financial company
supervised by the Board.
(h) Depository institution has the
same meaning as in section 3 of the
Federal Deposit Insurance Act (12
U.S.C. 1813(c)).
(i) Foreign banking organization has
the same meaning as in § 211.21(o) of
the Board’s Regulation K (12 CFR
211.21(o)).
(j) Nonbank financial company
supervised by the Board means a
nonbank financial company that the
Financial Stability Oversight Council
has determined under section 113 of the
Dodd-Frank Act (12 U.S.C. 5323) shall
be supervised by the Board and for
which such determination is still in
effect.
(k) Planning horizon means the period
of at least nine quarters, beginning on
the first day of a stress test cycle (on
October 1 or April 1, as appropriate)
over which the relevant projections
extend.
(l) Pre-provision net revenue means
the sum of net interest income and non-
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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 covered
company on the FR Y–9C.
(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, the company’s
tier 1 and supplementary leverage ratios
and common equity tier 1, tier 1, and
total risk-based capital ratios as
calculated under appendices A, D, and
E to this part (12 CFR part 225) 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.
(o) Scenarios are those sets of
conditions that affect the U.S. economy
or the financial condition of a covered
company that the Board, or with respect
to the mid-cycle stress test required
under § 252.55, the covered company,
annually determines are appropriate for
use in the company-run stress tests,
including, but not limited to, baseline,
adverse, and severely adverse scenarios.
(p) Severely adverse scenario means a
set of conditions that affect the U.S.
economy or the financial condition of a
covered company and that overall are
more severe than those associated with
the adverse scenario and may include
trading or other additional components.
(q) Stress test means a process to
assess the potential impact of scenarios
on the consolidated earnings, losses,
and capital of a covered company over
the planning horizon, taking into
account its current condition, risks,
exposures, strategies, and activities.
(r) Stress test cycle means the period
between October 1 of a calendar year
and September 30 of the following
calendar year.
(s) Subsidiary has the same meaning
as in § 225.2(o) the Board’s Regulation Y
(12 CFR 225.2).
(t) Tier 1 common ratio has the same
meaning as in § 225.8 of the Board’s
Regulation Y (12 CFR 225.8).
§ 252.53
Applicability.
(a) Compliance date for bank holding
companies that are covered companies
as of November 15, 2012. (1) In general.
Except as provided in paragraph (a)(2)
or (a)(3) of this section, a bank holding
company that is a covered company as
of November 15, 2012, must comply
with the requirements of this subpart
beginning with the stress test cycle
commencing on October 1, 2013, unless
that time is extended by the Board in
writing.
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(2) 2009 Supervisory Capital
Assessment Program. A bank holding
company that participated in the 2009
Supervisory Capital Assessment
Program, or a successor to such a bank
holding company, must comply with
the requirements of this subpart
beginning with the stress test cycle
commencing on November 15, 2012,
unless that time is extended by the
Board in writing.
(3) SR Letter 01–01. A U.S.-domiciled
bank holding company that is a covered
company as of November 15, 2012, and
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 commencing
on October 1, 2015, unless that time is
extended by the Board in writing.
(b) Compliance date for institutions
that become covered companies after
November 15, 2012. (1) Bank holding
companies. A bank holding company
that becomes a covered company after
November 15, 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 bank holding
company becomes a covered company,
unless that time is extended by the
Board in writing.
(2) Nonbank financial companies
supervised by the Board. A company
that becomes a nonbank financial
company supervised by the Board 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 company
first becomes subject to the Board’s
minimum regulatory capital
requirements, unless the Board
accelerates or extends the compliance
date.
(c) Ongoing application. A bank
holding company that is a covered
company will remain subject to the
requirements of this subpart unless and
until its total consolidated assets fall
below $50 billion for each of four
consecutive quarters, as reported on the
FR Y–9C. The calculation will be
effective on the as-of date of the fourth
consecutive FR Y–9C.
(d) Advanced approaches.
Notwithstanding any other requirement
in this section, for a given capital plan
cycle:
(1) Until October 1, 2015, a covered
company’s estimates of its pro forma
regulatory capital ratios and the
estimate of its pro forma tier 1 common
ratio over the planning horizon shall not
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include estimates using the advanced
approaches; and
(2) Beginning October 1, 2015, for a
given stress test cycle, a covered
company’s estimates of its pro forma
regulatory capital ratios and the
estimate of its pro forma tier 1 common
ratio 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 (October 1) that it is required to
calculate its risk-based capital
requirements using the advanced
approaches.
§ 252.54
Annual stress test.
(a) In general. A covered company
must conduct an annual stress test by
January 5 during each stress test cycle
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.
(b) Scenarios provided by the Board.
(1) In general. In conducting a stress test
under this section, a covered company
must use the scenarios provided by the
Board. Except as provided in paragraphs
(b)(2) and (b)(3) of this section, the
Board will provide a description of the
scenarios to each covered company no
later than November 15 of that calendar
year.
(2) Additional components. (i) The
Board may require a covered company
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 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 covered
company 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 covered company to use
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.
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(4) Notice and response. If the Board
requires a covered company 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
covered company 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 covered company with a
description of any additional
component(s) or additional scenario(s)
by December 1.
§ 252.55
Mid-cycle stress test.
(a) Mid-cycle stress test requirement.
In addition to the stress test required
under § 252.54, a covered company
must conduct a stress test by July 5
during each stress test cycle based on
data as of March 31 of that calendar
year, unless the time or the as-of date is
extended by the Board in writing.
(b) Scenarios related to mid-cycle
stress tests. (1) In general. A covered
company must develop and employ a
minimum of three scenarios, including
a baseline scenario, adverse scenario,
and severely adverse scenario, that are
appropriate for its own risk profile and
operations, in conducting the stress test
required by this section.
(2) Additional components. The
Board may require a covered company
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 covered company to use
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.
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(4) Notice and response. If the Board
requires a covered company to include
one or more additional components in
its adverse and severely adverse
scenarios under paragraph (b)(2) of this
section or one or more additional
scenarios under paragraph (b)(3) of this
section, the Board will notify the
company in writing no later than March
31. 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 covered
company 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 covered company with a
description of any additional
component(s) or additional scenario(s)
by June 1.
mstockstill on DSK4VPTVN1PROD with RULES
§ 252.56
Methodologies and practices.
(a) Potential impact on capital. In
conducting a stress test under §§ 252.54
and 252.55, for each quarter of the
planning horizon, a covered company
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, the tier 1 common ratio,
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 §§ 252.54 and 252.55, a covered
company is required to make the
following assumptions regarding its
capital actions over the planning
horizon—
(1) For the first quarter of the
planning horizon, the covered company
must take into account its actual capital
actions as of the end of that quarter; and
(2) For each of the second through
ninth quarters of the planning horizon,
the covered company must include in
the projections of capital:
(i) Common stock dividends equal to
the quarterly average dollar amount of
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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 covered
company 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 covered 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. Policies of
covered companies must also describe
processes for scenario development for
the mid-cycle stress test required under
§ 252.55.
(2) Oversight of stress testing
processes. The board of directors, or a
committee thereof, of a covered
company must approve and review the
policies and procedures of the stress
testing processes as frequently as
economic conditions or the condition of
the covered company may warrant, but
no less than annually. The board of
directors and senior management of the
covered company must receive a
summary of the results of any stress test
conducted under this subpart.
(3) Role of stress testing results. The
board of directors and senior
management of each covered company
must consider the results of the analysis
it conducts under this subpart, as
appropriate:
(i) As part of the covered company’s
capital plan and capital planning
process, including when making
changes to the covered company’s
capital structure (including the level
and composition of capital);
(ii) When assessing the covered
company’s exposures, concentrations,
and risk positions; and
(iii) In the development or
implementation of any plans of the
covered company for recovery or
resolution.
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§ 252.57
Reports of stress test results.
(a) Reports to the Board of stress test
results. (1) A covered company must
report the results of the stress test
required under § 252.54 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) A covered company must report
the results of the stress test required
under § 252.55 to the Board by July 5 of
each calendar year in the manner and
form prescribed by the Board, unless
that time is extended by the Board in
writing.
(b) 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).
§ 252.58
Disclosure of stress test results.
(a) Public disclosure of results. (1) In
general. (i) A covered company must
disclose a summary of the results of the
stress test required under § 252.54 in the
period beginning on March 15 and
ending on March 31, unless that time is
extended by the Board in writing.
(ii) A covered company must disclose
a summary of the results of the stress
test required under § 252.55 in the
period beginning on September 15 and
ending on September 30, unless that
time is extended by the Board in
writing.
(2) Disclosure method. The summary
required under this section may be
disclosed on the Web site of a covered
company, or in any other forum that is
reasonably accessible to the public.
(b) Summary of results. A covered
company must disclose, at a minimum,
the following information regarding the
severely adverse scenario:
(1) A description of the types of risks
included in the stress test;
(2) A general description of the
methodologies used in the stress test,
including those employed to estimate
losses, revenues, provision for loan and
lease losses, and changes in capital
positions over the planning horizon;
(3) Estimates of—
(i) Pre-provision net revenue and
other revenue;
(ii) Provision for loan and lease losses,
realized losses or gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains;
(iii) Net income before taxes;
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Federal Register / Vol. 79, No. 47 / Tuesday, March 11, 2014 / Rules and Regulations
(iv) Loan losses (dollar amount and as
a percentage of average portfolio
balance) in the aggregate and by
subportfolio, including: domestic
closed-end first-lien mortgages;
domestic junior lien mortgages and
home equity lines of credit; commercial
and industrial loans; commercial real
estate loans; credit card exposures; other
consumer loans; and all other loans; and
(v) Pro forma regulatory capital ratios
and the tier 1 common ratio and any
other capital ratios specified by the
Board;
(4) An explanation of the most
significant causes for the changes in
regulatory capital ratios and the tier 1
common ratio; and
(5) With respect to a stress test
conducted pursuant to section 165(i)(2)
of the Dodd-Frank Act by an insured
depository institution that is a
subsidiary of the covered company and
that is required to disclose a summary
of its stress tests results under
applicable regulations, 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.
(c) Content of results. (1) The
following disclosures required under
paragraph (b) of this section must be on
a cumulative basis over the planning
horizon:
(i) Pre-provision net revenue and
other revenue;
(ii) Provision for loan and lease losses,
realized losses/gains on available-forsale and held-to-maturity securities,
trading and counterparty losses, and
other losses or gains;
(iii) Net income before taxes; and
(iv) Loan losses in the aggregate and
by subportfolio.
(2) The disclosure of pro forma
regulatory capital ratios, the tier 1
common ratio, 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.
■ 7. Subparts G and H are removed and
reserved.
■ 8. Subparts J through U are added and
reserved.
By order of the Board of Governors of the
Federal Reserve System, March 4, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014–05053 Filed 3–10–14; 8:45 am]
BILLING CODE 6210–01–P
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16:00 Mar 10, 2014
Jkt 232001
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 25
[Docket No. FAA–2012–0812; Amendment
No. 25–138]
RIN 2120–AK36
Requirements for Chemical Oxygen
Generators Installed on Transport
Category Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
This final rule amends the
type certification requirements for
chemical oxygen generators installed on
transport category airplanes so the
generators are secure and not subject to
misuse. This rule increases the level of
security for future transport category
airplane designs but does not directly
affect the existing fleet of those
airplanes.
SUMMARY:
This action becomes effective
May 12, 2014.
ADDRESSES: For information on where to
obtain copies of rulemaking documents
and other information related to this
final rule, see ‘‘How to Obtain
Additional Information’’ in the
SUPPLEMENTARY INFORMATION section of
this document.
FOR FURTHER INFORMATION CONTACT: For
technical questions concerning this
action, contact Jeff Gardlin, Airframe
and Cabin Safety Branch, ANM–115,
Transport Airplane Directorate, Aircraft
Certification Service, Federal Aviation
Administration, Northwest Mountain
Region, 1601 Lind Avenue SW., Renton,
WA 98057–3356; telephone: (425) 227–
2136; email: jeff.gardlin@faa.gov.
For legal questions concerning this
action, contact Douglas Anderson,
Federal Aviation Administration, Office
of the Regional Counsel, ANM–7,
Northwest Mountain Region, 1601 Lind
Avenue SW., Renton, WA 98057–3356;
telephone: (425) 227–2166; email:
douglas.anderson@faa.gov.
SUPPLEMENTARY INFORMATION:
DATES:
Authority for This Rulemaking
The FAA’s authority to issue
regulations on aviation safety is found
in Title 49 of the United States Code.
Subtitle I, Section 106 describes the
authority of the FAA Administrator.
Subtitle VII, Aviation Programs,
describes in more detail the scope of the
agency’s authority.
This final rule is promulgated under
the authority described in Subtitle VII,
PO 00000
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13515
Part A, Subpart III, Section 44701,
‘‘General requirements.’’ Under that
section, the FAA is charged with
promoting safe flight of civil aircraft in
air commerce by prescribing minimum
standards required in the interest of
safety for the design and performance of
aircraft; regulations and minimum
standards in the interest of safety for
inspecting, servicing, and overhauling
aircraft; and regulations for other
practices, methods, and procedures the
Administrator finds necessary for safety
in air commerce. This regulation is
within the scope of that authority
because it revises the safety standards
for design and operation of transport
category airplanes.
List of Abbreviations and Acronyms
Frequently Used in This Document
AD Airworthiness Directive
ARAC Aviation Rulemaking Advisory
Committee
COG Chemical Oxygen Generator
LOARC Lavatory Oxygen Aviation
Rulemaking Committee
SFAR Special Federal Aviation Regulation
I. Overview of Final Rule
This final rule adopts new standards
for chemical oxygen generators (COG)
installed in transport category airplanes.
These new standards, based on the
recommendations of the Lavatory
Oxygen Aviation Rulemaking
Committee (LOARC), pertain to future
applications for type certificates,
address potential security
vulnerabilities with COG installations,
and provide performance-based options
for acceptable methods of compliance.
II. Background
The FAA became aware of security
vulnerabilities with certain types of
oxygen systems installed inside the
lavatories of most transport category
airplanes. To address the underlying
security issues, the FAA chartered an
aviation rulemaking committee (ARC) to
make recommendations regarding new
standards for oxygen system
installations, as well as how to
implement those standards.
Specifically, the LOARC was tasked to:
• Establish criteria for in-service, new
production and new type design
airplanes, preferably in the form of
performance standards, for safe and
secure installation of lavatory oxygen
systems;
• Determine whether the same
criteria should apply to the existing fleet
and to new production and type
designs;
• Establish what type of safety
assessment approach should be used,
for example, in accordance with Society
of Automotive Engineers (SAE)
E:\FR\FM\11MRR1.SGM
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]]>Agencies
[Federal Register Volume 79, Number 47 (Tuesday, March 11, 2014)]
[Rules and Regulations]
[Pages 13498-13515]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05053]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Parts 225 and 252
[Regulations Y and YY; Docket Nos. R-1463 and R-1464; RIN 7100 AE-01
and AE-02]
Application of the Revised Capital Framework to the Capital Plan
and Stress Test Rules
AGENCY: Board of Governors of the Federal Reserve System (Board).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board is adopting a final rule to require a bank holding
company with total consolidated assets of $50 billion or more to
estimate its tier 1 common ratio using the exiting definition for
purposes of the Board's capital plan and stress test rules; defer until
October 1, 2015, the use of the Board's advanced approaches rule for
purposes of the Board's capital planning and stress testing rules;
maintain the one-year transition period in the current stress test
cycle during which bank holding companies and most state member banks
with more than $10 billion but less than $50 billion in total
consolidated assets are not required to incorporate the Board's Basel
III-based revised regulatory capital framework that the Board approved
on July 2, 2013 (revised capital framework); and make minor, conforming
changes to the Board's capital plan rule and stress test rules. The
final rule maintains all the changes to the Board's capital plan rule
and stress test rules that were required under two interim final rules
that the Board issued in September 2013, except that under the final
rule, no banking organization is required to use the advanced
approaches rule for purposes of the capital planning and stress testing
rules until 2015.
[[Page 13499]]
DATES: The final rule is effective April 15, 2014.
FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Deputy Associate Director,
(202) 263-4833, Constance Horsley, Assistant Director, (202) 452-5239,
Ann McKeehan, Senior Supervisory Financial Analyst, (202) 973-6903, or
Holly Kirkpatrick, Senior Financial Analyst, (202) 452-2796, 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, Counsel, (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:
I. Background
A. Revised Capital Framework
On July 2, 2013, the Board approved the revised capital framework,
which implemented the Basel III regulatory capital reforms and certain
changes required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).\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 began 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.
---------------------------------------------------------------------------
\1\ See 12 CFR part 217.
\2\ A banking organization is subject to the advanced approaches
rule if it has consolidated assets of at least $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.
---------------------------------------------------------------------------
As the revised regulatory capital framework comes into effect and
as explained more fully below, banking organizations will be required
to reflect the requirements of the revised capital framework in their
capital plans submitted pursuant to the Board's capital plan rule and
in their stress tests conducted under the Board's rules implementing
the stress test requirements of the Dodd-Frank Act.
B. Capital Plan Rule
Pursuant to the Board's capital plan rule and its related
supervisory process, the Comprehensive Capital Analysis and Review
(CCAR), the Board assesses the internal capital planning process of a
bank holding company with total consolidated assets of $50 billion or
more (large bank holding company) and its ability to maintain
sufficient capital to continue its operations under expected and
stressful conditions.\3\ Under the capital plan rule, a large bank
holding company is required to submit an annual capital plan to the
Board that contains estimates of its minimum regulatory capital ratios
and its tier 1 common ratio under expected conditions and a range of
stressed scenarios over a nine-quarter planning horizon (planning
horizon).\4\ A capital plan also must include a discussion of how a
large bank holding company will maintain a pro forma tier 1 common
ratio above 5 percent under expected conditions and stressed
scenarios.\5\
---------------------------------------------------------------------------
\3\ See generally 12 CFR 225.8.
\4\ Id.
\5\ Id. at Sec. 225.8(d)(2)(i)(B).
---------------------------------------------------------------------------
The preamble to the capital plan rule noted that the Basel III
framework proposed by the Basel Committee on Bank Supervision includes
a different definition of tier 1 common capital and that the Board and
the other federal banking agencies continued to work to implement Basel
III in the United States.\6\ The capital plan rule's definition of
``tier 1 common ratio'' states that the definition will remain in
effect until the Board adopts an alternative tier 1 common ratio
definition as a minimum regulatory capital ratio.\7\
---------------------------------------------------------------------------
\6\ 76 FR 74631, 74637 (December 1, 2011).
\7\ Id. at Sec. 225.8(c)(9).
---------------------------------------------------------------------------
C. Stress Test Rules
The Board's stress test rules for large bank holding companies and
nonbank financial companies supervised by the Board (together, covered
companies) establish a framework for the Board to conduct annual
supervisory stress tests to evaluate whether these companies have the
capital necessary to absorb losses as a result of adverse economic
conditions and require that these companies conduct semi-annual
company-run stress tests.\8\ For the supervisory stress tests, the
Board uses data as of September 30 of each year to assess a covered
company's capital levels, regulatory capital ratios, and tier 1 common
ratio over the nine-quarter planning horizon of a given stress test
cycle.\9\ Similarly, the semi-annual stress tests conducted by a
covered company require it to report, among other elements, its
regulatory capital ratios and tier 1 common ratio for each quarter of a
nine-quarter planning horizon.\10\ The stress test rule for covered
companies defines the tier 1 common ratio by cross-reference to the
capital plan rule, which, as previously described, provides that the
tier 1 common ratio is to remain in effect until the Board adopts an
alternative tier 1 common ratio definition.\11\
---------------------------------------------------------------------------
\8\ The changes in this final rule would apply to nonbank
financial companies supervised by the Board once they become subject
to stress test requirements.
\9\ 12 CFR 252.44(a).
\10\ Id. at 252.56(a).
\11\ Id. at 252.42(r), 252.52(t).
---------------------------------------------------------------------------
D. Interim final rules
On September 30, 2013, the Board published in the Federal Register
two interim final rules that amended the Board's capital plan rule and
stress test rules.\12\ The first interim final rule (capital planning
and stress testing IFR) amended the Board's capital plan rule \13\ and
stress test rules \14\ to require a bank holding company with total
consolidated assets of $50 billion or more to estimate its tier 1
common ratio using the methodology in the Board's Basel I-based capital
rules (under 12 CFR part 225, Appendix A).\15\ This interim final rule
also clarified when a banking organization would estimate its minimum
regulatory capital ratios using the advanced approaches rule for a
given capital plan and stress test cycle and made minor, technical
changes to the capital plan rule.\16\ Under the interim final rule, a
banking organization is required to use the advanced approaches rule in
its stress testing and capital planning only if the Board notifies the
banking organization on or before September 30 that it has been
approved to exit from parallel run under the advanced approaches rule.
A satisfactory ``parallel run'' under the
[[Page 13500]]
advanced approaches rule is a period of no less than four consecutive
calendar quarters during which the banking organization complies with
the qualification requirements of the rule.\17\
---------------------------------------------------------------------------
\12\ 78 FR 59779 (September 30, 2013); 78 FR 59791 (September
30, 2013).
\13\ 76 FR 74631 (Dec. 1, 2011) (codified at 12 CFR 225.8).
\14\ 77 FR 62378 (Oct. 12, 2012) (codified at 12 CFR part 252,
subparts F and G).
\15\ See 12 CFR 225.8 (capital plan rule); 12 CFR part 252,
subpart F (Supervisory Stress Test Requirements for Covered
Companies); 12 CFR part 252, subpart G (Company-Run Stress Test
Requirements for Covered Companies).
\16\ As of January 1, 2014, the advanced approaches rule is
found at 12 CFR part 217, subpart E. Until December 31, 2013, the
advanced approaches rule was found at 12 CFR part 208, Appendix F
(state member banks) and 12 CFR part 225, Appendix G (bank holding
companies).
\17\ 12 CFR 217.121(c).
---------------------------------------------------------------------------
The second interim final rule (IFR for $10-$50 billion companies)
provided 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 are not required to
reflect the Board's revised capital framework in their stress tests for
the stress test cycle that began on October 1, 2013. Instead, for this
stress test cycle, these companies are required to estimate their pro
forma capital levels and ratios over the full nine-quarter planning
horizon using the Board's Basel I-based capital rules.\18\ Like the
capital planning and stress testing IFR, the IFR for $10-$50 billion
companies also clarified that a banking organization is required to use
the advanced approaches rule in its company-run stress testing only if
the Board notifies the banking organization on or before September 30
that it has been approved to exit from parallel run under the advanced
approaches rule.
---------------------------------------------------------------------------
\18\ These capital rules are found at 12 CFR parts 208 and 225,
Appendix A.
---------------------------------------------------------------------------
In this final rule, the Board is adopting both the capital planning
and stress testing IFR and the IFR for $10-$50 billion companies in
final form. The final rule is identical to the interim final rules
except that the final rule provides an additional year, until October
1, 2015, for companies that have exited from parallel run to
incorporate the advanced approaches rule into their capital planning
and company-run stress tests, and for the Board to incorporate the
advanced approaches rule in its supervisory stress tests.
II. Comments on the Interim Final Rules
The Board received two comments on the capital planning and stress
testing IFR. The comments were both from individuals and encouraged the
Board to implement the Dodd-Frank Act in a stringent manner. Neither
commenter provided any specific comments regarding the capital planning
and stress testing IFR.
The Board did not receive any comments on the IFR for $10-$50
billion companies.
III. Summary of the Final Rule
A. Incorporating the Revised Capital Framework Into the Capital Plan
and Stress Tests Rules
The capital planning and stress testing IFR clarified that large
bank holding companies should continue to calculate their tier 1 common
ratio using the methodology in the Board's Basel I-based capital rules.
The final rule maintains this requirement.
Under the final rule, a large bank holding company must project its
regulatory capital ratios and meet the minimum capital requirements for
each quarter of the planning horizon in accordance with the minimum
capital requirements that are in effect for that company during that
quarter. Accordingly, under the final rule, in the capital planning and
stress test cycle that begins on October 1, 2014, a large bank holding
company that is an advanced approaches banking organization is required
to calculate its common equity tier 1 capital ratio using the revised
capital framework in every quarter of the nine-quarter planning
horizon, meet a 4.0 percent minimum in common equity tier 1 capital
ratio in 2014, and a 4.5 percent minimum common equity tier 1 capital
ratio in 2015 and 2016. A large bank holding company that is not an
advanced approaches banking organization is required to calculate its
common equity tier 1 capital ratio in the capital planning and stress
test cycle that begins on October 1, 2014, using the Basel I-based
capital rules in the first quarter of the planning horizon and the
revised capital framework in the second through ninth quarters of the
planning horizon, and meet a 4.5 percent minimum common equity tier 1
capital ratio in 2015 and 2016. A state member bank that is a
subsidiary of a bank holding company with total consolidated assets of
$50 billion or more will reflect the revised capital framework in the
same manner as its bank holding company parent in projecting its
capital for the upcoming stress test cycle. Table 1 summarizes these
requirements.
Table 1--Common Equity Ratios Applicable to Large Bank Holding Companies in the Capital Plan and Stress Test Cycles That Begins October 1, 2014
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Advanced approaches bank Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C
holding companies. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%
CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of
4.0%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%
Non-advanced approaches bank Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C Current T1C
holding companies. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%. ratio of 5.0%
CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of CET1 ratio of
4.5%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%. 4.5%
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Current T1C ratio: the ratio of a bank holding company's tier 1
common capital calculated using the definitions under the Board's Basel
I-based capital rules (i.e., tier 1 capital as defined under Appendix A
of 12 CFR part 225, less the non-common elements of tier 1 capital,
over total risk-weighted assets as
[[Page 13501]]
defined under Appendices A and E of 12 CFR part 225).
CET1 ratio: a bank holding company's common equity tier 1 capital
ratio as calculated under 12 CFR part 217, including the transition
provisions of 12 CFR part Sec. 217.300, as applicable within each
quarter of the capital plan and stress test cycles that begin October
1, 2014.
Under the final rule, as under the capital planning and stress
testing IFR, both large bank holding companies that are subject to the
advanced approaches rule and large bank holding companies that are not
subject to the advanced approaches rule must meet a minimum 5.0 percent
tier 1 common ratio over every quarter of the planning horizon,
calculate the tier 1 common ratio using the definitions of tier 1
capital and total risk-weighted assets under the Board's Basel I-based
capital rules, and not incorporate the new definitions in the revised
capital framework as part of this calculation. This approach maintains
consistency with previous capital plan cycles during the multi-year
phase-in of the new common equity tier 1 capital minimum requirement.
Once the new minimum common equity tier 1 capital ratio reaches its
permanent level of 4.5 percent and the deductions from common equity
tier 1 capital are fully phased-in, the Board expects that the common
equity tier 1 ratio will be generally more stringent than the tier 1
common ratio of 5.0 percent for the largest bank holding companies.
B. Transition Period for Revised Capital Framework
Under the IFR for $10-$50 billion companies, the Board provided
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. During this transition period, these companies are
not required to reflect the revised capital framework in any quarter of
the nine-quarter planning horizon. The final rule maintains this
transition period with respect to the current stress test cycle that
began on October 1, 2013.
These companies will estimate their pro forma capital levels and
ratios over the planning horizon using the capital rules under 12 CFR
part 208, Appendix A (for state member banks) and 12 CFR part 225,
Appendix A (for bank holding companies) and will not reflect the impact
of the revised capital framework (12 CFR part 217) in their company-run
stress tests. In particular, for this stress test cycle, these
companies 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 or any changes to the calculation of risk-
weighted assets. Beginning with the stress test cycle that starts on
October 1, 2014, these companies will be required to reflect the
revised capital framework in their company-run stress tests, including
the common equity tier 1 capital requirement. Accordingly, for purposes
of the stress test cycle that begins on October 1, 2014, each of these
companies that is subject to the advanced approaches will be required
to calculate its capital requirements, including the common equity tier
1 capital ratio, using the revised capital framework in every quarter
of the nine-quarter planning horizon, and each of these companies that
is not subject to the advanced approaches will be required to calculate
its capital requirements using the Basel I-based capital rules in the
first quarter of the planning horizon and the revised capital
framework, including the common equity tier 1 capital ratio, in the
second through ninth quarters of the planning horizon.
The final rule, like the IFR for $10-$50 billion companies,
excludes from the one-year transition period 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 Office of the Comptroller of the Currency and Federal Deposit
Insurance Company both implemented the Dodd-Frank Act stress testing
requirements for the stress test cycle that began on 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.
C. Parallel Run
In light of the issuance of the revised capital framework, both
interim final rules were intended to provide clarity on when a banking
organization would be required to estimate its minimum regulatory
capital ratios over the planning horizon using the advanced approaches
for a given capital planning and stress testing cycle. Without regard
to the capital planning and stress test rules, 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.\19\ The interim final rules provided that
for purposes of capital planning and stress testing, a banking
organization must be notified that it has completed a successful
parallel run by September 30 of a given calendar year in order to be
required to estimate its capital ratios using the advanced approaches
for the capital plan or stress test cycle that begins on October 1 of
that calendar year. The final rule maintains this approach. Thus, the
final rule provides that a company 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 capital plan or stress test cycle that begins on
October 1 of that year.
---------------------------------------------------------------------------
\19\ 12 CFR 217.121(d).
---------------------------------------------------------------------------
On February 14, 2014, the Board announced that certain advanced
approaches banking organizations had completed a successful parallel
run.\20\ Beginning April 15, 2014, these companies will be required to
use the advanced approaches rule to calculate their risk-based capital
requirements consistent with the requirements of the advanced
approaches rule. However, these companies will not be required to
calculate capital according to the advanced approaches rule for
purposes of capital planning and stress testing rules until the October
1, 2015, cycle.
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\20\ See Board press release dated February 20, 2014.
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As described above, the revised capital framework introduces more
stringent capital requirements, including the 4.5 percent minimum
common equity tier 1 capital ratio and the increasing deductions that
will become effective on January 1, 2015. For the largest bank holding
companies, this common equity tier 1 capital requirement, when fully
phased in, is generally expected to result in a more stringent capital
requirement than the capital plan rule's 5.0 percent tier 1 common
ratio, in part because it incorporates significantly higher deductions
from capital. The minimum capital requirements will continue to
increase in stringency until the capital deductions are fully phased in
in 2018. Large bank holding companies began to reflect these more
stringent capital requirements in the current capital planning and
stress test cycle, and all banking organizations subject to capital
planning and stress testing will be
[[Page 13502]]
required to reflect the more stringent capital requirements in the next
capital planning and stress test cycle.
Given the operational complexity associated with incorporating the
advanced approaches rule in the capital planning and stress testing
processes, the final rule clarifies that the advanced approaches rule's
incorporation into the capital plan and stress testing rules will be
deferred for one year, until October 1, 2015, with respect to any
banking organization that is notified on or before September 30, 2014,
that the banking organization may exit from parallel run. The
transition period will provide the Federal Reserve with sufficient time
to integrate the advanced approaches into its stress testing processes
and to provide guidance to advanced approaches banking organizations
regarding supervisory expectations for integrating the advanced
approaches into their stress testing and capital planning processes.
D. Technical Changes
The interim final rule made minor technical changes to the capital
plan rule. It clarified that a covered company that has not filed the
FR Y-9C report for the four most recent consecutive quarters will
calculate its total consolidated assets as reported on the company's
available FR Y-9C reports for the most recent quarter or consecutive
quarters. It also clarified that the Board (or the Reserve Bank, with
concurrence of the Board) may extend the resubmission period for a
capital plan beyond an initial 60-day extension if the Board or Reserve
Bank determines that such longer period is appropriate.
The interim final rule modified the capital plan rule to reflect
the Board's current practice of publicly disclosing its decision to
object or not object to a bank holding company's capital plan along
with a summary of the Board's analyses of that company. The rule
provides that any disclosure will occur by March 31 of each calendar
year, unless the Board determines that another date is appropriate.
With regard to the Board's review of bank holding companies' capital
plans, the Board expects the summary results largely will be similar to
the results disclosed in previous CCAR exercises, unless the Board
determines that different or additional disclosures would be
appropriate.
The final rule maintains these minor and technical modifications
without change. The final rule also deletes references to 12 CFR part
225, Appendix G, from the capital plan rule and stress test rules,
because this appendix was removed from the Code of Federal Regulations
effective January 1, 2014.
IV. Regulatory Analysis
A. Regulatory Flexibility Act Analysis
The Board has considered the potential impact of the 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 final rule will not have a significant
economic impact on a substantial number of small entities.
Nevertheless, the Board is publishing a final regulatory flexibility
analysis.
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 final rule
would apply to bank holding companies, savings and loan holding
companies, and state member banks with total consolidated asset of $10
billion or more and nonbank financial companies supervised by the
Board. 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.
The Board did not receive any comments on the interim final rules
regarding their impact on small entities. In light of the foregoing,
the Board does not believe that the 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 invited comment on how to
make the interim final rules easier to understand. The Board did not
receive any comments on plain language and believes that the final rule
is clearly written.
C. Paperwork Reduction Act
This final rule references currently approved collections of
information under the Paperwork Reduction Act (44 U.S.C. 3501-3520)
provided for in the capital plan rules. This 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
12 CFR Part 225
Administrative practice and procedure, Banks, Banking, Capital
planning, Holding companies, Reporting and recordkeeping requirements,
Securities, Stress testing.
12 CFR Part 252
Administrative practice and procedure, Banks, Banking, Capital
planning, 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 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
0
1. The authority citation for part 225 continues to read as follows:
Authority: 2 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
Subpart A--General Provisions
0
2. Revise Sec. 225.8 to read as follows:
Sec. 225.8 Capital planning.
(a) Purpose. This section establishes capital planning and prior
notice and approval requirements for capital distributions by certain
bank holding companies.
(b) Scope and effective date. (1) This section applies to every
top-tier bank holding company domiciled in the United States:
(i) With average total consolidated assets of $50 billion or more.
Average total consolidated assets means the average of the total
consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C 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, 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
[[Page 13503]]
used in the calculation of the average; or
(ii) That is subject to this section, in whole or in part, by order
of the Board based on the institution's size, level of complexity, risk
profile, scope of operations, or financial condition.
(2) Beginning on December 23, 2011, the provisions of this section
shall apply to any bank holding company that is subject to this section
pursuant to paragraph (b)(1), provided that:
(i) Until July 21, 2015, this section will not apply to any bank
holding company 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); and
(ii) A bank holding company that becomes subject to this section
pursuant to paragraph (b)(1)(i) after the 5th of January of a calendar
year shall not be subject to the requirements of paragraphs (d)(1)(ii),
(d)(4), and (f)(1)(iii) of this section until January 1 of the next
calendar year.
(3) Notwithstanding any other requirement in this section, for a
given capital plan cycle:
(i) Until October 1, 2015, a bank holding company's estimates of
its pro forma regulatory capital ratios and its pro forma tier 1 common
ratio over the planning horizon shall not include estimates using the
advanced approaches; and
(ii) Beginning October 1, 2015, for a given capital plan cycle
(including for purposes of the January 5 submission of a capital plan
under paragraph (d)(1) of this section and any resubmission of the
capital plan under paragraph (d)(4) of this section during the capital
plan cycle), a bank holding company's estimates of its pro forma
regulatory capital ratios and its pro forma tier 1 common ratio over
the planning horizon shall not include estimates using the advanced
approaches if the bank holding company is notified on or after the
first day of that capital plan cycle (October 1) that the bank holding
company is required to calculate its risk-based capital requirements
using the advanced approaches.
(4) Nothing in this section shall limit the authority of the
Federal Reserve to issue a capital directive or take any other
supervisory or enforcement action, including action to address unsafe
or unsound practices or conditions or violations of law.
(c) Definitions. For purposes of this section, the following
definitions apply:
(1) Advanced approaches means the risk-weighted assets calculation
methodologies at 12 CFR part 217, subpart E, as applicable, and any
successor regulation.
(2) Capital action means any issuance of a debt or equity capital
instrument, any capital distribution, and any similar action that the
Federal Reserve determines could impact a bank holding company's
consolidated capital.
(3) Capital distribution means a redemption or repurchase of any
debt or equity capital instrument, a payment of common or preferred
stock dividends, a payment that may be temporarily or permanently
suspended by the issuer on any instrument that is eligible for
inclusion in the numerator of any minimum regulatory capital ratio, and
any similar transaction that the Federal Reserve determines to be in
substance a distribution of capital.
(4) Capital plan means a written presentation of a bank holding
company's capital planning strategies and capital adequacy process that
includes the mandatory elements set forth in paragraph (d)(2) of this
section.
(5) Capital plan cycle means the period beginning on October 1 of a
calendar year and ending on September 30 of the following calendar
year.
(6) Capital policy means a bank holding company's written
assessment of the principles and guidelines used for capital planning,
capital issuance, usage and distributions, including internal capital
goals; the quantitative or qualitative guidelines for dividend and
stock repurchases; the strategies for addressing potential capital
shortfalls; and the internal governance procedures around capital
policy principles and guidelines.
(7) Minimum regulatory capital ratio means any minimum regulatory
capital ratio that the Federal Reserve may require of a bank holding
company, by regulation or order, including, as applicable, the bank
holding company's tier 1 and supplementary leverage ratios and common
equity tier 1, tier 1, and total risk-based capital ratios as
calculated under appendices A, D, and E to this part (12 CFR part 225)
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.
(8) Planning horizon means the period of at least nine quarters,
beginning with the quarter preceding the quarter in which the bank
holding company submits its capital plan, over which the relevant
projections extend.
(9) Tier 1 capital has the same meaning as under appendix A to this
part or under 12 CFR part 217, as applicable, or any successor
regulation.
(10) Tier 1 common capital means tier 1 capital as defined under
appendix A to this part less the non-common elements of tier 1 capital,
including perpetual preferred stock and related surplus, minority
interest in subsidiaries, trust preferred securities and mandatory
convertible preferred securities.
(11) Tier 1 common ratio means the ratio of a bank holding
company's tier 1 common capital to total risk-weighted assets as
defined under appendices A and E to this part.
(d) General requirements. (1) Annual capital planning. (i) A bank
holding company must develop and maintain a capital plan.
(ii) A bank holding company must submit its complete capital plan
to the appropriate Reserve Bank and the Board each year by the 5th of
January, or such later date as directed by the Board or the appropriate
Reserve Bank, with concurrence of the Board.
(iii) The bank holding company's board of directors or a designated
committee thereof must at least annually and prior to submission of the
capital plan under paragraph (d)(1)(ii) of this section:
(A) Review the robustness of the bank holding company's process for
assessing capital adequacy,
(B) Ensure that any deficiencies in the bank holding company's
process for assessing capital adequacy are appropriately remedied; and
(C) Approve the bank holding company's capital plan.
(2) Mandatory elements of capital plan. A capital plan must contain
at least the following elements:
(i) An assessment of the expected uses and sources of capital over
the planning horizon that reflects the bank holding company's size,
complexity, risk profile, and scope of operations, assuming both
expected and stressful conditions, including:
(A) Estimates of projected revenues, losses, reserves, and pro
forma capital levels, including any minimum regulatory capital ratios
(for example, leverage, tier 1 risk-based, and total risk-based capital
ratios) and any additional capital measures deemed relevant by the bank
holding company, over the planning horizon under expected conditions
and under a range of stressed scenarios, including any scenarios
provided by the Federal Reserve and at least one stressed scenario
developed by the bank holding company appropriate to its business model
and portfolios;
(B) A calculation of the pro forma tier 1 common ratio over the
planning horizon under expected conditions and under a range of
stressed scenarios and discussion of how the company will maintain a
pro forma tier 1 common
[[Page 13504]]
ratio above 5 percent under expected conditions and the stressed
scenarios required under paragraphs (d)(2)(i)(A) and (ii) of this
section;
(C) A discussion of the results of any stress test required by law
or regulation, and an explanation of how the capital plan takes these
results into account; and
(D) A description of all planned capital actions over the planning
horizon.
(ii) A detailed description of the bank holding company's process
for assessing capital adequacy, including:
(A) A discussion of how the bank holding company will, under
expected and stressful conditions, maintain capital commensurate with
its risks, maintain capital above the minimum regulatory capital ratios
and above a tier 1 common ratio of 5 percent, and serve as a source of
strength to its subsidiary depository institutions;
(B) A discussion of how the bank holding company will, under
expected and stressful conditions, maintain sufficient capital to
continue its operations by maintaining ready access to funding, meeting
its obligations to creditors and other counterparties, and continuing
to serve as a credit intermediary;
(iii) The bank holding company's capital policy; and
(iv) A discussion of any expected changes to the bank holding
company's business plan that are likely to have a material impact on
the firm's capital adequacy or liquidity.
(3) Data collection. Upon the request of the Board or appropriate
Reserve Bank, the bank holding company shall provide the Federal
Reserve with information regarding:
(i) The bank holding company's financial condition, including its
capital;
(ii) The bank holding company's structure;
(iii) Amount and risk characteristics of the bank holding company's
on- and off-balance sheet exposures, including exposures within the
bank holding company's trading account, other trading-related exposures
(such as counterparty-credit risk exposures) or other items sensitive
to changes in market factors, including, as appropriate, information
about the sensitivity of positions to changes in market rates and
prices;
(iv) The bank holding company's relevant policies and procedures,
including risk management policies and procedures;
(v) The bank holding company's liquidity profile and management;
and
(vi) Any other relevant qualitative or quantitative information
requested by the Board or the appropriate Reserve Bank to facilitate
review of the bank holding company's capital plan under this section.
(4) Re-submission of a capital plan. (i) A bank holding company
must update and re-submit its capital plan to the appropriate Reserve
Bank within 30 calendar days of the occurrence of one of the following
events:
(A) The bank holding company determines there has been or will be a
material change in the bank holding company's risk profile, financial
condition, or corporate structure since the bank holding company
adopted the capital plan;
(B) The Board or the appropriate Reserve Bank objects to the
capital plan; or
(C) The Board or the appropriate Reserve Bank, with concurrence of
the Board, directs the bank holding company in writing to revise and
resubmit its capital plan for any of the following reasons:
(1) The capital plan is incomplete or the capital plan, or the bank
holding company's internal capital adequacy process, contains material
weaknesses;
(2) There has been or will likely be a material change in the bank
holding company's risk profile (including a material change in its
business strategy or any risk exposure), financial condition, or
corporate structure;
(3) The stressed scenario(s) developed by the bank holding company
is not appropriate to its business model and portfolios, or changes in
financial markets or the macro-economic outlook that could have a
material impact on a bank holding company's risk profile and financial
condition require the use of updated scenarios; or
(4) The capital plan or the condition of the bank holding company
raise any of the issues described in paragraph (e)(2)(ii) of this
section.
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, may, at its discretion, extend the 30-day period in
paragraph (d)(4)(i) of this section for up to an additional 60 calendar
days, or such longer period as the Board or the appropriate Reserve
Bank, with concurrence of the Board, determines appropriate.
(iii) Any updated capital plan must satisfy all the requirements of
this section; however, a bank holding company may continue to rely on
information submitted as part of a previously submitted capital plan to
the extent that the information remains accurate and appropriate.
(e) Review of capital plans by the Federal Reserve; publication of
summary results. (1) Considerations and inputs. (i) The Board or the
appropriate Reserve Bank, with concurrence of the Board, will consider
the following factors in reviewing a bank holding company's capital
plan:
(A) The comprehensiveness of the capital plan, including the extent
to which the analysis underlying the capital plan captures and
addresses potential risks stemming from activities across the firm and
the company's capital policy;
(B) The reasonableness of the bank holding company's assumptions
and analysis underlying the capital plan and its methodologies for
reviewing the robustness of its capital adequacy process; and
(C) The bank holding company's ability to maintain capital above
each minimum regulatory capital ratio and above a tier 1 common ratio
of 5 percent on a pro forma basis under expected and stressful
conditions throughout the planning horizon, including but not limited
to any stressed scenarios required under paragraph (d)(2)(i)(A) and
(ii) of this section.
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, will also consider the following information in reviewing a
bank holding company's capital plan:
(A) Relevant supervisory information about the bank holding company
and its subsidiaries;
(B) The bank holding company's regulatory and financial reports, as
well as supporting data that would allow for an analysis of the bank
holding company's loss, revenue, and reserve projections;
(C) As applicable, the Federal Reserve's own pro forma estimates of
the firm's potential losses, revenues, reserves, and resulting capital
adequacy under expected and stressful conditions, including but not
limited to any stressed scenarios required under paragraph (d)(2)(i)(A)
and (ii) of this section, as well as the results of any stress tests
conducted by the bank holding company or the Federal Reserve; and
(D) Other information requested or required by the appropriate
Reserve Bank or the Board, as well as any other information relevant,
or related, to the bank holding company's capital adequacy.
(2) Federal Reserve action on a capital plan. (i) The Board or the
appropriate Reserve Bank, with concurrence of the Board, will object,
in whole or in part, to the capital plan or provide the bank holding
company with a notice of non-objection to the capital plan:
[[Page 13505]]
(A) By March 31 of the calendar year in which a capital plan was
submitted pursuant to paragraph (d)(1)(ii) of this section, and
(B) By the date that is 75 calendar days after the date on which a
capital plan was resubmitted pursuant to paragraph (d)(4) of this
section.
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, may object to a capital plan if it determines that:
(A) The bank holding company has material unresolved supervisory
issues, including but not limited to issues associated with its capital
adequacy process;
(B) The assumptions and analysis underlying the bank holding
company's capital plan, or the bank holding company's methodologies for
reviewing the robustness of its capital adequacy process, are not
reasonable or appropriate;
(C) The bank holding company has not demonstrated an ability to
maintain capital above each minimum regulatory capital ratio and above
a tier 1 common ratio of 5 percent, on a pro forma basis under expected
and stressful conditions throughout the planning horizon; or
(D) The bank holding company's capital planning process or proposed
capital distributions otherwise constitute an unsafe or unsound
practice, or would violate any law, regulation, Board order, directive,
or any condition imposed by, or written agreement with, the Board. In
determining whether a capital plan or any proposed capital distribution
would constitute an unsafe or unsound practice, the appropriate Reserve
Bank would consider whether the bank holding company is and would
remain in sound financial condition after giving effect to the capital
plan and all proposed capital distributions.
(iii) The Board or the appropriate Reserve Bank, with concurrence
of the Board, will notify the bank holding company in writing of the
reasons for a decision to object to a capital plan.
(iv) If the Board or the appropriate Reserve Bank, with concurrence
of the Board, objects to a capital plan and until such time as the
Board or the appropriate Reserve Bank, with concurrence of the Board,
issues a non-objection to the bank holding company's capital plan, the
bank holding company may not make any capital distribution, other than
those capital distributions with respect to which the Board or the
appropriate Reserve Bank has indicated in writing its non-objection.
(v) The Board may disclose publicly its decision to object or not
object to a bank holding company's capital plan under this section,
along with a summary of the Board's analyses of that company. Any
disclosure under this paragraph (e)(2)(v) will occur by March 31,
unless the Board determines that a later disclosure date is
appropriate.
(3) Request for reconsideration or hearing. Within 10 calendar days
of receipt of a notice of objection to a capital plan by the Board or
the appropriate Reserve Bank:
(i) A bank holding company may submit a written request to the
Board requesting reconsideration of the objection, including an
explanation of why reconsideration should be granted. Within 10
calendar days of receipt of the bank holding company's request, the
Board will notify the company of its decision to affirm or withdraw the
objection to the bank holding company's capital plan or a specific
capital distribution; or
(ii) As an alternative to paragraph (e)(3)(i) of this section, a
bank holding company may submit a written request to the Board for a
hearing. Any hearing shall follow the procedures described in paragraph
(f)(5)(ii) through (iii) of this section.
(f) Approval requirements for certain capital actions. (1)
Circumstances requiring approval. Notwithstanding a notice of non-
objection under paragraph (e)(2)(i) of this section a bank holding
company may not make a capital distribution under the following
circumstances, unless it receives approval from the Board or
appropriate Reserve Bank pursuant to paragraph (f)(4) of this section:
(i) After giving effect to the capital distribution, the bank
holding company would not meet a minimum regulatory capital ratio or a
tier 1 common ratio of at least 5 percent;
(ii) The Board or the appropriate Reserve Bank, with concurrence of
the Board, notifies the company in writing that the Federal Reserve has
determined that the capital distribution would result in a material
adverse change to the organization's capital or liquidity structure or
that the company's earnings were materially underperforming
projections;
(iii) Except as provided in paragraph (f)(2) of this section, the
dollar amount of the capital distribution will exceed the amount
described in the capital plan for which a non-objection was issued
under this section; or
(iv) The capital distribution would occur after the occurrence of
an event requiring resubmission under paragraphs (d)(4)(i)(A) and
(d)(4)(i)(C) of this section and before the Federal Reserve acted on
the resubmitted capital plan.
(2) Exception for well capitalized bank holding companies. (i) A
bank holding company may make a capital distribution for which the
dollar amount exceeds the amount described in the capital plan for
which a non-objection was issued under this section if the following
conditions are satisfied:
(A) The bank holding company is, and after the capital distribution
would remain, well capitalized as defined in Sec. 225.2(r) of
Regulation Y (12 CFR 225.2(r));
(B) The bank holding company's performance and capital levels are,
and after the capital distribution would remain, consistent with its
projections under expected conditions as set forth in its capital plan
under this paragraph (d)(2)(i);
(C) The annual aggregate dollar amount of all capital distributions
(beginning on April 1 of a calendar year and ending on March 31 of the
following calendar year) would not exceed the total amounts described
in the company's capital plan for which the bank holding company
received a notice of non-objection by more than 1.00 percent multiplied
by the bank holding company's tier 1 capital, as reported to the
Federal Reserve on the bank holding company's first quarter FR Y-9C;
(D) The bank holding company provides the appropriate Reserve Bank
with notice 15 calendar days prior to a capital distribution that
includes the elements described in paragraph (f)(3) of this section;
and
(E) The Board or the appropriate Reserve Bank, with concurrence of
the Board, does not object to the transaction proposed in the notice.
In determining whether to object to the proposed transaction, the Board
or the appropriate Reserve Bank, with concurrence of the Board, shall
apply the criteria described in paragraph (f)(4)(iv) of this section.
(ii) The exception in this paragraph (f)(2) shall not apply if the
Board or the appropriate Reserve Bank notifies the bank holding company
in writing that it may not take advantage of this exception.
(3) Contents of request. (i) A request for a capital distribution
under this section shall be filed with the appropriate Reserve Bank and
the Board and shall contain the following information:
(A) The bank holding company's current capital plan or an
attestation that there have been no changes to the capital plan since
it was last submitted to the Federal Reserve;
(B) The purpose of the transaction;
(C) A description of the capital distribution, including for
redemptions
[[Page 13506]]
or repurchases of securities, the gross consideration to be paid and
the terms and sources of funding for the transaction, and for
dividends, the amount of the dividend(s); and
(D) Any additional information requested by the Board or the
appropriate Reserve Bank (which may include, among other things, an
assessment of the bank holding company's capital adequacy under a
revised stress scenario provided by the Federal Reserve, a revised
capital plan, and supporting data).
(ii) Any request submitted with respect to a capital distribution
described in paragraph (f)(1)(i) of this section shall also include a
plan for restoring the bank holding company's capital to an amount
above a minimum level within 30 days and a rationale for why the
capital distribution would be appropriate.
(4) Approval of certain capital distributions. (i) A bank holding
company must obtain approval from the Board or the appropriate Reserve
Bank, with concurrence of the Board, before making a capital
distribution described in paragraph (f)(1) of this section.
(ii) A request for a capital distribution under this section must
be filed with the appropriate Reserve Bank and contain all the
information set forth in paragraph (f)(3) of this section.
(iii) The Board or the appropriate Reserve Bank, with concurrence
of the Board, will act on a request under this paragraph (f)(4) within
30 calendar days after the receipt of a complete request under
paragraph (f)(4)(ii) of this section. The Board or the appropriate
Reserve Bank may, at any time, request additional information that it
believes is necessary for its decision.
(iv) In acting on a request under this paragraph, the Board or
appropriate Reserve Bank will apply the considerations and principles
in paragraph (e) of this section. In addition, the Board or the
appropriate Reserve Bank may disapprove the transaction if the bank
holding company does not provide all of the information required to be
submitted under paragraphs (f)(3) and (f)(5)(iii) of this section.
(5) Disapproval and hearing. (i) The Board or the appropriate
Reserve Bank will notify the bank holding company in writing of the
reasons for a decision to disapprove any proposed capital distribution.
Within 10 calendar days after receipt of a disapproval by the Board,
the bank holding company may submit a written request for a hearing.
(ii) The Board will order a hearing within 10 calendar days of
receipt of the request if it finds that material facts are in dispute,
or if it otherwise appears appropriate. Any hearing conducted under
this paragraph shall be held in accordance with the Board's Rules of
Practice for Formal Hearings (12 CFR part 263).
(iii) At the conclusion of the hearing, the Board will by order
approve or disapprove the proposed capital distribution on the basis of
the record of the hearing.
PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)
0
3. 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
4. Subpart B is added to read as follows:
Subpart B--Company-Run Stress Test Requirements for Certain U.S.
Banking Organizations With Total Consolidated Assets Over $10 Billion
and Less Than $50 Billion
Sec.
252.10 [Reserved]
252.11 Authority and purpose.
252.12 Definitions.
252.13 Applicability.
252.14 Annual stress test.
252.15 Methodologies and practices.
252.16 Reports of stress test results.
252.17 Disclosure of stress test results.
Subpart B--Company-Run Stress Test Requirements for Certain U.S.
Banking Organizations With Total Consolidated Assets Over $10
Billion and Less Than $50 Billion
Sec. 252.10 [Reserved]
Sec. 252.11 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. 252.12 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Advanced approaches means the regulatory capital requirements
at 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
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 Sec. 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 Sec. 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)).
[[Page 13507]]
(j) Foreign banking organization has the same meaning as in Sec.
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, and E to 12 CFR part 225, appendices A, B, and E 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. 252.13 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.\1\
---------------------------------------------------------------------------
\1\ See Sec. 252.12(c).
---------------------------------------------------------------------------
(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.\2\
---------------------------------------------------------------------------
\2\ See Sec. 252.12(c).
---------------------------------------------------------------------------
(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 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 F. 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 F 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
[[Page 13508]]
in this section, for a given stress test cycle:
(1) Until October 1, 2015, 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; and
(2) Beginning October 1, 2015, 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 (October 1) that it is
required to calculate its risk-based capital requirements using the
advanced approaches.
Sec. 252.14 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 paragraph (b)(2)(i) of this section or Sec.
252.54(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. 252.15 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
Sec. 252.14, 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. 252.14, a bank holding company or savings and loan
holding company is required to make the following assumptions regarding
its capital actions over the planning horizon--
(1) 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
(2) 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
[[Page 13509]]
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. 252.16 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. 252.14(b)(3), 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. 252.14.
(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. 252.17 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 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 Sec. 252.58, 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.
[[Page 13510]]
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.
0
5. Subpart E is added to read as follows:
Subpart E--Supervisory Stress Test Requirements for U.S. Bank Holding
Companies With $50 Billion or More in Total Consolidated Assets and
Nonbank Financial Companies Supervised by the Board
Sec.
252.40 [Reserved].
252.41 Authority and purpose.
252.42 Definitions.
252.43 Applicability.
252.44 Annual analysis conducted by the Board.
252.45 Data and information required to be submitted in support of
the Board's analyses.
252.46 Review of the Board's analysis; publication of summary
results.
252.47 Use requirement.
Subpart E--Supervisory Stress Test Requirements for U.S. Bank
Holding Companies With $50 Billion or More in Total Consolidated
Assets and Nonbank Financial Companies Supervised by the Board
Sec. 252.40 [Reserved].
Sec. 252.41 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements section 165(i)(1) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(1)), which requires the Board to conduct
annual analyses of nonbank financial companies supervised by the Board
and bank holding companies with $50 billion or more in total
consolidated assets to evaluate whether such companies have the
capital, on a total consolidated basis, necessary to absorb losses as a
result of adverse economic conditions.
Sec. 252.42 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Advanced approaches means the risk-weighted assets calculation
methodologies at 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 covered company that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(c) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C 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, 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 used in the calculation of the average.
(d) Bank holding company has the same meaning as in Sec. 225.2(c)
of the Board's Regulation Y (12 CFR 225.2(c)).
(e) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered company and that
reflect the consensus views of the economic and financial outlook.
(f) Covered company means:
(1) A bank holding company (other than a foreign banking
organization) with average total consolidated assets of $50 billion or
more; and
(2) A nonbank financial company supervised by the Board.
(g) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(h) Foreign banking organization has the same meaning as in Sec.
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(i) Nonbank financial company supervised by the Board means a
nonbank financial company that the Financial Stability Oversight
Council has determined under section 113 of the Dodd-Frank Act (12
U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
(j) 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.
(k) Pre-provision net revenue means the sum of net interest income
and non-interest income less expenses before adjusting for loss
provisions.
(l) Provision for loan and lease losses means the provision for
loan and lease losses as reported by the covered company on the FR Y-
9C.
(m) Regulatory capital ratio means a capital ratio for which the
Board established minimum requirements for the company by regulation or
order, including, as applicable, the company's tier 1 and supplementary
leverage ratios and common equity tier 1, tier 1, and total risk-based
capital ratios as calculated under appendices A, D, and E to this part
(12 CFR part 225) 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.
(n) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board
annually determines are appropriate for use in the supervisory stress
tests, including, but not limited to, baseline, adverse, and severely
adverse scenarios.
(o) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that overall are more severe than those associated with the adverse
scenario and may include trading or other additional components.
(p) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year.
(q) Subsidiary has the same meaning as in Sec. 225.2(o) the
Board's Regulation Y (12 CFR 225.2).
(r) Tier 1 common ratio has the same meaning as in the Board's
Regulation Y (12 CFR 225.8).
Sec. 252.43 Applicability.
(a) Compliance date for bank holding companies that are covered
companies as of November 15, 2012. (1) In general. Except as provided
in paragraph (a)(2) or (a)(3) of this section, a bank holding company
that is a covered company as
[[Page 13511]]
of November 15, 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.
(2) 2009 Supervisory Capital Assessment Program. A bank holding
company that participated in the 2009 Supervisory Capital Assessment
Program, or a successor to such a 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.
(3) SR Letter 01-01. A U.S.-domiciled bank holding company that is
a covered company as of November 15, 2012, and 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.
(b) Compliance date for institutions that become covered companies
after November 15, 2012. (1) Bank holding companies. A bank holding
company that becomes a covered company after November 15, 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 bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
(2) Nonbank financial companies supervised by the Board. A company
that becomes a nonbank financial company supervised by the Board 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 first becomes subject to the Board's minimum regulatory
capital requirements, unless the Board accelerates or extends the
compliance date.
(c) Ongoing application. A bank holding company that is a covered
company will remain subject to the requirements of this subpart unless
and until its total consolidated assets fall below $50 billion for each
of four consecutive quarters, as reported on the FR Y-9C. The
calculation will be effective on the as-of date of the fourth
consecutive FR Y-9C.
(d) Advanced approaches. Notwithstanding any other requirement in
this section, for a given stress test cycle:
(1) Until October 1, 2015, the Board's analysis a covered company's
capital in a given stress test cycle will not include estimates using
the advanced approaches; and
(2) Beginning October 1, 2015, the Board's analysis of a covered
company's capital in a given stress test cycle will not include
estimates using the advanced approaches if the covered company is
notified on or after the first day of that stress test cycle (October
1) that the covered company is required to calculate its risk-based
capital requirements using the advanced approaches.
Sec. 252.44 Annual analysis conducted by the Board.
(a) In general. (1) On an annual basis, the Board will conduct an
analysis of each covered company's capital, on a total consolidated
basis, taking into account all relevant exposures and activities of
that covered company, to evaluate the ability of the covered company to
absorb losses in specified economic and financial conditions.
(2) The analysis will include an assessment of the projected
losses, net income, and pro forma capital levels and regulatory capital
ratios, tier 1 common ratio, and other capital ratios for the covered
company and use such analytical techniques that the Board determines
are appropriate to identify, measure, and monitor risks of the covered
company that may affect the financial stability of the United States.
(3) In conducting the analyses, the Board will coordinate with the
appropriate primary financial regulatory agencies and the Federal
Insurance Office, as appropriate.
(b) Economic and financial scenarios related to the Board's
analysis. The Board will conduct its analysis under this section using
a minimum of three different scenarios, including a baseline scenario,
adverse scenario, and severely adverse scenario. The Board will notify
covered companies of the scenarios that the Board will apply to conduct
the analysis for each stress test cycle by no later than November 15 of
each year, except with respect to trading or any other components of
the scenarios and any additional scenarios that the Board will apply to
conduct the analysis, which will be communicated by no later than
December 1.
Sec. 252.45 Data and information required to be submitted in support
of the Board's analyses.
(a) Regular submissions. Each covered company must submit to the
Board such data, on a consolidated basis, that the Board determines is
necessary in order for the Board to derive the relevant pro forma
estimates of the covered company over the planning horizon under the
scenarios described in Sec. 252.44(b).
(b) Additional submissions required by the Board. The Board may
require a covered company to submit any other information on a
consolidated basis that the Board deems necessary in order to:
(1) Ensure that the Board has sufficient information to conduct its
analysis under this subpart; and
(2) Project a company's pre-provision net revenue, losses,
provision for loan and lease losses, and net income; and, pro forma
capital levels, regulatory capital ratios, tier 1 common ratio, and any
other capital ratio specified by the Board under the scenarios
described in Sec. 252.44(b).
(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
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. 252.46 Review of the Board's analysis; publication of summary
results.
(a) Review of results. Based on the results of the analysis
conducted under this subpart, the Board will conduct an evaluation to
determine whether the covered company has the capital, on a total
consolidated basis, necessary to absorb losses and continue its
operation by maintaining ready access to funding, meeting its
obligations to creditors and other counterparties, and continuing to
serve as a credit intermediary under baseline, adverse and severely
adverse scenarios, and any additional scenarios.
(b) Communication of results to covered companies. The Board will
convey to a covered company a summary of the results of the Board's
analyses of such covered company within a reasonable period of time,
but no later than March 31.
(c) Publication of results by the Board. By March 31 of each
calendar year, the Board will disclose a summary of the results of the
Board's analyses of a covered company.
Sec. 252.47 Use requirement.
(a) In general. The board of directors and senior management of
each covered company must consider the results of the analysis
conducted by the Board under this subpart, as appropriate:
(1) As part of the covered company's capital plan and capital
planning process, including when making
[[Page 13512]]
changes to the covered company's capital structure (including the level
and composition of capital);
(2) When assessing the covered company's exposures, concentrations,
and risk positions; and
(3) In the development or implementation of any plans of the
covered company for recovery or resolution.
(b) Resolution plan updates. Each covered company must update its
resolution plan as the Board determines appropriate, based on the
results of the Board's analyses of the covered company under this
subpart.
0
6. Subpart F is revised to read as follows:
Subpart F--Company-Run Stress Test Requirements for U.S. Bank Holding
Companies With $50 Billion or More in Total Consolidated Assets and
Nonbank Financial Companies Supervised by the Board
Sec.
252.50 [Reserved]
252.51 Authority and purpose.
252.52 Definitions.
252.53 Applicability.
252.54 Annual stress test.
252.55 Mid-cycle stress test.
252.56 Methodologies and practices.
252.57 Reports of stress test results.
252.58 Disclosure of stress test results.
Subpart F--Company-Run Stress Test Requirements for U.S. Bank
Holding Companies With $50 Billion or More in Total Consolidated
Assets and Nonbank Financial Companies Supervised by the Board
Sec. 252.50 [Reserved].
Sec. 252.51 Authority and purpose.
(a) Authority. 12 U.S.C. 321-338a, 1467a(g), 1818, 1831p-1,
1844(b), 1844(c), 5361, 5365, 5366.
(b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires a covered company to
conduct annual and semi-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. 252.52 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Advanced approaches means the risk-weighted assets calculation
methodologies at 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 covered company that are more
adverse than those associated with the baseline scenario and may
include trading or other additional components.
(c) Average total consolidated assets means the average of the
total consolidated assets as reported by a bank holding company on its
Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)
for the four most recent consecutive quarters. If the bank holding
company has not filed the FR Y-9C 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, 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 used in the calculation of the average.
(d) Bank holding company has the same meaning as in Sec. 225.2(c)
of the Board's Regulation Y (12 CFR 225.2(c)).
(e) Baseline scenario means a set of conditions that affect the
U.S. economy or the financial condition of a covered company and that
reflect the consensus views of the economic and financial outlook.
(f) Capital action has the same meaning as in Sec. 225.8(c)(2) of
the Board's Regulation Y (12 CFR 225.8(c)(2)).
(g) Covered company means:
(1) A bank holding company (other than a foreign banking
organization) with average total consolidated assets of $50 billion or
more; and
(2) A nonbank financial company supervised by the Board.
(h) Depository institution has the same meaning as in section 3 of
the Federal Deposit Insurance Act (12 U.S.C. 1813(c)).
(i) Foreign banking organization has the same meaning as in Sec.
211.21(o) of the Board's Regulation K (12 CFR 211.21(o)).
(j) Nonbank financial company supervised by the Board means a
nonbank financial company that the Financial Stability Oversight
Council has determined under section 113 of the Dodd-Frank Act (12
U.S.C. 5323) shall be supervised by the Board and for which such
determination is still in effect.
(k) Planning horizon means the period of at least nine quarters,
beginning on the first day of a stress test cycle (on October 1 or
April 1, as appropriate) 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 covered company on the FR Y-
9C.
(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, the company's tier 1 and supplementary
leverage ratios and common equity tier 1, tier 1, and total risk-based
capital ratios as calculated under appendices A, D, and E to this part
(12 CFR part 225) 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.
(o) Scenarios are those sets of conditions that affect the U.S.
economy or the financial condition of a covered company that the Board,
or with respect to the mid-cycle stress test required under Sec.
252.55, the covered company, annually determines are appropriate for
use in the company-run stress tests, including, but not limited to,
baseline, adverse, and severely adverse scenarios.
(p) Severely adverse scenario means a set of conditions that affect
the U.S. economy or the financial condition of a covered company and
that overall are more severe than those associated with the adverse
scenario and may include trading or other additional components.
(q) Stress test means a process to assess the potential impact of
scenarios on the consolidated earnings, losses, and capital of a
covered company over the planning horizon, taking into account its
current condition, risks, exposures, strategies, and activities.
(r) Stress test cycle means the period between October 1 of a
calendar year and September 30 of the following calendar year.
(s) Subsidiary has the same meaning as in Sec. 225.2(o) the
Board's Regulation Y (12 CFR 225.2).
(t) Tier 1 common ratio has the same meaning as in Sec. 225.8 of
the Board's Regulation Y (12 CFR 225.8).
Sec. 252.53 Applicability.
(a) Compliance date for bank holding companies that are covered
companies as of November 15, 2012. (1) In general. Except as provided
in paragraph (a)(2) or (a)(3) of this section, a bank holding company
that is a covered company as of November 15, 2012, must comply with the
requirements of this subpart beginning with the stress test cycle
commencing on October 1, 2013, unless that time is extended by the
Board in writing.
[[Page 13513]]
(2) 2009 Supervisory Capital Assessment Program. A bank holding
company that participated in the 2009 Supervisory Capital Assessment
Program, or a successor to such a bank holding company, must comply
with the requirements of this subpart beginning with the stress test
cycle commencing on November 15, 2012, unless that time is extended by
the Board in writing.
(3) SR Letter 01-01. A U.S.-domiciled bank holding company that is
a covered company as of November 15, 2012, and 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 commencing on October 1, 2015, unless that
time is extended by the Board in writing.
(b) Compliance date for institutions that become covered companies
after November 15, 2012. (1) Bank holding companies. A bank holding
company that becomes a covered company after November 15, 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 bank holding company becomes a covered company, unless that time is
extended by the Board in writing.
(2) Nonbank financial companies supervised by the Board. A company
that becomes a nonbank financial company supervised by the Board 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
company first becomes subject to the Board's minimum regulatory capital
requirements, unless the Board accelerates or extends the compliance
date.
(c) Ongoing application. A bank holding company that is a covered
company will remain subject to the requirements of this subpart unless
and until its total consolidated assets fall below $50 billion for each
of four consecutive quarters, as reported on the FR Y-9C. The
calculation will be effective on the as-of date of the fourth
consecutive FR Y-9C.
(d) Advanced approaches. Notwithstanding any other requirement in
this section, for a given capital plan cycle:
(1) Until October 1, 2015, a covered company's estimates of its pro
forma regulatory capital ratios and the estimate of its pro forma tier
1 common ratio over the planning horizon shall not include estimates
using the advanced approaches; and
(2) Beginning October 1, 2015, for a given stress test cycle, a
covered company's estimates of its pro forma regulatory capital ratios
and the estimate of its pro forma tier 1 common ratio 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 (October 1) that it is required to calculate its risk-based
capital requirements using the advanced approaches.
Sec. 252.54 Annual stress test.
(a) In general. A covered company must conduct an annual stress
test by January 5 during each stress test cycle 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.
(b) Scenarios provided by the Board. (1) In general. In conducting
a stress test under this section, a covered company must use the
scenarios provided by the Board. Except as provided in paragraphs
(b)(2) and (b)(3) of this section, the Board will provide a description
of the scenarios to each covered company no later than November 15 of
that calendar year.
(2) Additional components. (i) The Board may require a covered
company 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 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 covered company 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 covered company
to use 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 covered company 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 covered company 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 covered
company with a description of any additional component(s) or additional
scenario(s) by December 1.
Sec. 252.55 Mid-cycle stress test.
(a) Mid-cycle stress test requirement. In addition to the stress
test required under Sec. 252.54, a covered company must conduct a
stress test by July 5 during each stress test cycle based on data as of
March 31 of that calendar year, unless the time or the as-of date is
extended by the Board in writing.
(b) Scenarios related to mid-cycle stress tests. (1) In general. A
covered company must develop and employ a minimum of three scenarios,
including a baseline scenario, adverse scenario, and severely adverse
scenario, that are appropriate for its own risk profile and operations,
in conducting the stress test required by this section.
(2) Additional components. The Board may require a covered company
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 covered company
to use 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.
[[Page 13514]]
(4) Notice and response. If the Board requires a covered company to
include one or more additional components in its adverse and severely
adverse scenarios under paragraph (b)(2) of this section or one or more
additional scenarios under paragraph (b)(3) of this section, the Board
will notify the company in writing no later than March 31. 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 covered company 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 covered company with a
description of any additional component(s) or additional scenario(s) by
June 1.
Sec. 252.56 Methodologies and practices.
(a) Potential impact on capital. In conducting a stress test under
Sec. Sec. 252.54 and 252.55, for each quarter of the planning horizon,
a covered company 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, the tier
1 common ratio, 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. Sec. 252.54 and 252.55, a covered company is required
to make the following assumptions regarding its capital actions over
the planning horizon--
(1) For the first quarter of the planning horizon, the covered
company must take into account its actual capital actions as of the end
of that quarter; and
(2) For each of the second through ninth quarters of the planning
horizon, the covered 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 covered company 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
covered 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. Policies of covered companies
must also describe processes for scenario development for the mid-cycle
stress test required under Sec. 252.55.
(2) Oversight of stress testing processes. The board of directors,
or a committee thereof, of a covered company must approve and review
the policies and procedures of the stress testing processes as
frequently as economic conditions or the condition of the covered
company may warrant, but no less than annually. The board of directors
and senior management of the covered company must receive a summary of
the results of any stress test conducted under this subpart.
(3) Role of stress testing results. The board of directors and
senior management of each covered company must consider the results of
the analysis it conducts under this subpart, as appropriate:
(i) As part of the covered company's capital plan and capital
planning process, including when making changes to the covered
company's capital structure (including the level and composition of
capital);
(ii) When assessing the covered company's exposures,
concentrations, and risk positions; and
(iii) In the development or implementation of any plans of the
covered company for recovery or resolution.
Sec. 252.57 Reports of stress test results.
(a) Reports to the Board of stress test results. (1) A covered
company must report the results of the stress test required under Sec.
252.54 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) A covered company must report the results of the stress test
required under Sec. 252.55 to the Board by July 5 of each calendar
year in the manner and form prescribed by the Board, unless that time
is extended by the Board in writing.
(b) 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. 252.58 Disclosure of stress test results.
(a) Public disclosure of results. (1) In general. (i) A covered
company must disclose a summary of the results of the stress test
required under Sec. 252.54 in the period beginning on March 15 and
ending on March 31, unless that time is extended by the Board in
writing.
(ii) A covered company must disclose a summary of the results of
the stress test required under Sec. 252.55 in the period beginning on
September 15 and ending on September 30, unless that time is extended
by the Board in writing.
(2) Disclosure method. The summary required under this section may
be disclosed on the Web site of a covered company, or in any other
forum that is reasonably accessible to the public.
(b) Summary of results. A covered company must disclose, at a
minimum, the following information regarding the severely adverse
scenario:
(1) A description of the types of risks included in the stress
test;
(2) A general description of the methodologies used in the stress
test, including those employed to estimate losses, revenues, provision
for loan and lease losses, and changes in capital positions over the
planning horizon;
(3) Estimates of--
(i) Pre-provision net revenue and other revenue;
(ii) Provision for loan and lease losses, realized losses or gains
on available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains;
(iii) Net income before taxes;
[[Page 13515]]
(iv) Loan losses (dollar amount and as a percentage of average
portfolio balance) in the aggregate and by subportfolio, including:
domestic closed-end first-lien mortgages; domestic junior lien
mortgages and home equity lines of credit; commercial and industrial
loans; commercial real estate loans; credit card exposures; other
consumer loans; and all other loans; and
(v) Pro forma regulatory capital ratios and the tier 1 common ratio
and any other capital ratios specified by the Board;
(4) An explanation of the most significant causes for the changes
in regulatory capital ratios and the tier 1 common ratio; and
(5) With respect to a stress test conducted pursuant to section
165(i)(2) of the Dodd-Frank Act by an insured depository institution
that is a subsidiary of the covered company and that is required to
disclose a summary of its stress tests results under applicable
regulations, 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.
(c) Content of results. (1) The following disclosures required
under paragraph (b) of this section must be on a cumulative basis over
the planning horizon:
(i) Pre-provision net revenue and other revenue;
(ii) Provision for loan and lease losses, realized losses/gains on
available-for-sale and held-to-maturity securities, trading and
counterparty losses, and other losses or gains;
(iii) Net income before taxes; and
(iv) Loan losses in the aggregate and by subportfolio.
(2) The disclosure of pro forma regulatory capital ratios, the tier
1 common ratio, 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.
0
7. Subparts G and H are removed and reserved.
0
8. Subparts J through U are added and reserved.
By order of the Board of Governors of the Federal Reserve
System, March 4, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-05053 Filed 3-10-14; 8:45 am]
BILLING CODE 6210-01-P
