Application of Enhanced Prudential Standards and Reporting Requirements to General Electric Capital Corporation, 71768-71785 [2014-28414]

Download as PDF 71768 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices prepaid cards, the volume and value of settled purchase transactions, and the volume and value of ATM withdrawals. As discussed in the IFR, the Federal Reserve believes that eliminating FR 3063b would significantly reduce reporting burden on the public. For this reason, and because the Federal Reserve did not receive any comments on the potential impact of eliminating FR 3063b, the Federal Reserve plans not to conduct this survey in calendar year 2015. Nevertheless, the Federal Reserve will maintain the authority to conduct FR 3063b through the 2015–2018 datacollection cycle. During this period, the Federal Reserve will determine whether the alternative prevalence-of-use metrics derived from FR 3063a are reasonable for satisfying the reporting requirements of the Dodd-Frank Act. Should the Federal Reserve make this determination, a notice would be published in the Federal Register requesting public comment on the discontinuance of the FR 3063b information collection for future datacollection cycles. Board of Governors of the Federal Reserve System, November 28, 2014. Margaret McCloskey Shanks, Deputy Secretary of the Board. [FR Doc. 2014–28432 Filed 12–2–14; 8:45 am] BILLING CODE 6210–01–P FEDERAL RESERVE SYSTEM [Docket No. R–1503] Application of Enhanced Prudential Standards and Reporting Requirements to General Electric Capital Corporation Board of Governors of the Federal Reserve System. ACTION: Request for public comment on the application of enhanced prudential standards and reporting requirements to General Electric Capital Corporation. AGENCY: Pursuant to section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Board of Governors of the Federal Reserve System (Board) is inviting public comment on the proposed application of enhanced prudential standards to General Electric Capital Corporation (GECC), a nonbank financial company that the Financial Stability Oversight Council has determined should be supervised by the Board. The Board has assessed the business model, capital structure, risk profile, and systemic footprint of GECC to determine how the enhanced prudential standards should apply, including how to tailor tkelley on DSK3SPTVN1PROD with NOTICES SUMMARY: VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 application of the standards to the company. In light of the substantial similarity of GECC’s activities and risk profile to that of a similarly-sized bank holding company, the Board is proposing to apply enhanced prudential standards to GECC that are similar to those that apply to large bank holding companies, including: (1) Capital requirements; (2) capital-planning and stress-testing requirements; (3) liquidity requirements; and (4) risk-management and risk-committee requirements. The Board also is proposing to apply certain additional enhanced prudential standards to GECC in light of certain unique aspects related to GECC’s activities, risk profile, and structure, including additional independence requirements for GECC’s board of directors, restrictions on intercompany transactions between GECC and General Electric Company, and leverage capital requirements that are comparable to the standards that apply to the largest, most systemic banking organizations. In addition, the Board is proposing to require GECC to file certain reports with the Board that are similar to the reports required of bank holding companies. DATES: Comments must be submitted by February 2, 2015. ADDRESSES: You may submit comments, identified by Docket No. R–1503, by any of the following methods: Agency Web site: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/apps/ foia/proposedregs.aspx. Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. Email: regs.comments@ federalreserve.gov. Include docket number R–1503 in the subject line of the message. FAX: (202) 452–3819 or (202) 452– 3102. Mail: Robert deV. Frierson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551. All public comments are available from the Board’s Web site at https:// www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper form in Room MP–500 of the Board’s Martin Building (20th and C Streets NW.; Washington, DC 20551) between 9:00 a.m. and 5:00 p.m. on weekdays. PO 00000 Frm 00029 Fmt 4703 Sfmt 4703 Ann Misback, Associate Director, (202) 452– 3799, Jyoti Kohli, Senior Supervisory Financial Analyst, (202) 452–2539, or Elizabeth MacDonald, Senior Supervisory Financial Analyst, (202) 475–6316, Division of Banking Supervision and Regulation; or Laurie Schaffer, Associate General Counsel, (202) 452–2277 or Jahad Atieh, Attorney, (202) 452–3900, Legal Division. SUPPLEMENTARY INFORMATION: FOR FURTHER INFORMATION CONTACT: Table of Contents I. Introduction II. Overview of GECC III. Statutory Requirements for the Application of Enhanced Prudential Standards to Nonbank Financial Companies Supervised by the Board A. Overview B. GECC IV. Proposed Enhanced Prudential Standards to Apply to GECC A. Capital Requirements B. Capital Planning Requirements C. Stress-Testing requirements D. Liquidity Requirements E. Risk-Management and Risk-Committee Requirements F. Other Prudential Standards: Restrictions on Intercompany Transactions G. Future Standards V. Proposed Reporting Requirements A. FR Y–6 Report B. FR Y–10 Report C. FR Y–9C and FR Y–9LP Reports D. FR Y–11 and FR Y–11S Reports E. FR 2314 and FR 2314S Reports F. FR Y–14A, FR Y–14M, and FR Y–14Q Reports G. FR Y–15 Report H. FFIEC 009 and FFIEC 009a Reports I. FFIEC 102 VI. Timing of Application VII. Paperwork Reduction Act VIII. Proposed Order I. Introduction Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) directs the Board of Governors of the Federal Reserve System (Board) to establish enhanced prudential standards for bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies that the Financial Stability Oversight Council (Council) has determined should be supervised by the Board (nonbank financial companies supervised by the Board) in order to prevent or mitigate risks to U.S. financial stability that could arise from the material financial distress or failure, or ongoing activities of, these companies. The enhanced prudential standards must include enhanced risk-based and leverage capital requirements, liquidity requirements, risk-management and E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices risk-committee requirements, resolution-planning requirements, single-counterparty credit limits, stresstest requirements, and a debt-to-equity limit for companies that the Council has determined pose a grave threat to the financial stability of the United States. Section 165 also permits the Board to establish additional enhanced prudential standards that may include three enumerated standards—a contingent capital requirement, an enhanced public disclosure requirement, a short-term debt limit— and any ‘‘other prudential standards’’ that the Board determines are ‘‘appropriate.’’ For bank holding companies and certain foreign banking organizations, the Board has issued an integrated set of enhanced prudential standards through a series of rulemakings, including the Board’s capital plan rule,1 stress testing rules,2 resolution plan rule,3 and the Board’s enhanced prudential standards rule under Regulation YY.4 As part of the integrated enhanced prudential standards applicable to the largest, most complex bank holding companies, the Board also adopted enhanced liquidity requirements through the liquidity coverage ratio (LCR) rule 5 and adopted enhanced leverage capital requirements through a supplementary leverage ratio. Further, the Board issued an enhanced supplementary leverage ratio for the most systemic bank holding companies.6 This integrated set of standards is designed to result in a more stringent regulatory regime for these companies to increase their resiliency and to mitigate the risk that their failure or material financial distress could pose to U.S. financial stability. The Board expects to issue additional standards through future rulemakings. In considering the application of enhanced prudential standards to nonbank financial companies supervised by the Board, the Board 1 12 CFR 225.8. 12 CFR part 252. 3 12 CFR part 243. The Board’s resolution plan rule applies by its terms to all nonbank financial companies supervised by the Board. 12 CFR part 243. Under these rules, nonbank financial companies, such as GECC, are required to submit their first resolution plan by July 1 following the date the company is designated by the Council (provided the following July 1 occurs no earlier than 270 days after the date on which the company is designated). GECC submitted its first resolution plan on July 1, 2014. The public portion of GECC’s resolution plan can be found on the Board’s Web site. See Board, General Electric Capital Corporation Resolution Plan Public Section, available at: https://www.federalreserve.gov/bankin foreg/resolution-plans/ge-capital-1g-20140701.pdf. 4 See 79 FR 17240 (March 27, 2014). 5 12 CFR part 249. 6 12 CFR 217.10(a)(5), 217.11(c). tkelley on DSK3SPTVN1PROD with NOTICES 2 See VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 intends to thoroughly assess the business model, capital structure, risk profile, and systemic footprint of a designated company to determine how the enhanced prudential standards would apply.7 Consistent with this approach, the Board is considering the application of enhanced prudential standards to General Electric Capital Corporation (GECC), a company that has been designated by the Council for Board supervision.8 In light of the substantial similarity of GECC’s activities and risk profile to that of a similarly-sized bank holding company, the Board is proposing to apply enhanced prudential standards to GECC that are similar to those that apply to large bank holding companies. As described in greater detail below, the Board is proposing to apply: (1) Capital requirements; (2) capital-planning and stress-testing requirements; (3) liquidity requirements; and (4) risk-management and risk-committee requirements. The Board is also proposing to apply certain additional enhanced prudential standards to GECC in light of certain unique aspects related to GECC’s activities, risk profile, and structure, including additional independence requirements for GECC’s board of directors, restrictions on intercompany transactions between GECC and General Electric Company (GE), and leverage capital requirements that are comparable to the standards that apply to the largest, most systemic banking organizations. In addition, the Board is proposing to require GECC to file certain reports with the Board that are similar to the reports required of bank holding companies. The Board is inviting public comment on the appropriateness of the proposed enhanced prudential standards that would apply to GECC and on the Board’s proposed tailoring of the enhanced prudential standards. The Board believes that it is appropriate to 7 See 79 FR 17240, 17245 (March 27, 2014). the time the Board issued its proposal to apply enhanced prudential standards to bank holding companies and foreign banking organizations with total consolidated assets of $50 billion or more, the Council had not made any final determinations regarding designation of a nonbank financial company. After the close of the comment period for the proposed rules, the Council made a final determination that material financial distress at GECC could pose a threat to U.S. financial stability and that the company should be subject to Board supervision and enhanced prudential standards. Financial Stability Oversight Council, Basis of the Financial Stability Oversight Council’s Final Determination Regarding General Electric Capital Corporation, Inc. (GECC Determination) (July 8, 2013), available at: https:// www.treasury.gov/initiatives/fsoc/designations/ Documents/Basis%20of%20Final%20 Determination%20Regarding%20General%20 Electric%20Capital%20Corporation,%20Inc.pdf. 8 At PO 00000 Frm 00030 Fmt 4703 Sfmt 4703 71769 seek public comment on the application of enhanced prudential standards to nonbank financial companies supervised by the Board in order to provide transparency regarding the regulation and supervision of these companies. The public comment process will provide nonbank financial companies supervised by the Board and interested members of the public with the opportunity to comment, and will help guide the Board in future application of enhanced prudential standards to other nonbank financial companies. II. Overview of GECC On July 8, 2013, the Council determined that GECC should be supervised by the Board and subject to enhanced prudential standards. As required by section 113(d) of the DoddFrank Act, the Council conducted an annual evaluation of its determination to designate GECC for Board supervision and determined not to rescind that determination on July 31, 2014. GECC, a wholly owned subsidiary of GE, is one of the largest depository institution holding companies in the United States by assets, with approximately $514 billion in total assets as of September 30, 2014.9 GECC engages primarily in collateralized lending to middle-market commercial firms and consumers. Approximately 82 percent of GECC’s net income in 2013 was derived from its commercial and consumer lending businesses. In its commercial lending operations, GECC focuses primarily on lending and leasing to middle market companies and offers secured commercial loans, equipment financing, and other financial services to companies across a wide range of industries. In its consumer operations, GECC offers European mortgages, auto loans, debt consolidation, private mortgage insurance, and credit cards. GECC is also the largest provider of private label credit cards in the United States. GECC is taking steps to reduce its consumer lending business and focus on businesses that align more closely with GE’s commercial and industrial operations. GECC engages in some activities that are not permitted for a bank holding company or a savings and loan holding company.10 These activities comprise less than 10 percent of GECC’s balance sheet and consist of 9 GECC contributed approximately 51 percent of GE’s net earnings in 2013. 10 GECC is a grandfathered unitary savings and loan holding company under section 10(c)(9)(A) of HOLA and is therefore exempt from the activity and investment restrictions under HOLA. 12 U.S.C. 1467a(c)(9)(A). E:\FR\FM\03DEN1.SGM 03DEN1 71770 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices equity investments in nonfinancial companies, such as power companies. Like many large bank holding companies, GECC borrows in the wholesale funding markets. For example, GECC is a large issuer of commercial paper and long-term debt to wholesale counterparties, and uses securitizations of loans and finance receivables as a significant source of funding. Moreover, GECC holds a large portfolio of on-balance sheet financial assets that is comparable to those of the largest bank holding companies, including a large portfolio of investment securities and commercial and consumer loans. Likewise, similar to the largest, most complex banking organizations, GECC makes significant use of derivatives to hedge interest rate risk, foreign exchange risk, and other financial risks. GE and GECC are savings and loan holding companies by virtue of their control of Synchrony Bank, a federal savings association, and are subject to consolidated supervision by the Board. Synchrony Bank, GECC’s largest insured depository institution subsidiary, had approximately $46 billion in total assets and $33 billion in total deposits as of September 30, 2014. Synchrony Bank specializes in consumer lending and consumer deposit products.11 GECC also has an insured Utah-chartered industrial loan company, GE Capital Bank, which had approximately $20 billion in total assets and $16 billion in total deposits as of September 30, 2014, and specializes in commercial lending and consumer deposit products (other than demand deposit products).12 III. Statutory Requirements for the Application of Enhanced Prudential Standards to Nonbank Financial Companies Supervised by the Board tkelley on DSK3SPTVN1PROD with NOTICES A. Overview As the prudential regulator for nonbank financial companies designated by the Council, the Board is charged with establishing enhanced prudential standards to prevent or mitigate risks to the financial stability of the United States that may arise from 11 In July 2014, GECC commenced a public offering of approximately 15 percent of the shares of Synchrony Financial, a company that conducts GECC’s consumer financing activities and that controls Synchrony Bank. GECC has indicated that it will divest the remaining 85 percent of Synchrony Financial in the near future. 12 Under section 2(c)(2) of the Bank Holding Company Act (BHC Act), certain industrial loan companies, such as GE Capital Bank, are not included within the definition of ‘‘bank’’ under the BHC Act. Therefore, any company controlling such an industrial loan company is not a bank holding company subject to the BHC Act. See 12 U.S.C. 1841(c)(2)(H). VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 the material financial distress or failure of such companies. These obligations include helping to ensure the safe and sound operations of the company.13 In prescribing enhanced prudential standards required by section 165 of the Dodd-Frank Act, section 165(a)(2) permits the Board to tailor the enhanced prudential standards among companies on an individual basis, taking into consideration their ‘‘capital structure, riskiness, complexity, financial activities (including the financial activities of their subsidiaries), size, and any other risk-related factors that the Board . . . deems appropriate.’’ 14 In addition, under section 165(b)(1), the Board is required to take into account differences among bank holding companies covered by section 165 and nonbank financial companies supervised by the Board, based on statutory considerations.15 The factors the Board must consider include: (i) The factors described in sections 113(a) and (b) of the DoddFrank Act (12 U.S.C. 5313(a) and (b)); (ii) whether the company owns an insured depository institution; (iii) nonfinancial activities and affiliations of the company; and (iv) any other riskrelated factors that the Board determines appropriate.16 The Board must, as appropriate, adapt the required standards in light of any predominant line of business of a nonbank financial company, including activities for which particular standards may not be appropriate.17 Section 165(b)(3) also requires the Board, to the extent possible, to ensure that small changes in the factors listed in sections 113(a) and 113(b) of the Dodd-Frank Act would not result in sharp, discontinuous changes in the enhanced prudential standards established by the Board under section 165(b)(1).18 The statute also directs the Board to take into account any recommendations made by the Council pursuant to its authority under section 115 of the Dodd-Frank Act.19 B. GECC The Board has thoroughly assessed the business model, capital structure, risk profile, and systemic footprint of GECC and has considered the factors set forth in sections 165(a)(2) and 165(b)(3) 13 The Board has examination, reporting, and enforcement authority over nonbank financial companies that includes takings actions to ensure the safety and soundness of the nonbank financial company. 12 U.S.C. 5361(b), 5362. 14 12 U.S.C. 5365(a)(2). 15 See 12 U.S.C. 5365(b)(3). 16 12 U.S.C. 5365(b)(3)(A). 17 12 U.S.C. 5365(b)(3)(D). 18 12 U.S.C. 5365(b)(3)(B). 19 12 U.S.C. 5365(b)(3)(C). PO 00000 Frm 00031 Fmt 4703 Sfmt 4703 of the Dodd-Frank Act in proposing the enhanced prudential standards that would apply to GECC. This assessment indicates that GECC’s activities and risk profile are similar to those of large bank holding companies, and that enhanced prudential standards similar to those that apply to large bank holding companies would be appropriate. 1. Factors Described in Sections 113(a) and (b) of the Dodd-Frank Act Section 113(a) provides a list of ten factors 20 that the Council is required to consider in determining whether a nonbank financial company should be supervised by the Board, in addition to any other risk-related factor the Council deems appropriate. The factors include leverage, off-balance sheet exposures, interconnectedness with significant financial counterparties, the nature, scope, size, scale and mix of activities, degree of regulation, and liabilities. In considering these factors the Board notes that, similar to the largest bank holding companies, GECC is a significant participant in the global economy and financial markets, is interconnected to financial intermediaries through its financing activities and its funding model, and is a significant source of credit in the United States. Moreover, GECC’s leverage; off-balance sheet exposures; funding and risk profile; asset composition; and the nature, scope, size, scale, concentration, interconnectedness, and mix of its activities are substantially similar to those of many large bank holding companies. As noted above, like many of the largest bank holding companies, GECC’s activities focus primarily on 20 With respect to a domestic nonbank financial company supervised by the Board, the factors include: (A) The extent of the leverage of the company; (B) the extent and nature of the offbalance-sheet exposures of the company; (C) the extent and nature of the transactions and relationships of the company with other significant nonbank financial companies and significant bank holding companies; (D) the importance of the company as a source of credit for households, businesses, and State and local governments and as a source of liquidity for the United States financial system; (E) the importance of the company as a source of credit for low-income, minority, or underserved communities, and the impact that the failure of such company would have on the availability of credit in such communities; (F) the extent to which assets are managed rather than owned by the company, and the extent to which ownership of assets under management is diffuse; (G) the nature, scope, size, scale, concentration, interconnectedness, and mix of the activities of the company; (H) the degree to which the company is already regulated by one or more primary financial regulatory agencies; (I) the amount and nature of the financial assets of the company; (J) the amount and types of the liabilities of the company, including the degree of reliance on short-term funding; and (K) any other risk-related factors that the Council deems appropriate. E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices lending and leasing to commercial companies and on consumer financing and deposit products. Moreover, similar to many large bank holding companies, GECC borrows in the wholesale funding markets by issuing commercial paper and long-term debt to wholesale counterparties, and makes significant use of derivatives to hedge interest rate risk, foreign exchange risk, and other financial risks. GECC also holds a large portfolio of on-balance sheet financial assets, such as investment securities and commercial and consumer loans, which is comparable to those of the largest bank holding companies. In terms of the degree to which a company is already regulated, the Board notes that GECC is a savings and loan holding company subject to prudential supervision by the Board, but that sections 165 and 166 do not apply by their terms to savings and loan holding companies with $50 billion or more in total consolidated assets, such as GECC, as they apply to bank holding companies. Due to the substantial similarity between the activities and risk profile of the largest bank holding companies and GECC as described above, the Board is proposing to apply enhanced prudential standards to GECC that are similar to those that would apply to a large bank holding company. Similar to the standards imposed on the largest bank holding companies, the proposed standards are designed to ensure the continued resiliency of GECC during periods of material financial distress, so that the company would be in a position to continue to meet its obligations to its creditors and counterparties, as well as to continue to serve as a financial intermediary during a period of financial and economic stress. tkelley on DSK3SPTVN1PROD with NOTICES 2. Control of an Insured Depository Institution GECC controls two insured depository institutions that offer traditional banking products to both consumer and commercial customers.21 Similar to the insured depository institutions of large bank holding companies, GECC’s subsidiary insured depository institutions serve as a source of funding and as a source of credit for a portion of its lending activities. As such, GECC’s control of subsidiary insured depository institutions supports application of the enhanced prudential standards to the company in a manner that is similar to how those standards apply to large bank holding companies. 21 As discussed above, GECC is in the process of divesting Synchrony Bank. Nevertheless, following this divestiture, GECC will continue to control GE Capital Bank. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 3. Nonfinancial Activities and Affiliations of the Company The vast majority (approximately 82 percent) of GECC’s activities, such as lending and leasing activities, are those that a bank holding company may engage in under sections 4(c) and 4(k) of the BHC Act, and are similar to those in which the largest bank holding companies engage. The remaining portion of GECC’s activities are generally limited to those that are permissible for savings and loan holding companies under the Home Owners’ Loan Act (HOLA).22 As noted, only a small portion of GECC’s activities (less than 10 percent) are those that would be impermissible for a bank holding company under the BHC Act or for a savings and loan holding company under HOLA. These activities are typically limited to equity investments in certain nonfinancial companies. Accordingly, as the large majority of GECC’s activities are similar to those of a bank holding company, the Board believes that it is appropriate to apply prudential standards to GECC that are comparable to those that would apply to a large bank holding company. 4. Any Other Risk-Related Factors That the Board Determines Appropriate In addition to the factors required under sections 113 and 165 of the DoddFrank Act, the Board is permitted to take any other risk-related factors into consideration in the development of the proposed enhanced prudential standards for GECC. As noted, GECC is a wholly owned subsidiary of GE. The Board believes that the enhanced prudential standards applied to GECC should take into account GECC’s particular circumstances as a lower-tier designated nonbank financial company. The Council, in making the determination to designate GECC, focused on the adverse effect on the financial stability of the United States that could arise from material financial distress at GECC. The Council found that GECC itself is an entity predominantly engaged in financial activities, is a significant participant in the global economy and financial markets, and is interconnected to financial intermediaries through its financing activities and its funding model. Because the Board’s regulation of GECC as a nonbank financial company designated for its supervision must focus on the financial stability 22 GECC is a grandfathered unitary savings and loan holding company under section 10(c)(9)(A) of HOLA and is therefore exempt from the activity and investment restrictions under HOLA. 12 U.S.C. 1467a(c)(9)(A). PO 00000 Frm 00032 Fmt 4703 Sfmt 4703 71771 implications of potential financial distress at GECC, it is prudent to address the effect of any conflicts of interest that may arise in interactions with GE and its affiliates, including the possibility that such conflicts could have an adverse effect on the financial condition of GECC. Accordingly, the Board is proposing to require GECC to meet certain enhanced prudential standards designed to ensure the safe and sound operations of GECC and to address the potential for conflict with GE and its affiliates. As further discussed below, the Board’s proposed enhanced prudential standards would require GECC to have 25 percent or two members, whichever is greater, of its board of directors to be independent of GE’s and GECC’s management and GE’s board of directors. The Board is also proposing to impose a requirement that transactions between GECC and GE be conducted on market terms. Due to the substantial similarity in the business model, capital structure, and risk profile between GECC and large bank holding companies, the Board is not proposing to consider other riskrelated factors in the adoption of enhanced prudential standards for GECC. Nevertheless, consistent with its authority as the prudential supervisor of designated nonbank financial companies, the Board expects to continue to monitor and assess GECC’s activities and risk profile, and, in accordance with the requirements of sections 113 and 165 of the Dodd-Frank Act, to take into account any additional factors or considerations, as necessary, in the adoption of future standards, or in the future tailoring of any imposed standards. 1. What other factors, if any, should the Board take into consideration when proposing to apply enhanced prudential standards to GECC, or in tailoring the standards to GECC? 5. Tailoring of Proposed Prudential Standards As noted, section 165 permits the Board to tailor the application of enhanced prudential standards to companies covered under section 165 based on certain unique characteristics of the company. Although the majority of the enhanced prudential standards the Board is proposing to adopt are identical to those that apply to large bank holding companies, the Board is proposing to tailor certain of the proposed standards, in light of certain characteristics unique to GECC. For example, in developing the proposed capital requirements, the Board has taken into consideration the fact that E:\FR\FM\03DEN1.SGM 03DEN1 71772 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices GECC has not previously been subject to regulatory capital requirements and has not developed the infrastructure and systems required to begin calculating its capital ratios under the Board’s advanced approaches risk-based capital requirements (advanced approaches rule). Thus, although GECC would meet the relevant asset threshold for application of the advanced approaches rule, the Board is not proposing to require GECC to calculate its capital ratios using the advanced approaches rule. In addition, in light of the Council’s determination that material financial distress at GECC could pose a threat to U.S. financial stability, the Board is proposing to impose leverage capital requirements on GECC that are comparable to the standards that apply to the largest, most systemic banking organizations. Finally, the Board notes that many of the proposed standards, including the risk-management requirements, liquidity risk-management, and liquidity stress-testing requirements of Regulation YY; and capital-planning and stress-testing requirements require the covered company to tailor its compliance framework based on the size, complexity, structure, risk profile, and activities of the organization. Thus, the Board would expect that, in implementing the enhanced prudential standards, GECC would tailor its compliance framework to suit the company’s complexity, structure, risk profile, and activities. Accordingly, the Board believes that the proposed enhanced prudential standards discussed below adequately reflect these unique characteristics of GECC. 2. Should the Board consider tailoring any of the other proposed enhanced prudential standards in light of GECC’s business model, capital structure, and risk profile? tkelley on DSK3SPTVN1PROD with NOTICES IV. Proposed Enhanced Prudential Standards To Apply to GECC A. Capital Requirements The Board has long held the view that a bank holding company generally should hold capital that is commensurate with its risk profile and activities, so that the firm can meet its obligations to creditors and other counterparties, as well as continue to serve as a financial intermediary through periods of financial and economic stress.23 In July 2013, the 23 See Supervision and Regulation Letter 12–17, Consolidated Supervision Framework for Large Financial Institutions (December 12, 2012), available at: https://www.federalreserve.gov/ bankinforeg/srletters/sr1217.htm; 12 CFR part 217; 12 CFR 225.8; Supervision and Regulation Letter VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 Board issued a final rule implementing regulatory capital reforms reflecting agreements reached by the Basel Committee on Banking Supervision (Basel Committee) in ‘‘Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems’’ (Basel III) 24 and certain changes required by the Dodd-Frank Act (revised capital framework).25 The revised capital framework introduced a new minimum common equity tier 1 riskbased capital ratio of 4.5 percent, raised the minimum tier 1 risk-based capital ratio from 4 percent to 6 percent, introduced a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets, required all banking organizations to meet a 4 percent minimum leverage ratio (the generally-applicable leverage ratio), implemented stricter eligibility criteria for regulatory capital instruments, and introduced a new standardized methodology for calculating riskweighted assets. Because these regulatory capital reforms only apply generally to top-tier savings and loan holding companies, GECC is not subject to the revised capital framework.26 In addition, the revised capital framework would not apply to GE because it substantially engages in commercial activities. As noted above, the Council has determined that GECC’s material financial distress could pose a threat to U.S. financial stability. Section 165 provides that the enhanced prudential standards for nonbank financial companies must include risk-based capital requirements and leverage limits that ‘‘are more stringent than the standards and requirements applicable to nonbank financial companies and bank holding companies that do not present similar risks to the financial stability of the United States’’ unless the Board, in consultation with the Council, ‘‘determines that such requirements are not appropriate for a company subject to 99–18, Assessing Capital Adequacy in Relation to Risk at Large Banking Organizations and Others with Complex Risk Profiles (July 1, 1999), available at: https://www.federalreserve.gov/boarddocs/ srletters/1999/SR9918.HTM. 24 Basel III was published in December 2010 and revised in June 2011. See Basel Committee, Basel III: A global framework for more resilient banks and banking systems (December 2010), available at: https://www.bis.org/publ/bcbs189.pdf. 25 See 78 FR 62018 (October 11, 2013). The revised capital framework also reorganized the Board’s capital adequacy guidelines into a harmonized, codified set of rules, located at 12 CFR part 217. The requirements of 12 CFR part 217 came into effect on January 1, 2014, for bank holding companies subject to the advanced approaches rule, and as of January 1, 2015 for all other bank holding companies. 26 12 CFR 217.2. PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 more stringent prudential standards because of the activities of such company . . . or structure.’’ 27 Because GECC’s activities and balance sheet are substantially similar to those of a large bank holding company, the Board’s revised capital framework is appropriate for GECC and will appropriately reflect risks from GECC’s activities, balance sheet, and funding profile. Accordingly, other than as described below, the Board is proposing to require GECC to comply with the regulatory capital framework applicable to a large bank holding company including the minimum common equity tier 1, tier 1, and total risk-based capital ratios, the minimum generally-applicable leverage ratio, and any restrictions on distributions or discretionary bonus payments associated with the capital conservation buffer, beginning July 1, 2015, consistent with any transition periods in the revised capital framework. In addition to the generally applicable capital adequacy requirements described above, the Board’s revised capital framework contains measures applicable to the largest, most interconnected bank holding companies. For bank holding companies with $250 billion or more in total consolidated assets or $10 billion or more in on-balance-sheet foreign exposures (advanced approaches banking organizations), these include the advanced approaches rule, a supplementary leverage ratio of tier 1 capital to total leverage exposure of 3 percent, a requirement to include accumulated other comprehensive income (AOCI) in tier 1 capital, and restrictions on distributions and discretionary bonus payments associated with the countercyclical capital buffer. A bank holding company with more than $700 billion in total consolidated assets or $10 trillion in assets under custody also is required to maintain a buffer of at least 2 percent above the minimum supplementary leverage capital requirement of 3 percent, an enhanced supplementary leverage ratio (eSLR), in order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers.28 The Board is not proposing to require GECC to calculate its capital ratios using the advanced approaches rule. The advanced approaches rule requires the development of models for calculating advanced approaches risk-weighted assets, and can require a lengthy parallel run period of no less than four 27 12 U.S.C. 5365. 79 FR 24528 (May 1, 2014). 28 See E:\FR\FM\03DEN1.SGM 03DEN1 tkelley on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices consecutive calendar quarters during which the institution must submit its models for supervisory approval. While GECC exceeds the threshold for application of the requirements that apply to advanced approaches banking organizations, GECC has not previously been subject to regulatory capital requirements and has not developed the infrastructure and systems required to begin calculating its capital ratios under the advanced approaches rule. Moreover, because GECC will need time to build and implement the internal systems and infrastructure required to comply with other requirements of the Board’s order imposing enhanced prudential standards, the Board is not proposing to require GECC to develop the models required to comply with the advanced approaches rule. Rather, the Board is proposing to apply the standardized risk-based capital rules, leverage rules, and capital planning and supervisory stress-testing requirements to GECC. However, the Board is proposing to require GECC to comply with other requirements that apply to advanced approaches banking organizations, including restrictions on distributions and discretionary bonus payments associated with the countercyclical capital buffer, a minimum supplementary leverage ratio of 3 percent, and the requirement to include AOCI in regulatory capital. These are aspects of the revised capital framework that are appropriate for the largest, most interconnected banking organizations and therefore apply to advanced approaches banking organizations, but are not part of the advanced approaches rule. The proposed application of these requirements to GECC will ensure that GECC holds sufficient capital to withstand financial stress, mitigating its risk to U.S. financial stability. Application of these requirements to GECC would not require GECC to develop models for complying with the advanced approaches rule, would not require completion of a successful parallel run as contemplated in the advanced approaches rule, and would not require the allocation of significant additional operational resources. As noted above, the Board, as the prudential regulator of nonbank financial companies designated by the Council, is obligated to impose standards that are designed to maintain the safety and soundness of GECC in order to mitigate the risk of material financial distress at GECC. The Board is also proposing to require GECC to comply with the eSLR, which is designed to minimize leverage at banking organizations that pose VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 substantial systemic risk, thereby strengthening the ability of such organizations to remain a going concern during times of economic stress and minimizing the likelihood that problems at these organizations would contribute to financial instability. The Board believes that the maintenance of a strong base of capital by the most systemic U.S. banking organizations and GECC is particularly important because capital shortfalls at these institutions have the potential to result in significant adverse economic consequences and to contribute to systemic distress. While GECC’s total consolidated assets are below the asset thresholds for bank holding companies that are subject to the eSLR ($700 billion in total consolidated assets or $10 trillion in assets under custody), the Board has analyzed GECC’s size, scope of operations, activities, and systemic importance, and, in light of the Council’s determination that material financial distress at GECC could pose a threat to U.S. financial stability, is proposing to require GECC to comply with the restrictions on distributions and discretionary bonuses associated with the eSLR.29 The Board is required under section 165 to establish enhanced risk-based and leverage capital requirements for nonbank financial companies supervised by the Board and large bank holding companies that ‘‘are more stringent than the standards applicable to nonbank financial companies and bank holding companies that do not present similar risks to the financial stability of the United States.’’ 30 For the largest banking organizations, the Board notes that the Financial Stability Board has established a framework to identify global and domestic systemically important banks 31 (G–SIBs and D–SIBs, respectively) that are subject to the Basel Committee’s enhanced supervisory framework, which includes enhanced capital surcharges.32 At this 29 The restrictions that apply to insured depository institution subsidiaries of companies covered under the eSLR would not apply to GECC’s depository institution subsidiaries without action by the appropriate Federal banking agency supervising Synchrony Bank and GE Capital Bank. 30 12 U.S.C. 5365. 31 Financial Stability Board, Reducing the moral hazard posed by systemically important financial institutions, FSB Recommendations and Time Lines (October 20, 2010), available at: https:// www.financialstabilityboard.org/publications/r_ 101111a.pdf; Financial Stability Board, Extending the G–SIFI Framework to domestic systemically important banks (April 16, 2012), available at: https://www.financialstabilityboard.org/ publications/r_120420b.pdf. 32 Basel Committee, Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement (July PO 00000 Frm 00034 Fmt 4703 Sfmt 4703 71773 time, the Board is not proposing to categorize GECC as a G–SIB or a D–SIB, or proposing to automatically subject GECC to all of the same standards that apply to the largest, most systemic U.S. banking organizations. With respect to any future requirements, the Board will analyze GECC’s size, scope of operations, activities, and systemic importance to determine whether the proposed standard is appropriate in light of these characteristics of the company. For example, the Board expects to seek comment on additional enhancements to the risk-based capital rules for largest, most systemic bank holding companies in the future, and will consider whether applying similar enhancements to the risk-based capital rules to GECC is appropriate after considering GECC’s size, scope of operations, activities, and systemic importance. The Board would seek comment on any additional proposed enhancements. 3. Due to the similarity in structure and activities of GECC with that of a bank holding company, the Board has proposed to apply capital standards to GECC that are generally consistent with the requirements imposed on a large bank holding company. Should the Board consider altering any of the proposed capital requirements that it is considering applying to GECC? 4. Should the Board consider applying any additional capital standards to GECC? B. Capital Planning Requirements 1. Capital Plan Rule The recent financial crisis highlighted a need for large bank holding companies to incorporate into their capital planning forward-looking assessments of capital adequacy under stressed conditions. The crisis also underscored the importance of strong internal capital planning practices and processes among large bank holding companies. The Board issued the capital plan rule to build upon the Board’s existing supervisory expectation that large bank holding companies have robust systems and processes that incorporate forwardlooking projections of revenue and losses to monitor and maintain their internal capital adequacy. By helping to ensure that the largest bank holding companies have sufficient capital to withstand significant stress and to continue to operate, capital plan 2013), available at: https://www.bis.org/publ/ bcbs255.pdf; Basel Committee, A framework for dealing with domestic systemically important banks (October 2012), available at: https://www.bis.org/ publ/bcbs233.pdf. E:\FR\FM\03DEN1.SGM 03DEN1 tkelley on DSK3SPTVN1PROD with NOTICES 71774 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices reviews also help the Board meet its macro-prudential supervisory objective of helping to ensure that the financial system as a whole can continue to function under stressed conditions. The capital plan rule requires each bank holding company with $50 billion or more in total consolidated assets to submit an annual capital plan to the Board describing its planned capital actions and demonstrating its ability to meet a 5 percent tier 1 common capital ratio and maintain capital ratios above the Board’s minimum regulatory capital ratios under both baseline and stressed conditions over a forward-looking planning horizon.33 A capital plan must also include an assessment of a bank holding company’s sources and uses of capital reflecting the size, complexity, risk profile, and scope of operations of the company, assuming both expected and stressed conditions. Under the capital plan rule, the Board annually evaluates a large bank holding company’s capital adequacy and capital planning practices and the comprehensiveness of the capital plan, including the strength of the underlying analysis. The Comprehensive Capital Analysis and Review (CCAR) is the Board’s supervisory process for reviewing capital plans submitted by bank holding companies under the capital plan rule. As part of CCAR, the Board conducts a quantitative assessment of each large bank holding company’s capital adequacy under an assumption of stressed conditions and conducts a qualitative assessments of the company’s internal capital planning practices, each of which can provide a basis on which the Board may object to a company’s capital plan. If the Board objects to a bank holding company’s capital plan, the company may not make any capital distribution other than those approved in writing by the Board or the appropriate Reserve Bank. A bank holding company that receives an objection may submit a revised capital plan for review by the Board. The Federal Reserve conducts its quantitative assessment of a large bank holding company’s capital plan based on the supervisory stress test conducted under the Board’s rules implementing the stress tests required under the DoddFrank Act, discussed below, combined with the bank holding company’s planned capital actions under the baseline scenario. This assessment helps determine whether a bank holding company would be capable of meeting supervisory expectations for its regulatory capital ratios even if stressed conditions emerge and the company 33 12 CFR 225.8. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 does not reduce planned capital distributions. In the CCAR qualitative assessment, the Board evaluates each large bank holding company’s risk-identification, risk-measurement, and risk-management practices supporting the capital planning process, including estimation practices used to produce stressed loss, revenue, and capital ratios, as well as the governance and controls around these practices. In reviewing the company’s capital plan, the Board considers the comprehensiveness of the capital plan, the reasonableness of the company’s assumptions and analysis underlying the capital plan, and the company’s methodologies for reviewing the robustness of its capital adequacy process. The Board may object to a capital plan based on deficiencies in a bank holding company’s capital planning processes, even if the company maintained regulatory capital ratios above minimum requirements throughout the planning horizon under stressed scenarios. 2. Proposed Capital Planning Requirements To Be Applied to GECC To ensure that GECC continues to maintain sufficient capital and has internal processes for assessing its capital adequacy that appropriately account for the company’s risks, the Board is proposing to require GECC to comply with the Board’s capital plan rule, 12 CFR 225.8, and to submit a capital plan for the capital plan cycle beginning January 1, 2016. As described above, GECC’s activities, risk profile, and balance sheet are similar to those of large bank holding companies. Accordingly, requiring GECC to comply with the Board’s capital plan rule as if it were a bank holding company will ensure that GECC holds capital that is commensurate with its risk profile and activities, can meet its obligations to creditors and other counterparties, and can continue to serve as a financial intermediary through periods of financial and economic stress.34 The Board recognizes that unlike domestic bank holding companies, GECC is an intermediate holding company of a larger, publicly traded company. The Board’s capital plan rule 34 See Supervision and Regulation Letter 12–17, Consolidated Supervision Framework for Large Financial Institutions (December 12, 2012), available at: https://www.federalreserve.gov/ bankinforeg/srletters/sr1217.htm; 12 CFR part 217; 12 CFR 225.8; Supervision and Regulation Letter 99–18, Assessing Capital Adequacy in Relation to Risk at Large Banking Organizations and Others with Complex Risk Profiles (July 1, 1999), available at: https://www.federalreserve.gov/boarddocs/ srletters/1999/SR9918.HTM. PO 00000 Frm 00035 Fmt 4703 Sfmt 4703 will help ensure that GECC manages its capital, and any capital distributions to its parent, in a manner that is commensurate with its risks and consistent with its safety and soundness through the Federal Reserve’s review and non-objection to GECC’s capital plan.35 As discussed above, the capital plan rule will act as a counterweight to pressures that a company may face to make capital distributions during a period of economic stress helping to mitigate the risk of material financial distress at GECC. The Board recognizes that GECC likely will need time to build and implement the internal systems necessary to fully meet the requirements of the capital plan rule and the CCAR process. Accordingly, for GECC’s first capital plan cycle, which would begin on January 1, 2016, the Board’s quantitative assessment of GECC’s capital plan will not be based on supervisory stress test estimates conducted under the Board’s stress test rules, as described below.36 Instead, the Board intends to conduct a more limited quantitative assessment of GECC’s capital plan based on GECC’s own stress scenario and any scenarios provided by the Board and a qualitative assessment of GECC’s capital planning processes and supporting practices. This approach would be consistent with the capital plan review (CapPR) process that the Board used to evaluate the initial capital plan submissions of bank holding companies that were subject to the capital plan rule but that did not participate in the 2009 Supervisory Capital Assessment Program. The Board also expects to communicate to GECC the Board’s expectations on capital planning practices and capital adequacy processes in connection with its first capital plan submission. Although the Board’s stress test and capital plan rules establish requirements for all banking organizations that are subject to the rules, the Board is tailoring its expectations for companies of different sizes, scope of operations, activities, and systemic importance. Notably, the Board has significantly heightened supervisory expectations for the largest and most complex bank holding companies 35 GECC will not be the only intermediate holding company subject to the capital plan rule and CCAR. Notably, some U.S. bank holding company subsidiaries of foreign banking organizations participate in CCAR. In addition, under the Board’s intermediate holding company rule, all foreign banking organizations with $50 billion or more in U.S. non-branch assets will be required to form a U.S. intermediate holding company that will be subject to the capital plan rule. See Subpart O to 12 CFR 252. 36 See Subpart E to 12 CFR part 252. E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices regarding all aspects of capital planning and expects these bank holding companies to have capital planning practices that incorporate existing leading practices.37 The Board would expect to tailor its supervisory expectations for GECC to account for any material differences between the company and large bank holding companies. 5. Should the Board consider applying any additional capital planning requirements to GECC? C. Stress-Testing Requirements 1. Dodd-Frank Act Stress-Tests Rule tkelley on DSK3SPTVN1PROD with NOTICES Section 165 of the Dodd-Frank Act requires the Board to conduct annual supervisory stress tests of bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies supervised by the Board and also requires the Board to issue regulations that require those companies to conduct company-run stress tests semi-annually. In 2012, the Board, in coordination with the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Insurance Office adopted stress testing rules under section 165(i) for large bank holding companies and nonbank financial companies (stress test rule).38 The stress test rule establishes a framework for the Board to conduct annual supervisory stress tests and requires these companies to conduct semi-annual company-run stress tests.39 The stress tests conducted under the Board’s stress test rule are complementary to the Board’s review of a large bank holding company’s capital plan in CCAR. These stress tests use stylized scenarios and capital action assumptions specified in the stress testing rules to calculate the post-stress capital ratios, while the CCAR poststress capital ratios use the bank holding company’s planned capital actions in the baseline scenario. The capital action assumptions in the Board’s stress test rules are intended to make the results of the stress tests more comparable across institutions, which enhances the quality of the required public disclosure of the stress-testing results. There is no poststress minimum capital ratio 37 Board, Capital Planning at Large Bank Holding Companies: Supervisory Expectations and Range of Current Practice at pg. 3 (August 19, 2013), available at: https://www.federalreserve.gov/ bankinforeg/bcreg20130819a1.pdf. 38 77 FR 62378 (Oct. 12, 2012); Subparts E and F to 12 CFR part 252. 39 77 FR 62378 (Oct. 12, 2012); Subparts E and F to 12 CFR part 252. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 requirement for the stress tests required under the stress test rule. As noted, under the stress test rule, large bank holding companies are also subject to mid-cycle stress tests, in which companies design their own stress scenarios based on the definitions in the Board’s stress test rules. For both the annual and mid-cycle company-run stress tests, large bank holding companies must disclose the results of their company-run stress test conducted under the severely adverse scenario. 2. Proposed Stress-Testing Requirements To Be Applied to GECC The Board is proposing to require GECC to comply with the stress-testing requirements applicable to bank holding companies with $50 billion or more in total consolidated assets under the stress test rule (subparts E and F of Regulation YY) in the stress-testing cycle that would commence on January 1, 2017.40 Similar to the proposed application of the capital plan rule to GECC, the Board is proposing to apply the Board’s stress test rule to GECC in the same manner as it currently applies to large bank holding companies due to the similarity in activities, risk profile, and balance sheet between GECC and large bank holding companies. In addition, because the Board’s supervisory stress tests under its stress test rule are conducted on the basis of standardized scenarios and capital assumptions, any supervisory stress testing of GECC would provide a horizontal assessment of GECC’s capital adequacy compared with that of large bank holding companies that have comparable activities, risk profiles, and balance sheets. Moreover, the companyrun stress testing requirements under the Board’s stress test rule will ensure that GECC develops the necessary systems and processes to evaluate its capital adequacy on an ongoing basis. Subjecting GECC to the stress testing requirements in the stress testing cycle beginning on January 1, 2017, would allow GECC the time to develop appropriate systems and processes to conduct the stress tests and to provide the data and other information that the Board would require in connection with these tests. This approach would be consistent with the approach taken by the Board for bank holding companies with $50 billion or more in total consolidated assets that did not participate in the Supervisory Capital Assessment Program. The Board delayed application of the stress-testing requirements for these companies in order to provide them additional time to develop appropriate systems and to gather relevant information to comply with the stress-testing requirements. The Board expects to communicate to GECC any further expectation the Board may have regarding the company-run stress tests conducted under the stress test rule. Requiring GECC’s compliance with the stress test rule beginning on January 1, 2017, would also allow the Board adequate time to collect data from GECC to further assess its activities and risk profile to help the Board appropriately tailor the stress testing requirements based on GECC’s systemic footprint, which may include additional components or scenarios. 6. Should the Board consider applying any additional stress testing requirements to GECC? 7. Should the Board consider an alternate time frame for GECC’s compliance with the stress testing requirements? If so, why? D. Liquidity Requirements Section 165(b) of the Dodd-Frank Act directs the Board to adopt enhanced liquidity requirements for bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies supervised by the Board.41 Liquidity is measured by a company’s capacity to efficiently meet its expected and unexpected cash outflows and collateral needs at a reasonable cost without adversely affecting the daily operations or the financial condition of the company. The financial crisis of 2008– 2009 illustrated that liquidity can evaporate quickly and cause severe stress in the financial markets, and demonstrated that even solvent financial companies may experience material financial distress if they do not manage their liquidity in a prudent manner. Through recent rulemakings and guidance, the Board has established quantitative liquidity requirements and liquidity risk-management standards in order to ensure financial companies’ resiliency during periods of financial market stress. 1. LCR On September 3, 2014, the Board adopted a final rule that implements a quantitative liquidity requirement consistent with the LCR standard established by the Basel Committee.42 The requirement is designed to promote the short-term resilience of the liquidity risk profile of internationally active 41 12 42 79 40 Subparts PO 00000 E and F to 12 CFR part 252. Frm 00036 Fmt 4703 Sfmt 4703 71775 U.S.C. 5365(b)(1)(A)(ii). FR 61440 (October 10, 2014); 12 CFR part 249. E:\FR\FM\03DEN1.SGM 03DEN1 71776 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices banking organizations, thereby improving the banking sector’s ability to absorb shocks arising from financial and economic stress, and to further improve the measurement and management of liquidity risk. The LCR standard establishes a quantitative minimum LCR that requires a company subject to the rule to maintain an amount of highquality liquid assets (HQLA) (the numerator of the ratio) that is no less than 100 percent of its total net cash outflows over a prospective 30 calendarday period (the denominator of the ratio).43 The ability to rapidly monetize such high-quality liquid assets enables a covered company to meet its liquidity needs during an acute short-term liquidity stress scenario. The Board did not apply the LCR standard to nonbank financial companies in the final LCR rule. Rather, similar to the approach the Board followed in the adoption of Regulation YY, the Board indicated that, following designation of a nonbank financial company for supervision by the Board, the Board would thoroughly assess the business model, capital structure, and risk profile of the designated company to determine how the LCR standard should apply, and if appropriate, would tailor application of the standards by order or regulation to that nonbank financial company or to a category of nonbank financial companies. 2. Regulation YY tkelley on DSK3SPTVN1PROD with NOTICES The liquidity requirements in Regulation YY require bank holding companies with total consolidated assets of $50 billion or more to comply with liquidity risk-management requirements (covered bank holding company), conduct internal liquidity stress tests, and hold a buffer of highlyliquid assets that is sufficient to meet the company’s projected net stressed cash-flow need over a 30-day period based on the results of such stress tests.44 43 Under the LCR standard, certain categories of assets may qualify as eligible HQLA and may contribute to the HQLA amount if they are unencumbered by liens and other restrictions on transfer and can therefore be converted quickly into cash without reasonably expecting to incur losses in excess of the applicable LCR haircuts during a stress period. A covered company’s total net cash outflow amount is determined under the final rule by applying outflow and inflow rates, which reflect certain standardized stressed assumptions, against the balances of a covered company’s funding sources, obligations, transactions, and assets over a prospective 30 calendar-day period. Inflows are limited to 75 percent of outflows, to ensure that covered companies are maintaining sufficient onbalance-sheet liquidity and are not overly reliant on inflows, which may not materialize in a period of stress. 44 12 CFR 252.34, 252.35. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 The liquidity risk-management requirements of Regulation YY include requirements that the board of directors of the bank holding company approve an acceptable level of liquidity risk that the bank holding company may assume in connection with its operating strategies (liquidity risk tolerance), receive and review information from senior management regarding the company’s compliance with the established liquidity risk tolerance, and approve and periodically review liquidity risk-management strategies, policies, and procedures established by senior management.45 Regulation YY requires senior management of a covered bank holding company to establish and implement liquidity riskmanagement strategies, policies, and procedures, approved by the company’s board of directors; review and approve new products and business lines; and evaluate liquidity costs, benefits and risks related to new business lines and products. In addition, Regulation YY requires a covered bank holding company to establish and maintain procedures for monitoring collateral, legal entity, and intraday liquidity risks, and requires an independent review of a covered bank holding company’s liquidity risk-management processes and its liquidity stress-testing processes and assumptions. Regulation YY requires covered bank holding companies to produce comprehensive cash-flow projections at least monthly that project cash flows arising from assets, liabilities, and offbalance sheet exposures, over short-term and long-term horizons.46 In addition, covered bank holding companies must establish and maintain a contingency funding plan that sets forth strategies for addressing liquidity and funding needs during liquidity stress events.47 The contingency funding plan must be approved by the bank holding company’s risk committee and must include procedures to monitor emerging liquidity stress events. Regulation YY also requires a covered bank holding company to conduct monthly internal liquidity stress tests, and to maintain a buffer of highly liquid assets based on the results of the stress tests. The liquidity stress test requirements are based on firm-specific stress scenarios and assumptions tailored to the specific products and risk profile of the company. In conducting these liquidity stress tests, the firm must use a minimum of three stress scenarios designed by the firm (market, 45 12 CFR 252.34(a). CFR 252.34(e). 47 12 CFR 252.34(f). 46 12 PO 00000 Frm 00037 Fmt 4703 Sfmt 4703 idiosyncratic or combination) and a minimum of three time horizons (30, 60, 90 day period).48 Regulation YY’s liquidity requirements are designed to complement the requirements of the LCR, as described above. Regulation YY’s internal liquidity stress-test requirements provide a view of an individual firm under multiple scenarios and include assumptions tailored to the specific products and risk profile of the company and the idiosyncratic aspects of the firm’s liquidity profile, while the standardized measure of liquidity adequacy under the LCR is designed to facilitate a transparent assessment of a covered bank holding company’s liquidity position under a standard stress scenario and facilitates comparison across firms. 3. Supervisory Guidance Regulation YY builds on the Board’s supervisory framework for liquidity, including guidance set forth in the Board’s Supervision and Regulation (SR) letter 10–6, Interagency Policy Statement on Funding and Liquidity Risk Management, issued in March 2010.49 SR 10–6 reiterates the process that institutions should follow to appropriately identify, measure, monitor, and control their funding and liquidity risk. In particular, the guidance re-emphasizes the importance of cash-flow projections, diversified funding sources, stress testing, a cushion of liquid assets, and a formal well-developed contingency funding plan as primary tools for measuring and managing liquidity risk. The guidance also explains the expectation that institutions manage liquidity risk using processes and systems that are commensurate with the institution’s complexity, risk profile, and scope of operations. 4. Application to GECC In designating GECC as a nonbank financial company that should be subject to Board supervision, the Council noted that: If GECC were unable to access funding markets, GECC could either reduce its 48 12 CFR 252.35. letter 10–6 incorporated the Basel Committee’s ‘‘Principles for Sound Liquidity Risk Management and Supervision.’’ Basel Committee, Principles for Sound Liquidity Risk Management and Supervision (September 2008), available at: https://www.bis.org/publ/bcbs144.htm. See also Supervision and Regulation Letter SR 10–6, Interagency Policy Statement on Funding and Liquidity Risk Management, 75 FR 13656 (March 17, 2010), available at: https:// www.federalreserve.gov/boarddocs/srletters/2010/ sr1006.pdf. 49 SR E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES provision of credit or be forced to sell assets quickly to fund its operations and meet its obligations. If GECC had to rapidly liquidate assets, the impact could drive down asset prices and cause balance sheet losses for other large financial firms on a scale similar to those that could be caused by asset sales by some of the largest U.S. BHCs. The resulting capital losses across financial firms, particularly during a time of general economic distress, could exacerbate the stresses on the financial system and economy by forcing other firms to sell assets and draw on their credit lines to meet liquidity pressures. If GECC were unable to access funding markets, there could be a reduction in credit availability, which could lead to a broader reduction in economic activity.50 In order to promote the short-term resilience of GECC, improve its ability to withstand financial and economic stress, and to mitigate the potential adverse effects on other financial firms and markets, the Board is proposing to require GECC to manage its liquidity in a manner that is comparable to a bank holding company subject to the LCR standard, Regulation YY, and the Board’s supervisory guidance.51 GECC, like a large bank holding company, is primarily a lender and lessor to commercial entities and consumers, and is substantially involved in the provision of credit in the United States. Similar to large bank holding companies, GECC is also an active participant in the capital markets and relies on wholesale funding, such as commercial paper held by institutional investors and committed lines of credit provided by large commercial banks, exposing the company to liquidity risks. Therefore, to ensure that GECC has sufficient liquidity to meet outflows during a period of significant financial stress, and given the similarities between its operations and risk with those of large bank holding companies, the Board is proposing to apply the LCR standard under 12 CFR part 249 that would apply to advanced approaches banking organizations, without change, to GECC beginning July 1, 2015. GECC would be subject to the same transition periods and compliance timelines as all other advanced approaches banking organizations that do not have $700 billion in total consolidated assets or $10 trillion in assets under custody, including the temporary monthly LCR calculation until July 1, 2016, and the requirement to maintain an LCR of 80 percent from July 1, 2015 to December 31, 2015, an LCR of 90 percent from January 1, 2016 to December 31, 2016, and an LCR of 100 percent thereafter.52 50 See GECC Determination at 2. CFR 252.34, 252.35. 52 12 CFR 249.50(b). 51 12 VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 The standardized requirements of the LCR would allow for horizontal comparisons between GECC and other companies with similar balance sheets and risk profiles. Because the LCR applies outflow and inflow rates that are based on a covered bank holding company’s particular risk profile and activities, the LCR requirements would be tailored to GECC’s activities, balance sheet, and risk profile, and would help ensure that GECC holds sufficient HQLA to meet the expected outflows for such activities over a 30 calendar-day period.53 To complement the LCR requirements, the Board believes that the individualized liquidity riskmanagement requirements established in Regulation YY for bank holding companies with $50 billion or more in total consolidated assets are appropriate for GECC, and is proposing to apply them, without change, to GECC beginning July 1, 2015.54 The firmspecific liquidity risk management and stress testing requirements of Regulation YY would help ensure that GECC develops the necessary compliance infrastructure to evaluate the liquidity risk profile of its operations on a continuing basis. The liquidity risk management and stress testing requirements of Regulation YY require the covered bank holding company to tailor its compliance framework to the particular size, complexity, structure, risk profile, and activities of the organization. Thus, in implementing these requirements, GECC would be expected to tailor its compliance framework to suit the company’s structure. Finally, the Board is also proposing to apply SR 10–6, Interagency Policy Statement on Funding and Liquidity Risk Management, and would require GECC to comply with the expectations outlined in this letter by July 1, 2015. 53 As indicated in the preamble to final LCR rulemaking, the Board anticipates separately seeking comment upon proposed regulatory reporting requirements and instructions pertaining to the LCR. 79 FR 61440, 61445 (October 10, 2014). The Board expects those reporting requirements and instructions to apply to any nonbank financial company supervised by the Board to which the Board has required by rule or order to comply with the LCR. 54 12 CFR 252.34, 35. PO 00000 Frm 00038 Fmt 4703 Sfmt 4703 71777 8. Are there other liquidity standards that the Board should consider applying to GECC, and if so, what are they? 9. Should the Board consider tailoring the proposed liquidity requirements to GECC? If so, which of the requirements should the Board consider tailoring based on GECC’s activities, balance sheet and risk profile? E. Risk-Management and RiskCommittee Requirements Sound enterprise-wide risk management by large financial companies reduces the likelihood of their material distress or failure and thus promotes financial stability. During the recent financial crisis, a number of companies that experienced material financial distress or failure had significant deficiencies in key areas of risk management. Senior managers at successful companies were actively involved in risk management, including determining the company’s overall risk preferences and creating the incentives and controls to induce employees to abide by those preferences. The boards of directors of these successful companies were actively involved in determining the company’s risk tolerance. Successful risk management also depends on senior managers having access to adaptive management information systems to identify and assess risks based on a range of dynamic measures and assumptions. 1. Section 165 and Regulation YY Section 165(b)(1)(A) of the DoddFrank Act requires the Board to establish enhanced risk-management requirements for bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies supervised by the Board.55 In addition, section 165(h) directs the Board to issue regulations requiring publicly traded bank holding companies with total consolidated assets of $10 billion or more and publicly traded nonbank financial companies to establish risk committees.56 Section 165(h) requires the risk committee to be responsible for the oversight of the enterprise-wide riskmanagement practices of the company, to have such number of independent directors as the Board determines appropriate, and to include at least one risk-management expert with experience in identifying, assessing, and 55 12 56 12 E:\FR\FM\03DEN1.SGM U.S.C. 5365(b)(1)(A). U.S.C. 5365(h). 03DEN1 71778 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES managing risk exposures of large, complex firms.57 Under the Board’s Regulation YY, the Board requires all bank holding companies with $50 billion or more in total consolidated assets to establish a risk committee that: Is an independent committee of the company’s board of directors; is chaired by an independent director; and includes at least one member who has experience in identifying, assessing and managing risk exposures of large, complex financial firms.58 The risk committee is required to approve and periodically review the risk-management policies of the bank holding company’s global operations, oversee the operation of the bank holding company’s global riskmanagement framework, and oversee the bank holding company’s compliance with the liquidity risk-management requirements of Regulation YY.59 In addition, a covered bank holding company is required to appoint a chief risk officer with experience in identifying, assessing, and managing risk exposures of large, complex financial firms, and who has responsibility for establishing enterprise-wide risk limits for the company and monitoring compliance with such limits.60 The chief risk officer is also required to develop policies and procedures to ensure the implementation of, and compliance with, the risk management framework. The chief risk officer must be compensated in a manner that is consistent with the provision of an objective assessment of the company’s risks, must report directly to both the risk committee and chief executive officer of the company, and must report risk-management deficiencies and emerging risks to the risk committee. Under Regulation YY, each covered bank holding company is required to establish a global risk-management framework that is commensurate with 57 Under Regulation YY, publicly traded is defined to mean ‘‘an instrument that is traded on . . . [a]ny exchange registered with the U.S. Securities and Exchange Commission as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f).’’ 12 CFR 252.2(p) (emphasis added). Although GECC does not have publicly traded shares of common equity, the company has debt securities that are publicly traded on the New York Stock Exchange under section 12(b) of the Securities Exchange Act of 1934. The Board is proposing to impose the requirements of Regulation YY and the additional risk management standards discussed below under its authority in section 165(h) to impose risk committee and risk management standards and its authority under section 165(b)(1)(B)(iv) to impose other standards that the Board determines are appropriate. 12 U.S.C. 5365(b)(1)(B)(iv). 58 12 CFR 252.33(a)(3), (4). 59 12 CFR 252.33(a). 60 12 CFR 252.33(b). VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 the company’s structure, risk profile, complexity, activities, and size.61 The risk-management framework is required to include policies and procedures for the establishment of risk-management governance and risk-control infrastructure of the company’s global operations. In addition, the riskmanagement framework must include processes and systems for identifying and reporting risk-management deficiencies in an effective and timely manner, must establish managerial and employee responsibilities for risk management, must ensure the independence of the risk-management function, and integrate risk management and associated controls with management goals and its compensation structure for the global operations of the company.62 2. Proposed Risk-Management Standards To Be Applied to GECC The Board is proposing to require GECC to adopt a risk-management framework that is consistent with the supervisory expectations established for bank holding companies of a similar size because of the similarities between GECC’s activities, risk profile, and balance sheet to that of a large bank holding company. Specifically, the Board is proposing to apply the riskmanagement standards under the Board’s Regulation YY to GECC beginning July 1, 2015.63 The adoption of sound risk-management principles by GECC will reduce the likelihood of material distress or failure of GECC and thus promote financial stability. The risk-management standards of the Board’s Regulation YY require a covered bank holding company to tailor its compliance framework to the particular size, complexity, structure, risk profile, and activities of the organization. Thus, in implementing these requirements, GECC would be expected to tailor its risk-management framework to suit the company’s structure. The Board understands that GE has established a dedicated risk committee that oversees the risk management of GE and GECC. However, the Board believes that, consistent with the designation of GECC as a nonbank financial company, GECC’s risk-management framework should have a dedicated risk committee at the company that is solely responsible for the oversight of GECC’s risk management. In addition to the proposed application of the risk-management standards under section 252.33 of the 61 12 CFR 252.33(a)(2). 62 Id. 63 12 PO 00000 CFR 252.33. Frm 00039 Fmt 4703 Sfmt 4703 Board’s Regulation YY, the Board is proposing to apply additional riskmanagement requirements that are tailored to reflect GECC’s structure as an intermediate holding company of a larger, publicly traded company. As GECC is a subsidiary of a larger, publicly traded company, the Board believes that it is necessary to ensure that GECC’s board of directors includes members who are independent of GE so that their attention is focused on the business operations and safety and soundness of GECC itself, apart from the needs of its parent GE. These directors also must be independent of GECC’s management to provide views apart from management. In particular, the Board is proposing to require that, beginning July 1, 2015, the board of directors of GECC have the greater of 25 percent or two directors that are independent of GE’s and GECC’s management and GE’s board of directors and that one of these directors serve as the chair of GECC’s risk committee established under Regulation YY.64 Under the proposed order, GECC would be required to maintain, at a minimum, two directors on its board of directors who are independent of GE’s and GECC’s management and GE’s board of directors. One of these directors would be required to chair GECC’s risk committee established under Regulation YY. In addition, pursuant to Regulation YY, GECC would be required to maintain at least one director with expertise in ‘‘identifying, assessing, and managing risk exposures of large, complex financial firms’’ on its risk committee.65 This director may be one of the independent directors required by the proposed order. The Board invites comment on whether the proposed additional GECC governance requirements are appropriate to address the status of GECC as an intermediate holding company and the potential conflict of interests in the relationship between GE and GECC. Finally, in addition to the risk management standards discussed above, the Board would continue to require GECC to observe the Board’s existing risk-management guidance and supervisory expectations for nonbank financial companies supervised by the Board.66 64 12 CFR 252.33(a)(4). 65 Id. 66 See Supervision and Regulation Letter SR 12– 17, Consolidated Supervision Framework for Large Financial Institutions (December 17, 2012), available at: https://www.federalreserve.gov/ bankinforeg/srletters/sr1217.htm. E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices 10. In addition to the requirements discussed above, should the Board consider imposing any additional corporate governance requirements on GECC? For example, should the Board consider requiring that additional directors be independent of GE, GECC, or both? 11. Should the Board require GECC to establish independent committees of its board of directors, such as an audit or compensation committee? tkelley on DSK3SPTVN1PROD with NOTICES 12. Should the Board consider requiring additional directors on GECC’s board of directors to have experience in identifying, assessing and managing risk exposures of large, complex financial firms? F. Other Prudential Standards: Restrictions on Intercompany Transactions Section 165(b)(1)(B) allows the Board to establish additional enhanced prudential standards for nonbank financial companies and bank holding companies with assets of $50 billion or more, including three enumerated standards—a contingent capital requirement, enhanced public disclosures, and short-term debt limit— and any ‘‘other prudential standards’’ that the Board determines are ‘‘appropriate.’’ 67 With respect to the three enumerated standards, the Board is currently considering whether it would be appropriate to develop such standards for bank holding companies and nonbank financial companies. During this process, the Board will consider whether it will be appropriate to apply such standards to GECC based on its profile, structure, activities, and risks. The Board is proposing to apply as an enhanced prudential standard certain restrictions on GECC’s transactions with affiliated entities that are not under GECC’s control. Like the riskmanagement standards proposed to be applied to GECC, the Board believes that it is appropriate to apply enhanced prudential standards to GECC that address the potential for conflicts of interest with GE and its affiliates, and to address the possibility of any such conflicts on the financial condition of GECC. Specifically, the Board is proposing to require GECC to comply with restrictions on transactions with affiliated entities in order to address the effect of any conflicts of interest that may arise in interactions between GECC and GE and its affiliates. Specifically, beginning on July 1, 2015, the Board is proposing to apply the requirements of 67 12 U.S.C. 5365(b)(1)(B). VerDate Sep<11>2014 18:42 Dec 02, 2014 section 23B of the Federal Reserve Act and the corresponding provisions of Regulation W (subpart F of 12 CFR part 223) to transactions between GECC (or any of its subsidiaries) with any affiliate (as defined in the Federal Reserve Act and Regulation W), as if GECC (or any of its subsidiaries) were a ‘‘member bank’’ and GE (or any of its subsidiaries other than GECC and subsidiaries of GECC) were an ‘‘affiliate.’’ 68 As noted above, the Board, as the prudential regulator of nonbank financial companies designated by the Council for its supervision, is required to establish enhanced prudential standards that are designed to prevent or mitigate risks to the financial stability of the United States from the material financial distress or failure of such companies. Section 23B of the Federal Reserve Act is designed to protect the safety and soundness of insured depository institutions by ensuring that an insured depository institution is not engaging in transactions with affiliates that are on terms that are unfavorable to the depository institution. The application of section 23B of the Federal Reserve Act to transactions between GECC and GE and its affiliates is designed to enhance the safety and soundness of GECC and to reduce the risk of material financial distress at GECC by ensuring that GECC is not engaging in transactions with affiliates on terms that are unfavorable to GECC and those that would not have been required, but for the affiliation between the companies. 13. In applying the restrictions of section 23B and the corresponding requirements of Regulation W to transactions between GECC and its subsidiaries with any affiliates, are there any transactions or entities that should be exempted from the restrictions? 14. Are there other enhanced prudential standards that the Board should consider applying to GECC? Specifically, are there other restrictions on transactions between GECC and its affiliates that would be appropriate? G. Future Standards With respect to the remaining standards required under section 165 of the Dodd-Frank Act, the Board is continuing to develop standards that are designed to further mitigate the risks to the financial stability of the United States presented by large banking organizations and nonbank financial companies supervised by the Board. For example, the Board’s initial proposed rules to implement the requirements of 68 12 Jkt 235001 PO 00000 U.S.C. 371c–1; subpart F to 12 CFR part 223. Frm 00040 Fmt 4703 Sfmt 4703 71779 section 165 and 166 of the Dodd-Frank Act included single-counterparty credit limits and early remediation requirements for the companies covered under sections 165 and 166 of the DoddFrank Act. The Board is working to further develop these requirements and will be considering the tailoring of these requirements to nonbank financial companies supervised by the Board.69 As the Board develops additional standards related to capital, liquidity, risk management, or other standards, for bank holding companies and savings and loan holding companies, the Board will consider the applicability of these standards to GECC. V. Proposed Reporting Requirements Section 161(a) of the Dodd-Frank Act 70 authorizes the Board to require a nonbank financial company supervised by the Board, and any subsidiary thereof, to submit reports to the Board related to: (1) The financial condition of the company or subsidiary, systems of the company or subsidiary for monitoring and controlling financial, operating, and other risks, and the extent to which the activities and operations of the company or subsidiary pose a threat to the financial stability of the United States; and (2) compliance by the company or subsidiary with the requirements of Title I of the DoddFrank Act, which includes the enhanced prudential standards to which nonbank financial companies are subject. Pursuant to this authority, the Board is proposing to require GECC to file the following reports: 71 (i) The FR Y–6 report (Annual Report of Holding Companies); (ii) the FR Y–10 report 69 With respect to single-counterparty credit limits, the Board participated in the Basel Committee’s initiative to develop a similar large exposure regime for global banks and intends to take into account this effort in implementing the single-counterparty credit limits under the DoddFrank Act. With respect to the early remediation framework, the Board is considering how to reflect the revised capital framework as well as how to address other issues presented by commenters. 70 12 U.S.C. 5361(a). 71 GECC is a savings and loan holding company supervised by the Board. So long as GECC remains a savings and loan holding company, GECC continues to be subject to all reporting requirements applicable to a savings and loan holding company. Consistent with section 161(a)(2) of the Dodd-Frank Act, the Board intends to confer with GECC as to whether the information requested in the required reports may be available from other sources, and, to the extent any reporting requirements overlap, GECC will not be subjected to duplicative reporting requirements as both a savings and loan holding company and a nonbank financial company supervised by the Board. 12 U.S.C. 5361(a)(2). The reporting requirements under the proposed order would continue to apply to GECC as a nonbank financial company in the event that GECC ceases to be a savings and loan holding company and ceases to be subject to the reporting requirements applicable to savings and loan holding companies. E:\FR\FM\03DEN1.SGM 03DEN1 71780 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices tkelley on DSK3SPTVN1PROD with NOTICES (Report of Changes in Organizational Structure); (iii) the FR Y–9C report (Consolidated Financial Statements for Holding Companies) and FR Y–9LP report (Parent Company Only Financial Statements for Large Holding Companies); (iv) the FR Y–11 report and FR Y–11S report (Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding Companies); (v) the FR 2314 report and FR 2314S report (Financial Statements of Foreign Subsidiaries of U.S. Banking Organizations); (vi) the FR Y–14A, FR Y–14M, and FR Y–14Q reports (Capital Assessments and Stress Testing) (together, the FR Y–14 series reporting forms); (vii) the FR Y–15 report (Banking Organization Systemic Risk Report); (viii) the FFIEC 009 report (Country Exposure Report) and FFIEC 009a report (the Country Exposure Information Report); and (ix) the FFIEC 102 report (Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule), if the market risk capital rule becomes applicable to GECC. The Board intends to confer with GECC to identify any report schedules that may not be necessary for GECC to provide based on its profile, structure, activities, risks, or other characteristics and to determine an appropriate phasein period for report submission by GECC. Other than the FR Y–14 series reporting forms, discussed below, the Board is proposing that, beginning July 1, 2015, GECC would be required to file each of these reports in accordance with the timelines set forth in their respective reporting instructions. Because the FR Y–14A reporting form relates to the Board’s capital planning and stress testing requirements, the Board expects that it would require GECC to file its first FR Y–14A submission on April 5, 2016, to report its first capital plan. The Board expects GECC would be required to submit its first FR Y–14Q and Y–14M reports as of one calendar year before the as-of date of its first supervisory and company-run stress test under the Board’s stress test rules. A. FR Y–6 Report The FR Y–6 (Annual Report of Holding Companies) is an annual information collection currently submitted by top-tier bank holding companies, savings and loan holding companies, securities holding companies, and non-qualifying foreign banking organizations. It collects financial data, an organization chart, verification of domestic branch data, and information about certain shareholders. With respect to GECC, the Board expects to use this information, in VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 conjunction with the information collected through the FR Y–10 report, to monitor the financial condition and the activities of GECC. This information will also be used by the Board to monitor the extent to which the activities and operations of GECC pose a threat to the financial stability of the United States and GECC’s compliance with the requirements of Title I of the Dodd-Frank Act, the enhanced prudential standards that are imposed on GECC, and other relevant law. In addition, this information will be used to capture the legal entity structure of GECC. The Board also expects to use this information, combined with the information collected through the FR Y–9C, FR Y–9LP, FR Y–10, FR Y–11, FR Y–11S, FR 2314, and FR 2314S reports, to monitor intercompany transactions and changes in GECC’s legal entity structure over time. B. FR Y–10 Report The FR Y–10 (Report of Changes in Organizational Structure) is an eventgenerated information collection currently submitted by top-tier bank holding companies; savings and loan holding companies; state member banks unaffiliated with a bank holding company or a foreign banking organization; Edge and agreement corporations that are not controlled by a state member bank, a domestic bank holding company, or a foreign banking organization; and nationally chartered banks that are not controlled by a bank holding company or a foreign banking organization (with regard to their foreign investments only), to capture changes in their regulated investments and activities. The Board uses this information to ensure that these firms’ activities are conducted in a safe and sound manner. The data also provide the Board with information integral to monitoring compliance with the BHC Act, the Gramm-Leach-Bliley Act, the Federal Reserve Act, the International Banking Act, the Sarbanes-Oxley Act, the Board’s Regulation Y, the Board’s Regulation K, the Board’s Regulation LL, and HOLA. The information in this report, in conjunction with the information in the FR Y–6, will be used to capture the legal entity structure of GECC. As noted above, the FR Y–6 and FR Y–10 reports are the only detailed sources of information on the structure of these top-tier firms. This information will also be used by the Board to monitor the extent to which the activities and operations of GECC pose a threat to the financial stability of the United States and GECC’s compliance with the requirements of Title I of the Dodd- PO 00000 Frm 00041 Fmt 4703 Sfmt 4703 Frank Act, the enhanced prudential standards that are imposed on GECC, and other relevant law. In addition, this information will be used to capture the legal entity structure of GECC. The Board also expects to use this information, combined with the information collected through the FR Y–9C, FR Y–9LP, FR Y–10, FR Y–11, FR Y–11S, FR 2314, and FR 2314S reports, to monitor intercompany transactions and changes in GECC’s legal entity structure over time. C. FR Y–9C and FR Y–9LP Reports The FR Y–9C (Consolidated Financial Statements for Holding Companies) and FR Y–9LP (Parent Company Only Financial Statements for Large Holding Companies) reports are standardized financial statements currently submitted by bank holding companies, savings and loan holding companies, and securities holding companies on a quarterly basis. The FR Y–9C consists of standardized financial statements and collects consolidated data from these entities. The FR Y–9LP collects basic financial data from domestic bank holding companies, savings and loan holding companies, and securities holding companies on a consolidated, parentonly basis in the form of a balance sheet, an income statement, and supporting schedules relating to investments, cash flow, and certain memoranda items. Financial information from these reports is used to assess and monitor the financial condition of holding company organizations, which may include parent, bank, and nonbank entities. This information also is used to detect emerging financial problems, to review performance and conduct preinspection analysis, to monitor and evaluate capital adequacy, to evaluate mergers and acquisitions, and to analyze the overall financial condition of bank holding companies, savings and loan holding companies, and securities holding companies, to ensure safe and sound operations. With respect to GECC, the Board expects to use the data to monitor the financial condition of the company and subsidiaries and assess the systems of the company and subsidiaries for monitoring and controlling financial, operating, and other risks. This information also may be used to analyze the extent to which the activities and operations of the company or subsidiaries pose a threat to the financial stability of the United States and to monitor GECC’s compliance with Title I of the Dodd-Frank Act, the enhanced prudential standards that are imposed on GECC, and other relevant law. The standardized format of these E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices reports allows for the consistent assessment of financial condition across all firms that are required to report under these forms. The level of detail provided within the supporting schedules of these reports is not available through public financial filings or alternate sources. tkelley on DSK3SPTVN1PROD with NOTICES D. FR Y–11 and FR Y–11S Reports The FR Y–11 and FR Y–11S (Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding Companies) reports collect financial information for individual nonfunctionally regulated U.S. nonbank subsidiaries of domestic bank holding companies, savings and loan holding companies, and securities holding companies. This report consists of a balance sheet and income statement; information on changes in equity capital, changes in the allowance for loan and lease losses, off-balance-sheet items, and loans; and a memoranda section. Top-tier bank holding companies, savings and loan holding companies, and securities holding companies file the FR Y–11 and FR Y–11S reports on a quarterly or annual basis according to filing criteria. The information obtained through the FR Y– 11 and FR Y–11S reports is used with other bank holding companies, savings and loan holding companies, and securities holding companies data to assess the condition of firms that are engaged in nonbanking activities and to monitor the volume, nature, and condition of their nonbanking operations. With respect to GECC, the Board expects to use this information, in conjunction with the information collected through the FR 2314 and FR 2314S reports, to assess the financial condition of U.S. nonbanking entities within GECC and to monitor their activities. This information also may be used to monitor the financial condition of subsidiaries of GECC and to assess the systems of the company for monitoring and controlling financial, operating, and other risks. This information may further be used to analyze the extent to which the activities and operations of GECC or its subsidiaries pose a threat to the financial stability of the United States and to monitor GECC’s compliance with Title I of the Dodd-Frank Act, the enhanced prudential standards that are imposed on GECC, and other relevant law. In addition, the information collected through the FR Y–11, FR Y–11S, FR 2314, and FR 2314 reports serves to identify material legal entities. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 E. FR 2314 and FR 2314S Reports The FR 2314 and FR 2314S (Financial Statements of Foreign Subsidiaries of U.S. Banking Organizations) reports collect financial information for nonfunctionally regulated direct or indirect foreign subsidiaries of U.S. state member banks, Edge and agreement corporations, bank holding companies, and savings and loan holding companies. The FR 2314 and FR 2314S reports consist of a balance sheet and income statement; information on changes in equity capital, changes in the allowance for loan and lease losses, offbalance-sheet items, and loans; and a memoranda section. Holding companies file this report on a quarterly or annual basis according to filing criteria. The data is used to identify current and potential problems at the foreign subsidiaries of U.S. parent companies, to monitor the activities of U.S. banking organizations in specific countries, and to develop a better understanding of activities within the industry, in general, and of individual institutions, in particular. The FR 2314 and FR 2314S reports are the only source of comprehensive and systematic data on the assets, liabilities, and earnings of the foreign bank and nonbank subsidiaries of U.S. state member banks, holding companies, and Edge Act and agreement corporations. With respect to GECC, the Board expects to use this information, in conjunction with the information collected through the FR Y–11 and FR Y–11S reports, to assess the financial condition of foreign subsidiaries of GECC and to monitor their activities. This information may be used to assess the systems of GECC and its foreign subsidiaries for monitoring and controlling financial, operating, and other risks. This information also may be used to analyze the extent to which the activities and operations of the foreign subsidiaries pose a threat to the financial stability of the United States and to monitor compliance with Title I of the Dodd-Frank Act, the enhanced prudential standards that are imposed on GECC, and other relevant law. The information collected through the FR Y– 11, FR Y–11S, FR 2314, and FR 2314S reports will allow the Board to develop a better understanding of the activities of GECC and its subsidiaries in specific countries, and to develop a better understanding of the activities conducted within the industries in which GECC operates. PO 00000 Frm 00042 Fmt 4703 Sfmt 4703 71781 F. FR Y–14A, FR Y–14M, and FR Y–14Q Reports Submitted as part of the Board’s CCAR and stress testing processes, the FR Y–14A, FR Y–14M, and FR Y–14Q (Capital Assessments and Stress Testing) reports collect detailed financial information from top-tier bank holding companies (other than foreign banking organizations) with $50 billion or more in total consolidated assets, as determined based on: (i) The average of the bank holding company’s total consolidated assets in the four most recent quarters as reported quarterly on the bank holding company’s FR Y–9C reports; or (ii) the average of the bank holding company’s total consolidated assets in the most recent consecutive quarters as reported quarterly on the bank holding company’s FR Y–9C reports, if those bank holding companies have not filed an FR Y–9C report for each of the most recent four quarters. The FR Y–14A report is an annual collection of these bank holding companies’ quantitative projections of balance sheet, income, losses, and capital across a range of macroeconomic scenarios and qualitative information on methodologies used to develop internal projections of capital across scenarios, with certain projections and information collected on a semi-annual basis. The FR Y–14M report is a monthly submission that comprises three loanand portfolio-level collections of data concerning domestic residential mortgages, domestic home equity loan and home equity lines of credit, and domestic credit card loans, and one detailed address-matching collection to supplement two of the loan- and portfolio-level collections. The FR Y– 14Q report is a quarterly collection of granular data on these bank holding companies’ various asset classes and pre-provision net revenue for the reporting period, including information pertaining to securities, retail loans, wholesale loans, mortgage servicing rights, regulatory capital instruments, operational risk, and trading, private equity, and other fair-value assets. Collectively, the Y–14 data is used to assess the capital adequacy of large bank holding companies using forwardlooking projections of revenue and losses, and to support supervisory stress test models and continuous monitoring efforts. With respect to GECC, the Board expects to use this information to assess GECC’s internal assessments of its capital adequacy under a stressed scenario, and to conduct the Federal Reserve’s supervisory stress tests that E:\FR\FM\03DEN1.SGM 03DEN1 71782 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices assess GECC’s ability to withstand stress in a manner consistent with bank holding companies subject to the Board’s capital plan and stress testing rules. In addition, this information will be used to support ongoing monitoring of changes in GECC’s risk profile and composition. The Board would require GECC to file its first FR Y–14A submission on April 5, 2016, as part of its capital plan. In addition, the Board would require GECC to submit its first FR Y–14Q and Y–14M reports as of one calendar year before the as of date of its first supervisory and company-run stress test under the Board’s stress test rules, which would be as of December 31, 2015, under this proposal. tkelley on DSK3SPTVN1PROD with NOTICES G. FR Y–15 Report The FR Y–15 (Banking Organization Systemic Risk Report) report collects consolidated systemic risk data from bank holding companies with total consolidated assets of $50 billion or more and the U.S. operations or large foreign banking organizations. The data items collected in this report mirror those developed by the Basel Committee to assess the global systemic importance of banks. The Board uses the information collected annually through the FR Y–15 report to: (i) Facilitate the future implementation of the capital surcharge on global systemicallysignificant banking organizations through regulation; (ii) identify institutions that may be domestic systemically-significant banking organizations under a future framework; (iii) analyze the systemic risk implications of proposed mergers and acquisitions; and (iv) monitor, on an ongoing basis, the systemic risk profile of the institutions that are subject to enhanced prudential standards under section 165 of the Dodd-Frank Act.72 If applied to GECC, the Board expects to use this data to assess and monitor GECC’s systemic risk profile and its global systemic importance, as well as its ongoing compliance with Title I of the Dodd-Frank Act, the enhanced prudential standards that are imposed on GECC, and other relevant law. H. FFIEC 009 and FFIEC 009a Reports The Federal Financial Institutions Examination Council (FFIEC) is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau 72 12 U.S.C. 5365. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 and to make recommendations to promote uniformity in the supervision of financial institutions. The FFIEC 009 (Country Exposure Report) and FFIEC 009a (the Country Exposure Information Report) reports are quarterly information collections currently submitted by U.S. commercial banks and bank holding companies holding with $30 million or more in claims on residents of foreign countries. The FFIEC 009 collects detailed information on the distribution, by country, of claims on foreigners held by U.S. banks and bank holding companies. The FFIEC 009a is a supplement to the FFIEC 009 that provides specific information about the reporting institutions’ exposures in particular countries. The FFIEC 009 report consists of four schedules that collect information concerning: (1) Claims on the firm on the basis of the country of residence of the borrower (except claims from the fair value of derivative contracts); (2) the reporting firm’s claims on an ultimaterisk basis with additional details related to those claims; (3) the firm’s foreignoffice liabilities; and (4) the firm’s offbalance-sheet exposures from commitments, guarantees, and credit derivatives. The information collected is used to determine the presence of credit and related risks, including transfer and country risk. The FFIEC 009a is filed if exposures to a country exceed 1 percent of total assets or 20 percent of capital at the reporting institution and requires that the respondent also furnish a list of countries in which exposures were between 0.75 percent and one percent of total assets or between 15 and 20 percent of capital. With respect to GECC, the Board expects to use this information to assess GECC’s credit and related risks. Specifically, the information collected on the FFIEC 009 report and the FFIEC 009a report provides additional information on counterparties, the type of claim being reported, and credit derivative exposure. The information also provides details on a limited number of risk mitigants to help provide context for currently reported gross exposure numbers. This information may be used to analyze the extent to which GECC’s credit exposures pose a threat to the financial stability of the United States. The information collected through the FFIEC 009 report and the FFIEC 009a report will allow the Board to develop a better understanding of GECC’s exposures in specific countries, and to monitor trends in exposures to foreign creditors. PO 00000 Frm 00043 Fmt 4703 Sfmt 4703 I. FFIEC 102 The proposed FFIEC 102 reporting form is designed to implement the reporting requirements for institutions that are subject to the federal banking agencies’ market risk capital rule under the revised capital framework.73 The proposed reports would be quarterly information collections used to assess the reasonableness and accuracy of a market risk institution’s calculation of its minimum capital requirements under the market risk capital rule and to evaluate such an institution’s capital in relation to its risks. The market risk information collected in the FFIEC 102 is designed to: (a) Permit the federal banking agencies to monitor the market risk profile of and evaluate the impact and competitive implications of the market risk capital rule on individual market risk institutions and the industry as a whole; (b) provide the most current statistical data available to identify areas of market risk on which to focus for onsite and offsite examinations; (c) allow the federal banking agencies to assess and monitor the levels and components of each reporting institution’s risk-based capital requirements for market risk and the adequacy of the institution’s capital under the market risk capital rule; and (d) assist market risk institutions to implement and validate the market risk framework. Although GECC would not currently be subject to the Board’s market risk capital rule because it does not meet the applicable aggregate trading assets and trading liabilities thresholds, the proposed order would require GECC to submit the FFIEC 102 should GECC become subject to the Board’s market risk capital rule.74 The information collected on the FFIEC 102 would allow the Board to monitor GECC’s market risk profile and the adequacy of GECC’s capital under the market risk capital rule should it become applicable. VI. Timing of Application In general, the Board is proposing to require GECC to begin complying with the proposed enhanced prudential standards beginning July 1, 2015, except 73 See Subpart F to 12 CFR 217. Board’s market risk capital rule applies to any state member bank, bank holding company, or savings and loan holding company with aggregate trading assets and trading liabilities (as reporting on the applicable Call Report, for a state member bank, or FR Y–9C, for a bank holding company or savings and loan holding company, as applicable) equal to: (i) 10 percent or more of the quarter-end total assets as reported on the most recent regulatory report; or (ii) $1 billion or more. 12 CFR 217.201(b). As of September 30, 2014, GECC had approximately $229 million in aggregate trading assets and trading liabilities. 74 The E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices for the Board’s capital planning and stress testing rules, which the Board has proposed will apply to GECC beginning on the next capital planning and stress testing cycle beginning January 1, 2016, and January 1, 2017, respectively. However, regardless of the transition period for application of the enhanced prudential standards, GECC will continue to be subject to the Board’s examination and oversight authority, and any other prudential requirements imposed under HOLA.75 tkelley on DSK3SPTVN1PROD with NOTICES 15. Should the Board consider providing a longer transition period for any of the standards that it has proposed to apply to GECC? VII. Paperwork Reduction Act Certain provisions of the Board’s proposed order contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501– 3521). In accordance with the requirements of the PRA, the Board may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Board reviewed the proposed order under the authority delegated to the Board by OMB. The proposed order contains reporting requirements subject to the PRA and would require GECC to submit the following reporting forms in the same manner as a bank holding company: (1) Country Exposure Report and Country Exposure Information Report (FFIEC 009 and FFIEC 009a; OMB No. 7100–0035); (2) Proposed Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule (FFIEC 102; OMB No. to be obtained) (See the initial Federal Register notice (79 FR 52108) published on September 2, 2014.); (3) Financial Statements of Foreign Subsidiaries of U.S. Banking Organizations; and Abbreviated Financial Statements of Foreign Subsidiaries of U.S. Banking Organizations (FR 2314; and FR 2314S OMB No. 7100–0073); (4) Annual Report of Holding Companies (FR Y–6; OMB No. 7100– 0297); (5) Consolidated Financial Statements for Holding Companies (FR Y–9C; OMB No. 7100–0128); (6) Parent Company Only Financial Statements for Large Holding Companies (FR Y–9LP; OMB No. 7100– 0128); 75 12 U.S.C. 1467a, 5361. VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 (7) Report of Changes in Organizational Structure (FR Y–10; OMB No. 7100–0297); (8) Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding Companies; and Abbreviated Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding Companies (FR Y–11; and FR Y–11S OMB No. 7100–0244); (9) Capital Assessments and Stress Testing (FR Y–14A; FR Y–14M; and FR Y–14Q OMB No. 7100–0341); and (10) Banking Organization Systemic Risk Report (FR Y–15; OMB No. 7100– 0352). The proposed order contains reporting, recordkeeping, or disclosure requirements subject to the PRA and would require GECC to comply with the following information collections in the same manner as a bank holding company: (1) Funding and Liquidity Risk Management Guidance (FR 4198; OMB No. 7100–0326). See the Enhanced Prudential Standards for Bank Holding Companies and Foreign Banking Organizations final rule (79 FR 17239) published on March 27, 2014. (2) Risk-Based Capital Standards: Advanced Capital Adequacy Framework Information Collection (FR 4200; OMB No. 7100–0313). See the Regulatory Capital Rules final rule (78 FR 62017) published on October 11, 2013, and the Regulatory Capital Rules final rule (79 FR 57725) published on September 26, 2014. (3) Risk-Based Capital Guidelines: Market Risk (FR 4201; OMB No. 7100– 0314). See the Regulatory Capital Rules final rule (78 FR 62017) published on October 11, 2013. (4) Recordkeeping and Reporting Requirements Associated with Regulation Y (Capital Plans) (Reg Y–13; OMB No. 7100–0342). See the Capital Plans final rule (76 FR 74631) published on December 1, 2011, the Supervisory and Company-Run Stress Test Requirements for Covered Companies final rule (77 FR 62377) published on October 12, 2012, and the Capital Plan and Stress Test Rules final rule (79 FR 64025) published on October 27, 2014. (5) Reporting and Recordkeeping Requirements Associated with Regulation WW (Liquidity Coverage Ratio: Liquidity Risk Measurement, Standards, and Monitoring) (Reg WW; OMB No. to be obtained). See the Liquidity Coverage Ratio final rule (79 FR 61439) published on October 10, 2014. (6) Reporting, Recordkeeping, and Disclosure Requirements Associated with Regulation YY (Enhanced Prudential Standards) (Reg YY; OMB PO 00000 Frm 00044 Fmt 4703 Sfmt 4703 71783 No. 7100–0350). See the Supervisory and Company-Run Stress Test Requirements for Covered Companies final rule (77 FR 62377) published on October 12, 2012, and the Enhanced Prudential Standards for Bank Holding Companies and Foreign Banking Organizations final rule (79 FR 17239) published on March 27, 2014. Comments are invited on: (a) Whether the proposed collections of information are necessary for the proper performance of the Federal Reserve’s functions, including whether the information has practical utility; (b) The accuracy of the Federal Reserve’s estimates of the burden of the proposed information collections, including the validity of the methodology and assumptions used; (c) Ways to enhance the quality, utility, and clarity of the information to be collected; (d) Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and (e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. All comments will become a matter of public record. Comments on aspects of this proposed order that may affect reporting, recordkeeping, or disclosure requirements and burden estimates should be sent to the addresses listed in the ADDRESSES section above. A copy of the comments may also be submitted to the OMB desk officer: By mail to Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10235, 725 17th Street NW., Washington, DC 20503 or by facsimile to 202–395–6974, Attention, Federal Reserve Desk Officer. VIII. Proposed Order FEDERAL RESERVE SYSTEM General Electric Capital Corporation, Inc. Norwalk, Connecticut Order Imposing Enhanced Prudential Standards and Reporting Requirements Pursuant to section 165 of the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the Board of Governors of the Federal Reserve System (Board) is required to apply enhanced prudential standards to General Electric Capital Corporation (GECC), a nonbank financial company that the Financial Stability Oversight Council has determined should be supervised by the Board (nonbank E:\FR\FM\03DEN1.SGM 03DEN1 71784 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices financial company supervised by the Board). After consideration of all of the relevant factors set forth in sections 165(a) and 165(b) of the Dodd-Frank Act, for the reasons set forth in the preamble to this order, the Board is applying the following enhanced prudential standards and reporting requirements to GECC that the Board has tailored, where appropriate, in light of those factors. Capital Requirements Beginning on July 1, 2015, GECC shall comply with the Board’s capital framework, set forth in 12 CFR part 217,1 as if GECC were a bank holding company that is an ‘‘advanced approaches Board-regulated institution’’ and a ‘‘covered BHC,’’ each as defined under 12 CFR 217.2, provided, however, that notwithstanding 12 CFR 217.100(b), GECC will not be required to comply with subpart E of 12 CFR part 217 or to calculate an advanced measure for market risk.2 Capital Planning GECC shall comply with the capital plan rule set forth in 12 CFR 225.8 as a nonbank financial company supervised by the Board, pursuant to 12 CFR 225.8(b)(1)(iv), and shall submit a capital plan for the capital plan cycle beginning on January 1, 2016.3 Stress Testing GECC shall comply with the stress testing requirements set forth in subparts E and F of Regulation YY (12 CFR part 252, subparts E and F) as a nonbank financial company supervised by the Board, pursuant to 12 CFR 252.43(a)(1)(iii) and 12 CFR 252.53(a)(1)(iii), beginning with the stress testing cycle beginning on January 1, 2017.4 tkelley on DSK3SPTVN1PROD with NOTICES Liquidity Requirements 1. Beginning on July 1, 2015, GECC shall comply with the liquidity requirements, set forth in sections 252.34 and 252.35 of the Board’s Regulation YY, as though it were a bank holding company with $50 billion or more in total consolidated assets.5 2. Beginning on July 1, 2015, GECC shall comply with the liquidity coverage ratio (LCR) standard, set forth in 12 CFR part 249, as a covered nonbank company, pursuant to 12 CFR 249.1(b)(1)(iv) and 12 CFR 249.3, subject 1 12 CFR part 217. CFR 217.204. 3 12 CFR 225.8. 4 Subparts E and F of 12 CFR part 252. 5 12 CFR 252.34, 252.35. 2 12 VerDate Sep<11>2014 18:42 Dec 02, 2014 Jkt 235001 to the transition periods set forth under 12 CFR 249.50(b).6 3. Beginning on July 1, 2015, GECC shall comply with the Board’s supervisory guidance on principles of sound liquidity risk management, as set forth in the Board’s Supervision and Regulation letter 10–6, ‘‘Interagency Policy Statement on Funding and Liquidity Risk Management,’’ issued in March 2010.7 Risk Management 1. Beginning on July 1, 2015, GECC shall comply with the risk-management standards under section 252.33 of the Board’s Regulation YY as though it were a bank holding company with $50 billion or more in total consolidated assets.8 a. In addition, beginning on July 1, 2015, GECC is required to maintain a board of directors that has the greater of 25 percent of directors or two directors who are independent of General Electric Company’s management and board of directors and GECC’s management, one of whom may satisfy the independent director requirement under section 252.33(a)(4) of Regulation YY; and b. GECC shall ensure that the chair of the risk committee established at GECC pursuant to Regulation YY is among the directors who are independent of General Electric Company’s management and board of directors and GECC’s management.9 2. GECC shall continue to comply with the Board’s existing riskmanagement guidance and supervisory expectations applicable to nonbank financial companies supervised by the Board.10 Restrictions on Intercompany Transactions Beginning on July 1, 2015, all transactions between GECC (or any of its subsidiaries) and GE (or any of its subsidiaries other than GECC or subsidiaries of GECC) shall be subject to the requirements of section 23B of the 6 12 CFR part 249. of Governors of the Federal Reserve System, Division of Banking Supervision and Regulation (2010), ‘‘Interagency Policy Statement on Funding and Liquidity Risk Management,’’ Supervision and Regulation Letter SR 10–6 (March 17); 75 FR 13656 (March 22, 2010); available at: https://www.federalreserve.gov/boarddocs/srletters/ 2010/sr1006.pdf. 8 12 CFR 252.33. 9 12 CFR 252.33(a). 10 See Board of Governors of the Federal Reserve System, Division of Banking Supervision and Regulation (2012), ‘‘Consolidated Supervision Framework for Large Financial Institutions,’’ Supervision and Regulation Letter SR 12–17 (December 17), available at: https:// www.federalreserve.gov/bankinforeg/srletters/ sr1217.htm. 7 Board PO 00000 Frm 00045 Fmt 4703 Sfmt 4703 Federal Reserve Act and the corresponding provisions of Regulation W (subpart F of 12 CFR part 223) as if GECC (or any of its subsidiaries) were a ‘‘member bank’’ and GE (or any of its subsidiaries other than GECC and subsidiaries of GECC) were an ‘‘affiliate’’ as defined in section 23B of the Federal Reserve Act and Regulation W.11 However, this restriction would not apply to transactions between GECC and any person the proceeds of which are used for the benefit of, or transferred to, an affiliate, which would otherwise be a covered transaction under section 23A(a)(2) of the Federal Reserve Act and section 223.16 of Regulation W.12 Future Standards Nothing herein limits the Board’s authority to impose additional enhanced prudential standards to apply to GECC in the future. Reporting Requirements 1. Beginning on July 1, 2015, pursuant to section 161(a) of the Dodd-Frank Act,13 GECC shall file the following reports with the Board: a. FFIEC 102 report (Market Risk Regulatory Report for Institutions Subject to the Market Risk Capital Rule); 14 b. FFIEC 009 report (Country Exposure Report) and FFIEC 009a report (Country Exposure Information Report); c. FR Y–6 report (Annual Report of Holding Companies); d. FR Y–10 report (Report of Changes in Organizational Structure); e. FR Y–9C report (Consolidated Financial Statements for Holding Companies) and FR Y–9LP report (Parent Company Only Financial Statements for Large Holding Companies); f. FR Y–11 and FR Y–11S reports (Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding Companies); g. FR 2314 and FR 2314S reports (Financial Statements of Foreign Subsidiaries of U.S. Banking Organizations); h. FR Y–14A, FR Y–14M, and FR Y–14Q reports (Capital Assessments and Stress Testing); and i. FR Y–15 report (Banking Organization Systemic Risk Report). 2. Other than the FR Y–14A, FR Y–14M, and FR Y–14Q reports, GECC 11 12 U.S.C. 371c–1; subpart F of 12 CFR part 223. U.S.C. 371c(a)(2); 12 CFR 223.16. 13 12 U.S.C. 5361(a). 14 GECC shall become subject to the FFIEC 102 report in the event the company meets the aggregate trading assets and trading liabilities threshold for application of the Board’s market risk capital rule. 12 CFR 217.201(b). 12 12 E:\FR\FM\03DEN1.SGM 03DEN1 Federal Register / Vol. 79, No. 232 / Wednesday, December 3, 2014 / Notices shall file each of the reports in accordance with the timelines set forth in the applicable instructions to each reporting form. 3. GECC shall submit its first FR Y–14A report on April 5, 2016, in connection with its first submission under the capital plan rule (12 CFR 225.8). 4. GECC shall submit its first FR Y–14Q and FR Y–14M reports one calendar year before the as of date of its first supervisory and company-run stress test under the Board’s stress testing requirements under Regulation YY (12 CFR part 252, subparts E and F). 5. The Board intends to confer with GECC to determine whether GECC should modify any reporting schedules that may not be necessary for GECC to provide, based on its profile, structure, activities, risks, or other characteristics. By order of the Board of Governors of the Federal Reserve System, November 25, 2014. Robert deV. Frierson, Secretary of the Board. acquire voting shares of HomeBank, both in Palmyra, Missouri. B. Federal Reserve Bank of Kansas City (Dennis Denney, Assistant Vice President) 1 Memorial Drive, Kansas City, Missouri 64198–0001: 1. The Virgil A. Lair and Mary A. Lair Irrevocable Trust dated August 15, 2013, Chanute, Kansas; Gregory D. Lair, Piqua, Kansas; Casey A. Lair, Neodesha, Kansas; Mark T. Lair, Chanute, Kansas; and Jill A. Aylward, Chanute, Kansas; all individually and as trustees; to retain voting shares of Southeast Bancshares, Inc., and thereby indirectly retain voting shares of Bank of Commerce, both in Chanute, Kansas; Chetopa State Bank & Trust Company, Chetopa, Kansas; and First Neodesha Bank, Neodesha, Kansas. Notice of Proposals To Engage in or To Acquire Companies Engaged in Permissible Nonbanking Activities BILLING CODE 6210–01–P FEDERAL RESERVE SYSTEM Formations of, Acquisitions by, and Mergers of Bank Holding Companies tkelley on DSK3SPTVN1PROD with NOTICES 18:42 Dec 02, 2014 Jkt 235001 [FR Doc. 2014–28435 Filed 12–2–14; 8:45 am] [FR Doc. 2014–28433 Filed 12–2–14; 8:45 am] FEDERAL RESERVE SYSTEM VerDate Sep<11>2014 Board of Governors of the Federal Reserve System, November 28, 2014. Margaret McCloskey Shanks, Deputy Secretary of the Board. BILLING CODE 6210–01–P BILLING CODE 6210–01–P The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board’s Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)). The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than December 15, 2014. A. Federal Reserve Bank of St. Louis (Yvonne Sparks, Community Development Officer) P.O. Box 442, St. Louis, Missouri 63166–2034: 1. Byron B. Webb, III, Emden, Missouri, as Trustee of the Byron B. Webb, III Separate Property Trust, dated April 26, 2004, and Victoria Webb Sack, Del Mar, California, as Trustee of the Victoria Webb Sack Separate Property Recoverable Stock Trust, dated June 12, 2008; to acquire voting shares of Byron B. Webb, Inc., and thereby indirectly Governors not later than December 26, 2014. A. Federal Reserve Bank of Minneapolis (Jacquelyn K. Brunmeier, Assistant Vice President) 90 Hennepin Avenue, Minneapolis, Minnesota 55480–0291: 1. HF Financial Corp., Sioux Falls, South Dakota; to become a bank holding company by converting its whollyowned subsidiary Home Federal Bank, Sioux Falls, South Dakota, from a federal savings bank to a South Dakota state-chartered bank. Board of Governors of the Federal Reserve System, November 28, 2014. Margaret McCloskey Shanks, Deputy Secretary of the Board. [FR Doc. 2014–28414 Filed 12–2–14; 8:45 am] Change in Bank Control Notices; Acquisitions of Shares of a Bank or Bank Holding Company 71785 The companies listed in this notice have applied to the Board for approval, pursuant to the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et seq.) (BHC Act), Regulation Y (12 CFR part 225), and all other applicable statutes and regulations to become a bank holding company and/or to acquire the assets or the ownership of, control of, or the power to vote shares of a bank or bank holding company and all of the banks and nonbanking companies owned by the bank holding company, including the companies listed below. The applications listed below, as well as other related filings required by the Board, are available for immediate inspection at the Federal Reserve Bank indicated. The applications will also be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the standards enumerated in the BHC Act (12 U.S.C. 1842(c)). If the proposal also involves the acquisition of a nonbanking company, the review also includes whether the acquisition of the nonbanking company complies with the standards in section 4 of the BHC Act (12 U.S.C. 1843). Unless otherwise noted, nonbanking activities will be conducted throughout the United States. Unless otherwise noted, comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of PO 00000 Frm 00046 Fmt 4703 Sfmt 4703 FEDERAL RESERVE SYSTEM The companies listed in this notice have given notice under section 4 of the Bank Holding Company Act (12 U.S.C. 1843) (BHC Act) and Regulation Y, (12 CFR part 225) to engage de novo, or to acquire or control voting securities or assets of a company, including the companies listed below, that engages either directly or through a subsidiary or other company, in a nonbanking activity that is listed in § 225.28 of Regulation Y (12 CFR 225.28) or that the Board has determined by Order to be closely related to banking and permissible for bank holding companies. Unless otherwise noted, these activities will be conducted throughout the United States. Each notice is available for inspection at the Federal Reserve Bank indicated. The notice also will be available for inspection at the offices of the Board of Governors. Interested persons may express their views in writing on the question whether the proposal complies with the standards of section 4 of the BHC Act. Unless otherwise noted, comments regarding the applications must be received at the Reserve Bank indicated or the offices of the Board of Governors not later than December 15, 2014. A. Federal Reserve Bank of San Francisco (Gerald C. Tsai, Director, Applications and Enforcement) 101 Market Street, San Francisco, California 94105–1579: 1. First Financial Northwest, Inc. (‘‘FFNW’’), to engage de novo though its subsidiary, First Financial Diversified Corporation, both of Renton, Washington, in extending, acquiring, E:\FR\FM\03DEN1.SGM 03DEN1

Agencies

FEDERAL RESERVE SYSTEM

[Federal Register Volume 79, Number 232 (Wednesday, December 3, 2014)]
[Notices]
[Pages 71768-71785]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28414]


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FEDERAL RESERVE SYSTEM

[Docket No. R-1503]


Application of Enhanced Prudential Standards and Reporting 
Requirements to General Electric Capital Corporation

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Request for public comment on the application of enhanced 
prudential standards and reporting requirements to General Electric 
Capital Corporation.

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SUMMARY: Pursuant to section 165 of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, the Board of Governors of the Federal 
Reserve System (Board) is inviting public comment on the proposed 
application of enhanced prudential standards to General Electric 
Capital Corporation (GECC), a nonbank financial company that the 
Financial Stability Oversight Council has determined should be 
supervised by the Board. The Board has assessed the business model, 
capital structure, risk profile, and systemic footprint of GECC to 
determine how the enhanced prudential standards should apply, including 
how to tailor application of the standards to the company. In light of 
the substantial similarity of GECC's activities and risk profile to 
that of a similarly-sized bank holding company, the Board is proposing 
to apply enhanced prudential standards to GECC that are similar to 
those that apply to large bank holding companies, including: (1) 
Capital requirements; (2) capital-planning and stress-testing 
requirements; (3) liquidity requirements; and (4) risk-management and 
risk-committee requirements. The Board also is proposing to apply 
certain additional enhanced prudential standards to GECC in light of 
certain unique aspects related to GECC's activities, risk profile, and 
structure, including additional independence requirements for GECC's 
board of directors, restrictions on intercompany transactions between 
GECC and General Electric Company, and leverage capital requirements 
that are comparable to the standards that apply to the largest, most 
systemic banking organizations. In addition, the Board is proposing to 
require GECC to file certain reports with the Board that are similar to 
the reports required of bank holding companies.

DATES: Comments must be submitted by February 2, 2015.

ADDRESSES: You may submit comments, identified by Docket No. R-1503, by 
any of the following methods:
    Agency Web site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
    Federal eRulemaking Portal: https://www.regulations.gov. Follow the 
instructions for submitting comments.
    Email: regs.comments@federalreserve.gov. Include docket number R-
1503 in the subject line of the message.
    FAX: (202) 452-3819 or (202) 452-3102.
    Mail: Robert deV. Frierson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets NW.; Washington, DC 20551) between 9:00 a.m. and 5:00 p.m. on 
weekdays.

FOR FURTHER INFORMATION CONTACT: Ann Misback, Associate Director, (202) 
452-3799, Jyoti Kohli, Senior Supervisory Financial Analyst, (202) 452-
2539, or Elizabeth MacDonald, Senior Supervisory Financial Analyst, 
(202) 475-6316, Division of Banking Supervision and Regulation; or 
Laurie Schaffer, Associate General Counsel, (202) 452-2277 or Jahad 
Atieh, Attorney, (202) 452-3900, Legal Division.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Overview of GECC
III. Statutory Requirements for the Application of Enhanced 
Prudential Standards to Nonbank Financial Companies Supervised by 
the Board
    A. Overview
    B. GECC
IV. Proposed Enhanced Prudential Standards to Apply to GECC
    A. Capital Requirements
    B. Capital Planning Requirements
    C. Stress-Testing requirements
    D. Liquidity Requirements
    E. Risk-Management and Risk-Committee Requirements
    F. Other Prudential Standards: Restrictions on Intercompany 
Transactions
    G. Future Standards
V. Proposed Reporting Requirements
    A. FR Y-6 Report
    B. FR Y-10 Report
    C. FR Y-9C and FR Y-9LP Reports
    D. FR Y-11 and FR Y-11S Reports
    E. FR 2314 and FR 2314S Reports
    F. FR Y-14A, FR Y-14M, and FR Y-14Q Reports
    G. FR Y-15 Report
    H. FFIEC 009 and FFIEC 009a Reports
    I. FFIEC 102
VI. Timing of Application
VII. Paperwork Reduction Act
VIII. Proposed Order

I. Introduction

    Section 165 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) directs the Board of Governors of the 
Federal Reserve System (Board) to establish enhanced prudential 
standards for bank holding companies with total consolidated assets of 
$50 billion or more and nonbank financial companies that the Financial 
Stability Oversight Council (Council) has determined should be 
supervised by the Board (nonbank financial companies supervised by the 
Board) in order to prevent or mitigate risks to U.S. financial 
stability that could arise from the material financial distress or 
failure, or ongoing activities of, these companies. The enhanced 
prudential standards must include enhanced risk-based and leverage 
capital requirements, liquidity requirements, risk-management and

[[Page 71769]]

risk-committee requirements, resolution-planning requirements, single-
counterparty credit limits, stress-test requirements, and a debt-to-
equity limit for companies that the Council has determined pose a grave 
threat to the financial stability of the United States. Section 165 
also permits the Board to establish additional enhanced prudential 
standards that may include three enumerated standards--a contingent 
capital requirement, an enhanced public disclosure requirement, a 
short-term debt limit--and any ``other prudential standards'' that the 
Board determines are ``appropriate.''
    For bank holding companies and certain foreign banking 
organizations, the Board has issued an integrated set of enhanced 
prudential standards through a series of rulemakings, including the 
Board's capital plan rule,\1\ stress testing rules,\2\ resolution plan 
rule,\3\ and the Board's enhanced prudential standards rule under 
Regulation YY.\4\ As part of the integrated enhanced prudential 
standards applicable to the largest, most complex bank holding 
companies, the Board also adopted enhanced liquidity requirements 
through the liquidity coverage ratio (LCR) rule \5\ and adopted 
enhanced leverage capital requirements through a supplementary leverage 
ratio. Further, the Board issued an enhanced supplementary leverage 
ratio for the most systemic bank holding companies.\6\ This integrated 
set of standards is designed to result in a more stringent regulatory 
regime for these companies to increase their resiliency and to mitigate 
the risk that their failure or material financial distress could pose 
to U.S. financial stability. The Board expects to issue additional 
standards through future rulemakings.
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    \1\ 12 CFR 225.8.
    \2\ See 12 CFR part 252.
    \3\ 12 CFR part 243. The Board's resolution plan rule applies by 
its terms to all nonbank financial companies supervised by the 
Board. 12 CFR part 243. Under these rules, nonbank financial 
companies, such as GECC, are required to submit their first 
resolution plan by July 1 following the date the company is 
designated by the Council (provided the following July 1 occurs no 
earlier than 270 days after the date on which the company is 
designated). GECC submitted its first resolution plan on July 1, 
2014. The public portion of GECC's resolution plan can be found on 
the Board's Web site. See Board, General Electric Capital 
Corporation Resolution Plan Public Section, available at: https://www.federalreserve.gov/bankinforeg/resolution-plans/ge-capital-1g-20140701.pdf.
    \4\ See 79 FR 17240 (March 27, 2014).
    \5\ 12 CFR part 249.
    \6\ 12 CFR 217.10(a)(5), 217.11(c).
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    In considering the application of enhanced prudential standards to 
nonbank financial companies supervised by the Board, the Board intends 
to thoroughly assess the business model, capital structure, risk 
profile, and systemic footprint of a designated company to determine 
how the enhanced prudential standards would apply.\7\ Consistent with 
this approach, the Board is considering the application of enhanced 
prudential standards to General Electric Capital Corporation (GECC), a 
company that has been designated by the Council for Board 
supervision.\8\ In light of the substantial similarity of GECC's 
activities and risk profile to that of a similarly-sized bank holding 
company, the Board is proposing to apply enhanced prudential standards 
to GECC that are similar to those that apply to large bank holding 
companies. As described in greater detail below, the Board is proposing 
to apply: (1) Capital requirements; (2) capital-planning and stress-
testing requirements; (3) liquidity requirements; and (4) risk-
management and risk-committee requirements. The Board is also proposing 
to apply certain additional enhanced prudential standards to GECC in 
light of certain unique aspects related to GECC's activities, risk 
profile, and structure, including additional independence requirements 
for GECC's board of directors, restrictions on intercompany 
transactions between GECC and General Electric Company (GE), and 
leverage capital requirements that are comparable to the standards that 
apply to the largest, most systemic banking organizations. In addition, 
the Board is proposing to require GECC to file certain reports with the 
Board that are similar to the reports required of bank holding 
companies.
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    \7\ See 79 FR 17240, 17245 (March 27, 2014).
    \8\ At the time the Board issued its proposal to apply enhanced 
prudential standards to bank holding companies and foreign banking 
organizations with total consolidated assets of $50 billion or more, 
the Council had not made any final determinations regarding 
designation of a nonbank financial company. After the close of the 
comment period for the proposed rules, the Council made a final 
determination that material financial distress at GECC could pose a 
threat to U.S. financial stability and that the company should be 
subject to Board supervision and enhanced prudential standards. 
Financial Stability Oversight Council, Basis of the Financial 
Stability Oversight Council's Final Determination Regarding General 
Electric Capital Corporation, Inc. (GECC Determination) (July 8, 
2013), available at: https://www.treasury.gov/initiatives/fsoc/designations/Documents/Basis%20of%20Final%20Determination%20Regarding%20General%20Electric%20Capital%20Corporation,%20Inc.pdf.
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    The Board is inviting public comment on the appropriateness of the 
proposed enhanced prudential standards that would apply to GECC and on 
the Board's proposed tailoring of the enhanced prudential standards. 
The Board believes that it is appropriate to seek public comment on the 
application of enhanced prudential standards to nonbank financial 
companies supervised by the Board in order to provide transparency 
regarding the regulation and supervision of these companies. The public 
comment process will provide nonbank financial companies supervised by 
the Board and interested members of the public with the opportunity to 
comment, and will help guide the Board in future application of 
enhanced prudential standards to other nonbank financial companies.

II. Overview of GECC

    On July 8, 2013, the Council determined that GECC should be 
supervised by the Board and subject to enhanced prudential standards. 
As required by section 113(d) of the Dodd-Frank Act, the Council 
conducted an annual evaluation of its determination to designate GECC 
for Board supervision and determined not to rescind that determination 
on July 31, 2014.
    GECC, a wholly owned subsidiary of GE, is one of the largest 
depository institution holding companies in the United States by 
assets, with approximately $514 billion in total assets as of September 
30, 2014.\9\ GECC engages primarily in collateralized lending to 
middle-market commercial firms and consumers. Approximately 82 percent 
of GECC's net income in 2013 was derived from its commercial and 
consumer lending businesses. In its commercial lending operations, GECC 
focuses primarily on lending and leasing to middle market companies and 
offers secured commercial loans, equipment financing, and other 
financial services to companies across a wide range of industries. In 
its consumer operations, GECC offers European mortgages, auto loans, 
debt consolidation, private mortgage insurance, and credit cards. GECC 
is also the largest provider of private label credit cards in the 
United States. GECC is taking steps to reduce its consumer lending 
business and focus on businesses that align more closely with GE's 
commercial and industrial operations. GECC engages in some activities 
that are not permitted for a bank holding company or a savings and loan 
holding company.\10\ These activities comprise less than 10 percent of 
GECC's balance sheet and consist of

[[Page 71770]]

equity investments in nonfinancial companies, such as power companies.
---------------------------------------------------------------------------

    \9\ GECC contributed approximately 51 percent of GE's net 
earnings in 2013.
    \10\ GECC is a grandfathered unitary savings and loan holding 
company under section 10(c)(9)(A) of HOLA and is therefore exempt 
from the activity and investment restrictions under HOLA. 12 U.S.C. 
1467a(c)(9)(A).
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    Like many large bank holding companies, GECC borrows in the 
wholesale funding markets. For example, GECC is a large issuer of 
commercial paper and long-term debt to wholesale counterparties, and 
uses securitizations of loans and finance receivables as a significant 
source of funding. Moreover, GECC holds a large portfolio of on-balance 
sheet financial assets that is comparable to those of the largest bank 
holding companies, including a large portfolio of investment securities 
and commercial and consumer loans. Likewise, similar to the largest, 
most complex banking organizations, GECC makes significant use of 
derivatives to hedge interest rate risk, foreign exchange risk, and 
other financial risks.
    GE and GECC are savings and loan holding companies by virtue of 
their control of Synchrony Bank, a federal savings association, and are 
subject to consolidated supervision by the Board. Synchrony Bank, 
GECC's largest insured depository institution subsidiary, had 
approximately $46 billion in total assets and $33 billion in total 
deposits as of September 30, 2014. Synchrony Bank specializes in 
consumer lending and consumer deposit products.\11\ GECC also has an 
insured Utah-chartered industrial loan company, GE Capital Bank, which 
had approximately $20 billion in total assets and $16 billion in total 
deposits as of September 30, 2014, and specializes in commercial 
lending and consumer deposit products (other than demand deposit 
products).\12\
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    \11\ In July 2014, GECC commenced a public offering of 
approximately 15 percent of the shares of Synchrony Financial, a 
company that conducts GECC's consumer financing activities and that 
controls Synchrony Bank. GECC has indicated that it will divest the 
remaining 85 percent of Synchrony Financial in the near future.
    \12\ Under section 2(c)(2) of the Bank Holding Company Act (BHC 
Act), certain industrial loan companies, such as GE Capital Bank, 
are not included within the definition of ``bank'' under the BHC 
Act. Therefore, any company controlling such an industrial loan 
company is not a bank holding company subject to the BHC Act. See 12 
U.S.C. 1841(c)(2)(H).
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III. Statutory Requirements for the Application of Enhanced Prudential 
Standards to Nonbank Financial Companies Supervised by the Board

A. Overview

    As the prudential regulator for nonbank financial companies 
designated by the Council, the Board is charged with establishing 
enhanced prudential standards to prevent or mitigate risks to the 
financial stability of the United States that may arise from the 
material financial distress or failure of such companies. These 
obligations include helping to ensure the safe and sound operations of 
the company.\13\ In prescribing enhanced prudential standards required 
by section 165 of the Dodd-Frank Act, section 165(a)(2) permits the 
Board to tailor the enhanced prudential standards among companies on an 
individual basis, taking into consideration their ``capital structure, 
riskiness, complexity, financial activities (including the financial 
activities of their subsidiaries), size, and any other risk-related 
factors that the Board . . . deems appropriate.'' \14\ In addition, 
under section 165(b)(1), the Board is required to take into account 
differences among bank holding companies covered by section 165 and 
nonbank financial companies supervised by the Board, based on statutory 
considerations.\15\
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    \13\ The Board has examination, reporting, and enforcement 
authority over nonbank financial companies that includes takings 
actions to ensure the safety and soundness of the nonbank financial 
company. 12 U.S.C. 5361(b), 5362.
    \14\ 12 U.S.C. 5365(a)(2).
    \15\ See 12 U.S.C. 5365(b)(3).
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    The factors the Board must consider include: (i) The factors 
described in sections 113(a) and (b) of the Dodd-Frank Act (12 U.S.C. 
5313(a) and (b)); (ii) whether the company owns an insured depository 
institution; (iii) nonfinancial activities and affiliations of the 
company; and (iv) any other risk-related factors that the Board 
determines appropriate.\16\ The Board must, as appropriate, adapt the 
required standards in light of any predominant line of business of a 
nonbank financial company, including activities for which particular 
standards may not be appropriate.\17\ Section 165(b)(3) also requires 
the Board, to the extent possible, to ensure that small changes in the 
factors listed in sections 113(a) and 113(b) of the Dodd-Frank Act 
would not result in sharp, discontinuous changes in the enhanced 
prudential standards established by the Board under section 
165(b)(1).\18\ The statute also directs the Board to take into account 
any recommendations made by the Council pursuant to its authority under 
section 115 of the Dodd-Frank Act.\19\
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    \16\ 12 U.S.C. 5365(b)(3)(A).
    \17\ 12 U.S.C. 5365(b)(3)(D).
    \18\ 12 U.S.C. 5365(b)(3)(B).
    \19\ 12 U.S.C. 5365(b)(3)(C).
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B. GECC

    The Board has thoroughly assessed the business model, capital 
structure, risk profile, and systemic footprint of GECC and has 
considered the factors set forth in sections 165(a)(2) and 165(b)(3) of 
the Dodd-Frank Act in proposing the enhanced prudential standards that 
would apply to GECC. This assessment indicates that GECC's activities 
and risk profile are similar to those of large bank holding companies, 
and that enhanced prudential standards similar to those that apply to 
large bank holding companies would be appropriate.
1. Factors Described in Sections 113(a) and (b) of the Dodd-Frank Act
    Section 113(a) provides a list of ten factors \20\ that the Council 
is required to consider in determining whether a nonbank financial 
company should be supervised by the Board, in addition to any other 
risk-related factor the Council deems appropriate. The factors include 
leverage, off-balance sheet exposures, interconnectedness with 
significant financial counterparties, the nature, scope, size, scale 
and mix of activities, degree of regulation, and liabilities. In 
considering these factors the Board notes that, similar to the largest 
bank holding companies, GECC is a significant participant in the global 
economy and financial markets, is interconnected to financial 
intermediaries through its financing activities and its funding model, 
and is a significant source of credit in the United States. Moreover, 
GECC's leverage; off-balance sheet exposures; funding and risk profile; 
asset composition; and the nature, scope, size, scale, concentration, 
interconnectedness, and mix of its activities are substantially similar 
to those of many large bank holding companies. As noted above, like 
many of the largest bank holding companies, GECC's activities focus 
primarily on

[[Page 71771]]

lending and leasing to commercial companies and on consumer financing 
and deposit products. Moreover, similar to many large bank holding 
companies, GECC borrows in the wholesale funding markets by issuing 
commercial paper and long-term debt to wholesale counterparties, and 
makes significant use of derivatives to hedge interest rate risk, 
foreign exchange risk, and other financial risks. GECC also holds a 
large portfolio of on-balance sheet financial assets, such as 
investment securities and commercial and consumer loans, which is 
comparable to those of the largest bank holding companies. In terms of 
the degree to which a company is already regulated, the Board notes 
that GECC is a savings and loan holding company subject to prudential 
supervision by the Board, but that sections 165 and 166 do not apply by 
their terms to savings and loan holding companies with $50 billion or 
more in total consolidated assets, such as GECC, as they apply to bank 
holding companies.
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    \20\ With respect to a domestic nonbank financial company 
supervised by the Board, the factors include: (A) The extent of the 
leverage of the company; (B) the extent and nature of the off-
balance-sheet exposures of the company; (C) the extent and nature of 
the transactions and relationships of the company with other 
significant nonbank financial companies and significant bank holding 
companies; (D) the importance of the company as a source of credit 
for households, businesses, and State and local governments and as a 
source of liquidity for the United States financial system; (E) the 
importance of the company as a source of credit for low-income, 
minority, or underserved communities, and the impact that the 
failure of such company would have on the availability of credit in 
such communities; (F) the extent to which assets are managed rather 
than owned by the company, and the extent to which ownership of 
assets under management is diffuse; (G) the nature, scope, size, 
scale, concentration, interconnectedness, and mix of the activities 
of the company; (H) the degree to which the company is already 
regulated by one or more primary financial regulatory agencies; (I) 
the amount and nature of the financial assets of the company; (J) 
the amount and types of the liabilities of the company, including 
the degree of reliance on short-term funding; and (K) any other 
risk-related factors that the Council deems appropriate.
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    Due to the substantial similarity between the activities and risk 
profile of the largest bank holding companies and GECC as described 
above, the Board is proposing to apply enhanced prudential standards to 
GECC that are similar to those that would apply to a large bank holding 
company. Similar to the standards imposed on the largest bank holding 
companies, the proposed standards are designed to ensure the continued 
resiliency of GECC during periods of material financial distress, so 
that the company would be in a position to continue to meet its 
obligations to its creditors and counterparties, as well as to continue 
to serve as a financial intermediary during a period of financial and 
economic stress.
2. Control of an Insured Depository Institution
    GECC controls two insured depository institutions that offer 
traditional banking products to both consumer and commercial 
customers.\21\ Similar to the insured depository institutions of large 
bank holding companies, GECC's subsidiary insured depository 
institutions serve as a source of funding and as a source of credit for 
a portion of its lending activities. As such, GECC's control of 
subsidiary insured depository institutions supports application of the 
enhanced prudential standards to the company in a manner that is 
similar to how those standards apply to large bank holding companies.
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    \21\ As discussed above, GECC is in the process of divesting 
Synchrony Bank. Nevertheless, following this divestiture, GECC will 
continue to control GE Capital Bank.
---------------------------------------------------------------------------

3. Nonfinancial Activities and Affiliations of the Company
    The vast majority (approximately 82 percent) of GECC's activities, 
such as lending and leasing activities, are those that a bank holding 
company may engage in under sections 4(c) and 4(k) of the BHC Act, and 
are similar to those in which the largest bank holding companies 
engage. The remaining portion of GECC's activities are generally 
limited to those that are permissible for savings and loan holding 
companies under the Home Owners' Loan Act (HOLA).\22\ As noted, only a 
small portion of GECC's activities (less than 10 percent) are those 
that would be impermissible for a bank holding company under the BHC 
Act or for a savings and loan holding company under HOLA. These 
activities are typically limited to equity investments in certain 
nonfinancial companies. Accordingly, as the large majority of GECC's 
activities are similar to those of a bank holding company, the Board 
believes that it is appropriate to apply prudential standards to GECC 
that are comparable to those that would apply to a large bank holding 
company.
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    \22\ GECC is a grandfathered unitary savings and loan holding 
company under section 10(c)(9)(A) of HOLA and is therefore exempt 
from the activity and investment restrictions under HOLA. 12 U.S.C. 
1467a(c)(9)(A).
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4. Any Other Risk-Related Factors That the Board Determines Appropriate
    In addition to the factors required under sections 113 and 165 of 
the Dodd-Frank Act, the Board is permitted to take any other risk-
related factors into consideration in the development of the proposed 
enhanced prudential standards for GECC. As noted, GECC is a wholly 
owned subsidiary of GE. The Board believes that the enhanced prudential 
standards applied to GECC should take into account GECC's particular 
circumstances as a lower-tier designated nonbank financial company. The 
Council, in making the determination to designate GECC, focused on the 
adverse effect on the financial stability of the United States that 
could arise from material financial distress at GECC. The Council found 
that GECC itself is an entity predominantly engaged in financial 
activities, is a significant participant in the global economy and 
financial markets, and is interconnected to financial intermediaries 
through its financing activities and its funding model. Because the 
Board's regulation of GECC as a nonbank financial company designated 
for its supervision must focus on the financial stability implications 
of potential financial distress at GECC, it is prudent to address the 
effect of any conflicts of interest that may arise in interactions with 
GE and its affiliates, including the possibility that such conflicts 
could have an adverse effect on the financial condition of GECC. 
Accordingly, the Board is proposing to require GECC to meet certain 
enhanced prudential standards designed to ensure the safe and sound 
operations of GECC and to address the potential for conflict with GE 
and its affiliates. As further discussed below, the Board's proposed 
enhanced prudential standards would require GECC to have 25 percent or 
two members, whichever is greater, of its board of directors to be 
independent of GE's and GECC's management and GE's board of directors. 
The Board is also proposing to impose a requirement that transactions 
between GECC and GE be conducted on market terms.
    Due to the substantial similarity in the business model, capital 
structure, and risk profile between GECC and large bank holding 
companies, the Board is not proposing to consider other risk-related 
factors in the adoption of enhanced prudential standards for GECC. 
Nevertheless, consistent with its authority as the prudential 
supervisor of designated nonbank financial companies, the Board expects 
to continue to monitor and assess GECC's activities and risk profile, 
and, in accordance with the requirements of sections 113 and 165 of the 
Dodd-Frank Act, to take into account any additional factors or 
considerations, as necessary, in the adoption of future standards, or 
in the future tailoring of any imposed standards.
1. What other factors, if any, should the Board take into consideration 
when proposing to apply enhanced prudential standards to GECC, or in 
tailoring the standards to GECC?
5. Tailoring of Proposed Prudential Standards
    As noted, section 165 permits the Board to tailor the application 
of enhanced prudential standards to companies covered under section 165 
based on certain unique characteristics of the company. Although the 
majority of the enhanced prudential standards the Board is proposing to 
adopt are identical to those that apply to large bank holding 
companies, the Board is proposing to tailor certain of the proposed 
standards, in light of certain characteristics unique to GECC. For 
example, in developing the proposed capital requirements, the Board has 
taken into consideration the fact that

[[Page 71772]]

GECC has not previously been subject to regulatory capital requirements 
and has not developed the infrastructure and systems required to begin 
calculating its capital ratios under the Board's advanced approaches 
risk-based capital requirements (advanced approaches rule). Thus, 
although GECC would meet the relevant asset threshold for application 
of the advanced approaches rule, the Board is not proposing to require 
GECC to calculate its capital ratios using the advanced approaches 
rule. In addition, in light of the Council's determination that 
material financial distress at GECC could pose a threat to U.S. 
financial stability, the Board is proposing to impose leverage capital 
requirements on GECC that are comparable to the standards that apply to 
the largest, most systemic banking organizations.
    Finally, the Board notes that many of the proposed standards, 
including the risk-management requirements, liquidity risk-management, 
and liquidity stress-testing requirements of Regulation YY; and 
capital-planning and stress-testing requirements require the covered 
company to tailor its compliance framework based on the size, 
complexity, structure, risk profile, and activities of the 
organization. Thus, the Board would expect that, in implementing the 
enhanced prudential standards, GECC would tailor its compliance 
framework to suit the company's complexity, structure, risk profile, 
and activities. Accordingly, the Board believes that the proposed 
enhanced prudential standards discussed below adequately reflect these 
unique characteristics of GECC.
2. Should the Board consider tailoring any of the other proposed 
enhanced prudential standards in light of GECC's business model, 
capital structure, and risk profile?

IV. Proposed Enhanced Prudential Standards To Apply to GECC

A. Capital Requirements

    The Board has long held the view that a bank holding company 
generally should hold capital that is commensurate with its risk 
profile and activities, so that the firm can meet its obligations to 
creditors and other counterparties, as well as continue to serve as a 
financial intermediary through periods of financial and economic 
stress.\23\ In July 2013, the Board issued a final rule implementing 
regulatory capital reforms reflecting agreements reached by the Basel 
Committee on Banking Supervision (Basel Committee) in ``Basel III: A 
Global Regulatory Framework for More Resilient Banks and Banking 
Systems'' (Basel III) \24\ and certain changes required by the Dodd-
Frank Act (revised capital framework).\25\ The revised capital 
framework introduced a new minimum common equity tier 1 risk-based 
capital ratio of 4.5 percent, raised the minimum tier 1 risk-based 
capital ratio from 4 percent to 6 percent, introduced a common equity 
tier 1 capital conservation buffer of 2.5 percent of risk-weighted 
assets, required all banking organizations to meet a 4 percent minimum 
leverage ratio (the generally-applicable leverage ratio), implemented 
stricter eligibility criteria for regulatory capital instruments, and 
introduced a new standardized methodology for calculating risk-weighted 
assets. Because these regulatory capital reforms only apply generally 
to top-tier savings and loan holding companies, GECC is not subject to 
the revised capital framework.\26\ In addition, the revised capital 
framework would not apply to GE because it substantially engages in 
commercial activities.
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    \23\ See Supervision and Regulation Letter 12-17, Consolidated 
Supervision Framework for Large Financial Institutions (December 12, 
2012), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm; 12 CFR part 217; 12 CFR 225.8; Supervision and 
Regulation Letter 99-18, Assessing Capital Adequacy in Relation to 
Risk at Large Banking Organizations and Others with Complex Risk 
Profiles (July 1, 1999), available at: https://www.federalreserve.gov/boarddocs/srletters/1999/SR9918.HTM.
    \24\ Basel III was published in December 2010 and revised in 
June 2011. See Basel Committee, Basel III: A global framework for 
more resilient banks and banking systems (December 2010), available 
at: https://www.bis.org/publ/bcbs189.pdf.
    \25\ See 78 FR 62018 (October 11, 2013). The revised capital 
framework also reorganized the Board's capital adequacy guidelines 
into a harmonized, codified set of rules, located at 12 CFR part 
217. The requirements of 12 CFR part 217 came into effect on January 
1, 2014, for bank holding companies subject to the advanced 
approaches rule, and as of January 1, 2015 for all other bank 
holding companies.
    \26\ 12 CFR 217.2.
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    As noted above, the Council has determined that GECC's material 
financial distress could pose a threat to U.S. financial stability. 
Section 165 provides that the enhanced prudential standards for nonbank 
financial companies must include risk-based capital requirements and 
leverage limits that ``are more stringent than the standards and 
requirements applicable to nonbank financial companies and bank holding 
companies that do not present similar risks to the financial stability 
of the United States'' unless the Board, in consultation with the 
Council, ``determines that such requirements are not appropriate for a 
company subject to more stringent prudential standards because of the 
activities of such company . . . or structure.'' \27\ Because GECC's 
activities and balance sheet are substantially similar to those of a 
large bank holding company, the Board's revised capital framework is 
appropriate for GECC and will appropriately reflect risks from GECC's 
activities, balance sheet, and funding profile. Accordingly, other than 
as described below, the Board is proposing to require GECC to comply 
with the regulatory capital framework applicable to a large bank 
holding company including the minimum common equity tier 1, tier 1, and 
total risk-based capital ratios, the minimum generally-applicable 
leverage ratio, and any restrictions on distributions or discretionary 
bonus payments associated with the capital conservation buffer, 
beginning July 1, 2015, consistent with any transition periods in the 
revised capital framework.
---------------------------------------------------------------------------

    \27\ 12 U.S.C. 5365.
---------------------------------------------------------------------------

    In addition to the generally applicable capital adequacy 
requirements described above, the Board's revised capital framework 
contains measures applicable to the largest, most interconnected bank 
holding companies. For bank holding companies with $250 billion or more 
in total consolidated assets or $10 billion or more in on-balance-sheet 
foreign exposures (advanced approaches banking organizations), these 
include the advanced approaches rule, a supplementary leverage ratio of 
tier 1 capital to total leverage exposure of 3 percent, a requirement 
to include accumulated other comprehensive income (AOCI) in tier 1 
capital, and restrictions on distributions and discretionary bonus 
payments associated with the countercyclical capital buffer. A bank 
holding company with more than $700 billion in total consolidated 
assets or $10 trillion in assets under custody also is required to 
maintain a buffer of at least 2 percent above the minimum supplementary 
leverage capital requirement of 3 percent, an enhanced supplementary 
leverage ratio (eSLR), in order to avoid restrictions on capital 
distributions and discretionary bonus payments to executive 
officers.\28\
---------------------------------------------------------------------------

    \28\ See 79 FR 24528 (May 1, 2014).
---------------------------------------------------------------------------

    The Board is not proposing to require GECC to calculate its capital 
ratios using the advanced approaches rule. The advanced approaches rule 
requires the development of models for calculating advanced approaches 
risk-weighted assets, and can require a lengthy parallel run period of 
no less than four

[[Page 71773]]

consecutive calendar quarters during which the institution must submit 
its models for supervisory approval. While GECC exceeds the threshold 
for application of the requirements that apply to advanced approaches 
banking organizations, GECC has not previously been subject to 
regulatory capital requirements and has not developed the 
infrastructure and systems required to begin calculating its capital 
ratios under the advanced approaches rule. Moreover, because GECC will 
need time to build and implement the internal systems and 
infrastructure required to comply with other requirements of the 
Board's order imposing enhanced prudential standards, the Board is not 
proposing to require GECC to develop the models required to comply with 
the advanced approaches rule. Rather, the Board is proposing to apply 
the standardized risk-based capital rules, leverage rules, and capital 
planning and supervisory stress-testing requirements to GECC.
    However, the Board is proposing to require GECC to comply with 
other requirements that apply to advanced approaches banking 
organizations, including restrictions on distributions and 
discretionary bonus payments associated with the countercyclical 
capital buffer, a minimum supplementary leverage ratio of 3 percent, 
and the requirement to include AOCI in regulatory capital. These are 
aspects of the revised capital framework that are appropriate for the 
largest, most interconnected banking organizations and therefore apply 
to advanced approaches banking organizations, but are not part of the 
advanced approaches rule. The proposed application of these 
requirements to GECC will ensure that GECC holds sufficient capital to 
withstand financial stress, mitigating its risk to U.S. financial 
stability. Application of these requirements to GECC would not require 
GECC to develop models for complying with the advanced approaches rule, 
would not require completion of a successful parallel run as 
contemplated in the advanced approaches rule, and would not require the 
allocation of significant additional operational resources.
    As noted above, the Board, as the prudential regulator of nonbank 
financial companies designated by the Council, is obligated to impose 
standards that are designed to maintain the safety and soundness of 
GECC in order to mitigate the risk of material financial distress at 
GECC. The Board is also proposing to require GECC to comply with the 
eSLR, which is designed to minimize leverage at banking organizations 
that pose substantial systemic risk, thereby strengthening the ability 
of such organizations to remain a going concern during times of 
economic stress and minimizing the likelihood that problems at these 
organizations would contribute to financial instability. The Board 
believes that the maintenance of a strong base of capital by the most 
systemic U.S. banking organizations and GECC is particularly important 
because capital shortfalls at these institutions have the potential to 
result in significant adverse economic consequences and to contribute 
to systemic distress. While GECC's total consolidated assets are below 
the asset thresholds for bank holding companies that are subject to the 
eSLR ($700 billion in total consolidated assets or $10 trillion in 
assets under custody), the Board has analyzed GECC's size, scope of 
operations, activities, and systemic importance, and, in light of the 
Council's determination that material financial distress at GECC could 
pose a threat to U.S. financial stability, is proposing to require GECC 
to comply with the restrictions on distributions and discretionary 
bonuses associated with the eSLR.\29\
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    \29\ The restrictions that apply to insured depository 
institution subsidiaries of companies covered under the eSLR would 
not apply to GECC's depository institution subsidiaries without 
action by the appropriate Federal banking agency supervising 
Synchrony Bank and GE Capital Bank.
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    The Board is required under section 165 to establish enhanced risk-
based and leverage capital requirements for nonbank financial companies 
supervised by the Board and large bank holding companies that ``are 
more stringent than the standards applicable to nonbank financial 
companies and bank holding companies that do not present similar risks 
to the financial stability of the United States.'' \30\ For the largest 
banking organizations, the Board notes that the Financial Stability 
Board has established a framework to identify global and domestic 
systemically important banks \31\ (G-SIBs and D-SIBs, respectively) 
that are subject to the Basel Committee's enhanced supervisory 
framework, which includes enhanced capital surcharges.\32\ At this 
time, the Board is not proposing to categorize GECC as a G-SIB or a D-
SIB, or proposing to automatically subject GECC to all of the same 
standards that apply to the largest, most systemic U.S. banking 
organizations. With respect to any future requirements, the Board will 
analyze GECC's size, scope of operations, activities, and systemic 
importance to determine whether the proposed standard is appropriate in 
light of these characteristics of the company. For example, the Board 
expects to seek comment on additional enhancements to the risk-based 
capital rules for largest, most systemic bank holding companies in the 
future, and will consider whether applying similar enhancements to the 
risk-based capital rules to GECC is appropriate after considering 
GECC's size, scope of operations, activities, and systemic importance. 
The Board would seek comment on any additional proposed enhancements.
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    \30\ 12 U.S.C. 5365.
    \31\ Financial Stability Board, Reducing the moral hazard posed 
by systemically important financial institutions, FSB 
Recommendations and Time Lines (October 20, 2010), available at: 
https://www.financialstabilityboard.org/publications/r_101111a.pdf; 
Financial Stability Board, Extending the G-SIFI Framework to 
domestic systemically important banks (April 16, 2012), available 
at: https://www.financialstabilityboard.org/publications/r_120420b.pdf.
    \32\ Basel Committee, Global systemically important banks: 
updated assessment methodology and the higher loss absorbency 
requirement (July 2013), available at: https://www.bis.org/publ/bcbs255.pdf; Basel Committee, A framework for dealing with domestic 
systemically important banks (October 2012), available at: https://www.bis.org/publ/bcbs233.pdf.
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3. Due to the similarity in structure and activities of GECC with that 
of a bank holding company, the Board has proposed to apply capital 
standards to GECC that are generally consistent with the requirements 
imposed on a large bank holding company. Should the Board consider 
altering any of the proposed capital requirements that it is 
considering applying to GECC?
4. Should the Board consider applying any additional capital standards 
to GECC?

B. Capital Planning Requirements

1. Capital Plan Rule
    The recent financial crisis highlighted a need for large bank 
holding companies to incorporate into their capital planning forward-
looking assessments of capital adequacy under stressed conditions. The 
crisis also underscored the importance of strong internal capital 
planning practices and processes among large bank holding companies. 
The Board issued the capital plan rule to build upon the Board's 
existing supervisory expectation that large bank holding companies have 
robust systems and processes that incorporate forward-looking 
projections of revenue and losses to monitor and maintain their 
internal capital adequacy. By helping to ensure that the largest bank 
holding companies have sufficient capital to withstand significant 
stress and to continue to operate, capital plan

[[Page 71774]]

reviews also help the Board meet its macro-prudential supervisory 
objective of helping to ensure that the financial system as a whole can 
continue to function under stressed conditions.
    The capital plan rule requires each bank holding company with $50 
billion or more in total consolidated assets to submit an annual 
capital plan to the Board describing its planned capital actions and 
demonstrating its ability to meet a 5 percent tier 1 common capital 
ratio and maintain capital ratios above the Board's minimum regulatory 
capital ratios under both baseline and stressed conditions over a 
forward-looking planning horizon.\33\ A capital plan must also include 
an assessment of a bank holding company's sources and uses of capital 
reflecting the size, complexity, risk profile, and scope of operations 
of the company, assuming both expected and stressed conditions.
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    \33\ 12 CFR 225.8.
---------------------------------------------------------------------------

    Under the capital plan rule, the Board annually evaluates a large 
bank holding company's capital adequacy and capital planning practices 
and the comprehensiveness of the capital plan, including the strength 
of the underlying analysis. The Comprehensive Capital Analysis and 
Review (CCAR) is the Board's supervisory process for reviewing capital 
plans submitted by bank holding companies under the capital plan rule. 
As part of CCAR, the Board conducts a quantitative assessment of each 
large bank holding company's capital adequacy under an assumption of 
stressed conditions and conducts a qualitative assessments of the 
company's internal capital planning practices, each of which can 
provide a basis on which the Board may object to a company's capital 
plan. If the Board objects to a bank holding company's capital plan, 
the company may not make any capital distribution other than those 
approved in writing by the Board or the appropriate Reserve Bank. A 
bank holding company that receives an objection may submit a revised 
capital plan for review by the Board.
    The Federal Reserve conducts its quantitative assessment of a large 
bank holding company's capital plan based on the supervisory stress 
test conducted under the Board's rules implementing the stress tests 
required under the Dodd-Frank Act, discussed below, combined with the 
bank holding company's planned capital actions under the baseline 
scenario. This assessment helps determine whether a bank holding 
company would be capable of meeting supervisory expectations for its 
regulatory capital ratios even if stressed conditions emerge and the 
company does not reduce planned capital distributions.
    In the CCAR qualitative assessment, the Board evaluates each large 
bank holding company's risk-identification, risk-measurement, and risk-
management practices supporting the capital planning process, including 
estimation practices used to produce stressed loss, revenue, and 
capital ratios, as well as the governance and controls around these 
practices. In reviewing the company's capital plan, the Board considers 
the comprehensiveness of the capital plan, the reasonableness of the 
company's assumptions and analysis underlying the capital plan, and the 
company's methodologies for reviewing the robustness of its capital 
adequacy process. The Board may object to a capital plan based on 
deficiencies in a bank holding company's capital planning processes, 
even if the company maintained regulatory capital ratios above minimum 
requirements throughout the planning horizon under stressed scenarios.
2. Proposed Capital Planning Requirements To Be Applied to GECC
    To ensure that GECC continues to maintain sufficient capital and 
has internal processes for assessing its capital adequacy that 
appropriately account for the company's risks, the Board is proposing 
to require GECC to comply with the Board's capital plan rule, 12 CFR 
225.8, and to submit a capital plan for the capital plan cycle 
beginning January 1, 2016.
    As described above, GECC's activities, risk profile, and balance 
sheet are similar to those of large bank holding companies. 
Accordingly, requiring GECC to comply with the Board's capital plan 
rule as if it were a bank holding company will ensure that GECC holds 
capital that is commensurate with its risk profile and activities, can 
meet its obligations to creditors and other counterparties, and can 
continue to serve as a financial intermediary through periods of 
financial and economic stress.\34\
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    \34\ See Supervision and Regulation Letter 12-17, Consolidated 
Supervision Framework for Large Financial Institutions (December 12, 
2012), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm; 12 CFR part 217; 12 CFR 225.8; Supervision and 
Regulation Letter 99-18, Assessing Capital Adequacy in Relation to 
Risk at Large Banking Organizations and Others with Complex Risk 
Profiles (July 1, 1999), available at: https://www.federalreserve.gov/boarddocs/srletters/1999/SR9918.HTM.
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    The Board recognizes that unlike domestic bank holding companies, 
GECC is an intermediate holding company of a larger, publicly traded 
company. The Board's capital plan rule will help ensure that GECC 
manages its capital, and any capital distributions to its parent, in a 
manner that is commensurate with its risks and consistent with its 
safety and soundness through the Federal Reserve's review and non-
objection to GECC's capital plan.\35\ As discussed above, the capital 
plan rule will act as a counterweight to pressures that a company may 
face to make capital distributions during a period of economic stress 
helping to mitigate the risk of material financial distress at GECC.
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    \35\ GECC will not be the only intermediate holding company 
subject to the capital plan rule and CCAR. Notably, some U.S. bank 
holding company subsidiaries of foreign banking organizations 
participate in CCAR. In addition, under the Board's intermediate 
holding company rule, all foreign banking organizations with $50 
billion or more in U.S. non-branch assets will be required to form a 
U.S. intermediate holding company that will be subject to the 
capital plan rule. See Subpart O to 12 CFR 252.
---------------------------------------------------------------------------

    The Board recognizes that GECC likely will need time to build and 
implement the internal systems necessary to fully meet the requirements 
of the capital plan rule and the CCAR process. Accordingly, for GECC's 
first capital plan cycle, which would begin on January 1, 2016, the 
Board's quantitative assessment of GECC's capital plan will not be 
based on supervisory stress test estimates conducted under the Board's 
stress test rules, as described below.\36\ Instead, the Board intends 
to conduct a more limited quantitative assessment of GECC's capital 
plan based on GECC's own stress scenario and any scenarios provided by 
the Board and a qualitative assessment of GECC's capital planning 
processes and supporting practices. This approach would be consistent 
with the capital plan review (CapPR) process that the Board used to 
evaluate the initial capital plan submissions of bank holding companies 
that were subject to the capital plan rule but that did not participate 
in the 2009 Supervisory Capital Assessment Program.
---------------------------------------------------------------------------

    \36\ See Subpart E to 12 CFR part 252.
---------------------------------------------------------------------------

    The Board also expects to communicate to GECC the Board's 
expectations on capital planning practices and capital adequacy 
processes in connection with its first capital plan submission. 
Although the Board's stress test and capital plan rules establish 
requirements for all banking organizations that are subject to the 
rules, the Board is tailoring its expectations for companies of 
different sizes, scope of operations, activities, and systemic 
importance. Notably, the Board has significantly heightened supervisory 
expectations for the largest and most complex bank holding companies

[[Page 71775]]

regarding all aspects of capital planning and expects these bank 
holding companies to have capital planning practices that incorporate 
existing leading practices.\37\ The Board would expect to tailor its 
supervisory expectations for GECC to account for any material 
differences between the company and large bank holding companies.
---------------------------------------------------------------------------

    \37\ Board, Capital Planning at Large Bank Holding Companies: 
Supervisory Expectations and Range of Current Practice at pg. 3 
(August 19, 2013), available at: https://www.federalreserve.gov/bankinforeg/bcreg20130819a1.pdf.
---------------------------------------------------------------------------

5. Should the Board consider applying any additional capital planning 
requirements to GECC?

C. Stress-Testing Requirements

1. Dodd-Frank Act Stress-Tests Rule
    Section 165 of the Dodd-Frank Act requires the Board to conduct 
annual supervisory stress tests of bank holding companies with total 
consolidated assets of $50 billion or more and nonbank financial 
companies supervised by the Board and also requires the Board to issue 
regulations that require those companies to conduct company-run stress 
tests semi-annually. In 2012, the Board, in coordination with the 
Federal Deposit Insurance Corporation, the Office of the Comptroller of 
the Currency, and the Federal Insurance Office adopted stress testing 
rules under section 165(i) for large bank holding companies and nonbank 
financial companies (stress test rule).\38\ The stress test rule 
establishes a framework for the Board to conduct annual supervisory 
stress tests and requires these companies to conduct semi-annual 
company-run stress tests.\39\
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    \38\ 77 FR 62378 (Oct. 12, 2012); Subparts E and F to 12 CFR 
part 252.
    \39\ 77 FR 62378 (Oct. 12, 2012); Subparts E and F to 12 CFR 
part 252.
---------------------------------------------------------------------------

    The stress tests conducted under the Board's stress test rule are 
complementary to the Board's review of a large bank holding company's 
capital plan in CCAR. These stress tests use stylized scenarios and 
capital action assumptions specified in the stress testing rules to 
calculate the post-stress capital ratios, while the CCAR post-stress 
capital ratios use the bank holding company's planned capital actions 
in the baseline scenario. The capital action assumptions in the Board's 
stress test rules are intended to make the results of the stress tests 
more comparable across institutions, which enhances the quality of the 
required public disclosure of the stress-testing results. There is no 
post-stress minimum capital ratio requirement for the stress tests 
required under the stress test rule.
    As noted, under the stress test rule, large bank holding companies 
are also subject to mid-cycle stress tests, in which companies design 
their own stress scenarios based on the definitions in the Board's 
stress test rules. For both the annual and mid-cycle company-run stress 
tests, large bank holding companies must disclose the results of their 
company-run stress test conducted under the severely adverse scenario.
2. Proposed Stress-Testing Requirements To Be Applied to GECC
    The Board is proposing to require GECC to comply with the stress-
testing requirements applicable to bank holding companies with $50 
billion or more in total consolidated assets under the stress test rule 
(subparts E and F of Regulation YY) in the stress-testing cycle that 
would commence on January 1, 2017.\40\ Similar to the proposed 
application of the capital plan rule to GECC, the Board is proposing to 
apply the Board's stress test rule to GECC in the same manner as it 
currently applies to large bank holding companies due to the similarity 
in activities, risk profile, and balance sheet between GECC and large 
bank holding companies. In addition, because the Board's supervisory 
stress tests under its stress test rule are conducted on the basis of 
standardized scenarios and capital assumptions, any supervisory stress 
testing of GECC would provide a horizontal assessment of GECC's capital 
adequacy compared with that of large bank holding companies that have 
comparable activities, risk profiles, and balance sheets. Moreover, the 
company-run stress testing requirements under the Board's stress test 
rule will ensure that GECC develops the necessary systems and processes 
to evaluate its capital adequacy on an ongoing basis.
---------------------------------------------------------------------------

    \40\ Subparts E and F to 12 CFR part 252.
---------------------------------------------------------------------------

    Subjecting GECC to the stress testing requirements in the stress 
testing cycle beginning on January 1, 2017, would allow GECC the time 
to develop appropriate systems and processes to conduct the stress 
tests and to provide the data and other information that the Board 
would require in connection with these tests. This approach would be 
consistent with the approach taken by the Board for bank holding 
companies with $50 billion or more in total consolidated assets that 
did not participate in the Supervisory Capital Assessment Program. The 
Board delayed application of the stress-testing requirements for these 
companies in order to provide them additional time to develop 
appropriate systems and to gather relevant information to comply with 
the stress-testing requirements.
    The Board expects to communicate to GECC any further expectation 
the Board may have regarding the company-run stress tests conducted 
under the stress test rule. Requiring GECC's compliance with the stress 
test rule beginning on January 1, 2017, would also allow the Board 
adequate time to collect data from GECC to further assess its 
activities and risk profile to help the Board appropriately tailor the 
stress testing requirements based on GECC's systemic footprint, which 
may include additional components or scenarios.
6. Should the Board consider applying any additional stress testing 
requirements to GECC?
7. Should the Board consider an alternate time frame for GECC's 
compliance with the stress testing requirements? If so, why?

D. Liquidity Requirements

    Section 165(b) of the Dodd-Frank Act directs the Board to adopt 
enhanced liquidity requirements for bank holding companies with total 
consolidated assets of $50 billion or more and nonbank financial 
companies supervised by the Board.\41\ Liquidity is measured by a 
company's capacity to efficiently meet its expected and unexpected cash 
outflows and collateral needs at a reasonable cost without adversely 
affecting the daily operations or the financial condition of the 
company. The financial crisis of 2008-2009 illustrated that liquidity 
can evaporate quickly and cause severe stress in the financial markets, 
and demonstrated that even solvent financial companies may experience 
material financial distress if they do not manage their liquidity in a 
prudent manner. Through recent rulemakings and guidance, the Board has 
established quantitative liquidity requirements and liquidity risk-
management standards in order to ensure financial companies' resiliency 
during periods of financial market stress.
---------------------------------------------------------------------------

    \41\ 12 U.S.C. 5365(b)(1)(A)(ii).
---------------------------------------------------------------------------

1. LCR
    On September 3, 2014, the Board adopted a final rule that 
implements a quantitative liquidity requirement consistent with the LCR 
standard established by the Basel Committee.\42\ The requirement is 
designed to promote the short-term resilience of the liquidity risk 
profile of internationally active

[[Page 71776]]

banking organizations, thereby improving the banking sector's ability 
to absorb shocks arising from financial and economic stress, and to 
further improve the measurement and management of liquidity risk. The 
LCR standard establishes a quantitative minimum LCR that requires a 
company subject to the rule to maintain an amount of high-quality 
liquid assets (HQLA) (the numerator of the ratio) that is no less than 
100 percent of its total net cash outflows over a prospective 30 
calendar-day period (the denominator of the ratio).\43\ The ability to 
rapidly monetize such high-quality liquid assets enables a covered 
company to meet its liquidity needs during an acute short-term 
liquidity stress scenario.
---------------------------------------------------------------------------

    \42\ 79 FR 61440 (October 10, 2014); 12 CFR part 249.
    \43\ Under the LCR standard, certain categories of assets may 
qualify as eligible HQLA and may contribute to the HQLA amount if 
they are unencumbered by liens and other restrictions on transfer 
and can therefore be converted quickly into cash without reasonably 
expecting to incur losses in excess of the applicable LCR haircuts 
during a stress period. A covered company's total net cash outflow 
amount is determined under the final rule by applying outflow and 
inflow rates, which reflect certain standardized stressed 
assumptions, against the balances of a covered company's funding 
sources, obligations, transactions, and assets over a prospective 30 
calendar-day period. Inflows are limited to 75 percent of outflows, 
to ensure that covered companies are maintaining sufficient on-
balance-sheet liquidity and are not overly reliant on inflows, which 
may not materialize in a period of stress.
---------------------------------------------------------------------------

    The Board did not apply the LCR standard to nonbank financial 
companies in the final LCR rule. Rather, similar to the approach the 
Board followed in the adoption of Regulation YY, the Board indicated 
that, following designation of a nonbank financial company for 
supervision by the Board, the Board would thoroughly assess the 
business model, capital structure, and risk profile of the designated 
company to determine how the LCR standard should apply, and if 
appropriate, would tailor application of the standards by order or 
regulation to that nonbank financial company or to a category of 
nonbank financial companies.
2. Regulation YY
    The liquidity requirements in Regulation YY require bank holding 
companies with total consolidated assets of $50 billion or more to 
comply with liquidity risk-management requirements (covered bank 
holding company), conduct internal liquidity stress tests, and hold a 
buffer of highly-liquid assets that is sufficient to meet the company's 
projected net stressed cash-flow need over a 30-day period based on the 
results of such stress tests.\44\
---------------------------------------------------------------------------

    \44\ 12 CFR 252.34, 252.35.
---------------------------------------------------------------------------

    The liquidity risk-management requirements of Regulation YY include 
requirements that the board of directors of the bank holding company 
approve an acceptable level of liquidity risk that the bank holding 
company may assume in connection with its operating strategies 
(liquidity risk tolerance), receive and review information from senior 
management regarding the company's compliance with the established 
liquidity risk tolerance, and approve and periodically review liquidity 
risk-management strategies, policies, and procedures established by 
senior management.\45\ Regulation YY requires senior management of a 
covered bank holding company to establish and implement liquidity risk-
management strategies, policies, and procedures, approved by the 
company's board of directors; review and approve new products and 
business lines; and evaluate liquidity costs, benefits and risks 
related to new business lines and products. In addition, Regulation YY 
requires a covered bank holding company to establish and maintain 
procedures for monitoring collateral, legal entity, and intraday 
liquidity risks, and requires an independent review of a covered bank 
holding company's liquidity risk-management processes and its liquidity 
stress-testing processes and assumptions.
---------------------------------------------------------------------------

    \45\ 12 CFR 252.34(a).
---------------------------------------------------------------------------

    Regulation YY requires covered bank holding companies to produce 
comprehensive cash-flow projections at least monthly that project cash 
flows arising from assets, liabilities, and off-balance sheet 
exposures, over short-term and long-term horizons.\46\ In addition, 
covered bank holding companies must establish and maintain a 
contingency funding plan that sets forth strategies for addressing 
liquidity and funding needs during liquidity stress events.\47\ The 
contingency funding plan must be approved by the bank holding company's 
risk committee and must include procedures to monitor emerging 
liquidity stress events.
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    \46\ 12 CFR 252.34(e).
    \47\ 12 CFR 252.34(f).
---------------------------------------------------------------------------

    Regulation YY also requires a covered bank holding company to 
conduct monthly internal liquidity stress tests, and to maintain a 
buffer of highly liquid assets based on the results of the stress 
tests. The liquidity stress test requirements are based on firm-
specific stress scenarios and assumptions tailored to the specific 
products and risk profile of the company. In conducting these liquidity 
stress tests, the firm must use a minimum of three stress scenarios 
designed by the firm (market, idiosyncratic or combination) and a 
minimum of three time horizons (30, 60, 90 day period).\48\
---------------------------------------------------------------------------

    \48\ 12 CFR 252.35.
---------------------------------------------------------------------------

    Regulation YY's liquidity requirements are designed to complement 
the requirements of the LCR, as described above. Regulation YY's 
internal liquidity stress-test requirements provide a view of an 
individual firm under multiple scenarios and include assumptions 
tailored to the specific products and risk profile of the company and 
the idiosyncratic aspects of the firm's liquidity profile, while the 
standardized measure of liquidity adequacy under the LCR is designed to 
facilitate a transparent assessment of a covered bank holding company's 
liquidity position under a standard stress scenario and facilitates 
comparison across firms.
3. Supervisory Guidance
    Regulation YY builds on the Board's supervisory framework for 
liquidity, including guidance set forth in the Board's Supervision and 
Regulation (SR) letter 10-6, Interagency Policy Statement on Funding 
and Liquidity Risk Management, issued in March 2010.\49\ SR 10-6 
reiterates the process that institutions should follow to appropriately 
identify, measure, monitor, and control their funding and liquidity 
risk. In particular, the guidance re-emphasizes the importance of cash-
flow projections, diversified funding sources, stress testing, a 
cushion of liquid assets, and a formal well-developed contingency 
funding plan as primary tools for measuring and managing liquidity 
risk. The guidance also explains the expectation that institutions 
manage liquidity risk using processes and systems that are commensurate 
with the institution's complexity, risk profile, and scope of 
operations.
---------------------------------------------------------------------------

    \49\ SR letter 10-6 incorporated the Basel Committee's 
``Principles for Sound Liquidity Risk Management and Supervision.'' 
Basel Committee, Principles for Sound Liquidity Risk Management and 
Supervision (September 2008), available at: https://www.bis.org/publ/bcbs144.htm. See also Supervision and Regulation Letter SR 10-6, 
Interagency Policy Statement on Funding and Liquidity Risk 
Management, 75 FR 13656 (March 17, 2010), available at: https://www.federalreserve.gov/boarddocs/srletters/2010/sr1006.pdf.
---------------------------------------------------------------------------

4. Application to GECC
    In designating GECC as a nonbank financial company that should be 
subject to Board supervision, the Council noted that:

    If GECC were unable to access funding markets, GECC could either 
reduce its

[[Page 71777]]

provision of credit or be forced to sell assets quickly to fund its 
operations and meet its obligations. If GECC had to rapidly 
liquidate assets, the impact could drive down asset prices and cause 
balance sheet losses for other large financial firms on a scale 
similar to those that could be caused by asset sales by some of the 
largest U.S. BHCs. The resulting capital losses across financial 
firms, particularly during a time of general economic distress, 
could exacerbate the stresses on the financial system and economy by 
forcing other firms to sell assets and draw on their credit lines to 
meet liquidity pressures. If GECC were unable to access funding 
markets, there could be a reduction in credit availability, which 
could lead to a broader reduction in economic activity.\50\
---------------------------------------------------------------------------

    \50\ See GECC Determination at 2.

    In order to promote the short-term resilience of GECC, improve its 
ability to withstand financial and economic stress, and to mitigate the 
potential adverse effects on other financial firms and markets, the 
Board is proposing to require GECC to manage its liquidity in a manner 
that is comparable to a bank holding company subject to the LCR 
standard, Regulation YY, and the Board's supervisory guidance.\51\ 
GECC, like a large bank holding company, is primarily a lender and 
lessor to commercial entities and consumers, and is substantially 
involved in the provision of credit in the United States. Similar to 
large bank holding companies, GECC is also an active participant in the 
capital markets and relies on wholesale funding, such as commercial 
paper held by institutional investors and committed lines of credit 
provided by large commercial banks, exposing the company to liquidity 
risks.
---------------------------------------------------------------------------

    \51\ 12 CFR 252.34, 252.35.
---------------------------------------------------------------------------

    Therefore, to ensure that GECC has sufficient liquidity to meet 
outflows during a period of significant financial stress, and given the 
similarities between its operations and risk with those of large bank 
holding companies, the Board is proposing to apply the LCR standard 
under 12 CFR part 249 that would apply to advanced approaches banking 
organizations, without change, to GECC beginning July 1, 2015. GECC 
would be subject to the same transition periods and compliance 
timelines as all other advanced approaches banking organizations that 
do not have $700 billion in total consolidated assets or $10 trillion 
in assets under custody, including the temporary monthly LCR 
calculation until July 1, 2016, and the requirement to maintain an LCR 
of 80 percent from July 1, 2015 to December 31, 2015, an LCR of 90 
percent from January 1, 2016 to December 31, 2016, and an LCR of 100 
percent thereafter.\52\
---------------------------------------------------------------------------

    \52\ 12 CFR 249.50(b).
---------------------------------------------------------------------------

    The standardized requirements of the LCR would allow for horizontal 
comparisons between GECC and other companies with similar balance 
sheets and risk profiles. Because the LCR applies outflow and inflow 
rates that are based on a covered bank holding company's particular 
risk profile and activities, the LCR requirements would be tailored to 
GECC's activities, balance sheet, and risk profile, and would help 
ensure that GECC holds sufficient HQLA to meet the expected outflows 
for such activities over a 30 calendar-day period.\53\
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    \53\ As indicated in the preamble to final LCR rulemaking, the 
Board anticipates separately seeking comment upon proposed 
regulatory reporting requirements and instructions pertaining to the 
LCR. 79 FR 61440, 61445 (October 10, 2014). The Board expects those 
reporting requirements and instructions to apply to any nonbank 
financial company supervised by the Board to which the Board has 
required by rule or order to comply with the LCR.
---------------------------------------------------------------------------

    To complement the LCR requirements, the Board believes that the 
individualized liquidity risk-management requirements established in 
Regulation YY for bank holding companies with $50 billion or more in 
total consolidated assets are appropriate for GECC, and is proposing to 
apply them, without change, to GECC beginning July 1, 2015.\54\ The 
firm-specific liquidity risk management and stress testing requirements 
of Regulation YY would help ensure that GECC develops the necessary 
compliance infrastructure to evaluate the liquidity risk profile of its 
operations on a continuing basis. The liquidity risk management and 
stress testing requirements of Regulation YY require the covered bank 
holding company to tailor its compliance framework to the particular 
size, complexity, structure, risk profile, and activities of the 
organization. Thus, in implementing these requirements, GECC would be 
expected to tailor its compliance framework to suit the company's 
structure. Finally, the Board is also proposing to apply SR 10-6, 
Interagency Policy Statement on Funding and Liquidity Risk Management, 
and would require GECC to comply with the expectations outlined in this 
letter by July 1, 2015.
---------------------------------------------------------------------------

    \54\ 12 CFR 252.34, 35.
---------------------------------------------------------------------------

8. Are there other liquidity standards that the Board should consider 
applying to GECC, and if so, what are they?
9. Should the Board consider tailoring the proposed liquidity 
requirements to GECC? If so, which of the requirements should the Board 
consider tailoring based on GECC's activities, balance sheet and risk 
profile?

E. Risk-Management and Risk-Committee Requirements

    Sound enterprise-wide risk management by large financial companies 
reduces the likelihood of their material distress or failure and thus 
promotes financial stability. During the recent financial crisis, a 
number of companies that experienced material financial distress or 
failure had significant deficiencies in key areas of risk management. 
Senior managers at successful companies were actively involved in risk 
management, including determining the company's overall risk 
preferences and creating the incentives and controls to induce 
employees to abide by those preferences. The boards of directors of 
these successful companies were actively involved in determining the 
company's risk tolerance. Successful risk management also depends on 
senior managers having access to adaptive management information 
systems to identify and assess risks based on a range of dynamic 
measures and assumptions.
1. Section 165 and Regulation YY
    Section 165(b)(1)(A) of the Dodd-Frank Act requires the Board to 
establish enhanced risk-management requirements for bank holding 
companies with total consolidated assets of $50 billion or more and 
nonbank financial companies supervised by the Board.\55\ In addition, 
section 165(h) directs the Board to issue regulations requiring 
publicly traded bank holding companies with total consolidated assets 
of $10 billion or more and publicly traded nonbank financial companies 
to establish risk committees.\56\ Section 165(h) requires the risk 
committee to be responsible for the oversight of the enterprise-wide 
risk-management practices of the company, to have such number of 
independent directors as the Board determines appropriate, and to 
include at least one risk-management expert with experience in 
identifying, assessing, and

[[Page 71778]]

managing risk exposures of large, complex firms.\57\
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    \55\ 12 U.S.C. 5365(b)(1)(A).
    \56\ 12 U.S.C. 5365(h).
    \57\ Under Regulation YY, publicly traded is defined to mean 
``an instrument that is traded on . . . [a]ny exchange registered 
with the U.S. Securities and Exchange Commission as a national 
securities exchange under section 6 of the Securities Exchange Act 
of 1934 (15 U.S.C. 78f).'' 12 CFR 252.2(p) (emphasis added). 
Although GECC does not have publicly traded shares of common equity, 
the company has debt securities that are publicly traded on the New 
York Stock Exchange under section 12(b) of the Securities Exchange 
Act of 1934. The Board is proposing to impose the requirements of 
Regulation YY and the additional risk management standards discussed 
below under its authority in section 165(h) to impose risk committee 
and risk management standards and its authority under section 
165(b)(1)(B)(iv) to impose other standards that the Board determines 
are appropriate. 12 U.S.C. 5365(b)(1)(B)(iv).
---------------------------------------------------------------------------

    Under the Board's Regulation YY, the Board requires all bank 
holding companies with $50 billion or more in total consolidated assets 
to establish a risk committee that: Is an independent committee of the 
company's board of directors; is chaired by an independent director; 
and includes at least one member who has experience in identifying, 
assessing and managing risk exposures of large, complex financial 
firms.\58\ The risk committee is required to approve and periodically 
review the risk-management policies of the bank holding company's 
global operations, oversee the operation of the bank holding company's 
global risk-management framework, and oversee the bank holding 
company's compliance with the liquidity risk-management requirements of 
Regulation YY.\59\ In addition, a covered bank holding company is 
required to appoint a chief risk officer with experience in 
identifying, assessing, and managing risk exposures of large, complex 
financial firms, and who has responsibility for establishing 
enterprise-wide risk limits for the company and monitoring compliance 
with such limits.\60\ The chief risk officer is also required to 
develop policies and procedures to ensure the implementation of, and 
compliance with, the risk management framework. The chief risk officer 
must be compensated in a manner that is consistent with the provision 
of an objective assessment of the company's risks, must report directly 
to both the risk committee and chief executive officer of the company, 
and must report risk-management deficiencies and emerging risks to the 
risk committee.
---------------------------------------------------------------------------

    \58\ 12 CFR 252.33(a)(3), (4).
    \59\ 12 CFR 252.33(a).
    \60\ 12 CFR 252.33(b).
---------------------------------------------------------------------------

    Under Regulation YY, each covered bank holding company is required 
to establish a global risk-management framework that is commensurate 
with the company's structure, risk profile, complexity, activities, and 
size.\61\ The risk-management framework is required to include policies 
and procedures for the establishment of risk-management governance and 
risk-control infrastructure of the company's global operations. In 
addition, the risk-management framework must include processes and 
systems for identifying and reporting risk-management deficiencies in 
an effective and timely manner, must establish managerial and employee 
responsibilities for risk management, must ensure the independence of 
the risk-management function, and integrate risk management and 
associated controls with management goals and its compensation 
structure for the global operations of the company.\62\
---------------------------------------------------------------------------

    \61\ 12 CFR 252.33(a)(2).
    \62\ Id.
---------------------------------------------------------------------------

2. Proposed Risk-Management Standards To Be Applied to GECC
    The Board is proposing to require GECC to adopt a risk-management 
framework that is consistent with the supervisory expectations 
established for bank holding companies of a similar size because of the 
similarities between GECC's activities, risk profile, and balance sheet 
to that of a large bank holding company. Specifically, the Board is 
proposing to apply the risk-management standards under the Board's 
Regulation YY to GECC beginning July 1, 2015.\63\ The adoption of sound 
risk-management principles by GECC will reduce the likelihood of 
material distress or failure of GECC and thus promote financial 
stability.
---------------------------------------------------------------------------

    \63\ 12 CFR 252.33.
---------------------------------------------------------------------------

    The risk-management standards of the Board's Regulation YY require 
a covered bank holding company to tailor its compliance framework to 
the particular size, complexity, structure, risk profile, and 
activities of the organization. Thus, in implementing these 
requirements, GECC would be expected to tailor its risk-management 
framework to suit the company's structure. The Board understands that 
GE has established a dedicated risk committee that oversees the risk 
management of GE and GECC. However, the Board believes that, consistent 
with the designation of GECC as a nonbank financial company, GECC's 
risk-management framework should have a dedicated risk committee at the 
company that is solely responsible for the oversight of GECC's risk 
management.
    In addition to the proposed application of the risk-management 
standards under section 252.33 of the Board's Regulation YY, the Board 
is proposing to apply additional risk-management requirements that are 
tailored to reflect GECC's structure as an intermediate holding company 
of a larger, publicly traded company. As GECC is a subsidiary of a 
larger, publicly traded company, the Board believes that it is 
necessary to ensure that GECC's board of directors includes members who 
are independent of GE so that their attention is focused on the 
business operations and safety and soundness of GECC itself, apart from 
the needs of its parent GE. These directors also must be independent of 
GECC's management to provide views apart from management.
    In particular, the Board is proposing to require that, beginning 
July 1, 2015, the board of directors of GECC have the greater of 25 
percent or two directors that are independent of GE's and GECC's 
management and GE's board of directors and that one of these directors 
serve as the chair of GECC's risk committee established under 
Regulation YY.\64\ Under the proposed order, GECC would be required to 
maintain, at a minimum, two directors on its board of directors who are 
independent of GE's and GECC's management and GE's board of directors. 
One of these directors would be required to chair GECC's risk committee 
established under Regulation YY. In addition, pursuant to Regulation 
YY, GECC would be required to maintain at least one director with 
expertise in ``identifying, assessing, and managing risk exposures of 
large, complex financial firms'' on its risk committee.\65\ This 
director may be one of the independent directors required by the 
proposed order. The Board invites comment on whether the proposed 
additional GECC governance requirements are appropriate to address the 
status of GECC as an intermediate holding company and the potential 
conflict of interests in the relationship between GE and GECC.
---------------------------------------------------------------------------

    \64\ 12 CFR 252.33(a)(4).
    \65\ Id.
---------------------------------------------------------------------------

    Finally, in addition to the risk management standards discussed 
above, the Board would continue to require GECC to observe the Board's 
existing risk-management guidance and supervisory expectations for 
nonbank financial companies supervised by the Board.\66\
---------------------------------------------------------------------------

    \66\ See Supervision and Regulation Letter SR 12-17, 
Consolidated Supervision Framework for Large Financial Institutions 
(December 17, 2012), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm.

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[[Page 71779]]

10. In addition to the requirements discussed above, should the Board 
consider imposing any additional corporate governance requirements on 
GECC? For example, should the Board consider requiring that additional 
directors be independent of GE, GECC, or both?
11. Should the Board require GECC to establish independent committees 
of its board of directors, such as an audit or compensation committee?
12. Should the Board consider requiring additional directors on GECC's 
board of directors to have experience in identifying, assessing and 
managing risk exposures of large, complex financial firms?

F. Other Prudential Standards: Restrictions on Intercompany 
Transactions

    Section 165(b)(1)(B) allows the Board to establish additional 
enhanced prudential standards for nonbank financial companies and bank 
holding companies with assets of $50 billion or more, including three 
enumerated standards--a contingent capital requirement, enhanced public 
disclosures, and short-term debt limit--and any ``other prudential 
standards'' that the Board determines are ``appropriate.'' \67\ With 
respect to the three enumerated standards, the Board is currently 
considering whether it would be appropriate to develop such standards 
for bank holding companies and nonbank financial companies. During this 
process, the Board will consider whether it will be appropriate to 
apply such standards to GECC based on its profile, structure, 
activities, and risks.
---------------------------------------------------------------------------

    \67\ 12 U.S.C. 5365(b)(1)(B).
---------------------------------------------------------------------------

    The Board is proposing to apply as an enhanced prudential standard 
certain restrictions on GECC's transactions with affiliated entities 
that are not under GECC's control. Like the risk-management standards 
proposed to be applied to GECC, the Board believes that it is 
appropriate to apply enhanced prudential standards to GECC that address 
the potential for conflicts of interest with GE and its affiliates, and 
to address the possibility of any such conflicts on the financial 
condition of GECC. Specifically, the Board is proposing to require GECC 
to comply with restrictions on transactions with affiliated entities in 
order to address the effect of any conflicts of interest that may arise 
in interactions between GECC and GE and its affiliates. Specifically, 
beginning on July 1, 2015, the Board is proposing to apply the 
requirements of section 23B of the Federal Reserve Act and the 
corresponding provisions of Regulation W (subpart F of 12 CFR part 223) 
to transactions between GECC (or any of its subsidiaries) with any 
affiliate (as defined in the Federal Reserve Act and Regulation W), as 
if GECC (or any of its subsidiaries) were a ``member bank'' and GE (or 
any of its subsidiaries other than GECC and subsidiaries of GECC) were 
an ``affiliate.'' \68\
---------------------------------------------------------------------------

    \68\ 12 U.S.C. 371c-1; subpart F to 12 CFR part 223.
---------------------------------------------------------------------------

    As noted above, the Board, as the prudential regulator of nonbank 
financial companies designated by the Council for its supervision, is 
required to establish enhanced prudential standards that are designed 
to prevent or mitigate risks to the financial stability of the United 
States from the material financial distress or failure of such 
companies. Section 23B of the Federal Reserve Act is designed to 
protect the safety and soundness of insured depository institutions by 
ensuring that an insured depository institution is not engaging in 
transactions with affiliates that are on terms that are unfavorable to 
the depository institution. The application of section 23B of the 
Federal Reserve Act to transactions between GECC and GE and its 
affiliates is designed to enhance the safety and soundness of GECC and 
to reduce the risk of material financial distress at GECC by ensuring 
that GECC is not engaging in transactions with affiliates on terms that 
are unfavorable to GECC and those that would not have been required, 
but for the affiliation between the companies.
13. In applying the restrictions of section 23B and the corresponding 
requirements of Regulation W to transactions between GECC and its 
subsidiaries with any affiliates, are there any transactions or 
entities that should be exempted from the restrictions?
14. Are there other enhanced prudential standards that the Board should 
consider applying to GECC? Specifically, are there other restrictions 
on transactions between GECC and its affiliates that would be 
appropriate?

G. Future Standards

    With respect to the remaining standards required under section 165 
of the Dodd-Frank Act, the Board is continuing to develop standards 
that are designed to further mitigate the risks to the financial 
stability of the United States presented by large banking organizations 
and nonbank financial companies supervised by the Board. For example, 
the Board's initial proposed rules to implement the requirements of 
section 165 and 166 of the Dodd-Frank Act included single-counterparty 
credit limits and early remediation requirements for the companies 
covered under sections 165 and 166 of the Dodd-Frank Act. The Board is 
working to further develop these requirements and will be considering 
the tailoring of these requirements to nonbank financial companies 
supervised by the Board.\69\ As the Board develops additional standards 
related to capital, liquidity, risk management, or other standards, for 
bank holding companies and savings and loan holding companies, the 
Board will consider the applicability of these standards to GECC.
---------------------------------------------------------------------------

    \69\ With respect to single-counterparty credit limits, the 
Board participated in the Basel Committee's initiative to develop a 
similar large exposure regime for global banks and intends to take 
into account this effort in implementing the single-counterparty 
credit limits under the Dodd-Frank Act. With respect to the early 
remediation framework, the Board is considering how to reflect the 
revised capital framework as well as how to address other issues 
presented by commenters.
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V. Proposed Reporting Requirements

    Section 161(a) of the Dodd-Frank Act \70\ authorizes the Board to 
require a nonbank financial company supervised by the Board, and any 
subsidiary thereof, to submit reports to the Board related to: (1) The 
financial condition of the company or subsidiary, systems of the 
company or subsidiary for monitoring and controlling financial, 
operating, and other risks, and the extent to which the activities and 
operations of the company or subsidiary pose a threat to the financial 
stability of the United States; and (2) compliance by the company or 
subsidiary with the requirements of Title I of the Dodd-Frank Act, 
which includes the enhanced prudential standards to which nonbank 
financial companies are subject.
---------------------------------------------------------------------------

    \70\ 12 U.S.C. 5361(a).
---------------------------------------------------------------------------

    Pursuant to this authority, the Board is proposing to require GECC 
to file the following reports: \71\ (i) The FR Y-6 report (Annual 
Report of Holding Companies); (ii) the FR Y-10 report

[[Page 71780]]

(Report of Changes in Organizational Structure); (iii) the FR Y-9C 
report (Consolidated Financial Statements for Holding Companies) and FR 
Y-9LP report (Parent Company Only Financial Statements for Large 
Holding Companies); (iv) the FR Y-11 report and FR Y-11S report 
(Financial Statements of U.S. Nonbank Subsidiaries of U.S. Holding 
Companies); (v) the FR 2314 report and FR 2314S report (Financial 
Statements of Foreign Subsidiaries of U.S. Banking Organizations); (vi) 
the FR Y-14A, FR Y-14M, and FR Y-14Q reports (Capital Assessments and 
Stress Testing) (together, the FR Y-14 series reporting forms); (vii) 
the FR Y-15 report (Banking Organization Systemic Risk Report); (viii) 
the FFIEC 009 report (Country Exposure Report) and FFIEC 009a report 
(the Country Exposure Information Report); and (ix) the FFIEC 102 
report (Market Risk Regulatory Report for Institutions Subject to the 
Market Risk Capital Rule), if the market risk capital rule becomes 
applicable to GECC. The Board intends to confer with GECC to identify 
any report schedules that may not be necessary for GECC to provide 
based on its profile, structure, activities, risks, or other 
characteristics and to determine an appropriate phase-in period for 
report submission by GECC. Other than the FR Y-14 series reporting 
forms, discussed below, the Board is proposing that, beginning July 1, 
2015, GECC would be required to file each of these reports in 
accordance with the timelines set forth in their respective reporting 
instructions.
---------------------------------------------------------------------------

    \71\ GECC is a savings and loan holding company supervised by 
the Board. So long as GECC remains a savings and loan holding 
company, GECC continues to be subject to all reporting requirements 
applicable to a savings and loan holding company. Consistent with 
section 161(a)(2) of the Dodd-Frank Act, the Board intends to confer 
with GECC as to whether the information requested in the required 
reports may be available from other sources, and, to the extent any 
reporting requirements overlap, GECC will not be subjected to 
duplicative reporting requirements as both a savings and loan 
holding company and a nonbank financial company supervised by the 
Board. 12 U.S.C. 5361(a)(2). The reporting requirements under the 
proposed order would continue to apply to GECC as a nonbank 
financial company in the event that GECC ceases to be a savings and 
loan holding company and ceases to be subject to the reporting 
requirements applicable to savings and loan holding companies.
---------------------------------------------------------------------------

    Because the FR Y-14A reporting form relates to the Board's capital 
planning and stress testing requirements, the Board expects that it 
would require GECC to file its first FR Y-14A submission on April 5, 
2016, to report its first capital plan. The Board expects GECC would be 
required to submit its first FR Y-14Q and Y-14M reports as of one 
calendar year before the as-of date of its first supervisory and 
company-run stress test under the Board's stress test rules.

A. FR Y-6 Report

    The FR Y-6 (Annual Report of Holding Companies) is an annual 
information collection currently submitted by top-tier bank holding 
companies, savings and loan holding companies, securities holding 
companies, and non-qualifying foreign banking organizations. It 
collects financial data, an organization chart, verification of 
domestic branch data, and information about certain shareholders.
    With respect to GECC, the Board expects to use this information, in 
conjunction with the information collected through the FR Y-10 report, 
to monitor the financial condition and the activities of GECC. This 
information will also be used by the Board to monitor the extent to 
which the activities and operations of GECC pose a threat to the 
financial stability of the United States and GECC's compliance with the 
requirements of Title I of the Dodd-Frank Act, the enhanced prudential 
standards that are imposed on GECC, and other relevant law. In 
addition, this information will be used to capture the legal entity 
structure of GECC. The Board also expects to use this information, 
combined with the information collected through the FR Y-9C, FR Y-9LP, 
FR Y-10, FR Y-11, FR Y-11S, FR 2314, and FR 2314S reports, to monitor 
intercompany transactions and changes in GECC's legal entity structure 
over time.

B. FR Y-10 Report

    The FR Y-10 (Report of Changes in Organizational Structure) is an 
event-generated information collection currently submitted by top-tier 
bank holding companies; savings and loan holding companies; state 
member banks unaffiliated with a bank holding company or a foreign 
banking organization; Edge and agreement corporations that are not 
controlled by a state member bank, a domestic bank holding company, or 
a foreign banking organization; and nationally chartered banks that are 
not controlled by a bank holding company or a foreign banking 
organization (with regard to their foreign investments only), to 
capture changes in their regulated investments and activities. The 
Board uses this information to ensure that these firms' activities are 
conducted in a safe and sound manner. The data also provide the Board 
with information integral to monitoring compliance with the BHC Act, 
the Gramm-Leach-Bliley Act, the Federal Reserve Act, the International 
Banking Act, the Sarbanes-Oxley Act, the Board's Regulation Y, the 
Board's Regulation K, the Board's Regulation LL, and HOLA.
    The information in this report, in conjunction with the information 
in the FR Y-6, will be used to capture the legal entity structure of 
GECC. As noted above, the FR Y-6 and FR Y-10 reports are the only 
detailed sources of information on the structure of these top-tier 
firms. This information will also be used by the Board to monitor the 
extent to which the activities and operations of GECC pose a threat to 
the financial stability of the United States and GECC's compliance with 
the requirements of Title I of the Dodd-Frank Act, the enhanced 
prudential standards that are imposed on GECC, and other relevant law. 
In addition, this information will be used to capture the legal entity 
structure of GECC. The Board also expects to use this information, 
combined with the information collected through the FR Y-9C, FR Y-9LP, 
FR Y-10, FR Y-11, FR Y-11S, FR 2314, and FR 2314S reports, to monitor 
intercompany transactions and changes in GECC's legal entity structure 
over time.

C. FR Y-9C and FR Y-9LP Reports

    The FR Y-9C (Consolidated Financial Statements for Holding 
Companies) and FR Y-9LP (Parent Company Only Financial Statements for 
Large Holding Companies) reports are standardized financial statements 
currently submitted by bank holding companies, savings and loan holding 
companies, and securities holding companies on a quarterly basis. The 
FR Y-9C consists of standardized financial statements and collects 
consolidated data from these entities. The FR Y-9LP collects basic 
financial data from domestic bank holding companies, savings and loan 
holding companies, and securities holding companies on a consolidated, 
parent-only basis in the form of a balance sheet, an income statement, 
and supporting schedules relating to investments, cash flow, and 
certain memoranda items. Financial information from these reports is 
used to assess and monitor the financial condition of holding company 
organizations, which may include parent, bank, and nonbank entities. 
This information also is used to detect emerging financial problems, to 
review performance and conduct pre-inspection analysis, to monitor and 
evaluate capital adequacy, to evaluate mergers and acquisitions, and to 
analyze the overall financial condition of bank holding companies, 
savings and loan holding companies, and securities holding companies, 
to ensure safe and sound operations.
    With respect to GECC, the Board expects to use the data to monitor 
the financial condition of the company and subsidiaries and assess the 
systems of the company and subsidiaries for monitoring and controlling 
financial, operating, and other risks. This information also may be 
used to analyze the extent to which the activities and operations of 
the company or subsidiaries pose a threat to the financial stability of 
the United States and to monitor GECC's compliance with Title I of the 
Dodd-Frank Act, the enhanced prudential standards that are imposed on 
GECC, and other relevant law. The standardized format of these

[[Page 71781]]

reports allows for the consistent assessment of financial condition 
across all firms that are required to report under these forms. The 
level of detail provided within the supporting schedules of these 
reports is not available through public financial filings or alternate 
sources.

D. FR Y-11 and FR Y-11S Reports

    The FR Y-11 and FR Y-11S (Financial Statements of U.S. Nonbank 
Subsidiaries of U.S. Holding Companies) reports collect financial 
information for individual non-functionally regulated U.S. nonbank 
subsidiaries of domestic bank holding companies, savings and loan 
holding companies, and securities holding companies. This report 
consists of a balance sheet and income statement; information on 
changes in equity capital, changes in the allowance for loan and lease 
losses, off-balance-sheet items, and loans; and a memoranda section. 
Top-tier bank holding companies, savings and loan holding companies, 
and securities holding companies file the FR Y-11 and FR Y-11S reports 
on a quarterly or annual basis according to filing criteria. The 
information obtained through the FR Y-11 and FR Y-11S reports is used 
with other bank holding companies, savings and loan holding companies, 
and securities holding companies data to assess the condition of firms 
that are engaged in nonbanking activities and to monitor the volume, 
nature, and condition of their nonbanking operations.
    With respect to GECC, the Board expects to use this information, in 
conjunction with the information collected through the FR 2314 and FR 
2314S reports, to assess the financial condition of U.S. nonbanking 
entities within GECC and to monitor their activities. This information 
also may be used to monitor the financial condition of subsidiaries of 
GECC and to assess the systems of the company for monitoring and 
controlling financial, operating, and other risks. This information may 
further be used to analyze the extent to which the activities and 
operations of GECC or its subsidiaries pose a threat to the financial 
stability of the United States and to monitor GECC's compliance with 
Title I of the Dodd-Frank Act, the enhanced prudential standards that 
are imposed on GECC, and other relevant law. In addition, the 
information collected through the FR Y-11, FR Y-11S, FR 2314, and FR 
2314 reports serves to identify material legal entities.

E. FR 2314 and FR 2314S Reports

    The FR 2314 and FR 2314S (Financial Statements of Foreign 
Subsidiaries of U.S. Banking Organizations) reports collect financial 
information for non-functionally regulated direct or indirect foreign 
subsidiaries of U.S. state member banks, Edge and agreement 
corporations, bank holding companies, and savings and loan holding 
companies. The FR 2314 and FR 2314S reports consist of a balance sheet 
and income statement; information on changes in equity capital, changes 
in the allowance for loan and lease losses, off-balance-sheet items, 
and loans; and a memoranda section. Holding companies file this report 
on a quarterly or annual basis according to filing criteria. The data 
is used to identify current and potential problems at the foreign 
subsidiaries of U.S. parent companies, to monitor the activities of 
U.S. banking organizations in specific countries, and to develop a 
better understanding of activities within the industry, in general, and 
of individual institutions, in particular. The FR 2314 and FR 2314S 
reports are the only source of comprehensive and systematic data on the 
assets, liabilities, and earnings of the foreign bank and nonbank 
subsidiaries of U.S. state member banks, holding companies, and Edge 
Act and agreement corporations.
    With respect to GECC, the Board expects to use this information, in 
conjunction with the information collected through the FR Y-11 and FR 
Y-11S reports, to assess the financial condition of foreign 
subsidiaries of GECC and to monitor their activities. This information 
may be used to assess the systems of GECC and its foreign subsidiaries 
for monitoring and controlling financial, operating, and other risks. 
This information also may be used to analyze the extent to which the 
activities and operations of the foreign subsidiaries pose a threat to 
the financial stability of the United States and to monitor compliance 
with Title I of the Dodd-Frank Act, the enhanced prudential standards 
that are imposed on GECC, and other relevant law. The information 
collected through the FR Y-11, FR Y-11S, FR 2314, and FR 2314S reports 
will allow the Board to develop a better understanding of the 
activities of GECC and its subsidiaries in specific countries, and to 
develop a better understanding of the activities conducted within the 
industries in which GECC operates.

F. FR Y-14A, FR Y-14M, and FR Y-14Q Reports

    Submitted as part of the Board's CCAR and stress testing processes, 
the FR Y-14A, FR Y-14M, and FR Y-14Q (Capital Assessments and Stress 
Testing) reports collect detailed financial information from top-tier 
bank holding companies (other than foreign banking organizations) with 
$50 billion or more in total consolidated assets, as determined based 
on: (i) The average of the bank holding company's total consolidated 
assets in the four most recent quarters as reported quarterly on the 
bank holding company's FR Y-9C reports; or (ii) the average of the bank 
holding company's total consolidated assets in the most recent 
consecutive quarters as reported quarterly on the bank holding 
company's FR Y-9C reports, if those bank holding companies have not 
filed an FR Y-9C report for each of the most recent four quarters.
    The FR Y-14A report is an annual collection of these bank holding 
companies' quantitative projections of balance sheet, income, losses, 
and capital across a range of macroeconomic scenarios and qualitative 
information on methodologies used to develop internal projections of 
capital across scenarios, with certain projections and information 
collected on a semi-annual basis. The FR Y-14M report is a monthly 
submission that comprises three loan- and portfolio-level collections 
of data concerning domestic residential mortgages, domestic home equity 
loan and home equity lines of credit, and domestic credit card loans, 
and one detailed address-matching collection to supplement two of the 
loan- and portfolio-level collections. The FR Y-14Q report is a 
quarterly collection of granular data on these bank holding companies' 
various asset classes and pre-provision net revenue for the reporting 
period, including information pertaining to securities, retail loans, 
wholesale loans, mortgage servicing rights, regulatory capital 
instruments, operational risk, and trading, private equity, and other 
fair-value assets. Collectively, the Y-14 data is used to assess the 
capital adequacy of large bank holding companies using forward-looking 
projections of revenue and losses, and to support supervisory stress 
test models and continuous monitoring efforts.
    With respect to GECC, the Board expects to use this information to 
assess GECC's internal assessments of its capital adequacy under a 
stressed scenario, and to conduct the Federal Reserve's supervisory 
stress tests that

[[Page 71782]]

assess GECC's ability to withstand stress in a manner consistent with 
bank holding companies subject to the Board's capital plan and stress 
testing rules. In addition, this information will be used to support 
ongoing monitoring of changes in GECC's risk profile and composition.
    The Board would require GECC to file its first FR Y-14A submission 
on April 5, 2016, as part of its capital plan. In addition, the Board 
would require GECC to submit its first FR Y-14Q and Y-14M reports as of 
one calendar year before the as of date of its first supervisory and 
company-run stress test under the Board's stress test rules, which 
would be as of December 31, 2015, under this proposal.

G. FR Y-15 Report

    The FR Y-15 (Banking Organization Systemic Risk Report) report 
collects consolidated systemic risk data from bank holding companies 
with total consolidated assets of $50 billion or more and the U.S. 
operations or large foreign banking organizations. The data items 
collected in this report mirror those developed by the Basel Committee 
to assess the global systemic importance of banks. The Board uses the 
information collected annually through the FR Y-15 report to: (i) 
Facilitate the future implementation of the capital surcharge on global 
systemically-significant banking organizations through regulation; (ii) 
identify institutions that may be domestic systemically-significant 
banking organizations under a future framework; (iii) analyze the 
systemic risk implications of proposed mergers and acquisitions; and 
(iv) monitor, on an ongoing basis, the systemic risk profile of the 
institutions that are subject to enhanced prudential standards under 
section 165 of the Dodd-Frank Act.\72\
---------------------------------------------------------------------------

    \72\ 12 U.S.C. 5365.
---------------------------------------------------------------------------

    If applied to GECC, the Board expects to use this data to assess 
and monitor GECC's systemic risk profile and its global systemic 
importance, as well as its ongoing compliance with Title I of the Dodd-
Frank Act, the enhanced prudential standards that are imposed on GECC, 
and other relevant law.

H. FFIEC 009 and FFIEC 009a Reports

    The Federal Financial Institutions Examination Council (FFIEC) is a 
formal interagency body empowered to prescribe uniform principles, 
standards, and report forms for the federal examination of financial 
institutions by the Board, the FDIC, the National Credit Union 
Administration, the OCC, and the Consumer Financial Protection Bureau 
and to make recommendations to promote uniformity in the supervision of 
financial institutions. The FFIEC 009 (Country Exposure Report) and 
FFIEC 009a (the Country Exposure Information Report) reports are 
quarterly information collections currently submitted by U.S. 
commercial banks and bank holding companies holding with $30 million or 
more in claims on residents of foreign countries. The FFIEC 009 
collects detailed information on the distribution, by country, of 
claims on foreigners held by U.S. banks and bank holding companies. The 
FFIEC 009a is a supplement to the FFIEC 009 that provides specific 
information about the reporting institutions' exposures in particular 
countries.
    The FFIEC 009 report consists of four schedules that collect 
information concerning: (1) Claims on the firm on the basis of the 
country of residence of the borrower (except claims from the fair value 
of derivative contracts); (2) the reporting firm's claims on an 
ultimate-risk basis with additional details related to those claims; 
(3) the firm's foreign-office liabilities; and (4) the firm's off-
balance-sheet exposures from commitments, guarantees, and credit 
derivatives. The information collected is used to determine the 
presence of credit and related risks, including transfer and country 
risk. The FFIEC 009a is filed if exposures to a country exceed 1 
percent of total assets or 20 percent of capital at the reporting 
institution and requires that the respondent also furnish a list of 
countries in which exposures were between 0.75 percent and one percent 
of total assets or between 15 and 20 percent of capital.
    With respect to GECC, the Board expects to use this information to 
assess GECC's credit and related risks. Specifically, the information 
collected on the FFIEC 009 report and the FFIEC 009a report provides 
additional information on counterparties, the type of claim being 
reported, and credit derivative exposure. The information also provides 
details on a limited number of risk mitigants to help provide context 
for currently reported gross exposure numbers. This information may be 
used to analyze the extent to which GECC's credit exposures pose a 
threat to the financial stability of the United States. The information 
collected through the FFIEC 009 report and the FFIEC 009a report will 
allow the Board to develop a better understanding of GECC's exposures 
in specific countries, and to monitor trends in exposures to foreign 
creditors.

I. FFIEC 102

    The proposed FFIEC 102 reporting form is designed to implement the 
reporting requirements for institutions that are subject to the federal 
banking agencies' market risk capital rule under the revised capital 
framework.\73\ The proposed reports would be quarterly information 
collections used to assess the reasonableness and accuracy of a market 
risk institution's calculation of its minimum capital requirements 
under the market risk capital rule and to evaluate such an 
institution's capital in relation to its risks.
---------------------------------------------------------------------------

    \73\ See Subpart F to 12 CFR 217.
---------------------------------------------------------------------------

    The market risk information collected in the FFIEC 102 is designed 
to: (a) Permit the federal banking agencies to monitor the market risk 
profile of and evaluate the impact and competitive implications of the 
market risk capital rule on individual market risk institutions and the 
industry as a whole; (b) provide the most current statistical data 
available to identify areas of market risk on which to focus for onsite 
and offsite examinations; (c) allow the federal banking agencies to 
assess and monitor the levels and components of each reporting 
institution's risk-based capital requirements for market risk and the 
adequacy of the institution's capital under the market risk capital 
rule; and (d) assist market risk institutions to implement and validate 
the market risk framework.
    Although GECC would not currently be subject to the Board's market 
risk capital rule because it does not meet the applicable aggregate 
trading assets and trading liabilities thresholds, the proposed order 
would require GECC to submit the FFIEC 102 should GECC become subject 
to the Board's market risk capital rule.\74\ The information collected 
on the FFIEC 102 would allow the Board to monitor GECC's market risk 
profile and the adequacy of GECC's capital under the market risk 
capital rule should it become applicable.
---------------------------------------------------------------------------

    \74\ The Board's market risk capital rule applies to any state 
member bank, bank holding company, or savings and loan holding 
company with aggregate trading assets and trading liabilities (as 
reporting on the applicable Call Report, for a state member bank, or 
FR Y-9C, for a bank holding company or savings and loan holding 
company, as applicable) equal to: (i) 10 percent or more of the 
quarter-end total assets as reported on the most recent regulatory 
report; or (ii) $1 billion or more. 12 CFR 217.201(b). As of 
September 30, 2014, GECC had approximately $229 million in aggregate 
trading assets and trading liabilities.
---------------------------------------------------------------------------

VI. Timing of Application

    In general, the Board is proposing to require GECC to begin 
complying with the proposed enhanced prudential standards beginning 
July 1, 2015, except

[[Page 71783]]

for the Board's capital planning and stress testing rules, which the 
Board has proposed will apply to GECC beginning on the next capital 
planning and stress testing cycle beginning January 1, 2016, and 
January 1, 2017, respectively. However, regardless of the transition 
period for application of the enhanced prudential standards, GECC will 
continue to be subject to the Board's examination and oversight 
authority, and any other prudential requirements imposed under 
HOLA.\75\
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    \75\ 12 U.S.C. 1467a, 5361.
---------------------------------------------------------------------------

15. Should the Board consider providing a longer transition period for 
any of the standards that it has proposed to apply to GECC?

VII. Paperwork Reduction Act

    Certain provisions of the Board's proposed order contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In 
accordance with the requirements of the PRA, the Board may not conduct 
or sponsor, and a respondent is not required to respond to, an 
information collection unless it displays a currently valid Office of 
Management and Budget (OMB) control number. The Board reviewed the 
proposed order under the authority delegated to the Board by OMB.
    The proposed order contains reporting requirements subject to the 
PRA and would require GECC to submit the following reporting forms in 
the same manner as a bank holding company:
    (1) Country Exposure Report and Country Exposure Information Report 
(FFIEC 009 and FFIEC 009a; OMB No. 7100-0035);
    (2) Proposed Market Risk Regulatory Report for Institutions Subject 
to the Market Risk Capital Rule (FFIEC 102; OMB No. to be obtained) 
(See the initial Federal Register notice (79 FR 52108) published on 
September 2, 2014.);
    (3) Financial Statements of Foreign Subsidiaries of U.S. Banking 
Organizations; and Abbreviated Financial Statements of Foreign 
Subsidiaries of U.S. Banking Organizations (FR 2314; and FR 2314S OMB 
No. 7100-0073);
    (4) Annual Report of Holding Companies (FR Y-6; OMB No. 7100-0297);
    (5) Consolidated Financial Statements for Holding Companies (FR Y-
9C; OMB No. 7100-0128);
    (6) Parent Company Only Financial Statements for Large Holding 
Companies (FR Y-9LP; OMB No. 7100-0128);
    (7) Report of Changes in Organizational Structure (FR Y-10; OMB No. 
7100-0297);
    (8) Financial Statements of U.S. Nonbank Subsidiaries of U.S. 
Holding Companies; and Abbreviated Financial Statements of U.S. Nonbank 
Subsidiaries of U.S. Holding Companies (FR Y-11; and FR Y-11S OMB No. 
7100-0244);
    (9) Capital Assessments and Stress Testing (FR Y-14A; FR Y-14M; and 
FR Y-14Q OMB No. 7100-0341); and
    (10) Banking Organization Systemic Risk Report (FR Y-15; OMB No. 
7100-0352).
    The proposed order contains reporting, recordkeeping, or disclosure 
requirements subject to the PRA and would require GECC to comply with 
the following information collections in the same manner as a bank 
holding company:
    (1) Funding and Liquidity Risk Management Guidance (FR 4198; OMB 
No. 7100-0326). See the Enhanced Prudential Standards for Bank Holding 
Companies and Foreign Banking Organizations final rule (79 FR 17239) 
published on March 27, 2014.
    (2) Risk-Based Capital Standards: Advanced Capital Adequacy 
Framework Information Collection (FR 4200; OMB No. 7100-0313). See the 
Regulatory Capital Rules final rule (78 FR 62017) published on October 
11, 2013, and the Regulatory Capital Rules final rule (79 FR 57725) 
published on September 26, 2014.
    (3) Risk-Based Capital Guidelines: Market Risk (FR 4201; OMB No. 
7100-0314). See the Regulatory Capital Rules final rule (78 FR 62017) 
published on October 11, 2013.
    (4) Recordkeeping and Reporting Requirements Associated with 
Regulation Y (Capital Plans) (Reg Y-13; OMB No. 7100-0342). See the 
Capital Plans final rule (76 FR 74631) published on December 1, 2011, 
the Supervisory and Company-Run Stress Test Requirements for Covered 
Companies final rule (77 FR 62377) published on October 12, 2012, and 
the Capital Plan and Stress Test Rules final rule (79 FR 64025) 
published on October 27, 2014.
    (5) Reporting and Recordkeeping Requirements Associated with 
Regulation WW (Liquidity Coverage Ratio: Liquidity Risk Measurement, 
Standards, and Monitoring) (Reg WW; OMB No. to be obtained). See the 
Liquidity Coverage Ratio final rule (79 FR 61439) published on October 
10, 2014.
    (6) Reporting, Recordkeeping, and Disclosure Requirements 
Associated with Regulation YY (Enhanced Prudential Standards) (Reg YY; 
OMB No. 7100-0350). See the Supervisory and Company-Run Stress Test 
Requirements for Covered Companies final rule (77 FR 62377) published 
on October 12, 2012, and the Enhanced Prudential Standards for Bank 
Holding Companies and Foreign Banking Organizations final rule (79 FR 
17239) published on March 27, 2014.
    Comments are invited on:
    (a) Whether the proposed collections of information are necessary 
for the proper performance of the Federal Reserve's functions, 
including whether the information has practical utility;
    (b) The accuracy of the Federal Reserve's estimates of the burden 
of the proposed information collections, including the validity of the 
methodology and assumptions used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this proposed order that may affect reporting, 
recordkeeping, or disclosure requirements and burden estimates should 
be sent to the addresses listed in the ADDRESSES section above. A copy 
of the comments may also be submitted to the OMB desk officer: By mail 
to Office of Information and Regulatory Affairs, Office of Management 
and Budget, New Executive Office Building, Room 10235, 725 17th Street 
NW., Washington, DC 20503 or by facsimile to 202-395-6974, Attention, 
Federal Reserve Desk Officer.

VIII. Proposed Order

FEDERAL RESERVE SYSTEM

General Electric Capital Corporation, Inc.

Norwalk, Connecticut

Order Imposing Enhanced Prudential Standards and Reporting Requirements

    Pursuant to section 165 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act), the Board of Governors of the 
Federal Reserve System (Board) is required to apply enhanced prudential 
standards to General Electric Capital Corporation (GECC), a nonbank 
financial company that the Financial Stability Oversight Council has 
determined should be supervised by the Board (nonbank

[[Page 71784]]

financial company supervised by the Board).
    After consideration of all of the relevant factors set forth in 
sections 165(a) and 165(b) of the Dodd-Frank Act, for the reasons set 
forth in the preamble to this order, the Board is applying the 
following enhanced prudential standards and reporting requirements to 
GECC that the Board has tailored, where appropriate, in light of those 
factors.

Capital Requirements

    Beginning on July 1, 2015, GECC shall comply with the Board's 
capital framework, set forth in 12 CFR part 217,\1\ as if GECC were a 
bank holding company that is an ``advanced approaches Board-regulated 
institution'' and a ``covered BHC,'' each as defined under 12 CFR 
217.2, provided, however, that notwithstanding 12 CFR 217.100(b), GECC 
will not be required to comply with subpart E of 12 CFR part 217 or to 
calculate an advanced measure for market risk.\2\
---------------------------------------------------------------------------

    \1\ 12 CFR part 217.
    \2\ 12 CFR 217.204.
---------------------------------------------------------------------------

Capital Planning

    GECC shall comply with the capital plan rule set forth in 12 CFR 
225.8 as a nonbank financial company supervised by the Board, pursuant 
to 12 CFR 225.8(b)(1)(iv), and shall submit a capital plan for the 
capital plan cycle beginning on January 1, 2016.\3\
---------------------------------------------------------------------------

    \3\ 12 CFR 225.8.
---------------------------------------------------------------------------

Stress Testing

    GECC shall comply with the stress testing requirements set forth in 
subparts E and F of Regulation YY (12 CFR part 252, subparts E and F) 
as a nonbank financial company supervised by the Board, pursuant to 12 
CFR 252.43(a)(1)(iii) and 12 CFR 252.53(a)(1)(iii), beginning with the 
stress testing cycle beginning on January 1, 2017.\4\
---------------------------------------------------------------------------

    \4\ Subparts E and F of 12 CFR part 252.
---------------------------------------------------------------------------

Liquidity Requirements

    1. Beginning on July 1, 2015, GECC shall comply with the liquidity 
requirements, set forth in sections 252.34 and 252.35 of the Board's 
Regulation YY, as though it were a bank holding company with $50 
billion or more in total consolidated assets.\5\
---------------------------------------------------------------------------

    \5\ 12 CFR 252.34, 252.35.
---------------------------------------------------------------------------

    2. Beginning on July 1, 2015, GECC shall comply with the liquidity 
coverage ratio (LCR) standard, set forth in 12 CFR part 249, as a 
covered nonbank company, pursuant to 12 CFR 249.1(b)(1)(iv) and 12 CFR 
249.3, subject to the transition periods set forth under 12 CFR 
249.50(b).\6\
---------------------------------------------------------------------------

    \6\ 12 CFR part 249.
---------------------------------------------------------------------------

    3. Beginning on July 1, 2015, GECC shall comply with the Board's 
supervisory guidance on principles of sound liquidity risk management, 
as set forth in the Board's Supervision and Regulation letter 10-6, 
``Interagency Policy Statement on Funding and Liquidity Risk 
Management,'' issued in March 2010.\7\
---------------------------------------------------------------------------

    \7\ Board of Governors of the Federal Reserve System, Division 
of Banking Supervision and Regulation (2010), ``Interagency Policy 
Statement on Funding and Liquidity Risk Management,'' Supervision 
and Regulation Letter SR 10-6 (March 17); 75 FR 13656 (March 22, 
2010); available at: https://www.federalreserve.gov/boarddocs/srletters/2010/sr1006.pdf.
---------------------------------------------------------------------------

Risk Management

    1. Beginning on July 1, 2015, GECC shall comply with the risk-
management standards under section 252.33 of the Board's Regulation YY 
as though it were a bank holding company with $50 billion or more in 
total consolidated assets.\8\
---------------------------------------------------------------------------

    \8\ 12 CFR 252.33.
---------------------------------------------------------------------------

    a. In addition, beginning on July 1, 2015, GECC is required to 
maintain a board of directors that has the greater of 25 percent of 
directors or two directors who are independent of General Electric 
Company's management and board of directors and GECC's management, one 
of whom may satisfy the independent director requirement under section 
252.33(a)(4) of Regulation YY; and
    b. GECC shall ensure that the chair of the risk committee 
established at GECC pursuant to Regulation YY is among the directors 
who are independent of General Electric Company's management and board 
of directors and GECC's management.\9\
---------------------------------------------------------------------------

    \9\ 12 CFR 252.33(a).
---------------------------------------------------------------------------

    2. GECC shall continue to comply with the Board's existing risk-
management guidance and supervisory expectations applicable to nonbank 
financial companies supervised by the Board.\10\
---------------------------------------------------------------------------

    \10\ See Board of Governors of the Federal Reserve System, 
Division of Banking Supervision and Regulation (2012), 
``Consolidated Supervision Framework for Large Financial 
Institutions,'' Supervision and Regulation Letter SR 12-17 (December 
17), available at: https://www.federalreserve.gov/bankinforeg/srletters/sr1217.htm.
---------------------------------------------------------------------------

Restrictions on Intercompany Transactions

    Beginning on July 1, 2015, all transactions between GECC (or any of 
its subsidiaries) and GE (or any of its subsidiaries other than GECC or 
subsidiaries of GECC) shall be subject to the requirements of section 
23B of the Federal Reserve Act and the corresponding provisions of 
Regulation W (subpart F of 12 CFR part 223) as if GECC (or any of its 
subsidiaries) were a ``member bank'' and GE (or any of its subsidiaries 
other than GECC and subsidiaries of GECC) were an ``affiliate'' as 
defined in section 23B of the Federal Reserve Act and Regulation W.\11\ 
However, this restriction would not apply to transactions between GECC 
and any person the proceeds of which are used for the benefit of, or 
transferred to, an affiliate, which would otherwise be a covered 
transaction under section 23A(a)(2) of the Federal Reserve Act and 
section 223.16 of Regulation W.\12\
---------------------------------------------------------------------------

    \11\ 12 U.S.C. 371c-1; subpart F of 12 CFR part 223.
    \12\ 12 U.S.C. 371c(a)(2); 12 CFR 223.16.
---------------------------------------------------------------------------

Future Standards

    Nothing herein limits the Board's authority to impose additional 
enhanced prudential standards to apply to GECC in the future.

Reporting Requirements

    1. Beginning on July 1, 2015, pursuant to section 161(a) of the 
Dodd-Frank Act,\13\ GECC shall file the following reports with the 
Board:
---------------------------------------------------------------------------

    \13\ 12 U.S.C. 5361(a).
---------------------------------------------------------------------------

    a. FFIEC 102 report (Market Risk Regulatory Report for Institutions 
Subject to the Market Risk Capital Rule); \14\
---------------------------------------------------------------------------

    \14\ GECC shall become subject to the FFIEC 102 report in the 
event the company meets the aggregate trading assets and trading 
liabilities threshold for application of the Board's market risk 
capital rule. 12 CFR 217.201(b).
---------------------------------------------------------------------------

    b. FFIEC 009 report (Country Exposure Report) and FFIEC 009a report 
(Country Exposure Information Report);
    c. FR Y-6 report (Annual Report of Holding Companies);
    d. FR Y-10 report (Report of Changes in Organizational Structure);
    e. FR Y-9C report (Consolidated Financial Statements for Holding 
Companies) and FR Y-9LP report (Parent Company Only Financial 
Statements for Large Holding Companies);
    f. FR Y-11 and FR Y-11S reports (Financial Statements of U.S. 
Nonbank Subsidiaries of U.S. Holding Companies);
    g. FR 2314 and FR 2314S reports (Financial Statements of Foreign 
Subsidiaries of U.S. Banking Organizations);
    h. FR Y-14A, FR Y-14M, and FR Y-14Q reports (Capital Assessments 
and Stress Testing); and
    i. FR Y-15 report (Banking Organization Systemic Risk Report).
    2. Other than the FR Y-14A, FR Y-14M, and FR Y-14Q reports, GECC

[[Page 71785]]

shall file each of the reports in accordance with the timelines set 
forth in the applicable instructions to each reporting form.
    3. GECC shall submit its first FR Y-14A report on April 5, 2016, in 
connection with its first submission under the capital plan rule (12 
CFR 225.8).
    4. GECC shall submit its first FR Y-14Q and FR Y-14M reports one 
calendar year before the as of date of its first supervisory and 
company-run stress test under the Board's stress testing requirements 
under Regulation YY (12 CFR part 252, subparts E and F).
    5. The Board intends to confer with GECC to determine whether GECC 
should modify any reporting schedules that may not be necessary for 
GECC to provide, based on its profile, structure, activities, risks, or 
other characteristics.

    By order of the Board of Governors of the Federal Reserve 
System, November 25, 2014.
Robert deV. Frierson,
Secretary of the Board.
[FR Doc. 2014-28414 Filed 12-2-14; 8:45 am]
BILLING CODE 6210-01-P

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