Regulatory Capital Rules: Retention of Certain Existing Transition Provisions for Banking Organizations That Are Not Subject to the Advanced Approaches Capital Rules, 40495-40503 [2017-17822]

Download as PDF 40495 Proposed Rules Federal Register Vol. 82, No. 164 Friday, August 25, 2017 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. DEPARTMENT OF TREASURY Office of the Comptroller of the Currency 12 CFR Part 3 [Docket ID OCC–2017–0012] RIN 1557–AE 23 FEDERAL RESERVE SYSTEM 12 CFR Part 217 [Regulation Q; Docket No. R–1571] RIN 7100–AE 83 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 324 RIN 3064–AE 63 Regulatory Capital Rules: Retention of Certain Existing Transition Provisions for Banking Organizations That Are Not Subject to the Advanced Approaches Capital Rules Office of the Comptroller of the Currency, Treasury; the Board of Governors of the Federal Reserve System; and the Federal Deposit Insurance Corporation. ACTION: Notice of proposed rulemaking. AGENCY: The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) are inviting public comment on a notice of proposed rulemaking (NPR) that would extend the current treatment under the regulatory capital rules (capital rules) for certain regulatory capital deductions and risk weights and certain minority interest requirements, as they apply to banking organizations that are not subject to the advanced approaches capital rules (nonadvanced approaches banking organizations). Specifically, for nonadvanced approaches banking organizations, the agencies propose to pmangrum on DSK3GDR082PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 extend the current regulatory capital treatment of: Mortgage servicing assets; deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks; significant investments in the capital of unconsolidated financial institutions in the form of common stock; non-significant investments in the capital of unconsolidated financial institutions; significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock; and common equity tier 1 minority interest, tier 1 minority interest, and total capital minority interest exceeding the capital rules’ minority interest limitations. The agencies expect in the near term to issue a separate NPR seeking public comment on a proposal to simplify the regulatory capital treatment of these items. Providing the proposed extension to non-advanced approaches banking organizations for these items would avoid potential burden on banking organizations that may be subject in the near future to a different regulatory capital treatment for these items. DATES: Comments must be received by September 25, 2017. ADDRESSES: Comments should be directed to: OCC: Because paper mail in the Washington, DC area and at the OCC is subject to delay, commenters are encouraged to submit comments through the Federal eRulemaking Portal or email, if possible. Please use the title ‘‘Retaining existing transition provisions for certain elements of the regulatory capital rules’’ to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods: • Federal eRulemaking Portal— ‘‘Regulations.gov’’: Go to www.regulations.gov. Enter ‘‘Docket ID OCC–2017–0012’’ in the Search Box and click ‘‘Search.’’ Click on ‘‘Comment Now’’ to submit public comments. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov, including instructions for submitting public comments. • Email: regs.comments@ occ.treas.gov. • Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Hand Delivery/Courier: 400 7th Street SW., Suite 3E–218, Mail Stop 9W–11, Washington, DC 20219. • Fax: (571) 465–4326. Instructions: You must include ‘‘OCC’’ as the agency name and ‘‘Docket ID OCC–2017–0012’’ in your comment. In general, OCC will enter all comments received into the docket and publish them on the Regulations.gov Web site without change, including any business or personal information that you provide such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. You may review comments and other related materials that pertain to this rulemaking action by any of the following methods: • Viewing Comments Electronically: Go to www.regulations.gov. Enter ‘‘Docket ID OCC–2017–0012’’ in the Search box and click ‘‘Search.’’ Click on ‘‘Open Docket Folder’’ on the right side of the screen and then ‘‘Comments.’’ Comments can be filtered by clicking on ‘‘View All’’ and then using the filtering tools on the left side of the screen. • Click on the ‘‘Help’’ tab on the Regulations.gov home page to get information on using Regulations.gov. Supporting materials may be viewed by clicking on ‘‘Open Docket Folder’’ and then clicking on ‘‘Supporting Documents.’’ The docket may be viewed after the close of the comment period in the same manner as during the comment period. • Viewing Comments Personally: You may personally inspect and photocopy comments at the OCC, 400 7th Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling (202) 649–6700 or, for persons who are deaf or hard of hearing, TTY, (202) 649– 5597. Upon arrival, visitors will be required to present valid governmentissued photo identification and submit to security screening in order to inspect and photocopy comments. Board: You may submit comments, identified by Docket No. R–1571 and E:\FR\FM\25AUP1.SGM 25AUP1 pmangrum on DSK3GDR082PROD with PROPOSALS 40496 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules RIN 7100 AE 83, by any of the following methods: • Agency Web site: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. • Email: regs.comments@ federalreserve.gov. Include docket number and RIN in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Ann E. Misback, 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, 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 3515, 1801 K Street NW. (between 18th and 19th Streets NW.), Washington, DC 20006 between 9:00 a.m. and 5:00 p.m. on weekdays. FDIC: You may submit comments, identified by RIN 3064–AE 63 by any of the following methods: • Agency Web site: https:// www.FDIC.gov/regulations/laws/ federal/propose.html. Follow instructions for submitting comments on the Agency Web site. • Mail: Robert E. Feldman, Executive Secretary, Attention: Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. • Hand Delivered/Courier: Comments may be hand-delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7:00 a.m. and 5:00 p.m. • Email: comments@FDIC.gov. Include the RIN 3064–AE 63 on the subject line of the message. • Public Inspection: All comments received must include the agency name and RIN 3064–AE 63 for this rulemaking. All comments received will be posted without change to https:// www.fdic.gov/regulations/laws/federal/, including any personal information provided. Paper copies of public comments may be ordered from the FDIC Public Information Center, 3501 North Fairfax Drive, Room E–1002, Arlington, VA 22226 by telephone at (877) 275–3342 or (703) 562–2200. VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 FOR FURTHER INFORMATION CONTACT: OCC: Mark Ginsberg, Senior Risk Expert (202) 649–6983; or Benjamin Pegg, Risk Expert (202) 649–7146, Capital and Regulatory Policy; or Carl Kaminski, Special Counsel (202) 649– 5869; or Rima Kundnani, Attorney (202) 649–5545, Legislative and Regulatory Activities Division, (202) 649–5490, for persons who are deaf or hard of hearing, TTY, (202) 649–5597, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219. Board: Constance M. Horsley, Deputy Associate Director, (202) 452–5239; Juan Climent, Manager, (202) 872–7526; Elizabeth MacDonald, Manager, (202) 475–6316; Andrew Willis, Supervisory Financial Analyst, (202) 912–4323; Sean Healey, Supervisory Financial Analyst, (202) 912–4611 or Matthew McQueeney, Senior Financial Analyst, (202) 425– 2942, Division of Supervision and Regulation; or Benjamin McDonough, Assistant General Counsel, (202) 452– 2036; David W. Alexander, Counsel (202) 452–2877, or Mark Buresh, Senior Attorney (202) 452–5270, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW., Washington, DC 20551. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), (202) 263–4869. FDIC: Benedetto Bosco, Chief, Capital Policy Section, bbosco@fdic.gov; Michael Maloney, Capital Markets Senior Policy Analyst, mmaloney@ fdic.gov, Capital Markets Branch, Division of Risk Management Supervision, (202) 898–6888; or Michael Phillips, Counsel, mphillips@fdic.gov; Catherine Wood, Counsel, cawood@ fdic.gov; Rachel Ackmann, Counsel, rackmann@fdic.gov; Supervision Branch, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. SUPPLEMENTARY INFORMATION: I. Background In 2013, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) adopted rules that strengthened the capital requirements applicable to banking organizations supervised by the agencies (capital rules).1 The capital 1 Banking organizations covered by the agencies’ capital rules include national banks, state member banks, state nonmember banks, savings associations, and top-tier bank holding companies and savings and loan holding companies domiciled in the United States not subject to the Board’s Small Bank Holding Company Policy Statement (12 CFR part 225, appendix C), but excluding certain savings PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 rules include limits on the amount of capital that would count toward these regulatory requirements in cases where the capital is issued by a consolidated subsidiary of a banking organization and not owned by the banking organization (minority interest).2 Because capital issued at the subsidiary level is not always available to absorb losses at the consolidated level, these limits prevent highly-capitalized subsidiaries from overstating the amount of capital available to absorb losses at the consolidated level.3 With the goal of strengthening the resiliency of banking organizations, the capital rules also require that amounts of mortgage servicing assets (MSAs), deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks (temporary difference DTAs), and certain investments in the capital of unconsolidated financial institutions above certain thresholds be deducted from a banking organization’s regulatory capital.4 The capital rules contain transition provisions that phase in certain requirements over several years in order to give banking organizations sufficient time to adjust and adapt to such requirements.5 The minority interest limitations in the capital rules will become fully effective on January 1, 2018. The deduction treatments for investments in the capital of unconsolidated financial institutions, MSAs, and temporary difference DTAs are subject to transition provisions until December 31, 2017.6 Also starting on January 1, 2018, the risk weight for MSAs, temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in and loan holding companies that are substantially engaged in insurance underwriting or commercial activities or that are estate trusts, or bank holding companies and savings and loan holding companies that are employee stock ownership plans. The Board and the OCC issued a joint final rule on October 11, 2013 (78 FR 62018) and the FDIC issued a substantially identical interim final rule on September 10, 2013 (78 FR 55340). In April 2014, the FDIC adopted the interim final rule as a final rule with no substantive changes. 79 FR 20754 (April 14, 2014). 2 See 12 CFR 217.21 (Board); 12 CFR 3.21 (OCC); 12 CFR 324.21 (FDIC). 3 12 CFR 217.21 (Board); 12 CFR 3.21 (OCC); 12 CFR 324.21 (FDIC). 4 See 12 CFR 217.22(c)(4), (c)(5), and (d)(1) (Board); 12 CFR 3.22(c)(4), (c)(5), and (d)(1) (OCC); 12 CFR 324.22(c)(4), (c)(5), and (d)(1) (FDIC). Banking organizations are permitted to net associated deferred tax liabilities against assets subject to deduction. 5 12 CFR 217.300 (Board); 12 CFR 3.300 (OCC); 12 CFR 324.300 (FDIC). 6 12 CFR 217.300(b)(4) and (d) (Board); 12 CFR 3.300(b)(4) and (d) (OCC); 12 CFR 324.300(b)(4) and (d) (FDIC). E:\FR\FM\25AUP1.SGM 25AUP1 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules pmangrum on DSK3GDR082PROD with PROPOSALS the form of common stock that are not deducted from regulatory capital will increase from 100 percent to 250 percent. II. Retaining Certain 2017 Transition Provisions Since the issuance of the capital rules in 2013, banking organizations and other members of the public have raised concerns regarding the regulatory burden, complexity, and costs associated with certain aspects of the capital rules, particularly for community banking organizations. As explained in the Federal Financial Institutions Examination Council’s March 2017 Joint Report to Congress on the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA report), the agencies are developing a proposal to simplify certain aspects of the capital rules with the goal of meaningfully reducing regulatory burden on community banking organizations while at the same time maintaining safety and soundness and the quality and quantity of regulatory capital in the banking system (simplifications NPR).7 Consistent with that goal and in anticipation of the simplifications NPR, the agencies propose to extend certain transition provisions currently in the capital rules for banking organizations that are not advanced approaches banking organizations (non-advanced approaches banking organizations) while the simplifications NPR is pending. This extension proposal is referred to as the transitions NPR. As such, for non-advanced approaches banking organizations the transition provisions for certain items would not be fully phased in. The agencies will review the transition provisions again in connection with the simplifications NPR. The agencies believe the stringency and complexity of the current capital rules’ treatment for items affected by the transitions NPR remains appropriate for banking organizations that are subject to the advanced approaches (typically those with consolidated assets greater than or equal to $250 billion, or total consolidated on-balance sheet foreign exposures of at least $10 billion), given the business models and risk profiles of such banking organizations. The agencies believe that the current 7 The EGRPRA report stated that such amendments likely would include: (a) Simplifying the current regulatory capital treatment for MSAs, timing difference DTAs, and holdings of regulatory capital instruments issued by financial institutions; and (b) simplifying the current limitations on minority interest in regulatory capital. See 82 FR 15900 (March 30, 2017). VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 treatment for these items strikes an appropriate balance between complexity and risk sensitivity for the largest and most complex banking organizations. Therefore, the transitions NPR would not apply to advanced approaches banking organizations. The agencies propose to extend the transitions period, as it applies to nonadvanced approaches banking organizations, for changes to section 300 of the capital rules otherwise due to become effective on January 1, 2018, applicable to the risk weight and deduction treatment for MSAs, temporary difference DTAs, significant investments in the capital of unconsolidated financial institutions in the form of common stock, nonsignificant investments in the capital of unconsolidated financial institutions, and significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock. The agencies would expect to propose modifications in these areas as part of the simplifications NPR. Under the transitions NPR, until the simplifications NPR is completed or the agencies otherwise determine, in accordance with Table 7 of section 300 of the capital rules, non-advanced approaches banking organizations would continue to: • Deduct from regulatory capital 80 percent of the amount of any of these five items that is not includable in regulatory capital; • Apply a 100 percent risk weight to any amounts of MSAs, temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock that are not deducted from capital, and continue to apply the current risk weights under the capital rules to amounts of nonsignificant investments in the capital of unconsolidated financial institutions and significant investments in the capital of unconsolidated financial institutions not in the form of common stock that are not deducted from capital; and • Include 20 percent of any common equity tier 1 minority interest, tier 1 minority interest, and total capital minority interest exceeding the capital rule’s minority interest limitations (surplus minority interest) in regulatory capital. For example, under the transitions NPR, a non-advanced approaches banking organization with an amount of MSAs above the 10 percent common equity tier 1 capital deduction threshold in the capital rules would deduct from common equity tier 1 capital only 80 percent of the amount of MSAs above PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 40497 this threshold, and would apply a 100 percent risk weight to the MSAs that are not deducted from common equity tier 1 capital, including the MSAs that otherwise would have been deducted but for the transition provisions. Similarly, for purposes of the capital rules’ 15 percent common equity tier 1 capital deduction threshold (the aggregate 15 percent threshold) that applies collectively across MSAs, temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock, under the transitions NPR, a non-advanced approaches banking organization would deduct from common equity tier 1 capital 80 percent of the amount of these items that exceed the aggregate 15 percent threshold. Because the transitions NPR would not apply to advanced approaches banking organizations, such firms would be required to continue to apply the existing transition provisions in the capital rules. Specifically, advanced approaches banking organizations would be required to apply, starting on January 1, 2018, the capital rules’ fully phased-in regulatory capital treatment for MSAs, temporary difference DTAs, significant investments in the capital of unconsolidated financial institutions in the form of common stock, nonsignificant investments in the capital of unconsolidated financial institutions, significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock, and surplus minority interest. III. Amendments to Reporting Forms The agencies are proposing to clarify the reporting instructions for the Consolidated Reports of Condition and Income (Call Report) (FFIEC 031, FFIEC 041, and FFIEC 051; OMB Control Nos. 1557–0081, 7100–0036, 3604–0052), the OCC is proposing to clarify the instructions for OCC DFAST 14A (OMB Control No. 1557–0319), the FDIC is proposing to clarify the instructions for FDIC DFAST 14A (OMB Control No. 3064–0189), and the Board is proposing to clarify the instructions for the FR Y– 9C (OMB Control No. 7100–0128), and the FR Y–14A and FR Y–14Q (OMB Control No. 7100–0341) to reflect the changes to the capital rules that would be required under this proposal. IV. Request for Comments At this time, the agencies are seeking comment more narrowly on changes proposed in this transitions NPR. As noted previously, the agencies plan to issue a simplifications NPR to simplify certain aspects of the capital rules with E:\FR\FM\25AUP1.SGM 25AUP1 40498 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules the goal of meaningfully reducing regulatory burden on community banking organizations as explained in the EGRPRA report. That simplifications NPR would be published in the Federal Register for public notice and comment at a later date. Question 1. What, if any, operational or administrative challenges would the proposed changes in this transitions NPR pose to banking organizations? What, if any, alternatives should the agencies consider to address such challenges? Question 2. What, if any, modifications should the agencies consider making to the scope of application of this proposal? V. Regulatory Analyses A. Paperwork Reduction Act pmangrum on DSK3GDR082PROD with PROPOSALS In accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3521) (PRA), the agencies 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 agencies reviewed the proposed rule and determined that it does not create any new or revise any existing collection of information under section 3504(h) of title 44. However, the agencies would clarify the reporting instructions for the Call Report. The OCC and FDIC would clarify the instructions for DFAST 14A, and the Board would clarify the instructions for the FR Y–9C, the FR Y– 14A, and the FR Y–14Q to reflect the changes to the capital rules that would be required under this proposal. The draft redlined Call Report instructions would be available at https:// www.ffiec.gov/ffiec_report_forms.htm, the draft redlined OCC DFAST 14A instructions would be available at https://www.occ.gov/tools-forms/forms/ bank-operations/stress-testreporting.html, the draft redlined FDIC DFAST 14A instructions would be available at https://www.fdic.gov/ regulations/reform/dfast/, and the draft redlined FR Y–9C, FR Y–14A, and FR Y–14Q instructions would be available at https://www.federalreserve.gov/apps/ reportforms/review.aspx. B. Regulatory Flexibility Act Analysis OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), requires an agency, in connection with a final rule, to prepare a Final Regulatory Flexibility Analysis describing the impact of the rule on small entities (defined by the Small Business Administration (SBA) for purposes of the RFA to include VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 banking entities with total assets of $550 million or less) or to certify that the rule will not have a significant economic impact on a substantial number of small entities. As of March 31, 2017, the OCC supervised 928 small entities.8 The rule applies to all OCC-supervised entities that are not subject to the advanced approaches risk-based capital rules, and thus potentially affects a substantial number of small entities. The OCC has determined that 135 such entities engage in affected activities to an extent that they would be impacted directly by the proposed rule. However, the proposed rule would provide a small economic benefit to those entities. Thus, the OCC has determined that rule would not have a significant impact on any OCC-supervised small entities. Therefore, the OCC certifies that the proposed rule will not have a significant economic impact on a substantial number of OCC-supervised small entities. Board: The Board is providing an initial regulatory flexibility analysis with respect to this proposed rule. As discussed in the Supplemental Information, the proposal would revise the transition provisions in the regulatory capital rules to extend the treatment effective for calendar year 2017 for several regulatory capital adjustments and deductions that are subject to multi-year phase-in schedules. Through the simplifications NPR, the agencies intend in the near term to seek public comment on a proposal to simplify certain items of the regulatory capital rules and, thus, the agencies believe it is appropriate to extend the transition provisions currently in effect for these items while the simplifications NPR is pending. The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), generally requires that an agency prepare and make available an initial regulatory flexibility analysis in connection with a notice of proposed rulemaking. Under regulations issued by the Small Business Administration, a small entity includes a bank, bank holding company, or savings and loan holding company with assets of $550 million or less (small banking organization).9 As of March 31, 2017, 8 The OCC calculated the number of small entities using the SBA’s size thresholds for commercial banks and savings institutions, and trust companies, which are $550 million and $38.5 million, respectively. Consistent with the General Principles of Affiliation, 13 CFR 121.103(a), the OCC counted the assets of affiliated financial institutions when determining whether to classify a national bank or Federal savings association as a small entity. 9 See 13 CFR 121.201. Effective July 14, 2014, the Small Business Administration revised the size PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 there were approximately 3,546 small bank holding companies, 234 small savings and loan holding companies, and 584 small state member banks. The proposed rule would apply to all state member banks, as well as all bank holding companies and savings and loan holding companies that are subject to the Board’s regulatory capital rule, but excluding state member banks, bank holding companies, and savings and loan holding companies that are subject to the advanced approaches in the capital rules. In general, the Board’s capital rules only apply to bank holding companies and savings and loan holding companies that are not subject to the Board’s Small Bank Holding Company Policy Statement, which applies to bank holding companies and savings and loan holding companies with less than $1 billion in total assets that also meet certain additional criteria.10 Thus, most bank holding companies and savings and loan holding companies that would be subject to the proposed rule exceed the $550 million asset threshold at which a banking organization would qualify as a small banking organization. Given the proposed rule does not impact the recordkeeping and reporting requirements that affected small banking organizations are currently subject to, there would be no change to the information that small banking organizations must track and report. The proposal would merely retain the transition provisions in effect for calendar year 2017 for the items that would be affected by the simplifications NPR until the simplifications NPR is finalized or the agencies determine otherwise. The proposal would permit affected small banking organizations, beginning in 2018 and thereafter, to deduct less investments in the capital of unconsolidated financial institutions, MSAs, and temporary difference DTAs from common equity tier 1 capital than would otherwise be required under the current transition provisions. The proposal would also allow small banking organizations to continue using a 100 percent risk weight for nondeducted MSAs, temporary difference DTAs and significant investments in the capital of unconsolidated financial institutions rather than the 250 percent risk weight for these items which is scheduled to take effect beginning January 1, 2018. Thus, for small banking standards for banking organizations to $550 million in assets from $500 million in assets. 79 FR 33647 (June 12, 2014). 10 See 12 CFR 217.1(c)(1)(ii) and (iii); 12 CFR part 225, appendix C; 12 CFR 238.9. E:\FR\FM\25AUP1.SGM 25AUP1 pmangrum on DSK3GDR082PROD with PROPOSALS Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules organizations that have significant amounts of MSAs or temporary difference DTAs, the proposal could have a temporary positive impact in their capital ratios during 2018 and thereafter. The impact from increasing the deduction of investments in the capital of unconsolidated financial institutions, MSAs, and temporary difference DTAs from 80 percent of the amounts to be deducted under the capital rules in 2017 to 100 percent in 2018 is estimated to decrease common equity tier 1 capital by 0.01 percent on average across all covered small bank holding companies, savings and loan holding companies, and state member banks. Similarly, the impact from increasing from 80 percent in 2017 to 100 percent in 2018 the exclusion of surplus minority interest is estimated to decrease total regulatory capital by 0.04 percent across the same set of institutions. Based on March 31, 2017 data for the same set of institutions, increasing the risk-weight for non-deducted MSAs and temporary difference DTAs to 250 percent from 100 percent would result in an increase in risk-weighted assets of 0.64 percent. Therefore, retaining the transition provisions for the regulatory capital treatment of MSAs, temporary difference DTAs, investments in the capital of unconsolidated financial institutions, and minority interests, would have a marginally positive impact on the regulatory capital ratios of small banking organizations. The Board does not believe that the proposed rule duplicates, overlaps, or conflicts with any other Federal rules. In addition, the primary alternative to the proposed rule would be to retain the transition provisions as currently written in the capital rules, which would mean that the transitions would become fully phased-in starting on January 1, 2018. As discussed, this would result in marginally lower regulatory capital ratios than if the proposal were finalized. In light of the foregoing, the Board does not believe that the proposed rule, if adopted in final form, would have a significant economic impact on a substantial number of small entities. Nonetheless, the Board seeks comment on whether the proposed rule would impose undue burdens on, or have unintended consequences for, small organizations, and whether there are ways such potential burdens or consequences could be minimized in a manner consistent with the purpose of the proposed rule. A final regulatory flexibility analysis will be conducted after consideration of comments VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 received during the public comment period. FDIC: The Regulatory Flexibility Act (RFA) generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis describing the impact of the proposed rule on small entities. A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The Small Business Administration has defined ‘‘small entities’’ to include banking organizations with total assets less than or equal to $550 million. As of March 31, 2017, the FDIC supervises 3,750 banking institutions, 3,028 of which qualify as small entities according to the terms of the RFA. The proposed rule would extend the current regulatory capital treatment of: (i) Mortgage servicing assets (MSAs); (ii) deferred tax assets (DTAS) arising from temporary differences that could not be realized through net operating loss carrybacks; (iii) significant investments in the capital of unconsolidated financial institutions in the form of common stock; (iv) non-significant investments in the capital of unconsolidated financial institutions; (v) significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock; and (vi) common equity tier 1 minority interest, tier 1 minority interest, and total capital minority interest exceeding the capital rules’ minority interest limitations. The transitions NPR would likely pose small economic benefits for small FDICsupervised institutions by preventing any increase in risk-based capital requirements due to the completion of the transition provisions for the above items. According to Call Report data (as of March 31, 2017), 431 FDIC-supervised small banking entities reported holding some volume of the above asset classes. Additionally, as of March 31, 2017, the risk-based capital deduction related to these assets under the capital rules has been incurred by only 53 FDICsupervised small banking entities. The impact from increasing the deduction of investments in the capital of unconsolidated financial institutions, MSAs, and temporary difference DTAs from 80 percent of the amounts to be deducted under the capital rules (12 CFR 324.300) in 2017 to 100 percent in 2018 would decrease common equity tier 1 capital by 0.02 percent on average across all covered small FDIC- PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 40499 supervised banking institutions. Similarly, the impact from increasing from 80 percent in 2017 to 100 percent under the capital rules (12 CFR 324.300) in 2018 the exclusion of surplus minority interest would decrease total regulatory capital by 0.01 percent across the same set of institutions. Based on March 31, 2017 data for the same set of institutions, increasing the risk-weight for non-deducted MSAs and temporary difference DTAs to 250 percent from 100 percent would result in an increase in risk-weighted assets of 0.37 percent. Therefore, retaining the transition provisions for the regulatory capital treatment of MSAs, temporary difference DTAs, investments in the capital of unconsolidated financial institutions, and minority interests, would have a marginally positive impact on the regulatory capital ratios of substantially all small FDIC-supervised banking institutions. FDIC analysis has identified that absent the transitions NPR, 23 small FDIC-supervised banking institutions would have a decrease of 1 percent or more in common equity tier 1 capital, tier 1 capital and or total capital. Furthermore, 33 small FDIC-supervised banking institutions would have an increase in risk weighted assets greater than 3 percent absent the transitions NPR. Therefore, the FDIC certifies that this proposed rule would not have a significant economic impact on a substantial number of small entities that it supervises. C. Plain Language Section 722 of the Gramm-LeachBliley Act requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The agencies have sought to present the transitions NPR in a simple and straightforward manner, and invite comment on the use of plain language. For example: • Have the agencies organized the material to suit your needs? If not, how could they present the transitions NPR rule more clearly? • Are the requirements in the transitions NPR clearly stated? If not, how could the transitions NPR be more clearly stated? • Do the regulations contain technical language or jargon that is not clear? If so, which language requires clarification? • Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes would achieve that? E:\FR\FM\25AUP1.SGM 25AUP1 40500 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules • What other changes can the agencies incorporate to make the regulation easier to understand? D. OCC Unfunded Mandates Reform Act of 1995 Determination The OCC analyzed the proposed rule under the factors set forth in the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this analysis, the OCC considered whether the proposed rule includes a Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year (adjusted for inflation). The OCC has determined that this proposed rule would not result in expenditures by State, local, and Tribal governments, or the private sector, of $100 million or more in any one year.11 Accordingly, the OCC has not prepared a written statement to accompany this NPR. List of Subjects 12 CFR Part 3 Administrative practice and procedure, Capital, National banks, Risk. 12 CFR Part 217 Administrative practice and procedure, Banks, Banking, Capital, Federal Reserve System, Holding companies. 12 CFR Part 324 Administrative practice and procedure, Banks, Banking, Capital adequacy, Savings associations, State non-member banks. Office of the Comptroller of the Currency For the reasons set out in the joint preamble, the OCC proposes to amend 12 CFR part 3 as follows. PART 3—CAPITAL ADEQUACY STANDARDS 1. The authority citation for part 3 continues to read as follows: pmangrum on DSK3GDR082PROD with PROPOSALS ■ 11 The OCC estimates that the proposed rule would lead to an aggregate increase in reported regulatory capital of $665.5 million in 2018 for national banks and Federal savings associations compared to the amount they would report if they were required to complete the 2018 phase-in provisions. The OCC estimates that this increase in reported regulatory capital—which could allow banking organizations to increase their leverage and thus increase their tax deductions for interest paid on debt—would have a total aggregate value of approximately $16 million per year across all directly impacted OCC-supervised entities (that is, national banks and Federal savings associations not subject to the advanced approaches risk-based capital rules). VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B). 2. Section 3.300 is amended by revising paragraph (b)(4), adding paragraph (b)(5), and revising paragraph (d)(1) and table 10 to § 3.300 to read as follows: TABLE 7 TO § 3.300 ■ § 3.300 Transitions. * * * * * (b) * * * (4) Additional transition deductions from regulatory capital. Except as provided in paragraph (b)(5) of this section: (i) Beginning January 1, 2014 for an advanced approaches national bank or Federal savings association, and beginning January 1, 2015 for a national bank or Federal savings association that is not an advanced approaches national bank or Federal savings association, and in each case through December 31, 2017, a national bank or Federal savings association, must use Table 7 to § 3.300 to determine the amount of investments in capital instruments and the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds (§ 3.22(d)) (that is, MSAs, DTAs arising from temporary differences that the national bank or Federal savings association could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock) that must be deducted from common equity tier 1 capital. (ii) Beginning January 1, 2014 for an advanced approaches national bank or Federal savings association, and beginning January 1, 2015 for a national bank or Federal savings association that is not an advanced approaches national bank or Federal savings association, and in each case through December 31, 2017, a national bank or Federal savings association must apply a 100 percent risk weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted under this section. As set forth in § 3.22(d)(2), beginning January 1, 2018, a national bank or Federal savings association must apply a 250 percent risk weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted from common equity tier 1 capital. PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 Transition period Calendar year 2014 ........ Calendar year 2015 ........ Calendar year 2016 ........ Calendar year 2017 ........ Calendar year 2018 and thereafter ..................... Transitions for deductions under § 3.22(c) and (d)—Percentage of additional deductions from regulatory capital 20 40 60 80 100 (iii) For purposes of calculating the transition deductions in this paragraph (b)(4) beginning January 1, 2014 for an advanced approaches national bank or Federal savings association, and beginning January 1, 2015 for a national bank or Federal savings association that is not an advanced approaches national bank or Federal savings association, and in each case through December 31, 2017, a national bank’s or Federal savings association’s 15 percent common equity tier 1 capital deduction threshold for MSAs, DTAs arising from temporary differences that the national bank or Federal savings association could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock is equal to 15 percent of the sum of the national bank’s or Federal savings association’s common equity tier 1 elements, after regulatory adjustments and deductions required under § 3.22(a) through (c) (transition 15 percent common equity tier 1 capital deduction threshold). (iv) Beginning January 1, 2018, a national bank or Federal savings association must calculate the 15 percent common equity tier 1 capital deduction threshold in accordance with § 3.22(d). (5) Special transition provisions for non-significant investments in the capital of unconsolidated financial institutions, significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock, MSAs, DTAs arising from temporary differences that the national bank or Federal savings association could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock. Beginning January 1, 2018, a national bank or Federal savings association that is not an advanced approaches national bank E:\FR\FM\25AUP1.SGM 25AUP1 40501 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules or Federal savings association must continue to apply the transition provisions described in paragraphs (b)(4)(i), (ii), and (iii) of this section applicable to calendar year 2017 to items that are subject to deduction under § 3.22(c)(4), (c)(5), and (d), respectively. * * * * * (d) Minority interest—(1) Surplus minority interest—(i) Advanced approaches national bank or Federal savings association surplus minority interest. Beginning January 1, 2014 through December 31, 2017, an advanced approaches national bank or Federal savings association may include in common equity tier 1 capital, tier 1 capital, or total capital the percentage of the common equity tier 1 minority interest, tier 1 minority interest, and total capital minority interest outstanding as of January 1, 2014, that exceeds any common equity tier 1 minority interest, tier 1 minority interest, or total capital minority interest includable under § 3.21 (surplus minority interest), respectively, as set forth in Table 10 to § 3.300. (ii) Non-advanced approaches national bank and Federal savings association surplus minority interest. A national bank or Federal savings association that is not an advanced approaches national bank or Federal savings association may include in common equity tier 1 capital, tier 1 capital, or total capital 20 percent of the common equity tier 1 minority interest, tier 1 minority interest and total capital minority interest outstanding as of January 1, 2014, that exceeds any common equity tier 1 minority interest, tier 1 minority interest, or total capital minority interest includable under § 3.21 (surplus minority interest), respectively. * * * * * TABLE 10 TO pmangrum on DSK3GDR082PROD with PROPOSALS Transition period Calendar year 2014 ........ Calendar year 2015 ........ Calendar year 2016 ........ Calendar year 2017 ........ Calendar year 2018 and thereafter ..................... VerDate Sep<11>2014 * * * * * 12 CFR Part 217 Board of Governors of the Federal Reserve System For the reasons set out in the joint preamble, part 217 of chapter II of title 12 of the Code of Federal Regulations is proposed to be amended as follows: PART 217—CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q) Jkt 241001 TABLE 7 TO § 217.300 Transition period 3. The authority citation for part 217 continues to read as follows: ■ Authority: 12 U.S.C. 248(a), 321–338a, 481–486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p–l, 1831w, 1835, 1844(b), 1851, 3904, 3906–3909, 4808, 5365, 5368, 5371. 4. Section 217.300 is amended by revising paragraph (b)(4), adding paragraph (b)(5), and revising paragraph (d)(1) and table 10 to § 217.300 to read as follows: ■ § 217.300 Transitions. * * * * (b) * * * (4) Additional transition deductions from regulatory capital. Except as provided in paragraph (b)(5) of this section: (i) Beginning January 1, 2014 for an advanced approaches Board-regulated institution, and beginning January 1, 2015 for a Board-regulated institution that is not an advanced approaches institution, and in each case through December 31, 2017, an institution, must use Table 7 to § 217.300 to determine the amount of investments in capital instruments and the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds (§ 217.22(d)) (that is, MSAs, DTAs arising from temporary differences that the institution could not realize through net operating loss carrybacks, and § 3.300 significant investments in the capital of unconsolidated financial institutions in Percentage the form of common stock) that must be of the amount of surplus or deducted from common equity tier 1 non-qualifying capital. minority (ii) Beginning January 1, 2014 for an interest that advanced approaches institution, and can be included in beginning January 1, 2015 for an regulatory institution that is not an advanced capital approaches institution, and in each case during the through December 31, 2017, an transition period institution must apply a 100 percent 80 risk-weight to the aggregate amount of 60 the items subject to the 10 and 15 40 percent common equity tier 1 capital 20 deduction thresholds that are not deducted under this section. As set forth 0 in § 217.22(d)(2), beginning January 1, 14:55 Aug 24, 2017 2018, a Board-regulated institution must apply a 250 percent risk-weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted from common equity tier 1 capital. * PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 Calendar year 2014 ........ Calendar year 2015 ........ Calendar year 2016 ........ Calendar year 2017 ........ Calendar year 2018 and thereafter ..................... Transitions for deductions under § 217.22(c) and (d)— percentage of additional deductions from regulatory capital 20 40 60 80 100 (iii) For purposes of calculating the transition deductions in this paragraph (b)(4) beginning January 1, 2014 for an advanced approaches Board-regulated institution, and beginning January 1, 2015 for Board-regulated institution that is not an advanced approaches Boardregulated institution, and in each case through December 31, 2017, an institution’s 15 percent common equity tier 1 capital deduction threshold for MSAs, DTAs arising from temporary differences that the institution could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock is equal to 15 percent of the sum of the institution’s common equity tier 1 elements, after regulatory adjustments and deductions required under § 217.22(a) through (c) (transition 15 percent common equity tier 1 capital deduction threshold). (iv) Beginning January 1, 2018 a Board-regulated institution must calculate the 15 percent common equity tier 1 capital deduction threshold in accordance with § 217.22(d). (5) Special transition provisions for non-significant investments in the capital of unconsolidated financial institutions, significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock, MSAs, DTAs arising from temporary differences that the Board-regulated institution could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock. Beginning January 1, E:\FR\FM\25AUP1.SGM 25AUP1 40502 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules pmangrum on DSK3GDR082PROD with PROPOSALS 2018, a Board-regulated institution that is not an advanced approaches Boardregulated institution must continue to apply the transition provisions described in paragraphs (b)(4)(i), (ii), and (iii) of this section applicable to calendar year 2017 to items that are subject to deduction under § 217.22(c)(4), (c)(5), and (d), respectively. * * * * * (d) Minority interest—(1) Surplus minority interest—(i) Advanced approaches institution surplus minority interest. Beginning January 1, 2014 through December 31, 2017, an advanced approaches Board-regulated institution may include in common equity tier 1 capital, tier 1 capital, or total capital the percentage of the common equity tier 1 minority interest, tier 1 minority interest and total capital minority interest outstanding as of January 1, 2014 that exceeds any common equity tier 1 minority interest, tier 1 minority interest or total capital minority interest includable under § 217.21 (surplus minority interest), respectively, as set forth in Table 10 to § 217.300. (ii) Non-advanced approaches institution surplus minority interest. A Board-regulated institution that is not an advanced approaches Boardregulated institution may include in common equity tier 1 capital, tier 1 capital, or total capital 20 percent of the common equity tier 1 minority interest, tier 1 minority interest and total capital minority interest outstanding as of January 1, 2014, that exceeds any common equity tier 1 minority interest, tier 1 minority interest or total capital minority interest includable under § 217.21 (surplus minority interest), respectively. * * * * * * * * * * 12 CFR Part 324 Federal Deposit Insurance Corporation For the reasons set out in the joint preamble, the FDIC proposes to amend 12 CFR part 324 as follows. PART 324—CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS 5. The authority citation for part 324 continues to read as follows: ■ Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102–233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102–242, 105 Stat. 2236, 2355, as amended by Pub. L. 103–325, 108 Stat. 2160, 2233 (12 U.S.C. 1828 note); Pub. L. 102–242, 105 Stat. 2236, 2386, as amended by Pub. L. 102–550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note); Pub. L. 111–203, 124 Stat. 1376, 1887 (15 U.S.C. 78o–7 note). 6. Section 324.300 is amended by revising paragraph (b)(4), adding paragraph (b)(5), and revising paragraph (d)(1) and table 9 to § 324.300 to read as follows: ■ § 324.300 Transitions. * * * * (b) * * * (4) Additional transition deductions from regulatory capital. Except as provided in paragraph (b)(5) of this section: (i) Beginning January 1, 2014, for an advanced approaches FDIC-supervised institution, and beginning January 1, 2015, for an FDIC-supervised institution that is not an advanced approaches FDIC-supervised institution, and in each case through December 31, 2017, an FDIC-supervised institution, must use Table 7 to § 324.300 to determine the amount of investments in capital instruments and the items subject to the 10 and 15 percent common equity tier TABLE 10 TO § 217.300 1 capital deduction thresholds (§ 324.22(d)) (that is, MSAs, DTAs Percentage arising from temporary differences that of the amount the FDIC-supervised institution could of surplus or non-qualifying not realize through net operating loss minority carrybacks, and significant investments interest in the capital of unconsolidated Transition period that can be financial institutions in the form of included in regulatory common stock) that must be deducted capital from common equity tier 1 capital. during the (ii) Beginning January 1, 2014, for an transition FDIC-supervised advanced approaches period institution, and beginning January 1, Calendar year 2014 ........ 80 2015, for an FDIC-supervised institution Calendar year 2015 ........ 60 that is not an advanced approaches Calendar year 2016 ........ 40 FDIC-supervised institution, and in each Calendar year 2017 ........ 20 case through December 31, 2017, an Calendar year 2018 and FDIC-supervised institution must apply thereafter ..................... 0 a 100 percent risk-weight to the VerDate Sep<11>2014 14:55 Aug 24, 2017 Jkt 241001 * PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted under this section. As set forth in § 324.22(d)(2), beginning January 1, 2018, an FDIC-supervised institution must apply a 250 percent risk-weight to the aggregate amount of the items subject to the 10 and 15 percent common equity tier 1 capital deduction thresholds that are not deducted from common equity tier 1 capital. TABLE 7 TO § 324.300 Transition period Calendar year 2014 ........ Calendar year 2015 ........ Calendar year 2016 ........ Calendar year 2017 ........ Calendar year 2018 and thereafter ..................... Transitions for deductions under § 324.22(c) and (d)— Percentage of additional deductions from regulatory capital 20 40 60 80 100 (iii) For purposes of calculating the transition deductions in this paragraph (b)(4) beginning January 1, 2014, for an advanced approaches FDIC-supervised institution, and beginning January 1, 2015, for an FDIC-supervised institution that is not an advanced approaches FDIC-supervised institution, and in each case through December 31, 2017, an FDIC-supervised institution’s 15 percent common equity tier 1 capital deduction threshold for MSAs, DTAs arising from temporary differences that the FDICsupervised institution could not realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock is equal to 15 percent of the sum of the FDIC-supervised institution’s common equity tier 1 elements, after regulatory adjustments and deductions required under § 324.22(a) through (c) (transition 15 percent common equity tier 1 capital deduction threshold). (iv) Beginning January 1, 2018, an FDIC-supervised institution must calculate the 15 percent common equity tier 1 capital deduction threshold in accordance with § 324.22(d). (5) Special transition provisions for non-significant investments in the capital of unconsolidated financial institutions, significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock, MSAs, DTAs arising from temporary differences that the FDIC-supervised institution could not E:\FR\FM\25AUP1.SGM 25AUP1 Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 / Proposed Rules realize through net operating loss carrybacks, and significant investments in the capital of unconsolidated financial institutions in the form of common stock. Beginning January 1, 2018, an FDIC-supervised institution that is not an advanced approaches FDIC-supervised institution must continue to apply the transition provisions described in paragraphs (b)(4)(i), (ii), and (iii) of this section applicable to calendar year 2017 to items that are subject to deduction under § 324.22(c)(4), (c)(5), and (d), respectively. * * * * * (d) Minority interest—(1) Surplus minority interest—(i) Advanced approaches FDIC-supervised institution surplus minority interest. Beginning January 1, 2014, through December 31, 2017, an advanced approaches FDICsupervised institution may include in common equity tier 1 capital, tier 1 capital, or total capital the percentage of the common equity tier 1 minority interest, tier 1 minority interest and total capital minority interest outstanding as of January 1, 2014 that exceeds any common equity tier 1 minority interest, tier 1 minority interest or total capital minority interest includable under § 324.21 (surplus minority interest), respectively, as set forth in Table 9 to § 324.300. (ii) Non-advanced approaches FDICsupervised institution surplus minority interest. An FDIC-supervised institution that is not an advanced approaches FDIC-supervised institution may include in common equity tier 1 capital, tier 1 capital, or total capital 20 percent of the common equity tier 1 minority interest, tier 1 minority interest and total capital minority interest outstanding as of January 1, 2014 that exceeds any common equity tier 1 minority interest, tier 1 minority interest or total capital minority interest includable under § 324.21 (surplus minority interest), respectively. * * * * * pmangrum on DSK3GDR082PROD with PROPOSALS TABLE 9 TO § 324.300 Transition period Calendar Calendar Calendar Calendar year year year year VerDate Sep<11>2014 2014 2015 2016 2017 Percentage of the amount of surplus or non-qualifying minority interest that can be included in regulatory capital during the transition period ........ ........ ........ ........ 14:55 Aug 24, 2017 80 60 40 20 Jkt 241001 40503 number (P/N) 0 319 73 044 0, on the Arrius 2F engines. We are proposing Percentage of the this AD to correct the unsafe condition amount of surplus on these products. or non-qualifying DATES: We must receive comments on minority this proposed AD by October 10, 2017. interest that Transition period can be ADDRESSES: You may send comments, included in regulatory capital using the procedures found in 14 CFR 11.43 and 11.45, by any of the following during the transition period methods: • Federal eRulemaking Portal: Go to Calendar year 2018 and https://www.regulations.gov. Follow the thereafter ..................... 0 instructions for submitting comments. • Fax: 202–493–2251. * * * * * • Mail: U.S. Department of Dated: August 2, 2017. Transportation, Docket Operations, M– Keith A. Noreika, 30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Acting Comptroller of the Currency. Washington, DC 20590. By order of the Board of Governors of the • Hand Delivery: Deliver to Mail Federal Reserve System, August 16, 2017. address above between 9 a.m. and 5 Ann E. Misback, p.m., Monday through Friday, except Secretary of the Board. Federal holidays. Dated at Washington, DC this 9th of For service information identified in August, 2017. this NPRM, contact Safran Helicopter By order of the Board Directors. Engines, S.A., 40220 Tarnos, France; Federal Deposit Insurance Corporation. phone: (33) 05 59 74 40 00; fax: (33) 05 Robert E. Feldman, 59 74 45 15. You may view this service information at the FAA, Engine and Executive Secretary. Propeller Standards Branch, Policy and [FR Doc. 2017–17822 Filed 8–24–17; 8:45 am] Innovation Division, 1200 District BILLING CODE 4810–33–P Avenue, Burlington, MA. For information on the availability of this DEPARTMENT OF TRANSPORTATION material at the FAA, call 781–238–7125. Examining the AD Docket Federal Aviation Administration You may examine the AD docket on the Internet at https:// 14 CFR Part 39 www.regulations.gov by searching for [Docket No. FAA–2013–0024; Product and locating Docket No. FAA–2013– Identifier 2000–NE–12–AD] 0024; or in person at the Docket Management Facility between 9 a.m. RIN 2120–AA64 and 5 p.m., Monday through Friday, Airworthiness Directives; Safran except Federal holidays. The AD docket Helicopter Engines, S.A., Turboshaft contains this proposed AD, the Engines mandatory continuing airworthiness information, regulatory evaluation, any AGENCY: Federal Aviation comments received, and other Administration (FAA), DOT. information. The address for the Docket ACTION: Notice of proposed rulemaking Office (phone: 800–647–5527) is in the (NPRM). ADDRESSES section. Comments will be available in the AD docket shortly after SUMMARY: We propose to supersede receipt. airworthiness directive (AD) 2013–11– 09 that applies to all Safran Helicopter FOR FURTHER INFORMATION CONTACT: Engines, S.A., Arrius 2B1 and 2F Robert Green, Aerospace Engineer, FAA, turboshaft engines. Depending on the ECO Branch, Compliance and engine model, AD 2013–11–09 requires Airworthiness Division, 1200 District the repetitive replacement of the fuel Avenue, Burlington, MA 01803; phone: injector manifolds and privilege 781–238–7754; fax: 781–238–7199; injector, or only the privilege injector. email: robert.green@faa.gov. Since we issued AD 2013–11–09, we SUPPLEMENTARY INFORMATION: received reports of engine flameouts as Comments Invited a result of reduced fuel flow due to the presence of coking. This proposed AD We invite you to send any written would retain the repetitive hardware relevant data, views, or arguments about replacement requirements of AD 2013– this proposed AD. Send your comments 11–09, but only allow replacement pipe to an address listed under the injector preferred assembly, part ADDRESSES section. Include ‘‘Docket No. TABLE 9 TO § 324.300—Continued PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 E:\FR\FM\25AUP1.SGM 25AUP1

Agencies

[Federal Register Volume 82, Number 164 (Friday, August 25, 2017)]
[Proposed Rules]
[Pages 40495-40503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17822]

========================================================================
Proposed Rules
Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

========================================================================

Federal Register / Vol. 82, No. 164 / Friday, August 25, 2017 /
Proposed Rules

[[Page 40495]]

DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2017-0012]
RIN 1557-AE 23

FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Regulation Q; Docket No. R-1571]
RIN 7100-AE 83

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AE 63

Regulatory Capital Rules: Retention of Certain Existing
Transition Provisions for Banking Organizations That Are Not Subject to
the Advanced Approaches Capital Rules

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

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are
inviting public comment on a notice of proposed rulemaking (NPR) that
would extend the current treatment under the regulatory capital rules
(capital rules) for certain regulatory capital deductions and risk
weights and certain minority interest requirements, as they apply to
banking organizations that are not subject to the advanced approaches
capital rules (non-advanced approaches banking organizations).
Specifically, for non-advanced approaches banking organizations, the
agencies propose to extend the current regulatory capital treatment of:
Mortgage servicing assets; deferred tax assets arising from temporary
differences that could not be realized through net operating loss
carrybacks; significant investments in the capital of unconsolidated
financial institutions in the form of common stock; non-significant
investments in the capital of unconsolidated financial institutions;
significant investments in the capital of unconsolidated financial
institutions that are not in the form of common stock; and common
equity tier 1 minority interest, tier 1 minority interest, and total
capital minority interest exceeding the capital rules' minority
interest limitations. The agencies expect in the near term to issue a
separate NPR seeking public comment on a proposal to simplify the
regulatory capital treatment of these items. Providing the proposed
extension to non-advanced approaches banking organizations for these
items would avoid potential burden on banking organizations that may be
subject in the near future to a different regulatory capital treatment
for these items.

DATES: Comments must be received by September 25, 2017.

ADDRESSES: Comments should be directed to:
OCC: Because paper mail in the Washington, DC area and at the OCC
is subject to delay, commenters are encouraged to submit comments
through the Federal eRulemaking Portal or email, if possible. Please
use the title ``Retaining existing transition provisions for certain
elements of the regulatory capital rules'' to facilitate the
organization and distribution of the comments. You may submit comments
by any of the following methods:
Federal eRulemaking Portal--``Regulations.gov'': Go to
www.regulations.gov. Enter ``Docket ID OCC-2017-0012'' in the Search
Box and click ``Search.'' Click on ``Comment Now'' to submit public
comments.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov, including instructions for
submitting public comments.
Email: regs.comments@occ.treas.gov.
Mail: Legislative and Regulatory Activities Division,
Office of the Comptroller of the Currency, 400 7th Street SW., Suite
3E-218, Mail Stop 9W-11, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218,
Mail Stop 9W-11, Washington, DC 20219.
Fax: (571) 465-4326.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2017-0012'' in your comment. In general, OCC will enter
all comments received into the docket and publish them on the
Regulations.gov Web site without change, including any business or
personal information that you provide such as name and address
information, email addresses, or phone numbers. Comments received,
including attachments and other supporting materials, are part of the
public record and subject to public disclosure. Do not include any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this rulemaking action by any of the following methods:
Viewing Comments Electronically: Go to
www.regulations.gov. Enter ``Docket ID OCC-2017-0012'' in the Search
box and click ``Search.'' Click on ``Open Docket Folder'' on the right
side of the screen and then ``Comments.'' Comments can be filtered by
clicking on ``View All'' and then using the filtering tools on the left
side of the screen.
Click on the ``Help'' tab on the Regulations.gov home page
to get information on using Regulations.gov. Supporting materials may
be viewed by clicking on ``Open Docket Folder'' and then clicking on
``Supporting Documents.'' The docket may be viewed after the close of
the comment period in the same manner as during the comment period.
Viewing Comments Personally: You may personally inspect
and photocopy comments at the OCC, 400 7th Street SW., Washington, DC
20219. For security reasons, the OCC requires that visitors make an
appointment to inspect comments. You may do so by calling (202) 649-
6700 or, for persons who are deaf or hard of hearing, TTY, (202) 649-
5597. Upon arrival, visitors will be required to present valid
government-issued photo identification and submit to security screening
in order to inspect and photocopy comments.
Board: You may submit comments, identified by Docket No. R-1571 and

[[Page 40496]]

RIN 7100 AE 83, by any of the following methods:
Agency Web site: https://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Email: regs.comments@federalreserve.gov. Include docket
number and RIN in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, 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, 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 3515, 1801 K Street NW. (between 18th and 19th
Streets NW.), Washington, DC 20006 between 9:00 a.m. and 5:00 p.m. on
weekdays.
FDIC: You may submit comments, identified by RIN 3064-AE 63 by any
of the following methods:
Agency Web site: https://www.FDIC.gov/regulations/laws/federal/propose.html. Follow instructions for submitting comments on
the Agency Web site.
Mail: Robert E. Feldman, Executive Secretary, Attention:
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th
Street NW., Washington, DC 20429.
Hand Delivered/Courier: Comments may be hand-delivered to
the guard station at the rear of the 550 17th Street Building (located
on F Street) on business days between 7:00 a.m. and 5:00 p.m.
Email: comments@FDIC.gov. Include the RIN 3064-AE 63 on
the subject line of the message.
Public Inspection: All comments received must include the
agency name and RIN 3064-AE 63 for this rulemaking. All comments
received will be posted without change to https://www.fdic.gov/regulations/laws/federal/, including any personal information provided.
Paper copies of public comments may be ordered from the FDIC Public
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington,
VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT:
OCC: Mark Ginsberg, Senior Risk Expert (202) 649-6983; or Benjamin
Pegg, Risk Expert (202) 649-7146, Capital and Regulatory Policy; or
Carl Kaminski, Special Counsel (202) 649-5869; or Rima Kundnani,
Attorney (202) 649-5545, Legislative and Regulatory Activities
Division, (202) 649-5490, for persons who are deaf or hard of hearing,
TTY, (202) 649-5597, Office of the Comptroller of the Currency, 400 7th
Street SW., Washington, DC 20219.
Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Juan Climent, Manager, (202) 872-7526; Elizabeth MacDonald,
Manager, (202) 475-6316; Andrew Willis, Supervisory Financial Analyst,
(202) 912-4323; Sean Healey, Supervisory Financial Analyst, (202) 912-
4611 or Matthew McQueeney, Senior Financial Analyst, (202) 425-2942,
Division of Supervision and Regulation; or Benjamin McDonough,
Assistant General Counsel, (202) 452-2036; David W. Alexander, Counsel
(202) 452-2877, or Mark Buresh, Senior Attorney (202) 452-5270, Legal
Division, Board of Governors of the Federal Reserve System, 20th and C
Streets NW., Washington, DC 20551. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section,
bbosco@fdic.gov; Michael Maloney, Capital Markets Senior Policy
Analyst, mmaloney@fdic.gov, Capital Markets Branch, Division of Risk
Management Supervision, (202) 898-6888; or Michael Phillips, Counsel,
mphillips@fdic.gov; Catherine Wood, Counsel, cawood@fdic.gov; Rachel
Ackmann, Counsel, rackmann@fdic.gov; Supervision Branch, Legal
Division, Federal Deposit Insurance Corporation, 550 17th Street NW.,
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

In 2013, the Office of the Comptroller of the Currency (OCC), the
Board of Governors of the Federal Reserve System (Board), and the
Federal Deposit Insurance Corporation (FDIC) (collectively, the
agencies) adopted rules that strengthened the capital requirements
applicable to banking organizations supervised by the agencies (capital
rules).\1\ The capital rules include limits on the amount of capital
that would count toward these regulatory requirements in cases where
the capital is issued by a consolidated subsidiary of a banking
organization and not owned by the banking organization (minority
interest).\2\ Because capital issued at the subsidiary level is not
always available to absorb losses at the consolidated level, these
limits prevent highly-capitalized subsidiaries from overstating the
amount of capital available to absorb losses at the consolidated
level.\3\ With the goal of strengthening the resiliency of banking
organizations, the capital rules also require that amounts of mortgage
servicing assets (MSAs), deferred tax assets arising from temporary
differences that could not be realized through net operating loss
carrybacks (temporary difference DTAs), and certain investments in the
capital of unconsolidated financial institutions above certain
thresholds be deducted from a banking organization's regulatory
capital.\4\
---------------------------------------------------------------------------

\1\ Banking organizations covered by the agencies' capital rules
include national banks, state member banks, state nonmember banks,
savings associations, and top-tier bank holding companies and
savings and loan holding companies domiciled in the United States
not subject to the Board's Small Bank Holding Company Policy
Statement (12 CFR part 225, appendix C), but excluding certain
savings and loan holding companies that are substantially engaged in
insurance underwriting or commercial activities or that are estate
trusts, or bank holding companies and savings and loan holding
companies that are employee stock ownership plans. The Board and the
OCC issued a joint final rule on October 11, 2013 (78 FR 62018) and
the FDIC issued a substantially identical interim final rule on
September 10, 2013 (78 FR 55340). In April 2014, the FDIC adopted
the interim final rule as a final rule with no substantive changes.
79 FR 20754 (April 14, 2014).
\2\ See 12 CFR 217.21 (Board); 12 CFR 3.21 (OCC); 12 CFR 324.21
(FDIC).
\3\ 12 CFR 217.21 (Board); 12 CFR 3.21 (OCC); 12 CFR 324.21
(FDIC).
\4\ See 12 CFR 217.22(c)(4), (c)(5), and (d)(1) (Board); 12 CFR
3.22(c)(4), (c)(5), and (d)(1) (OCC); 12 CFR 324.22(c)(4), (c)(5),
and (d)(1) (FDIC). Banking organizations are permitted to net
associated deferred tax liabilities against assets subject to
deduction.
---------------------------------------------------------------------------

The capital rules contain transition provisions that phase in
certain requirements over several years in order to give banking
organizations sufficient time to adjust and adapt to such
requirements.\5\ The minority interest limitations in the capital rules
will become fully effective on January 1, 2018. The deduction
treatments for investments in the capital of unconsolidated financial
institutions, MSAs, and temporary difference DTAs are subject to
transition provisions until December 31, 2017.\6\ Also starting on
January 1, 2018, the risk weight for MSAs, temporary difference DTAs,
and significant investments in the capital of unconsolidated financial
institutions in

[[Page 40497]]

the form of common stock that are not deducted from regulatory capital
will increase from 100 percent to 250 percent.
---------------------------------------------------------------------------

\5\ 12 CFR 217.300 (Board); 12 CFR 3.300 (OCC); 12 CFR 324.300
(FDIC).
\6\ 12 CFR 217.300(b)(4) and (d) (Board); 12 CFR 3.300(b)(4) and
(d) (OCC); 12 CFR 324.300(b)(4) and (d) (FDIC).
---------------------------------------------------------------------------

II. Retaining Certain 2017 Transition Provisions

Since the issuance of the capital rules in 2013, banking
organizations and other members of the public have raised concerns
regarding the regulatory burden, complexity, and costs associated with
certain aspects of the capital rules, particularly for community
banking organizations. As explained in the Federal Financial
Institutions Examination Council's March 2017 Joint Report to Congress
on the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA
report), the agencies are developing a proposal to simplify certain
aspects of the capital rules with the goal of meaningfully reducing
regulatory burden on community banking organizations while at the same
time maintaining safety and soundness and the quality and quantity of
regulatory capital in the banking system (simplifications NPR).\7\
---------------------------------------------------------------------------

\7\ The EGRPRA report stated that such amendments likely would
include: (a) Simplifying the current regulatory capital treatment
for MSAs, timing difference DTAs, and holdings of regulatory capital
instruments issued by financial institutions; and (b) simplifying
the current limitations on minority interest in regulatory capital.
See 82 FR 15900 (March 30, 2017).
---------------------------------------------------------------------------

Consistent with that goal and in anticipation of the
simplifications NPR, the agencies propose to extend certain transition
provisions currently in the capital rules for banking organizations
that are not advanced approaches banking organizations (non-advanced
approaches banking organizations) while the simplifications NPR is
pending. This extension proposal is referred to as the transitions NPR.
As such, for non-advanced approaches banking organizations the
transition provisions for certain items would not be fully phased in.
The agencies will review the transition provisions again in connection
with the simplifications NPR.
The agencies believe the stringency and complexity of the current
capital rules' treatment for items affected by the transitions NPR
remains appropriate for banking organizations that are subject to the
advanced approaches (typically those with consolidated assets greater
than or equal to $250 billion, or total consolidated on-balance sheet
foreign exposures of at least $10 billion), given the business models
and risk profiles of such banking organizations. The agencies believe
that the current treatment for these items strikes an appropriate
balance between complexity and risk sensitivity for the largest and
most complex banking organizations. Therefore, the transitions NPR
would not apply to advanced approaches banking organizations.
The agencies propose to extend the transitions period, as it
applies to non-advanced approaches banking organizations, for changes
to section 300 of the capital rules otherwise due to become effective
on January 1, 2018, applicable to the risk weight and deduction
treatment for MSAs, temporary difference DTAs, significant investments
in the capital of unconsolidated financial institutions in the form of
common stock, non-significant investments in the capital of
unconsolidated financial institutions, and significant investments in
the capital of unconsolidated financial institutions that are not in
the form of common stock. The agencies would expect to propose
modifications in these areas as part of the simplifications NPR.
Under the transitions NPR, until the simplifications NPR is
completed or the agencies otherwise determine, in accordance with Table
7 of section 300 of the capital rules, non-advanced approaches banking
organizations would continue to:
Deduct from regulatory capital 80 percent of the amount of
any of these five items that is not includable in regulatory capital;
Apply a 100 percent risk weight to any amounts of MSAs,
temporary difference DTAs, and significant investments in the capital
of unconsolidated financial institutions in the form of common stock
that are not deducted from capital, and continue to apply the current
risk weights under the capital rules to amounts of non-significant
investments in the capital of unconsolidated financial institutions and
significant investments in the capital of unconsolidated financial
institutions not in the form of common stock that are not deducted from
capital; and
Include 20 percent of any common equity tier 1 minority
interest, tier 1 minority interest, and total capital minority interest
exceeding the capital rule's minority interest limitations (surplus
minority interest) in regulatory capital.
For example, under the transitions NPR, a non-advanced approaches
banking organization with an amount of MSAs above the 10 percent common
equity tier 1 capital deduction threshold in the capital rules would
deduct from common equity tier 1 capital only 80 percent of the amount
of MSAs above this threshold, and would apply a 100 percent risk weight
to the MSAs that are not deducted from common equity tier 1 capital,
including the MSAs that otherwise would have been deducted but for the
transition provisions. Similarly, for purposes of the capital rules' 15
percent common equity tier 1 capital deduction threshold (the aggregate
15 percent threshold) that applies collectively across MSAs, temporary
difference DTAs, and significant investments in the capital of
unconsolidated financial institutions in the form of common stock,
under the transitions NPR, a non-advanced approaches banking
organization would deduct from common equity tier 1 capital 80 percent
of the amount of these items that exceed the aggregate 15 percent
threshold.
Because the transitions NPR would not apply to advanced approaches
banking organizations, such firms would be required to continue to
apply the existing transition provisions in the capital rules.
Specifically, advanced approaches banking organizations would be
required to apply, starting on January 1, 2018, the capital rules'
fully phased-in regulatory capital treatment for MSAs, temporary
difference DTAs, significant investments in the capital of
unconsolidated financial institutions in the form of common stock, non-
significant investments in the capital of unconsolidated financial
institutions, significant investments in the capital of unconsolidated
financial institutions that are not in the form of common stock, and
surplus minority interest.

III. Amendments to Reporting Forms

The agencies are proposing to clarify the reporting instructions
for the Consolidated Reports of Condition and Income (Call Report)
(FFIEC 031, FFIEC 041, and FFIEC 051; OMB Control Nos. 1557-0081, 7100-
0036, 3604-0052), the OCC is proposing to clarify the instructions for
OCC DFAST 14A (OMB Control No. 1557-0319), the FDIC is proposing to
clarify the instructions for FDIC DFAST 14A (OMB Control No. 3064-
0189), and the Board is proposing to clarify the instructions for the
FR Y-9C (OMB Control No. 7100-0128), and the FR Y-14A and FR Y-14Q (OMB
Control No. 7100-0341) to reflect the changes to the capital rules that
would be required under this proposal.

IV. Request for Comments

At this time, the agencies are seeking comment more narrowly on
changes proposed in this transitions NPR. As noted previously, the
agencies plan to issue a simplifications NPR to simplify certain
aspects of the capital rules with

[[Page 40498]]

the goal of meaningfully reducing regulatory burden on community
banking organizations as explained in the EGRPRA report. That
simplifications NPR would be published in the Federal Register for
public notice and comment at a later date.
Question 1. What, if any, operational or administrative challenges
would the proposed changes in this transitions NPR pose to banking
organizations? What, if any, alternatives should the agencies consider
to address such challenges?
Question 2. What, if any, modifications should the agencies
consider making to the scope of application of this proposal?

V. Regulatory Analyses

A. Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501-3521) (PRA), the agencies 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 agencies reviewed the proposed
rule and determined that it does not create any new or revise any
existing collection of information under section 3504(h) of title 44.
However, the agencies would clarify the reporting instructions for the
Call Report. The OCC and FDIC would clarify the instructions for DFAST
14A, and the Board would clarify the instructions for the FR Y-9C, the
FR Y-14A, and the FR Y-14Q to reflect the changes to the capital rules
that would be required under this proposal. The draft redlined Call
Report instructions would be available at https://www.ffiec.gov/ffiec_report_forms.htm, the draft redlined OCC DFAST 14A instructions
would be available at https://www.occ.gov/tools-forms/forms/bank-operations/stress-test-reporting.html, the draft redlined FDIC DFAST
14A instructions would be available at https://www.fdic.gov/regulations/reform/dfast/, and the draft redlined FR Y-9C, FR Y-14A,
and FR Y-14Q instructions would be available at https://www.federalreserve.gov/apps/reportforms/review.aspx.

B. Regulatory Flexibility Act Analysis

OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the Small Business Administration (SBA) for
purposes of the RFA to include banking entities with total assets of
$550 million or less) or to certify that the rule will not have a
significant economic impact on a substantial number of small entities.
As of March 31, 2017, the OCC supervised 928 small entities.\8\ The
rule applies to all OCC-supervised entities that are not subject to the
advanced approaches risk-based capital rules, and thus potentially
affects a substantial number of small entities. The OCC has determined
that 135 such entities engage in affected activities to an extent that
they would be impacted directly by the proposed rule. However, the
proposed rule would provide a small economic benefit to those entities.
Thus, the OCC has determined that rule would not have a significant
impact on any OCC-supervised small entities.
---------------------------------------------------------------------------

\8\ The OCC calculated the number of small entities using the
SBA's size thresholds for commercial banks and savings institutions,
and trust companies, which are $550 million and $38.5 million,
respectively. Consistent with the General Principles of Affiliation,
13 CFR 121.103(a), the OCC counted the assets of affiliated
financial institutions when determining whether to classify a
national bank or Federal savings association as a small entity.
---------------------------------------------------------------------------

Therefore, the OCC certifies that the proposed rule will not have a
significant economic impact on a substantial number of OCC-supervised
small entities.
Board: The Board is providing an initial regulatory flexibility
analysis with respect to this proposed rule. As discussed in the
Supplemental Information, the proposal would revise the transition
provisions in the regulatory capital rules to extend the treatment
effective for calendar year 2017 for several regulatory capital
adjustments and deductions that are subject to multi-year phase-in
schedules. Through the simplifications NPR, the agencies intend in the
near term to seek public comment on a proposal to simplify certain
items of the regulatory capital rules and, thus, the agencies believe
it is appropriate to extend the transition provisions currently in
effect for these items while the simplifications NPR is pending. The
Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA), generally
requires that an agency prepare and make available an initial
regulatory flexibility analysis in connection with a notice of proposed
rulemaking. Under regulations issued by the Small Business
Administration, a small entity includes a bank, bank holding company,
or savings and loan holding company with assets of $550 million or less
(small banking organization).\9\ As of March 31, 2017, there were
approximately 3,546 small bank holding companies, 234 small savings and
loan holding companies, and 584 small state member banks.
---------------------------------------------------------------------------

\9\ See 13 CFR 121.201. Effective July 14, 2014, the Small
Business Administration revised the size standards for banking
organizations to $550 million in assets from $500 million in assets.
79 FR 33647 (June 12, 2014).
---------------------------------------------------------------------------

The proposed rule would apply to all state member banks, as well as
all bank holding companies and savings and loan holding companies that
are subject to the Board's regulatory capital rule, but excluding state
member banks, bank holding companies, and savings and loan holding
companies that are subject to the advanced approaches in the capital
rules. In general, the Board's capital rules only apply to bank holding
companies and savings and loan holding companies that are not subject
to the Board's Small Bank Holding Company Policy Statement, which
applies to bank holding companies and savings and loan holding
companies with less than $1 billion in total assets that also meet
certain additional criteria.\10\ Thus, most bank holding companies and
savings and loan holding companies that would be subject to the
proposed rule exceed the $550 million asset threshold at which a
banking organization would qualify as a small banking organization.
---------------------------------------------------------------------------

\10\ See 12 CFR 217.1(c)(1)(ii) and (iii); 12 CFR part 225,
appendix C; 12 CFR 238.9.
---------------------------------------------------------------------------

Given the proposed rule does not impact the recordkeeping and
reporting requirements that affected small banking organizations are
currently subject to, there would be no change to the information that
small banking organizations must track and report. The proposal would
merely retain the transition provisions in effect for calendar year
2017 for the items that would be affected by the simplifications NPR
until the simplifications NPR is finalized or the agencies determine
otherwise.
The proposal would permit affected small banking organizations,
beginning in 2018 and thereafter, to deduct less investments in the
capital of unconsolidated financial institutions, MSAs, and temporary
difference DTAs from common equity tier 1 capital than would otherwise
be required under the current transition provisions. The proposal would
also allow small banking organizations to continue using a 100 percent
risk weight for non-deducted MSAs, temporary difference DTAs and
significant investments in the capital of unconsolidated financial
institutions rather than the 250 percent risk weight for these items
which is scheduled to take effect beginning January 1, 2018. Thus, for
small banking

[[Page 40499]]

organizations that have significant amounts of MSAs or temporary
difference DTAs, the proposal could have a temporary positive impact in
their capital ratios during 2018 and thereafter.
The impact from increasing the deduction of investments in the
capital of unconsolidated financial institutions, MSAs, and temporary
difference DTAs from 80 percent of the amounts to be deducted under the
capital rules in 2017 to 100 percent in 2018 is estimated to decrease
common equity tier 1 capital by 0.01 percent on average across all
covered small bank holding companies, savings and loan holding
companies, and state member banks. Similarly, the impact from
increasing from 80 percent in 2017 to 100 percent in 2018 the exclusion
of surplus minority interest is estimated to decrease total regulatory
capital by 0.04 percent across the same set of institutions. Based on
March 31, 2017 data for the same set of institutions, increasing the
risk-weight for non-deducted MSAs and temporary difference DTAs to 250
percent from 100 percent would result in an increase in risk-weighted
assets of 0.64 percent. Therefore, retaining the transition provisions
for the regulatory capital treatment of MSAs, temporary difference
DTAs, investments in the capital of unconsolidated financial
institutions, and minority interests, would have a marginally positive
impact on the regulatory capital ratios of small banking organizations.
The Board does not believe that the proposed rule duplicates,
overlaps, or conflicts with any other Federal rules. In addition, the
primary alternative to the proposed rule would be to retain the
transition provisions as currently written in the capital rules, which
would mean that the transitions would become fully phased-in starting
on January 1, 2018. As discussed, this would result in marginally lower
regulatory capital ratios than if the proposal were finalized. In light
of the foregoing, the Board does not believe that the proposed rule, if
adopted in final form, would have a significant economic impact on a
substantial number of small entities. Nonetheless, the Board seeks
comment on whether the proposed rule would impose undue burdens on, or
have unintended consequences for, small organizations, and whether
there are ways such potential burdens or consequences could be
minimized in a manner consistent with the purpose of the proposed rule.
A final regulatory flexibility analysis will be conducted after
consideration of comments received during the public comment period.
FDIC: The Regulatory Flexibility Act (RFA) generally requires that,
in connection with a notice of proposed rulemaking, an agency prepare
and make available for public comment an initial regulatory flexibility
analysis describing the impact of the proposed rule on small entities.
A regulatory flexibility analysis is not required, however, if the
agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities. The Small Business
Administration has defined ``small entities'' to include banking
organizations with total assets less than or equal to $550 million. As
of March 31, 2017, the FDIC supervises 3,750 banking institutions,
3,028 of which qualify as small entities according to the terms of the
RFA.
The proposed rule would extend the current regulatory capital
treatment of: (i) Mortgage servicing assets (MSAs); (ii) deferred tax
assets (DTAS) arising from temporary differences that could not be
realized through net operating loss carrybacks; (iii) significant
investments in the capital of unconsolidated financial institutions in
the form of common stock; (iv) non-significant investments in the
capital of unconsolidated financial institutions; (v) significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock; and (vi) common equity tier 1
minority interest, tier 1 minority interest, and total capital minority
interest exceeding the capital rules' minority interest limitations.
The transitions NPR would likely pose small economic benefits for small
FDIC-supervised institutions by preventing any increase in risk-based
capital requirements due to the completion of the transition provisions
for the above items.
According to Call Report data (as of March 31, 2017), 431 FDIC-
supervised small banking entities reported holding some volume of the
above asset classes. Additionally, as of March 31, 2017, the risk-based
capital deduction related to these assets under the capital rules has
been incurred by only 53 FDIC-supervised small banking entities.
The impact from increasing the deduction of investments in the
capital of unconsolidated financial institutions, MSAs, and temporary
difference DTAs from 80 percent of the amounts to be deducted under the
capital rules (12 CFR 324.300) in 2017 to 100 percent in 2018 would
decrease common equity tier 1 capital by 0.02 percent on average across
all covered small FDIC-supervised banking institutions. Similarly, the
impact from increasing from 80 percent in 2017 to 100 percent under the
capital rules (12 CFR 324.300) in 2018 the exclusion of surplus
minority interest would decrease total regulatory capital by 0.01
percent across the same set of institutions. Based on March 31, 2017
data for the same set of institutions, increasing the risk-weight for
non-deducted MSAs and temporary difference DTAs to 250 percent from 100
percent would result in an increase in risk-weighted assets of 0.37
percent. Therefore, retaining the transition provisions for the
regulatory capital treatment of MSAs, temporary difference DTAs,
investments in the capital of unconsolidated financial institutions,
and minority interests, would have a marginally positive impact on the
regulatory capital ratios of substantially all small FDIC-supervised
banking institutions.
FDIC analysis has identified that absent the transitions NPR, 23
small FDIC-supervised banking institutions would have a decrease of 1
percent or more in common equity tier 1 capital, tier 1 capital and or
total capital. Furthermore, 33 small FDIC-supervised banking
institutions would have an increase in risk weighted assets greater
than 3 percent absent the transitions NPR. Therefore, the FDIC
certifies that this proposed rule would not have a significant economic
impact on a substantial number of small entities that it supervises.

C. Plain Language

Section 722 of the Gramm-Leach-Bliley Act requires the Federal
banking agencies to use plain language in all proposed and final rules
published after January 1, 2000. The agencies have sought to present
the transitions NPR in a simple and straightforward manner, and invite
comment on the use of plain language. For example:
Have the agencies organized the material to suit your
needs? If not, how could they present the transitions NPR rule more
clearly?
Are the requirements in the transitions NPR clearly
stated? If not, how could the transitions NPR be more clearly stated?
Do the regulations contain technical language or jargon
that is not clear? If so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the regulation easier to
understand? If so, what changes would achieve that?

[[Page 40500]]

What other changes can the agencies incorporate to make
the regulation easier to understand?

D. OCC Unfunded Mandates Reform Act of 1995 Determination

The OCC analyzed the proposed rule under the factors set forth in
the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the proposed rule includes a
Federal mandate that may result in the expenditure by State, local, and
Tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted for inflation). The OCC has
determined that this proposed rule would not result in expenditures by
State, local, and Tribal governments, or the private sector, of $100
million or more in any one year.\11\ Accordingly, the OCC has not
prepared a written statement to accompany this NPR.
---------------------------------------------------------------------------

\11\ The OCC estimates that the proposed rule would lead to an
aggregate increase in reported regulatory capital of $665.5 million
in 2018 for national banks and Federal savings associations compared
to the amount they would report if they were required to complete
the 2018 phase-in provisions. The OCC estimates that this increase
in reported regulatory capital--which could allow banking
organizations to increase their leverage and thus increase their tax
deductions for interest paid on debt--would have a total aggregate
value of approximately $16 million per year across all directly
impacted OCC-supervised entities (that is, national banks and
Federal savings associations not subject to the advanced approaches
risk-based capital rules).
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 3

Administrative practice and procedure, Capital, National banks,
Risk.

12 CFR Part 217

Administrative practice and procedure, Banks, Banking, Capital,
Federal Reserve System, Holding companies.

12 CFR Part 324

Administrative practice and procedure, Banks, Banking, Capital
adequacy, Savings associations, State non-member banks.

Office of the Comptroller of the Currency

For the reasons set out in the joint preamble, the OCC proposes to
amend 12 CFR part 3 as follows.

PART 3--CAPITAL ADEQUACY STANDARDS

0
1. The authority citation for part 3 continues to read as follows:

Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).

0
2. Section 3.300 is amended by revising paragraph (b)(4), adding
paragraph (b)(5), and revising paragraph (d)(1) and table 10 to Sec.
3.300 to read as follows:

Sec. 3.300 Transitions.

* * * * *
(b) * * *
(4) Additional transition deductions from regulatory capital.
Except as provided in paragraph (b)(5) of this section:
(i) Beginning January 1, 2014 for an advanced approaches national
bank or Federal savings association, and beginning January 1, 2015 for
a national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association, and in each
case through December 31, 2017, a national bank or Federal savings
association, must use Table 7 to Sec. 3.300 to determine the amount of
investments in capital instruments and the items subject to the 10 and
15 percent common equity tier 1 capital deduction thresholds (Sec.
3.22(d)) (that is, MSAs, DTAs arising from temporary differences that
the national bank or Federal savings association could not realize
through net operating loss carrybacks, and significant investments in
the capital of unconsolidated financial institutions in the form of
common stock) that must be deducted from common equity tier 1 capital.
(ii) Beginning January 1, 2014 for an advanced approaches national
bank or Federal savings association, and beginning January 1, 2015 for
a national bank or Federal savings association that is not an advanced
approaches national bank or Federal savings association, and in each
case through December 31, 2017, a national bank or Federal savings
association must apply a 100 percent risk weight to the aggregate
amount of the items subject to the 10 and 15 percent common equity tier
1 capital deduction thresholds that are not deducted under this
section. As set forth in Sec. 3.22(d)(2), beginning January 1, 2018, a
national bank or Federal savings association must apply a 250 percent
risk weight to the aggregate amount of the items subject to the 10 and
15 percent common equity tier 1 capital deduction thresholds that are
not deducted from common equity tier 1 capital.

Table 7 to Sec. 3.300
------------------------------------------------------------------------
Transitions for
deductions under
Sec. 3.22(c)
and (d)--
Transition period Percentage of
additional
deductions from
regulatory
------------------------------------------------------------capital-----
Calendar year 2014................................... 20
Calendar year 2015................................... 40
Calendar year 2016................................... 60
Calendar year 2017................................... 80
Calendar year 2018 and thereafter.................... 100
------------------------------------------------------------------------

(iii) For purposes of calculating the transition deductions in this
paragraph (b)(4) beginning January 1, 2014 for an advanced approaches
national bank or Federal savings association, and beginning January 1,
2015 for a national bank or Federal savings association that is not an
advanced approaches national bank or Federal savings association, and
in each case through December 31, 2017, a national bank's or Federal
savings association's 15 percent common equity tier 1 capital deduction
threshold for MSAs, DTAs arising from temporary differences that the
national bank or Federal savings association could not realize through
net operating loss carrybacks, and significant investments in the
capital of unconsolidated financial institutions in the form of common
stock is equal to 15 percent of the sum of the national bank's or
Federal savings association's common equity tier 1 elements, after
regulatory adjustments and deductions required under Sec. 3.22(a)
through (c) (transition 15 percent common equity tier 1 capital
deduction threshold).
(iv) Beginning January 1, 2018, a national bank or Federal savings
association must calculate the 15 percent common equity tier 1 capital
deduction threshold in accordance with Sec. 3.22(d).
(5) Special transition provisions for non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock, MSAs, DTAs arising from
temporary differences that the national bank or Federal savings
association could not realize through net operating loss carrybacks,
and significant investments in the capital of unconsolidated financial
institutions in the form of common stock. Beginning January 1, 2018, a
national bank or Federal savings association that is not an advanced
approaches national bank

[[Page 40501]]

or Federal savings association must continue to apply the transition
provisions described in paragraphs (b)(4)(i), (ii), and (iii) of this
section applicable to calendar year 2017 to items that are subject to
deduction under Sec. 3.22(c)(4), (c)(5), and (d), respectively.
* * * * *
(d) Minority interest--(1) Surplus minority interest--(i) Advanced
approaches national bank or Federal savings association surplus
minority interest. Beginning January 1, 2014 through December 31, 2017,
an advanced approaches national bank or Federal savings association may
include in common equity tier 1 capital, tier 1 capital, or total
capital the percentage of the common equity tier 1 minority interest,
tier 1 minority interest, and total capital minority interest
outstanding as of January 1, 2014, that exceeds any common equity tier
1 minority interest, tier 1 minority interest, or total capital
minority interest includable under Sec. 3.21 (surplus minority
interest), respectively, as set forth in Table 10 to Sec. 3.300.
(ii) Non-advanced approaches national bank and Federal savings
association surplus minority interest. A national bank or Federal
savings association that is not an advanced approaches national bank or
Federal savings association may include in common equity tier 1
capital, tier 1 capital, or total capital 20 percent of the common
equity tier 1 minority interest, tier 1 minority interest and total
capital minority interest outstanding as of January 1, 2014, that
exceeds any common equity tier 1 minority interest, tier 1 minority
interest, or total capital minority interest includable under Sec.
3.21 (surplus minority interest), respectively.
* * * * *

Table 10 to Sec. 3.300
------------------------------------------------------------------------
Percentage of
the amount of
surplus or non-
qualifying
minority
Transition period interest that
can be included
in regulatory
capital during
the transition
period
------------------------------------------------------------------------
Calendar year 2014................................... 80
Calendar year 2015................................... 60
Calendar year 2016................................... 40
Calendar year 2017................................... 20
Calendar year 2018 and thereafter.................... 0
------------------------------------------------------------------------

* * * * *

12 CFR Part 217

Board of Governors of the Federal Reserve System

For the reasons set out in the joint preamble, part 217 of chapter
II of title 12 of the Code of Federal Regulations is proposed to be
amended as follows:

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

0
3. The authority citation for part 217 continues to read as follows:

Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371.

0
4. Section 217.300 is amended by revising paragraph (b)(4), adding
paragraph (b)(5), and revising paragraph (d)(1) and table 10 to Sec.
217.300 to read as follows:

Sec. 217.300 Transitions.

* * * * *
(b) * * *
(4) Additional transition deductions from regulatory capital.
Except as provided in paragraph (b)(5) of this section:
(i) Beginning January 1, 2014 for an advanced approaches Board-
regulated institution, and beginning January 1, 2015 for a Board-
regulated institution that is not an advanced approaches institution,
and in each case through December 31, 2017, an institution, must use
Table 7 to Sec. 217.300 to determine the amount of investments in
capital instruments and the items subject to the 10 and 15 percent
common equity tier 1 capital deduction thresholds (Sec. 217.22(d))
(that is, MSAs, DTAs arising from temporary differences that the
institution could not realize through net operating loss carrybacks,
and significant investments in the capital of unconsolidated financial
institutions in the form of common stock) that must be deducted from
common equity tier 1 capital.
(ii) Beginning January 1, 2014 for an advanced approaches
institution, and beginning January 1, 2015 for an institution that is
not an advanced approaches institution, and in each case through
December 31, 2017, an institution must apply a 100 percent risk-weight
to the aggregate amount of the items subject to the 10 and 15 percent
common equity tier 1 capital deduction thresholds that are not deducted
under this section. As set forth in Sec. 217.22(d)(2), beginning
January 1, 2018, a Board-regulated institution must apply a 250 percent
risk-weight to the aggregate amount of the items subject to the 10 and
15 percent common equity tier 1 capital deduction thresholds that are
not deducted from common equity tier 1 capital.

Table 7 to Sec. 217.300
------------------------------------------------------------------------
Transitions for
deductions under
Sec. 217.22(c)
and (d)--
Transition period percentage of
additional
deductions from
regulatory
capital
------------------------------------------------------------------------
Calendar year 2014................................... 20
Calendar year 2015................................... 40
Calendar year 2016................................... 60
Calendar year 2017................................... 80
Calendar year 2018 and thereafter.................... 100
------------------------------------------------------------------------

(iii) For purposes of calculating the transition deductions in this
paragraph (b)(4) beginning January 1, 2014 for an advanced approaches
Board-regulated institution, and beginning January 1, 2015 for Board-
regulated institution that is not an advanced approaches Board-
regulated institution, and in each case through December 31, 2017, an
institution's 15 percent common equity tier 1 capital deduction
threshold for MSAs, DTAs arising from temporary differences that the
institution could not realize through net operating loss carrybacks,
and significant investments in the capital of unconsolidated financial
institutions in the form of common stock is equal to 15 percent of the
sum of the institution's common equity tier 1 elements, after
regulatory adjustments and deductions required under Sec. 217.22(a)
through (c) (transition 15 percent common equity tier 1 capital
deduction threshold).
(iv) Beginning January 1, 2018 a Board-regulated institution must
calculate the 15 percent common equity tier 1 capital deduction
threshold in accordance with Sec. 217.22(d).
(5) Special transition provisions for non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock, MSAs, DTAs arising from
temporary differences that the Board-regulated institution could not
realize through net operating loss carrybacks, and significant
investments in the capital of unconsolidated financial institutions in
the form of common stock. Beginning January 1,

[[Page 40502]]

2018, a Board-regulated institution that is not an advanced approaches
Board-regulated institution must continue to apply the transition
provisions described in paragraphs (b)(4)(i), (ii), and (iii) of this
section applicable to calendar year 2017 to items that are subject to
deduction under Sec. 217.22(c)(4), (c)(5), and (d), respectively.
* * * * *
(d) Minority interest--(1) Surplus minority interest--(i) Advanced
approaches institution surplus minority interest. Beginning January 1,
2014 through December 31, 2017, an advanced approaches Board-regulated
institution may include in common equity tier 1 capital, tier 1
capital, or total capital the percentage of the common equity tier 1
minority interest, tier 1 minority interest and total capital minority
interest outstanding as of January 1, 2014 that exceeds any common
equity tier 1 minority interest, tier 1 minority interest or total
capital minority interest includable under Sec. 217.21 (surplus
minority interest), respectively, as set forth in Table 10 to Sec.
217.300.
(ii) Non-advanced approaches institution surplus minority interest.
A Board-regulated institution that is not an advanced approaches Board-
regulated institution may include in common equity tier 1 capital, tier
1 capital, or total capital 20 percent of the common equity tier 1
minority interest, tier 1 minority interest and total capital minority
interest outstanding as of January 1, 2014, that exceeds any common
equity tier 1 minority interest, tier 1 minority interest or total
capital minority interest includable under Sec. 217.21 (surplus
minority interest), respectively.
* * * * *

Table 10 to Sec. 217.300
------------------------------------------------------------------------
Percentage of
the amount of
surplus or non-
qualifying
minority
Transition period interest that
can be included
in regulatory
capital during
the transition
period
------------------------------------------------------------------------
Calendar year 2014................................... 80
Calendar year 2015................................... 60
Calendar year 2016................................... 40
Calendar year 2017................................... 20
Calendar year 2018 and thereafter.................... 0
------------------------------------------------------------------------

* * * * *

12 CFR Part 324

Federal Deposit Insurance Corporation

For the reasons set out in the joint preamble, the FDIC proposes to
amend 12 CFR part 324 as follows.

PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS

0
5. The authority citation for part 324 continues to read as follows:

Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).
0
6. Section 324.300 is amended by revising paragraph (b)(4), adding
paragraph (b)(5), and revising paragraph (d)(1) and table 9 to Sec.
324.300 to read as follows:

Sec. 324.300 Transitions.

* * * * *
(b) * * *
(4) Additional transition deductions from regulatory capital.
Except as provided in paragraph (b)(5) of this section:
(i) Beginning January 1, 2014, for an advanced approaches FDIC-
supervised institution, and beginning January 1, 2015, for an FDIC-
supervised institution that is not an advanced approaches FDIC-
supervised institution, and in each case through December 31, 2017, an
FDIC-supervised institution, must use Table 7 to Sec. 324.300 to
determine the amount of investments in capital instruments and the
items subject to the 10 and 15 percent common equity tier 1 capital
deduction thresholds (Sec. 324.22(d)) (that is, MSAs, DTAs arising
from temporary differences that the FDIC-supervised institution could
not realize through net operating loss carrybacks, and significant
investments in the capital of unconsolidated financial institutions in
the form of common stock) that must be deducted from common equity tier
1 capital.
(ii) Beginning January 1, 2014, for an FDIC-supervised advanced
approaches institution, and beginning January 1, 2015, for an FDIC-
supervised institution that is not an advanced approaches FDIC-
supervised institution, and in each case through December 31, 2017, an
FDIC-supervised institution must apply a 100 percent risk-weight to the
aggregate amount of the items subject to the 10 and 15 percent common
equity tier 1 capital deduction thresholds that are not deducted under
this section. As set forth in Sec. 324.22(d)(2), beginning January 1,
2018, an FDIC-supervised institution must apply a 250 percent risk-
weight to the aggregate amount of the items subject to the 10 and 15
percent common equity tier 1 capital deduction thresholds that are not
deducted from common equity tier 1 capital.

Table 7 to Sec. 324.300
------------------------------------------------------------------------
Transitions for
deductions under
Sec. 324.22(c)
and (d)--
Transition period Percentage of
additional
deductions from
regulatory
capital
------------------------------------------------------------------------
Calendar year 2014................................... 20
Calendar year 2015................................... 40
Calendar year 2016................................... 60
Calendar year 2017................................... 80
Calendar year 2018 and thereafter.................... 100
------------------------------------------------------------------------

(iii) For purposes of calculating the transition deductions in this
paragraph (b)(4) beginning January 1, 2014, for an advanced approaches
FDIC-supervised institution, and beginning January 1, 2015, for an
FDIC-supervised institution that is not an advanced approaches FDIC-
supervised institution, and in each case through December 31, 2017, an
FDIC-supervised institution's 15 percent common equity tier 1 capital
deduction threshold for MSAs, DTAs arising from temporary differences
that the FDIC-supervised institution could not realize through net
operating loss carrybacks, and significant investments in the capital
of unconsolidated financial institutions in the form of common stock is
equal to 15 percent of the sum of the FDIC-supervised institution's
common equity tier 1 elements, after regulatory adjustments and
deductions required under Sec. 324.22(a) through (c) (transition 15
percent common equity tier 1 capital deduction threshold).
(iv) Beginning January 1, 2018, an FDIC-supervised institution must
calculate the 15 percent common equity tier 1 capital deduction
threshold in accordance with Sec. 324.22(d).
(5) Special transition provisions for non-significant investments
in the capital of unconsolidated financial institutions, significant
investments in the capital of unconsolidated financial institutions
that are not in the form of common stock, MSAs, DTAs arising from
temporary differences that the FDIC-supervised institution could not

[[Page 40503]]

realize through net operating loss carrybacks, and significant
investments in the capital of unconsolidated financial institutions in
the form of common stock. Beginning January 1, 2018, an FDIC-supervised
institution that is not an advanced approaches FDIC-supervised
institution must continue to apply the transition provisions described
in paragraphs (b)(4)(i), (ii), and (iii) of this section applicable to
calendar year 2017 to items that are subject to deduction under Sec.
324.22(c)(4), (c)(5), and (d), respectively.
* * * * *
(d) Minority interest--(1) Surplus minority interest--(i) Advanced
approaches FDIC-supervised institution surplus minority interest.
Beginning January 1, 2014, through December 31, 2017, an advanced
approaches FDIC-supervised institution may include in common equity
tier 1 capital, tier 1 capital, or total capital the percentage of the
common equity tier 1 minority interest, tier 1 minority interest and
total capital minority interest outstanding as of January 1, 2014 that
exceeds any common equity tier 1 minority interest, tier 1 minority
interest or total capital minority interest includable under Sec.
324.21 (surplus minority interest), respectively, as set forth in Table
9 to Sec. 324.300.
(ii) Non-advanced approaches FDIC-supervised institution surplus
minority interest. An FDIC-supervised institution that is not an
advanced approaches FDIC-supervised institution may include in common
equity tier 1 capital, tier 1 capital, or total capital 20 percent of
the common equity tier 1 minority interest, tier 1 minority interest
and total capital minority interest outstanding as of January 1, 2014
that exceeds any common equity tier 1 minority interest, tier 1
minority interest or total capital minority interest includable under
Sec. 324.21 (surplus minority interest), respectively.
* * * * *

Table 9 to Sec. 324.300
------------------------------------------------------------------------
Percentage of the
amount of surplus
or non-qualifying
minority
interest that can
Transition period be included in
regulatory
capital during
the transition
period
------------------------------------------------------------------------
Calendar year 2014................................... 80
Calendar year 2015................................... 60
Calendar year 2016................................... 40
Calendar year 2017................................... 20
Calendar year 2018 and thereafter.................... 0
------------------------------------------------------------------------

* * * * *

Dated: August 2, 2017.
Keith A. Noreika,
Acting Comptroller of the Currency.

By order of the Board of Governors of the Federal Reserve
System, August 16, 2017.

Ann E. Misback,
Secretary of the Board.
Dated at Washington, DC this 9th of August, 2017.

By order of the Board Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2017-17822 Filed 8-24-17; 8:45 am]
BILLING CODE 4810-33-P

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