Regulations LL and YY; Amendments to the Company-Run and Supervisory Stress Test Rules, 4002-4012 [2019-00484]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 84, Number 31 (Thursday, February 14, 2019)]
[Proposed Rules]
[Pages 4002-4012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00484]


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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.

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Federal Register / Vol. 84, No. 31 / Thursday, February 14, 2019 / 
Proposed Rules

[[Page 4002]]



FEDERAL RESERVE SYSTEM

12 CFR Parts 238 and 252

[Docket No. R-1648]
RIN 7100-AF37


Regulations LL and YY; Amendments to the Company-Run and 
Supervisory Stress Test Rules

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

ACTION: Notice of proposed rulemaking with request for comment.

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SUMMARY: The Board is requesting comment on a proposed rule that would 
amend the Board's company-run stress test and supervisory stress test 
rules, consistent with section 401 of the Economic Growth, Regulatory 
Relief, and Consumer Protection Act (EGRRCPA). Specifically, the 
proposed rule would revise the minimum threshold for state member banks 
to conduct stress tests from $10 billion to $250 billion, revise the 
frequency with which state member banks with assets greater than $250 
billion would be required to conduct stress tests, and remove the 
adverse scenario from the list of required scenarios. The proposed rule 
would also make conforming changes to the Board's company-run and 
supervisory stress test requirements for bank holding companies, U.S. 
intermediate holding companies of foreign banking organizations, and 
nonbank financial companies supervised by the Board, the Board's Policy 
Statement on the Scenario Design Framework for Stress Testing, and the 
stress testing requirements for certain savings and loan holding 
companies that were proposed for public comment on October 31, 2018. 
Finally, the proposed rule would revise the scope of applicability of 
the company-run stress testing requirements for certain savings and 
loan holding companies that were proposed for public comment on October 
31, 2018.

DATES: Comments on the notice of proposed rulemaking must be received 
by February 19, 2019.

ADDRESSES: You may submit comments, identified by Docket No. R-1648 and 
RIN AF 37 by any of the following methods:
     Agency Website: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.aspx.
     Email: regs.comments@federalreserve.gov. Include the 
docket number and RIN number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Ann E. Misback, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    All public comments will be made available on the Board's website 
at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper in Room 146, 1709 New York Avenue NW, between 9:00 a.m. and 
5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Lisa Ryu, Associate Director, (202) 
263-4833, Constance Horsley, Deputy Associate Director, (202) 452-5239, 
Christine Graham, Manager, (202) 452-3005, Page Conkling, Senior 
Supervisory Financial Analyst, (202) 912-4647, or Joseph Cox, Senior 
Supervisory Financial Analyst, (202) 452-3216, Division of Banking 
Supervision and Regulation; Benjamin W. McDonough, Assistant General 
Counsel, (202) 452-2036, Julie Anthony, Senior Counsel, (202) 475-6682, 
or Asad Kudiya, Counsel, Legal Division, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. Users of Telecommunication Device for Deaf (TDD) 
only, call (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Board has long held the view that a banking organization should 
operate with capital levels well above its minimum regulatory capital 
ratios and commensurate with its risk profile. A banking organization 
should also have internal processes for assessing its capital adequacy 
that reflects a full understanding of its risks and ensure that it 
holds capital commensurate with those risks. Stress testing is one tool 
that helps both bank supervisors and a banking organization measure the 
sufficiency of capital available to support the banking organization's 
operations throughout periods of stress.\1\
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    \1\ A full assessment of a company's capital adequacy must take 
into account a range of risk factors, including those that are 
specific to a particular industry or company.
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    Prior to the passage of the Economic Growth, Regulatory Relief, and 
Consumer Protection Act (EGRRCPA),\2\ section 165(i) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) 
\3\ required each state member bank with total consolidated assets of 
more than $10 billion to conduct annual stress tests. In addition, 
section 165 required the Board to issue regulations that establish 
methodologies for state member banks conducting their stress test, 
which were required to include at least three different stress-testing 
scenarios: ``baseline,'' ``adverse,'' and ``severely adverse.'' \4\ In 
October 2012, the Board published in the Federal Register rules 
implementing the Dodd-Frank Act stress testing requirements, which 
established company-run stress test requirements for state member 
banks.\5\
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    \2\ Public Law 115-174, 132 Stat. 1296 (2018).
    \3\ Public Law 111-203, 124 Stat. 1376 (2010), codified at 12 
U.S.C. 5365.
    \4\ 12 U.S.C. 5365(i)(2)(C).
    \5\ 77 FR 62396 (October 12, 2012).
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    Section 401 of EGRRCPA amended certain aspects of the stress 
testing requirements applicable to state member banks in section 165(i) 
of the Dodd-Frank Act.\6\ Specifically, after 18 months, section 401 of 
EGRRCPA raises the minimum asset threshold for application of the 
stress testing requirement from $10 billion to $250 billion in total 
consolidated assets; revises the requirement for state member banks to 
conduct stress tests ``annually,'' and instead requires them to conduct 
stress tests ``periodically;'' and no longer requires the stress test 
to include an ``adverse'' scenario, thus

[[Page 4003]]

reducing the number of required stress test scenarios from three to 
two.\7\
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    \6\ Public Law 115-174, 132 Stat. 1296-1368 (2018).
    \7\ The amendments made by section 401 of EGRRCPA applicable to 
state member banks are not effective until eighteen months after the 
enactment of EGRRCPA. EGRRCPA section 401(d)(1). On July 6, 2018, 
the OCC, jointly with the Board and the FDIC, extended the deadline 
for all regulatory requirements related to company-run stress 
testing for depository institutions with average total consolidated 
assets of less than $100 billion until November 25, 2019. See 
Interagency statement regarding impact of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act, July 6, 2018, 
available at https://www.occ.treas.gov/news-issuances/news-releases/2018/nr-ia-2018-69a.pdf.
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II. Description of the Proposed Rule

    The Board is proposing to revise the Board's stress testing rules 
applicable to state member banks (12 CFR part 252, subpart B), 
consistent with the amendments made by section 401 of EGRRCPA (the 
proposed rule or proposal). The proposal would also make conforming 
changes to the supervisory stress testing and company-run stress 
testing requirements applicable to bank holding companies, U.S. 
intermediate holding companies of foreign banking organizations, and 
any nonbank financial company supervised by the Board (12 CFR part 252, 
subparts E and F), the Board's Policy Statement on the Scenario Design 
Framework for Stress Testing (12 CFR part 252, appendix A), and the 
stress testing requirements for certain savings and loan holding 
companies that were proposed for public comment on October 31, 2018.\8\ 
The proposal also would revise the scope of applicability of the 
company-run stress testing requirements for certain savings and loan 
holding companies that were proposed for public comment on October 31, 
2018. Finally, the proposal would make certain technical edits to these 
rules.
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    \8\ On October 31, 2018, the Board approved two notices of 
proposed rulemaking that would establish a revised framework for 
applying prudential standards to large U.S. banking organizations. 
See www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm. Currently, savings and loan holding companies 
with more than $10 billion in total consolidated assets are subject 
to the Board's company run stress test rules (12 CFR part 252, 
subpart B). Under the proposal, certain savings and loan holding 
companies with more than $100 billion in assets would be subject to 
supervisory stress testing and company-run stress test requirements.
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    In preparing the proposal, the Board has coordinated closely with 
the FDIC and the OCC to help to ensure that the company-run stress 
testing regulations are consistent and comparable across depository 
institutions and depository institution holding companies and to 
address any burden that may be associated with having multiple entities 
within one organizational structure having to meet different stress 
testing requirements.

A. Minimum Asset Threshold for State Member Banks

    As described above, section 401 of EGRRCPA amends section 165 of 
the Dodd-Frank Act by raising the minimum asset threshold for state 
member banks required to conduct company-run stress tests from $10 
billion to $250 billion. Consistent with EGRRCPA, the proposal would 
raise this threshold such that only state member banks with total 
consolidated assets greater than $250 billion would be required to 
conduct stress tests.

B. Frequency of Stress Testing for State Member Banks

    Section 401 of EGRRCPA also revised the requirement under section 
165 of the Dodd-Frank Act for state member banks to conduct stress 
tests, changing the required frequency from ``annual'' to ``periodic.'' 
Under the proposal, state member banks with assets greater than $250 
billion generally would no longer be required conduct stress tests 
annually, rather they would be required to conduct stress tests once 
every other year.
    Post-crisis financial regulations have resulted in substantial 
gains in resiliency for individual firms and for the financial system 
as a whole, including requiring firms to hold higher amounts of better 
quality capital. Based on the Board's experience overseeing and 
reviewing the results of company-run stress testing over more than five 
years, the Board believes that a two-year stress testing cycle 
generally would be appropriate for certain state member banks. 
Specifically, the state member banks that would be subject to a two-
year stress testing cycle under the proposal would not be the 
subsidiaries of larger, more complex firms, which can present greater 
risk and therefore merit closer monitoring. As discussed below, state 
member banks that are subsidiaries of larger, more complex firms, would 
continue to have to conduct stress testing on an annual basis. The 
Board expects this level of frequency would provide the Board and the 
state member bank with information that is sufficient to satisfy the 
purposes of stress testing, including: assisting in an overall 
assessment of the state member bank's capital adequacy, identifying 
downside risks and the potential impact of adverse conditions on the 
state member bank's capital adequacy, and determining whether 
additional analytical techniques and exercises are appropriate for the 
state member bank to employ in identifying, measuring, and monitoring 
risks to the soundness of the state member bank. In addition, the Board 
would continue to review the state member bank's stress testing 
processes and procedures.
    Under the proposed rule, all state member banks that would conduct 
stress tests every other year would be required to conduct stress tests 
in the same even numbered year (i.e., the reporting years for these 
state member banks would be synchronized). By requiring these state 
member banks to conduct their stress tests in the same year, the 
proposal would continue to allow the Board to make comparisons across 
state member banks for supervisory purposes and assess macroeconomic 
trends and risks to the banking industry.
    As an exception to the two-year cycle, state member banks that are 
subsidiaries of U.S. global systemically important bank holding 
companies or bank holding companies that have $700 billion or more in 
total assets or cross-jurisdictional activity of $75 billion or more 
would be required to conduct a stress test on an annual basis. As 
discussed in the Board's October 31, 2018 proposal,\9\ U.S. global 
systemically important bank holding companies and bank holding 
companies with $700 or more in total assets or $75 billion or more in 
cross-jurisdictional activity would be required to conduct stress tests 
on an annual basis. The proposed requirement for these bank holding 
companies to conduct stress tests on an annual basis reflects their 
heightened risk profile, relative to smaller, less complex firms. 
Requiring the depository institution subsidiaries of these holding 
companies to a conduct stress test on an annual basis would reflect the 
risk profile of the overall banking organization and align with the 
Board's long-standing policy of applying similar standards to holding 
companies and their subsidiary banks.
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    \9\ See www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm. Under the board's October 31, 2018 proposal, 
U.S. global systemically important bank holding companies would be 
subject to Category I standards while bank holding companies with 
$700 billion or more in total assets or $75 billion or more in 
cross-jurisdictional activity would be subject to Category II 
standards.
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    Under the proposal, a state member bank that was subject to a two-
year stress test cycle would become subject to an annual stress test 
if, for example, the parent bank holding company of the bank became a 
U.S. global systemically important bank holding company or a holding 
company with $700 billion or more in total assets or cross-

[[Page 4004]]

jurisdictional activity of $75 billion or more. The proposal would not 
establish a transition period in these cases. Accordingly, a state 
member bank that becomes an annual stress test firm would be required 
to begin stress testing annually as of the next year. The Board would 
expect state member banks to anticipate and plan for this development.

C. Removal of ``Adverse'' Scenario for State Member Banks

    As discussed above, section 401 of EGRRCPA amends section 165(i) of 
the Dodd-Frank Act to no longer require the Board to include an 
``adverse'' stress-testing scenario in the company-run stress test, 
reducing the number of required company-run stress test scenarios from 
three to two.
    The ``baseline'' scenario is a set of conditions that affect the 
U.S. economy or the financial condition of the state member bank, and 
that reflect the consensus views of the economic and financial outlook, 
and the ``severely adverse'' scenario is a more severe set of 
conditions and the most stringent of the scenarios. Because the 
``baseline'' and ``severely adverse'' scenarios are designed to cover 
the full range of expected and stressful conditions, the ``adverse'' 
stress-testing scenario has provided limited incremental information to 
the Board and market participants. Accordingly, the proposal would 
maintain the requirement for state member banks to conduct company-run 
stress tests under both a ``baseline'' and ``severely adverse'' stress-
testing scenario. In addition, the proposal would redefine the 
``severely adverse'' scenario to mean a set of conditions that affect 
the U.S. economy or the financial condition of a state member bank that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.

D. Removal of ``Adverse'' Scenario for All Other Stress Testing 
Requirements

    The Board's company-run stress testing and supervisory stress 
testing requirements applicable to bank holding companies, U.S. 
intermediate holding companies of foreign banking organizations, and 
any nonbank financial company supervised by the Board currently require 
the inclusion of an ``adverse'' scenario in the stress test. In 
addition, the stress testing requirements for certain savings and loan 
holding companies that were proposed for public comment on October 31, 
2018, also would require the inclusion of an ``adverse'' scenario.\10\
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    \10\ See https://www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm.
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    As discussed above, section 401 of EGRRCPA amends section 165(i)(2) 
of the Dodd-Frank Act to no longer require the Board to include an 
``adverse'' stress-testing scenario in the company-run stress test. 
Similarly, section 401 of EGRRCPA amends section 165(i)(1) to no longer 
require the Board to include an ``adverse'' scenario in the supervisory 
stress tests that the Board is required to conduct, reducing the number 
of supervisory stress test scenarios from three to two.
    Consistent with the changes made by section 401 of EGRRCPA, and for 
the reasons set forth above regarding why the inclusion of the 
``adverse'' scenario is unnecessary, the proposal would remove the 
``adverse'' scenario as a required scenario for all of the Board's 
current and proposed company-run and supervisory stress testing 
requirements, and revise the definition of the ``severely adverse'' 
scenario. In addition, the proposal would make conforming changes to 
the Board's Policy Statement on the Scenario Design Framework for 
Stress Testing to reflect the removal of the adverse scenario.

E. Review by Board of Directors

    Section 252.15 of the Board's stress testing rule for state member 
banks provides that ``[t]he board of directors, or a committee thereof, 
of a state member bank must review and approve the policies and 
procedures of the stress testing processes as frequently as economic 
conditions or the condition of the company may warrant, but no less 
than annually.'' Section 238.144 of Regulation LL in the Board's 
October 31, 2018, proposal and Sec.  252.56 of Regulation YY include 
similar approval language. The proposal would revise the frequency of 
these requirements from ``annual'' to ``no less than each year a stress 
test is conducted'' in order to make review by the board of directors 
consistent with the supervised firm's stress testing cycle.

F. Removal of Transition Language

    The proposal would remove certain transition language present in 
the Board's stress testing rule that is no longer current. For example, 
the proposal would strike paragraph (a)(2) of Sec.  252.14 of part 252, 
which provides the required timing of the stress tests for each stress 
test cycle prior to October 1, 2014.

G. Scope of Applicability for Savings and Loan Holding Companies

    The proposal would revise the company-run stress testing 
requirements for covered savings and loan holding companies included in 
the Board's October 31, 2018, proposal. As part of the October 31, 2018 
proposal, the Board generally proposed to apply prudential standards to 
certain covered savings and loan holding companies using those 
standards for determining prudential standards for large U.S. banking 
organizations. Covered savings and loan holding companies are those 
large savings and loan holding companies other than those substantially 
engaged in insurance underwriting or commercial activities.\11\ Section 
165(i)(2) of the Dodd-Frank Act, as amended by EGRRCPA, requires all 
financial companies that have total consolidated assets of more than 
$250 billion to conduct periodic stress tests. Consistent with EGRRCPA, 
the Board is proposing to revise the scope of applicability of the 
company-run stress testing requirements proposed on October 31, 2018, 
to include all savings and loan holding companies that meet the 
thresholds for either a Category II or a Category III banking 
organization in the proposed Sec.  238.10 of Regulation LL.
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    \11\ See 12 CFR 217.2 (defining a covered savings and loan 
holding company).
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    The proposal also would amend the proposed company-run stress test 
requirements to maintain the existing transition provision that 
provides that a savings and loan holding company would not be required 
to conduct its first stress test until after it is subject to minimum 
capital requirements.

III. Request for Comment

    The Board invites comment on all aspects of this proposed rule, 
including the following questions:
    1. The proposal would require a state member bank that is 
consolidated under a holding company that is required to conduct a 
stress test at least once every calendar year to also conduct a stress 
test at least once every calendar year. What are the advantages and 
disadvantages of requiring a state member bank to conduct a stress test 
at the same frequency as, or at a different frequency than, its holding 
company?
    2. What if any criteria should the Board consider for 
differentiating the frequency of stress tests (annual versus biennial) 
among depository institutions that have significantly different risk 
profiles and that are not consolidated under a holding company (e.g., 
differentiate frequency based on asset size, other risk indicators), 
and why?

[[Page 4005]]

    3. What alternative frequency to the proposed biennial stress 
testing requirement should the Board consider and why?
    4. Should the Board establish a transition period for state member 
banks that are already required to stress test and that move from a 
biennial stress testing requirement to an annual stress testing 
requirement, and if so, why?

IV. Regulatory Analysis

A. Riegle Community Development and Regulatory Improvement Act (RCDRIA)

    Section 302 of RCDRIA generally requires that regulations 
prescribed by Federal banking agencies which impose additional 
reporting, disclosures or other new requirements on insured depository 
institutions take effect on the first day of a calendar quarter which 
begins on or after the date on which the regulation is published in 
final form unless the agency determines, for good cause published with 
the regulation, that the regulation should become effective before such 
time.
    The proposed rule imposes no additional reporting, disclosure, or 
other requirements on insured depository institutions, including small 
depository institutions, nor on the customers of depository 
institutions. The proposed rule would raise the minimum asset threshold 
for state member banks that would be required to conduct a stress test 
from $10 billion to $250 billion, would revise the frequency with which 
state member banks with assets greater than $250 billion would be 
required to conduct stress tests, and would reduce the number of 
required stress test scenarios from three to two. The requirement to 
conduct, report, and publish a company-run stress testing is a 
previously existing requirement imposed by section 165 of the Dodd-
Frank Act. In connection with determining an effective date for the 
proposed rule, the Board invites comment on any administrative burdens 
that the proposed rule would place on depository institutions, 
including small depository institutions, and customers of depository 
institutions.

B. Regulatory Flexibility Act

    In accordance with the Regulatory Flexibility Act (RFA), 5 U.S.C. 
601 et seq., the Board is publishing an initial regulatory flexibility 
analysis of the proposal. The RFA requires each federal agency to 
prepare an initial regulatory flexibility analysis in connection with 
the promulgation of a proposed rule, or certify that the proposed rule 
will not have a significant economic impact on a substantial number of 
small entities.\12\ Under regulations issued by the SBA, a small entity 
includes a bank, bank holding company, or savings and loan holding 
company with assets of $550 million or less (small entity).\13\ Based 
on the Board's analysis, and for the reasons stated below, the Board 
believes that this proposed rule will not have a significant economic 
impact on a substantial of number of small entities.
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    \12\ See 5 U.S.C. 603, 604, and 605.
    \13\ See 13 CFR 121.201.
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    As discussed in the Supplementary Information, the Board is 
proposing to adopt amendments to Regulation YY and LL to reflect 
revisions made by section 401 of EGRRCPA to section 165 of the Dodd-
Frank Act. Specifically, the proposal would affect the regulatory 
requirements that apply to state member banks with $10 billion or more 
in total consolidated assets, along with bank holding companies and 
requirements that have been proposed to apply to savings and loan 
holding companies with $100 billion or more in total consolidated 
assets.
    The proposal would not apply to small entities. Companies that are 
affected by the proposal, include state member banks with $10 billion 
or more in total consolidated assets, along with bank holding companies 
and savings and loan holding companies with $100 billion or more in 
total consolidated assets and, therefore, substantially exceed the $550 
million asset threshold at which a banking entity is considered a 
``small entity'' under SBA regulations.
    The proposal would not impose any new reporting, recordkeeping, or 
other compliance requirements on banking organizations. Because the 
proposal would increase the minimum asset threshold for state member 
banks to conduct stress tests, the proposal would reduce the amount of 
state member banks subject to the Board's stress test rules. Moreover, 
as discussed above, the proposal does not apply to small entities and, 
therefore, the Board expects that the proposed rule will not impose any 
reporting, recordkeeping, or other compliance costs on small entities.
    The Board does not believe that the proposal duplicates, overlaps, 
or conflicts with any other Federal rules.
    In light of the foregoing, the Board does not believe that the 
proposal, if adopted in final form, would have a significant economic 
impact on a substantial number of small entities supervised by the 
Board and does not believe there are any significant alternatives to 
the proposal that would reduce the impact of the proposal. Nonetheless, 
the Board seeks comment on whether the proposal would impose undue 
burdens on, or would have unintended consequences for, small banking 
organizations, and whether there are ways such potential burdens or 
consequences could be minimized in a manner consistent with the 
purposes of the proposal.

C. Paperwork Reduction Act of 1995

    Certain provisions of the proposed rule contain a ``collection of 
information'' within the meaning of the Paperwork Reduction Act (PRA) 
of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of 
the PRA, the agencies may not conduct or sponsor, and the 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 OMB control numbers are 7100-0350, which will be 
extended for three years with revision, and 7100-NEW. The Board 
reviewed the proposed rule under the authority delegated to the Board 
by OMB.
    Comments are invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the Board's functions, including whether the 
information has practical utility;
    b. The accuracy or the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this notice that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to the 
addresses listed in the ADDRESSES section of this document. A copy of 
the comments may also be submitted to the OMB desk officer by mail to 
U.S. Office of Management and Budget, 725 17th Street NW, #10235, 
Washington, DC 20503; facsimile to (202) 395-6974; or email to 
oira_submission@omb.eop.gov, Attention, Federal Reserve Desk Officer.
Proposed Information Collections
    (1) Title of Information Collection: Reporting, Recordkeeping, and

[[Page 4006]]

Disclosure Requirements Associated with Regulation YY.
    Agency Form Number: FR YY.
    OMB control number: 7100-0350.
    Frequency: Annual, semiannual, and quarterly.
    Affected Public: Businesses or other for-profit.
    Respondents: State member banks, U.S. bank holding companies, 
savings and loan holding companies, nonbank financial companies, 
foreign banking organizations, U.S. intermediate holding companies, 
foreign savings and loan holding companies, and foreign nonbank 
financial companies supervised by the Board.
    Description of the Information Collection: Section 252.16 of 
Regulation YY requires a state member bank that has average total 
consolidated assets of $250 billion or more to report the results of 
the stress test to the Board by April 5, unless that time is extended 
by the Board in writing, in a manner consistent with the requirements 
of the section.
    Current Actions: The proposed rule would raise the minimum 
threshold for state member banks to conduct stress tests from $10 
billion to $250 billion. As a result, the number of respondents filing 
the reporting requirements in Sec.  252.16 of Regulation YY would 
decrease to one. The reporting requirements for Sec.  252.57 of 
Regulation YY are being revised in the Capital Assessments and Stress 
Testing (FR Y-14; OMB No. 7100-0341).\14\
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    \14\ See 83 FR 61408 (November 29, 2018).
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    Legal authorization and confidentiality: This information 
collection is authorized by section 165(i)(2) of the Dodd-Frank Act. 
The obligation of covered institutions to report this information is 
mandatory.
    The information collected in these reports is collected as part of 
the Board's supervisory process, and therefore is afforded confidential 
treatment pursuant to exemption 8 of the Freedom of Information Act 
(FOIA) (5 U.S.C. 552(b)(8)). In addition, individual respondents may 
request that certain data be afforded confidential treatment pursuant 
to exemption 4 of FOIA if the data has not previously been publicly 
disclosed and the release of the data would likely cause substantial 
harm to the competitive position of the respondent (5 U.S.C. 
552(b)(4)). Determinations of confidentiality based on exemption 4 of 
FOIA would be made on a case-by-case basis.
    Current estimated annual burden hours: 119,264.
    Estimated annual burden hours due to proposed revisions: (1,400).
    Proposed estimated annual burden hours: 117,864.
    (2) Title of Information Collection: Disclosure Requirements 
Associated with Regulation LL.
    Agency Form Number: FR LL.
    OMB control number: 7100-NEW.
    Frequency: Annual, biennial.
    Affected Public: Businesses or other for-profit.
    Respondents: Savings and loan holding companies.
    Description of the Information Collection: The proposed Sec.  
238.146 of Regulation LL, which was proposed as part of the Board's 
October 31 proposal regarding prudential standards for large bank 
holding companies and savings and loan holdings companies \15\ requires 
certain savings and loan holding companies with $100 billion or more in 
assets to publicly disclose a summary of the results of the stress test 
conducted pursuant to proposed Sec.  238.143 of Regulation LL in a 
manner consistent with the requirements of proposed Sec.  238.146 of 
Regulation LL.
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    \15\ See www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm.
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    Current Actions: The proposed Sec.  238.146 of Regulation LL would 
implement disclosure requirements that were previously proposed for 
savings and loan holding companies. The reporting requirements for 
proposed Sec. Sec.  238.133 and 238.145 of Regulation LL are being 
revised in the Capital Assessments and Stress Testing (FR Y-14; OMB No. 
7100-0341).\16\
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    \16\ See 83 FR 61408 (November 29, 2018).
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    Legal authorization and confidentiality: This information 
collection is authorized by section 10 of the Home Owners' Loan Act 
(HOLA) and section 165(i)(2) of the Dodd-Frank Act. The obligation of 
covered institutions to report this information is mandatory. This 
information would be disclosed publicly and, as a result, no issue of 
confidentiality is raised.
    Estimated number of respondents: 1.
    Estimated average hours per response: 200 for initial setup and 80 
for ongoing.
    Estimated annual burden hours: 140.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 
Stat. 1338, 1471, 12 U.S.C. 4809) requires the federal banking agencies 
to use plain language in all proposed and final rules published after 
January 1, 2000. The Board has sought to present the proposed rule in a 
simple and straightforward manner, and invites comment on the use of 
plain language.
    For example:
     Has the Board organized the material to suit your needs? 
If not, how could the proposed rule be more clearly stated?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposed rule be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would make the regulation easier to 
understand?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What other changes can the Board incorporate to make the 
regulation easier to understand?

List of Subjects

12 CFR Part 238

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

12 CFR Part 252

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

Authority and Issuance

    For the reasons stated in the Supplementary Information, the Board 
of Governors of the Federal Reserve System proposes to amend 12 CFR 
parts 238 and 252 as follows:

PART 238--SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)

0
1. The authority citation for part 238 continues to read as follows:

    Authority:  5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 
1464, 1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972; 15 U.S.C. 
78 l.

Subpart O--Supervisory Stress Test Requirements for Covered Savings 
and Loan Holding Companies

0
2. Section 238.130, which was proposed to be added at 83 FR 61408 
(November 29, 2018), is further amended by:
0
a. Revising the definitions of Advanced approaches;
0
b. Removing the definition Adverse scenario; and

[[Page 4007]]

0
c. Revising the definitions Baseline scenario, Scenarios, and Severely 
adverse scenario.
    The revisions read as follows:


Sec.  238.130  Definitions.

* * * * *
    Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that 
reflect the consensus views of the economic and financial outlook.
* * * * *
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a covered company that the Board annually 
determines are appropriate for use in the supervisory stress tests, 
including, but not limited to, baseline and severely adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered company and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
* * * * *
0
3. Section 238.132, which was proposed to be added at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraph (b) to 
read as follows:


Sec.  238.132  Analysis conducted by the Board.

* * * * *
    (b) Economic and financial scenarios related to the Board's 
analysis. The Board will conduct its analysis using a minimum of two 
different scenarios, including a baseline scenario and a severely 
adverse scenario. The Board will notify covered companies of the 
scenarios that the Board will apply to conduct the analysis for each 
stress test cycle to which the covered company is subject by no later 
than February 15 of that year, except with respect to trading or any 
other components of the scenarios and any additional scenarios that the 
Board will apply to conduct the analysis, which will be communicated by 
no later than March 1 of that year.
* * * * *
0
4. Section 238.134, which was proposed to be added at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraph (a) to 
read as follows:


Sec.  238.134  Review of the Board's analysis; publication of summary 
results.

    (a) Review of results. Based on the results of the analysis 
conducted under this subpart, the Board will conduct an evaluation to 
determine whether the covered company has the capital, on a total 
consolidated basis, necessary to absorb losses and continue its 
operation by maintaining ready access to funding, meeting its 
obligations to creditors and other counterparties, and continuing to 
serve as a credit intermediary under baseline and severely adverse 
scenarios, and any additional scenarios.
* * * * *

Subpart P--Company-Run Stress Test Requirements for Savings and 
Loan Holding Companies

0
5. Section 238.141, which was proposed to be added on 83 FR 61408 
(November 29, 2018), is further amended by:
0
a. Revising the definition Advanced approaches;
0
b. Removing the definition Adverse scenario; and
0
c. Revising the definitions Baseline scenario, Covered company, 
Regulatory capital ratio, Scenarios, and Severely adverse scenario.
    The revisions read as follows:


Sec.  238.141  Definitions.

    Advanced approaches means the risk-weighted assets calculation 
methodologies at 12 CFR part 217, subpart E, as applicable.
    Baseline scenario means a set of conditions that affect the U.S. 
economy or the financial condition of a covered company and that 
reflect the consensus views of the economic and financial outlook.
* * * * *
    Covered company means:
    (1) A savings and loan holding company identified as a Category II 
banking organization pursuant to Sec.  238.10; or
    (2) A savings and loan holding company identified as a Category III 
banking organization pursuant to Sec.  238.10.
* * * * *
    Regulatory capital ratio means a capital ratio for which the Board 
has established minimum requirements for the savings and loan holding 
company by regulation or order, including, as applicable, the company's 
regulatory capital ratios calculated under 12 CFR part 217 and the 
deductions required under 12 CFR 248.12; except that the company shall 
not use the advanced approaches to calculate its regulatory capital 
ratios.
    Scenarios are those sets of conditions that affect the U.S. economy 
or the financial condition of a covered company that the Board annually 
or biennially determines are appropriate for use in the company-run 
stress tests, including, but not limited to, baseline and severely 
adverse scenarios.
    Severely adverse scenario means a set of conditions that affect the 
U.S. economy or the financial condition of a covered company and that 
overall are significantly more severe than those associated with the 
baseline scenario and may include trading or other additional 
components.
* * * * *
0
6. Section 238.142, which was proposed to be added at 83 FR 61408 
(November 29, 2018), is further revised to read as follows:


Sec.  238.142  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this section, this subpart applies to any covered company, which 
includes:
    (i) Any savings and loan holding company identified as a Category 
II banking organization pursuant to Sec.  238.10; and
    (ii) Any savings and loan holding company identified as a Category 
III banking organization pursuant to Sec.  238.10.
    (2) Ongoing applicability. A savings and loan holding company 
(including any successor company) that is subject to any requirement in 
this subpart shall remain subject to any such requirement unless and 
until the savings and loan holding company:
    (i) Is not a savings and loan holding company identified as a 
Category II banking organization pursuant to Sec.  238.10; and
    (ii) Is not a savings and loan holding company identified as a 
Category III banking organization pursuant to Sec.  238.10.
    (b) Transitional arrangements. (1) A savings and loan holding 
company that is subject to minimum capital requirements and that 
becomes a covered company on or before September 30 of a calendar year 
must comply with the requirements of this subpart beginning on January 
1 of the second calendar year after the savings and loan holding 
company becomes a covered company, unless that time is extended by the 
Board in writing.
    (2) A savings and loan holding company that is subject to minimum 
capital requirements and that becomes a covered company after September 
30 of a calendar year must comply with the requirements of this subpart 
beginning on January 1 of the third calendar year

[[Page 4008]]

after the savings and loan holding company becomes a covered company, 
unless that time is extended by the Board in writing.
0
7. Section 238.143, which was proposed to be added at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraphs (a), 
(b)(2) and (b)(4)(i) to read as follows:


Sec.  238.143  Stress test.

    (a) Stress test requirement--(1) In general. A covered company must 
conduct a stress test as required under this subpart.
    (2) Frequency. (i) Except as provided in paragraph (a)(2)(ii) of 
this section, a covered company must conduct an annual stress test. The 
stress test must be conducted by April 5 of each calendar year based on 
data as of December 31 of the preceding calendar year, unless the time 
or the as-of date is extended by the Board in writing.
    (ii) A savings and loan holding company identified as a Category 
III banking organization pursuant to Sec.  238.10 must conduct a 
biennial stress test. The stress test must be conducted by April 5 of 
each calendar year ending in an even number, based on data as of 
December 31 of the preceding calendar year, unless the time or the as-
of date is extended by the Board in writing.
    (b) * * *
    (2) Additional components. (i) The Board may require a covered 
company with significant trading activity, as determined by the Board 
and specified in the Capital Assessments and Stress Testing report (FR 
Y-14), to include a trading and counterparty component in its severely 
adverse scenario in the stress test required by this section. The data 
used in this component must be as-of a date selected by the Board 
between October 1 of the previous calendar year and March 1 of the 
calendar year in which the stress test is performed pursuant to this 
section, and the Board will communicate the as-of date and a 
description of the component to the company no later than March 1 of 
the calendar year in which the stress test is performed pursuant to 
this section.
    (ii) The Board may require a covered company to include one or more 
additional components in its severely adverse scenario in the stress 
test required by this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
* * * * *
    (4) * * *
    (i) Notification of additional component. If the Board requires a 
covered company to include one or more additional components in its 
severely adverse scenario under paragraph (b)(2) of this section or to 
use one or more additional scenarios under paragraph (b)(3) of this 
section, the Board will notify the company in writing. The Board will 
provide such notification no later than December 31 of the preceding 
calendar year. The notification will include a general description of 
the additional component(s) or additional scenario(s) and the basis for 
requiring the company to include the additional component(s) or 
additional scenario(s).
* * * * *
0
8. Section 238.144, which was proposed to be added on 83 FR 61408 
(November 29, 2018), is further amended by revising paragraph (c)(2) to 
read as follows:


Sec.  238.144  Methodologies and practices.

* * * * *
    (c) * * *
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a covered company must review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the covered 
company may warrant, but no less than each year a stress test is 
conducted. The board of directors and senior management of the covered 
company must receive a summary of the results of any stress test 
conducted under this subpart.
* * * * *

PART 252--ENHANCED PRUDENTIAL STANDARDS (REGULATION YY)

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

    Authority:  12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 
1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101 et seq., 
3101 note, 3904, 3906-3909, 4808, 5361, 5362, 5365, 5366, 5367, 
5368, 5371.

0
10. Revise the heading for subpart B to read as follows:

Subpart B--Company-Run Stress Test Requirements for State Member 
Banks With Total Consolidated Assets Over $250 Billion

0
11. Section 252.11, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by revising the section heading 
and paragraph (b) to read as follows:


Sec.  252.11  Authority and purpose.

* * * * *
    (b) Purpose. This subpart implements section 165(i)(2) of the Dodd-
Frank Act (12 U.S.C. 5365(i)(2)), which requires state member banks 
with total consolidated assets of greater than $250 billion to conduct 
stress tests. This subpart also establishes definitions of stress tests 
and related terms, methodologies for conducting stress tests, and 
reporting and disclosure requirements.
0
12. Section 252.12, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by removing and reserving 
paragraph (b) and revising paragraphs (c), (g), (n), (o), and (p) to 
read as follows:


Sec.  252.12  Definitions.

* * * * *
    (b) [Reserved]
    (c) Asset threshold means a state member bank with average total 
consolidated assets of greater than $250 billion.
* * * * *
    (g) Capital action has the same meaning as in Sec.  225.8(d) of the 
Board's Regulation Y (12 CFR 225.8(d)).
* * * * *
    (n) Regulatory capital ratio means a capital ratio for which the 
Board has established minimum requirements for the state member bank by 
regulation or order, including, as applicable, the state member bank's 
regulatory capital ratios calculated under 12 CFR part 217 and the 
deductions required under 12 CFR 248.12; except that the state member 
bank shall not use the advanced approaches to calculate its regulatory 
capital ratios.
* * * * *
    (o) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a state member bank that the 
Board annually determines are appropriate for use in the company-run 
stress tests, including, but not limited to baseline and severely 
adverse scenarios.
    (p) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a state member bank and 
that overall are significantly more severe than those associated with 
the baseline scenario and may include trading or other additional 
components.
* * * * *
0
13. Section 252.13, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further revised to read as follows:


Sec.  252.13  Applicability.

    (a) Scope--(1) Applicability. Except as provided in paragraph (b) 
of this section, this subpart applies to any state

[[Page 4009]]

member bank with average total consolidated assets (as defined in Sec.  
252.12(d)) of greater than $250 billion.
    (2) Ongoing applicability. A state member bank (including any 
successor company) that is subject to any requirement in this subpart 
shall remain subject to any such requirement unless and until its total 
consolidated assets fall below $250 billion for each of four 
consecutive quarters, as reported on the Call Report and effective on 
the as-of date of the fourth consecutive Call Report.
    (b) Transition period. (1) A state member bank that exceeds the 
asset threshold for the first time on or before March 31 of a given 
year, must comply with the requirements of this subpart beginning on 
January 1 of the following year, unless that time is extended by the 
Board in writing.
    (2) A state member bank that exceeds the asset threshold for the 
first time after March 31 of a given year must comply with the 
requirements of this subpart beginning on January 1 of the second year 
following that given year, unless that time is extended by the Board in 
writing.
0
14. Section 252.14, which was proposed to be amended at 83 FR 61408 
(November 29, 2018), is further amended by revising the section heading 
and paragraphs (a), (b)(2)(i), and (b)(4)(i) and (ii) to read as 
follows:


Sec.  252.14  Stress test.

    (a) General requirements--(1) General. Except as provided in 
paragraph (a)(2):
    (i) A state member bank that is a covered company subsidiary must 
conduct a biennial stress test. The stress test must be conducted by 
April 5 of each calendar year ending in an even number, based on data 
as of December 31 of the preceding calendar year, unless the time or 
the as-of date is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
must conduct a biennial stress test. The stress test must be conducted 
by July 31 of each calendar year ending in an even number, based on 
data as of December 31 of the preceding calendar year, unless the time 
or the as-of date is extended by the Board in writing.
    (2) Annual stress test for certain state member banks. A state 
member bank that is a subsidiary of a global systemically important BHC 
or a Category II bank holding company must conduct an annual stress 
test. The stress test must be conducted by April 5 of each calendar 
year, based on data as of December 31 of the preceding calendar year, 
unless the time or the as-of date is extended by the Board in writing.
    (b) * * *
    (2) * * *
    (i) The Board may require a state member bank with significant 
trading activity, as determined by the Board and specified in the 
Capital Assessments and Stress Testing report (FR Y-14), to include a 
trading and counterparty component in its severely adverse scenario in 
the stress test required by this section. The Board may also require a 
state member bank that is subject to 12 CFR part 217, subpart F or that 
is a subsidiary of a bank holding company that is subject to either 
this paragraph (b)(2) or Sec.  252.54(b)(2)(i) to include a trading and 
counterparty component in the state member bank's severely adverse 
scenario in the stress test required by this section. The data used in 
this component must be as of a date between January 1 and March 1 of 
that calendar year selected by the Board, and the Board will 
communicate the as-of date and a description of the component to the 
company no later than March 1 of that calendar year.
* * * * *
    (4) * * *
    (i) Notification of additional component. If the Board requires a 
state member bank to include one or more additional components in its 
severely adverse scenario under paragraph (b)(2) of this section or to 
use one or more additional scenarios under paragraph (b)(3) of this 
section, the Board will notify the company in writing by December 31.
    (ii) Request for reconsideration and Board response. Within 14 
calendar days of receipt of a notification under this paragraph (b)(4), 
the state member bank may request in writing that the Board reconsider 
the requirement that the company include the additional component(s) or 
additional scenario(s), including an explanation as to why the request 
for reconsideration should be granted. The Board will respond in 
writing within 14 calendar days of receipt of the company's request.
* * * * *
0
15. Section 252.15, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraphs (b)(1) 
and (2) to read as follows:


Sec.  252.15  Methodologies and practices.

* * * * *
    (b) * * *
    (1) In general. The senior management of a state member bank must 
establish and maintain a system of controls, oversight, and 
documentation, including policies and procedures, that are designed to 
ensure that its stress testing processes are effective in meeting the 
requirements in this subpart. These policies and procedures must, at a 
minimum, describe the company's stress testing practices and 
methodologies, and processes for validating and updating the company's 
stress test practices and methodologies consistent with applicable laws 
and regulations.
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a state member bank must review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the company may 
warrant, but no less than each year a stress test is conducted. The 
board of directors and senior management of the state member bank must 
receive a summary of the results of the stress test conducted under 
this section.
* * * * *
0
16. Section 252.16, is amended by revising paragraphs (a) and (b) 
introductory text to read as follows:


Sec.  252.16  Reports of stress test results.

    (a) Reports to the Board of stress test results--(1) General. A 
bank holding company, savings and loan holding company, and state 
member bank must report the results of the stress test to the Board in 
the manner and form prescribed by the Board, in accordance with 
paragraphs (a)(2) of this section.
    (2) Timing. For each stress test cycle in which a stress test is 
conducted:
    (i) A state member bank that is a covered company subsidiary must 
report the results of the stress test to the Board by April 5, unless 
that time is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
must report the results of the stress test to the Board by July 31, 
unless that time is extended by the Board in writing.
    (b) Contents of reports. The report required under paragraph (a) of 
this section must include the following information for the baseline 
scenario, severely adverse scenario, and any other scenario required 
under Sec.  252.14(b)(3):
* * * * *
0
17. Section 252.17, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraph (a) to 
read as follows:


Sec.  252.17  Disclosure of stress test results.

    (a) Public disclosure of results--(1) General. (i) A bank holding 
company, savings and loan holding company, and

[[Page 4010]]

state member bank must publicly disclose a summary of the results of 
the stress test required under this subpart.
    (ii) [Reserved]
    (2) Timing. For each stress test cycle in which a stress test is 
conducted:
    (i) A state member bank that is a covered company subsidiary must 
publicly disclose a summary of the results of the stress test within 15 
calendar days after the Board discloses the results of its supervisory 
stress test of the covered company pursuant to Sec.  252.46(c), unless 
that time is extended by the Board in writing; and
    (ii) A state member bank that is not a covered company subsidiary 
must publicly disclose a summary of the results of the stress test in 
the period beginning on October 15 and ending on October 31, unless 
that time is extended by the Board in writing.
* * * * *

Subpart E--Supervisory Stress Test Requirements for Certain U.S. 
Banking Organizations With $100 Billion or More in Total 
Consolidated Assets and Nonbank Financial Companies Supervised by 
the Board

0
18. Section 252.42 is amended by removing and reserving paragraph (b) 
and revising paragraphs (n) and (o) to read as follows:


Sec.  252.42  Definitions

* * * * *
    (b) [Reserved]
* * * * *
    (n) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a covered company that the Board 
annually determines are appropriate for use in the supervisory stress 
tests, including, but not limited to, baseline and severely adverse 
scenarios.
    (o) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a covered company and 
that overall are significantly more severe than those associated with 
the baseline scenario and may include trading or other additional 
components.
* * * * *
0
19. Section 252.44, which was proposed to be amended at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraph (b) to 
read as follows:


Sec.  252.44  Analysis conducted by the Board.

* * * * *
    (b) Economic and financial scenarios related to the Board's 
analysis. The Board will conduct its analysis using a minimum of two 
different scenarios, including a baseline scenario and a severely 
adverse scenario. The Board will notify covered companies of the 
scenarios that the Board will apply to conduct the analysis for each 
stress test cycle to which the covered company is subject by no later 
than February 15 of that year, except with respect to trading or any 
other components of the scenarios and any additional scenarios that the 
Board will apply to conduct the analysis, which will be communicated by 
no later than March 1 of that year.
* * * * *

Subpart F--Company-Run Stress Test Requirements for Certain U.S. 
Bank Holding Companies and Nonbank Financial Companies Supervised 
by the Board

0
20. Section 252.52, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by removing and reserving 
paragraph (b) and revising paragraphs (o) and (p) to read as follows:


Sec.  252.52  Definitions.

* * * * *
    (b) [Reserved]
* * * * *
    (o) Scenarios are those sets of conditions that affect the U.S. 
economy or the financial condition of a covered company that the Board 
annually or biennially determines are appropriate for use in the 
company-run stress tests, including, but not limited to, baseline and 
severely adverse scenarios.
    (p) Severely adverse scenario means a set of conditions that affect 
the U.S. economy or the financial condition of a covered company and 
that overall are significantly more severe than those associated with 
the baseline scenario and may include trading or other additional 
components.
* * * * *
0
21. Section 252.54, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraphs 
(b)(2)(i) and (ii) to read as follows:


Sec.  252.54  Stress test.

* * * * *
    (b) * * *
    (2) * * *
    (i) The Board may require a covered company with significant 
trading activity, as determined by the Board and specified in the 
Capital Assessments and Stress Testing report (FR Y-14), to include a 
trading and counterparty component in its severely adverse scenario in 
the stress test required by this section. The data used in this 
component must be as of a date selected by the Board between October 1 
of the previous calendar year and March 1 of the calendar year in which 
the stress test is performed pursuant to this section, and the Board 
will communicate the as-of date and a description of the component to 
the company no later than March 1 of the calendar year in which the 
stress test is performed pursuant to this section.
    (ii) The Board may require a covered company to include one or more 
additional components in its severely adverse scenario in the stress 
test required by this section based on the company's financial 
condition, size, complexity, risk profile, scope of operations, or 
activities, or risks to the U.S. economy.
* * * * *
0
22. Section 252.55, which was proposed to be revised at 83 FR 61408 
(November 29, 2018), is further amended by revising paragraphs (b)(1) 
and (2) and (b)(4)(i) to read as follows:


Sec.  252.55  Mid-cycle stress test.

* * * * *
    (b) * * *
    (1) In general. A U.S. intermediate holding company must develop 
and employ a minimum of two scenarios, including a baseline scenario 
and severely adverse scenario that are appropriate for its own risk 
profile and operations, in conducting the stress test required by this 
section.
    (2) Additional components. The Board may require a U.S. 
intermediate holding company to include one or more additional 
components in its severely adverse scenario in the stress test required 
by this section based on the company's financial condition, size, 
complexity, risk profile, scope of operations, or activities, or risks 
to the U.S. economy.
* * * * *
    (4) * * *
    (i) Notification of additional component. If the Board requires a 
U.S. intermediate holding company to include one or more additional 
components in its severely adverse scenario under paragraph (b)(2) of 
this section or one or more additional scenarios under paragraph (b)(3) 
of this section, the Board will notify the company in writing. The 
Board will provide such notification no later than June 30. The 
notification will include a general description of the additional 
component(s) or additional scenario(s) and the basis for requiring the 
company to include the additional component(s) or additional 
scenario(s).
* * * * *

[[Page 4011]]

0
23. Section 252.56 is amended by revising paragraph (c)(2) to read as 
follows:


Sec.  252.56  Methodologies and practices.

* * * * *
    (c) * * *
    (2) Oversight of stress testing processes. The board of directors, 
or a committee thereof, of a covered company must review and approve 
the policies and procedures of the stress testing processes as 
frequently as economic conditions or the condition of the covered 
company may warrant, but no less than each year a stress test is 
conducted. The board of directors and senior management of the covered 
company must receive a summary of the results of any stress test 
conducted under this subpart.
* * * * *
0
24. Appendix A is amended by:
0
a. Revising Section 1a and b, Section 2c, Section 3a, Section 3.2(a), 
Section 4, Section 4.1a, and Section 4.2;
0
b. Removing Section 4.3;
0
c. Revising Section 5a and b and Section 5.2.2a; and
0
d. Removing Section 5.3 and Section 6d.
    The revisions read as follows:

Appendix A to Part 252--Policy Statement on the Scenario Design 
Framework for Stress Testing

1. Background

    a. The Board has imposed stress testing requirements through its 
regulations (stress test rules) implementing section 165(i) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 
Act or Act) and through its capital plan rule (12 CFR 225.8). Under the 
stress test rules issued under section 165(i)(1) of the Act, the Board 
conducts an annual stress test (supervisory stress tests), on a 
consolidated basis, of each bank holding company with total 
consolidated assets of $100 billion or more, intermediate holding 
company of a foreign banking organization, and nonbank financial 
company that the Financial Stability Oversight Council has designated 
for supervision by the Board (together, covered companies).\17\ In 
addition, under the stress test rules issued under section 165(i)(2) of 
the Act, covered companies must conduct stress tests semi-annually and 
other financial companies with total consolidated assets of more than 
$250 billion and for which the Board is the primary regulatory agency 
must conduct stress tests on a periodic basis (together, company-run 
stress tests).\18\ The Board will provide for at least two different 
sets of conditions (each set, a scenario), including baseline and 
severely adverse scenarios for both supervisory and company-run stress 
tests (macroeconomic scenarios).\19\
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    \17\ 12 U.S.C. 5365(i)(1); 12 CFR part 252, subpart E.
    \18\ 12 U.S.C. 5365(i)(2); 12 CFR part 252, subparts B and F.
    \19\ The stress test rules define scenarios as those sets of 
conditions that affect the United States economy or the financial 
condition of a company that the Board annually determines are 
appropriate for use in stress tests, including, but not limited to, 
baseline and severely adverse scenarios. The stress test rules 
define baseline scenario as a set of conditions that affect the 
United States economy or the financial condition of a company and 
that reflect the consensus views of the economic and financial 
outlook. The stress test rules define severely adverse scenario as a 
set of conditions that affect the United States economy or the 
financial condition of a company and that overall are significantly 
more severe than those associated with the baseline scenario and may 
include trading or other additional components.
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    b. The stress test rules provide that the Board will notify covered 
companies by no later than February 15 of each year of the scenarios it 
will use to conduct its annual supervisory stress tests and provide, 
also by no later than February 15, covered companies and other 
financial companies subject to the final rules the set of scenarios 
they must use to conduct their annual company-run stress tests. Under 
the stress test rules, the Board may require certain companies to use 
additional components in the severely adverse scenario or additional 
scenarios. For example, the Board expects to require large banking 
organizations with significant trading activities to include a trading 
and counterparty component (market shock, described in the following 
sections) in their severely adverse scenario. The Board will provide 
any additional components or scenario by no later than March 1 of each 
year.\20\ The Board expects that the scenarios it will require the 
companies to use will be the same as those the Board will use to 
conduct its supervisory stress tests (together, stress test scenarios).
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    \20\ Id.
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* * * * *

2. Overview and Scope

* * * * *
    c. The remainder of this policy statement is organized as follows. 
Section 3 provides a broad description of the baseline and severely 
adverse scenarios and describes the types of variables that the Board 
expects to include in the macroeconomic scenarios and the market shock 
component of the stress test scenarios applicable to companies with 
significant trading activity. Section 4 describes the Board's approach 
for developing the macroeconomic scenarios, and section 5 describes the 
approach for the market shocks. Section 6 describes the relationship 
between the macroeconomic scenario and the market shock components. 
Section 7 provides a timeline for the formulation and publication of 
the macroeconomic assumptions and market shocks.

3. Content of the Stress Test Scenarios

    a. The Board will publish a minimum of two different scenarios, 
including baseline and severely adverse conditions, for use in stress 
tests required in the stress test rules.\9\ In general, the Board 
anticipates that it will not issue additional scenarios. Specific 
circumstances or vulnerabilities that in any given year the Board 
determines require particular vigilance to ensure the resilience of the 
banking sector will be captured in the severely adverse scenario. A 
greater number of scenarios could be needed in some years--for example, 
because the Board identifies a large number of unrelated and 
uncorrelated but nonetheless significant risks.

\9\ 12 CFR 252.14(b), 12 CFR 252.44(b), 12 CFR 252.54(b).
* * * * *

3.2 Market Shock Component

    a. The market shock component of the severely adverse scenario will 
only apply to companies with significant trading activity and their 
subsidiaries.\12\ The component consists of large moves in market 
prices and rates that would be expected to generate losses. Market 
shocks differ from macroeconomic scenarios in a number of ways, both in 
their design and application. For instance, market shocks that might 
typically be observed over an extended period (e.g., 6 months) are 
assumed to be an instantaneous event which immediately affects the 
market value of the companies' trading assets and liabilities. In 
addition, under the stress test rules, the as-of date for market shocks 
will differ from the quarter-end, and the Board will provide the as-of 
date for market shocks no later than February 1 of each year. Finally, 
as described in section 4, the market shock includes a much larger set 
of risk factors than the set of economic and financial variables 
included in macroeconomic scenarios. Broadly, these risk factors 
include shocks to financial market variables that affect asset prices, 
such as a credit spread or the yield on a bond, and, in some cases, the 
value of the

[[Page 4012]]

position itself (e.g., the market value of private equity positions).

\12\ Currently, companies with significant trading activity include 
any bank holding company or intermediate holding company that (1) 
has aggregate trading assets and liabilities of $50 billion or more, 
or aggregate trading assets and liabilities equal to 10 percent or 
more of total consolidated assets, and (2) is not a large and 
noncomplex firm.. The Board may also subject a state member bank 
subsidiary of any such bank holding company to the market shock 
component. The set of companies subject to the market shock 
component could change over time as the size, scope, and complexity 
of financial company's trading activities evolve.
* * * * *

4. Approach for Formulating the Macroeconomic Assumptions for Scenarios

    a. This section describes the Board's approach for formulating 
macroeconomic assumptions for each scenario. The methodologies for 
formulating this part of each scenario differ by scenario, so these 
methodologies for the baseline and severely adverse scenarios are 
described separately in each of the following subsections.
    b. In general, the baseline scenario will reflect the most recently 
available consensus views of the macroeconomic outlook expressed by 
professional forecasters, government agencies, and other public-sector 
organizations as of the beginning of the annual stress-test cycle. The 
severely adverse scenario will consist of a set of economic and 
financial conditions that reflect the conditions of post-war U.S. 
recessions.
    c. Each of these scenarios is described further in sections below 
as follows: Baseline (subsection 4.1) and severely adverse (subsection 
4.2)

4.1 Approach for Formulating Macroeconomic Assumptions in the Baseline 
Scenario

    a. The stress test rules define the baseline scenario as a set of 
conditions that affect the U.S. economy or the financial condition of a 
banking organization, and that reflect the consensus views of the 
economic and financial outlook. Projections under a baseline scenario 
are used to evaluate how companies would perform in more likely 
economic and financial conditions. The baseline serves also as a point 
of comparison to the severely adverse scenario, giving some sense of 
how much of the company's capital decline could be ascribed to the 
scenario as opposed to the company's capital adequacy under expected 
conditions.
* * * * *

4.2 Approach for Formulating the Macroeconomic Assumptions in the 
Severely Adverse Scenario

    The stress test rules define a severely adverse scenario as a set 
of conditions that affect the U.S. economy or the financial condition 
of a financial company and that overall are significantly more severe 
than those associated with the baseline scenario. The financial company 
will be required to publicly disclose a summary of the results of its 
stress test under the severely adverse scenario, and the Board intends 
to publicly disclose the results of its analysis of the financial 
company under the severely adverse scenario.
* * * * *

5. Approach for Formulating the Market Shock Component

    a. This section discusses the approach the Board proposes to adopt 
for developing the market shock component of the severely adverse 
scenario appropriate for companies with significant trading activities. 
The design and specification of the market shock component differs from 
that of the macroeconomic scenarios because profits and losses from 
trading are measured in mark-to-market terms, while revenues and losses 
from traditional banking are generally measured using the accrual 
method. As noted above, another critical difference is the time-
evolution of the market shock component. The market shock component 
consists of an instantaneous ``shock'' to a large number of risk 
factors that determine the mark-to-market value of trading positions, 
while the macroeconomic scenarios supply a projected path of economic 
variables that affect traditional banking activities over the entire 
planning period.
    b. The development of the market shock component that are detailed 
in this section are as follows: Baseline (subsection 5.1) and severely 
adverse (subsection 5.2).
* * * * *

5.2.2 Approaches to Market Shock Design

    a. As an additional component of the severely adverse scenario, the 
Board plans to use a standardized set of market shocks that apply to 
all companies with significant trading activity. The market shocks 
could be based on a single historical episode, multiple historical 
periods, hypothetical (but plausible) events, or some combination of 
historical episodes and hypothetical events (hybrid approach). 
Depending on the type of hypothetical events, a scenario based on such 
events may result in changes in risk factors that were not previously 
observed. In the supervisory scenarios for 2012 and 2013, the shocks 
were largely based on relative moves in asset prices and rates during 
the second half of 2008, but also included some additional 
considerations to factor in the widening of spreads for European 
sovereigns and financial companies based on actual observation during 
the latter part of 2011.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, January 8, 2019.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2019-00484 Filed 2-13-19; 8:45 am]
 BILLING CODE 6210-01-P